Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-20567 July 30, 1965

PHILIPPINE NATIONAL BANK, petitioner,

vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS (Second Division), respondents.

Besa, Galang and Medina for petitioner.

De Santos and Delfino for respondents.

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

The Philippine National Bank petitions for the review and reversal of the decision rendered by the Court of Appeals (Second Division), in its case CA-G.R. No. 24232-R,
dismissing the Bank's complaint against respondent Manila Surety & Fidelity Co., Inc., and modifying the judgment of the Court of First Instance of Manila in its Civil Case
No. 11263.

The material facts of the case, as found by the appellate Court, are as follows:

The Philippine National Bank had opened a letter of credit and advanced thereon $120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000
tons worth P279,000.00 were released and delivered to Adams & Taguba Corporation (known as ATACO) under a trust receipt guaranteed by Manila Surety & Fidelity Co. up
to the amount of P75,000.00. To pay for the asphalt, ATACO constituted the Bank its assignee and attorney-in-fact to receive and collect from the Bureau of Public Works the
amount aforesaid out of funds payable to the assignor under Purchase Order No. 71947. This assignment (Exhibit "A") stipulated that:

The conditions of this assignment are as follows:

1. The same shall remain irrevocable until the said credit accomodation is fully liquidated.

2. The PHILIPPINE NATIONAL BANK is hereby appointed as our Attorney-in-Fact for us and in our name, place and stead, to collect and to receive the payments
to be made by virtue of the aforesaid Purchase Order, with full power and authority to execute and deliver on our behalf, receipt for all payments made to it; to
endorse for deposit or encashment checks, money order and treasury warrants which said Bank may receive, and to apply said payments to the settlement of said
credit accommodation.

This power of attorney shall also remain irrevocable until our total indebtedness to the said Bank have been fully liquidated. (Exhibit E)

ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to the total value of P431,466.52. Of this amount the Bank regularly collected, from April 21,
1948 to November 18, 1948, P106,382.01. Thereafter, for unexplained reasons, the Bank ceased to collect, until in 1952 its investigators found that more moneys were payable
to ATACO from the Public Works office, because the latter had allowed mother creditor to collect funds due to ATACO under the same purchase order to a total of P311,230.41.

Its demands on the principal debtor and the Surety having been refused, the Bank sued both in the Court of First Instance of Manila to recover the balance of P158,563.18 as of
February 15, 1950, plus interests and costs.

On October 4, 1958, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendants, Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc., to pay plaintiff, Philippines National Bank, the sum of P174,462.34 as
of February 24, 1956, minus the amount of P8,000 which defendant, Manila Surety Co., Inc. paid from March, 1956 to October, 1956 with interest at the rate of 5%
per annum from February 25, 1956, until fully paid provided that the total amount that should be paid by defendant Manila Surety Co., Inc., on account of this case
shall not exceed P75,000.00, and to pay the costs;

2. Orderinq cross-defendant, Adams & Taguba Corporation, and third-party defendant, Pedro A. Taguba, jointly and severally, to pay cross and third-party
plaintiff, Manila Surety & Fidelity Co., Inc., whatever amount the latter has paid or shall pay under this judgment;

3. Dismissing the complaint insofar as the claim for 17% special tax is concerned; and

4. Dismissing the counterclaim of defendants Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc.

From said decision, only the defendant Surety Company has duly perfected its appeal. The Central Bank of the Philippines did not appeal, while defendant ATACO failed to
perfect its appeal.

The Bank recoursed to the Court of Appeals, which rendered an adverse decision and modified the judgment of the court of origin as to the surety's liability. Its motions for
reconsideration having proved unavailing, the Bank appealed to this Court.

The Court of Appeals found the Bank to have been negligent in having stopped collecting from the Bureau of Public Works the moneys falling due in favor of the principal
debtor, ATACO, from and after November 18, 1948, before the debt was fully collected, thereby allowing such funds to be taken and exhausted by other creditors to the
prejudice of the surety, and held that the Bank's negligence resulted in exoneration of respondent Manila Surety & Fidelity Company.
This holding is now assailed by the Bank. It contends the power of attorney obtained from ATACO was merely in additional security in its favor, and that it was the duty of the
surety, and not that of the creditor, owed see to it that the obligor fulfills his obligation, and that the creditor owed the surety no duty of active diligence to collect any, sum
from the principal debtor, citing Judge Advocate General vs. Court of Appeals, G.R. No. L-10671, October 23, 1958.

This argument of appellant Bank misses the point. The Court of Appeals did not hold the Bank answerable for negligence in failing to collect from the principal debtor but for
its neglect in collecting the sums due to the debtor from the Bureau of Public Works, contrary to its duty as holder of an exclusive and irrevocable power of attorney to make
such collections, since an agent is required to act with the care of a good father of a family (Civ. Code, Art. 1887) and becomes liable for the damages which the principal may
suffer through his non-performance (Civ. Code, Art. 1884). Certainly, the Bank could not expect that the Bank would diligently perform its duty under its power of attorney,
but because they could not have collected from the Bureau even if they had attempted to do so. It must not be forgotten that the Bank's power to collect was expressly made
irrevocable, so that the Bureau of Public Works could very well refuse to make payments to the principal debtor itself, and a fortiori reject any demands by the surety.

Even if the assignment with power of attorney from the principal debtor were considered as mere additional security still, by allowing the assigned funds to be exhausted
without notifying the surety, the Bank deprived the former of any possibility of recoursing against that security. The Bank thereby exonerated the surety, pursuant to Article
2080 of the Civil Code:

ART. 2080. — The guarantors, even though they be solidary, are released from their obligation whenever by come act of the creditor they cannot be subrogated to
the rights, mortgages and preferences of the latter. (Emphasis supplied.)

The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau of Public Works, on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the
debtor that as of its date, October 31, 1949, its outstanding balance was P156,374.83. Said Exhibit "G" has no bearing on the issue whether the Bank has exercised due diligence
in collecting from the Bureau of Public Works, since the letter was addressed to ATACO, and the funds were to come from elsewhere. As to the letter of demand on the Public
Works office, it does not appear that any reply thereto was made; nor that the demand was pressed, nor that the debtor or the surety were ever apprised that payment was not
being made. The fact remains that because of the Bank's inactivity the other creditors were enabled to collect P173,870.31, when the balance due to appellant Bank was only
P158,563.18. The finding of negligence made by the Court of Appeals is thus not only conclusive on us but fully supported by the evidence.

Even if the Court of Appeals erred on the second reason it advanced in support of the decision now under appeal, because the rules on application of payments, giving
preference to secured obligations are only operative in cases where there are several distinct debts, and not where there is only one that is partially secured, the error is of no
importance, since the principal reason based on the Bank's negligence furnishes adequate support to the decision of the Court of Appeals that the surety was thereby released.

WHEREFORE, the appealed decision is affirmed, with costs against appellant Philippine National Bank.

Bengzon, C.J., Concepcion, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo and Barerra, JJ., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. NO. 170530 July 5, 2010

SARGASSO CONSTRUCTION & DEVELOPMENT CORPORATION/PICK & SHOVEL, INC.,/ATLANTIC ERECTORS, INC. (JOINT VENTURE), Petitioner,
vs.
PHILIPPINE PORTS AUTHORITY, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 which seeks to annul and set aside the August 22, 2005 Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No.
63180 and its November 14, 2005 Resolution2 denying petitioner’s motion for the reconsideration thereof. The questioned CA decision reversed the June 8, 1998 Decision3 of
the Regional Trial Court of Manila, Branch 14, in Civil Case No. 97-83916, which granted petitioner’s action for specific performance.

The factual and procedural antecedents have been succinctly recited in the subject Court of Appeals decision in this wise: 4

Plaintiff Sargasso Construction and Development Corporation, Pick and Shovel, Inc. and Atlantic Erectors, Inc., a joint venture, was awarded the construction of Pier 2 and the
rock causeway (R.C. Pier 2) for the port of San Fernando, La Union, after a public bidding conducted by the defendant PPA. Implementation of the project commenced on
August 14, 1990. The port construction was in pursuance of the development of the Northwest Luzon Growth Quadrangle. Adjacent to Pier 2 is an area of ₱4,280 square
meters intended for the reclamation project as part of the overall port development plan.

In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive Director of the consortium, plaintiff offered to undertake the reclamation between the Timber Pier and Pier 2
of the Port of San Fernando, La Union, as an extra work to its existing construction of R.C. Pier 2 and Rock Causeway for a price of ₱36,294,857.03. Defendant replied thru its
Assistant General Manager Teofilo H. Landicho who sent the following letter dated December 18, 1992:

"This is to acknowledge receipt of your letter dated 01 October 1992 offering to undertake the reclamation between the Timber Pier and Pier 2, at the Port of San Fernando, La
Union as an extra work to your existing contract.

"Your proposal to undertake the project at a total cost of THIRTY SIX MILLION TWO HUNDRED NINETY FOUR THOUSAND EIGHT HUNDRED FIFTY SEVEN AND
03/100 PESOS (₱36,294,857.03) is not acceptable to PPA. If you can reduce your offer to THIRTY MILLION SEVEN HUNDRED NINETY FOUR THOUSAND TWO
HUNDRED THIRTY AND 89/100 (₱30,794,230.89) we may consider favorably award of the project in your favor, subject to the approval of higher
authority.

Please signify your agreement to the reduced amount of ₱30,794,230.89 by signing in the space provided below. (emphasis in the original)

On August 26, 1993, a Notice of Award signed by PPA General Manager Rogelio Dayan was sent to plaintiff for the phase I Reclamation Contract in the amount of
₱30,794,230.89 and instructing it to "enter into and execute the contract agreement with this Office" and to furnish the documents representing performance security and
credit line. Defendant likewise stated [and] made it a condition that "fendering of Pier No. 2 Port of San Fernando, and the Port of Tabaco is completed before the approval of
the contract for the reclamation project." Installation of the rubber dock fenders in the said ports was accomplished in the year 1994. PPA Management further set a condition
[that] "the acceptance by the contractor that mobilization/demobilization cost shall not be included in the contract and that escalation shall be reckoned upon approval of the
Supplemental Agreement." The award of the negotiated contract as additional or supplemental project in favor of plaintiff was intended "to save on the
mobilization/demobilization costs and some items as provided for in the original contract." Hence, then General Manager Carlos L. Agustin presented for consideration by the
PPA Board of Directors the contract proposal for the reclamation project.

At its meeting held on September 9, 1994, the Board decided not to approve the contract proposal, as reflected in the following excerpt of the minutes taken during said board
meeting:

"After due deliberation, the Board advised Management to bid the project since there is no strong legal basis for Management to award the supplemental contract through
negotiation. The Board noted that the Pier 2 Project was basically for the construction of a pier while the supplemental agreement refers to reclamation. Thus there is no basis
to compare the terms and conditions of the reclamation project with the original contract (Pier 2 Project) of Sargasso." 5

It appears that PPA did not formally advise the plaintiff of the Board’s action on their contract proposal. As plaintiff learned that the Board was not inclined to favor its
Supplemental Agreement, Mr. Go wrote General Manager Agustin requesting that the same be presented again to the Board meeting for approval. However, no reply was
received by plaintiff from the defendant.

On June 30, 1997, plaintiff filed a complaint for specific performance and damages before the Regional Trial Court of Manila alleging that defendant PPA’s unjustified refusal
to comply with its undertaking, unnecessarily leading to the delay in the implementation of the award under the August 26, 1993 Notice of Award, has put on hold plaintiff’s
men and resources earmarked for the project, aside from effectively tying its hands in undertaking other projects for fear that plaintiff’s incapacity to undertake work might be
spread thinly and it might not be able to function efficiently if the PPA project and other projects should require simultaneous attention. Plaintiff averred that it sought
reconsideration of the August 9, 1996 letter of PPA informing it that it did not qualify to bid for the proposed extension of RC Pier No. 2, Port of San Fernando, La Union for
not having IAC Registration and Classification and not complying with equipment requirement. In its letter dated September 19, 1996, plaintiff pointed out that the
disqualification was clearly unjust and totally without basis considering that individual contractors of the joint venture have undertaken separately bigger projects, and have
been such individual contractors for almost 16 years. It thus prayed that judgment be rendered by the court directing the defendant (a) to comply with its undertaking under
the Notice of Award dated August 26, 1993; and (b) to pay plaintiff actual damages (₱1,000,000.00), exemplary damages (₱1,000,000.00), attorney’s fees (₱300,000.00) and
expenses of litigation and costs (₱50,000.00).

Defendant PPA thru the Office of the Government Corporate Counsel (OGCC) filed its Answer with Compulsory Counterclaim contending that the alleged Notice of Award has
already been properly revoked when the Supplemental Agreement which should have implemented the award was denied approval by defendant’s Board of Directors. As to
plaintiff’s pre-disqualification from participating in the bidding for the extension of R.C. Pier No. 2 Project at the Port of San Fernando, La Union, the same is based on factual
determination by the defendant that plaintiff lacked IAC Registration and Classification and equipment for the said project as communicated in the August 9, 1996 letter.
Defendant disclaimed any liability for whatever damages suffered by the plaintiff when it "jumped the gun" by committing its alleged resources for the reclamation project
despite the fact that no Notice to Proceed was issued to plaintiff by the defendant. The cause of action insofar as the Extension of R.C. Pier No. 2 of the Port of San Fernando,
La Union, is barred by the statute of limitation since plaintiff filed its request for reconsideration way beyond the seven (7) day-period allowed under IB 6-5 of the
Implementing Rules and Regulations of P.D. 1594. Defendant clarified that the proposed Reclamation Project and Extension of R.C. Pier No. 2 San Fernando, La Union, are
separate projects of PPA. The Board of Directors denied approval of the Supplemental Agreement on September 9, 1994 for lack of legal basis to award the supplemental
contract through negotiation which was properly communicated to the plaintiff as shown by its letter dated September 19, 1994 seeking reconsideration thereof. As advised by
the Board, PPA Management began to make preparations for the public bidding for the proposed reclamation project. In the meantime, defendant decided to pursue the
extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that the complaint be dismissed]. (Emphasis supplied)

After trial, the lower court rendered a decision in favor of the plaintiff, the dispositive portion of which reads:

"WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered ordering the defendant to execute a contract in favor of the plaintiff for the
reclamation of the area between the Timber Pier and Pier 2 located at San Fernando, La Union for the price of ₱30,794,230.89 and to pay the costs.

The counterclaim is dismissed for lack of merit.

SO ORDERED.6

In addressing affirmatively the basic issue of whether there was a perfected contract between the parties for the reclamation project, the trial court ruled that the "higher
authority x x adverted to does not necessarily mean the Board of Directors (Board). Under IRR, P.D. 1594 (1)B10.6, approval of award and contracts is vested on the head of
the infrastructure department or its duly authorized representative. Under Sec. 9 (iii) of P.D. 857 which has amended P.D. 505 that created the PPA, one of the particular
powers and duties of the General Manager and Assistant General Manager is to sign contracts."7 It went on to say that "in the case of the PPA, the power to enter into contracts
is not only vested on the Board of Directors, but also to the manager" citing Section 9 (III) of P.D. No. 857. 8

The trial court added that the tenor of the Notice of Award implied that respondent’s general manager had been empowered by its Board of Directors to bind respondent by
contract. It noted that whereas the letter-reply contained the phrase "approval of the higher authority," the conspicuous absence of the same in the Notice of Award supported
the finding that the general manager had been vested with authority to enter into the contract for and in behalf of respondent. To the trial court, the disapproval by the PPA
Board of the supplementary contract for the reclamation on a ground other than the general manager’s lack of authority was an explicit recognition that the latter was so
authorized to enter into the purported contract.

Respondent moved for a reconsideration of the RTC decision but it was denied for lack of merit. Respondent then filed its Notice of Appeal. Subsequently, petitioner moved to
dismiss the appeal on the ground that respondent failed to perfect its appeal seasonably. On June 27, 2000, the Court of Appeals issued a Resolution9 dismissing respondent’s
appeal for having been filed out time. Respondent’s motion for reconsideration of said resolution was also denied. 10

Undaunted, respondent elevated its problem to this Court via a petition for review on certiorari under Rule 45 assailing the denial of its appeal. On July 30, 2004, the Court
rendered an en banc decision11 granting respondent’s petition on a liberal interpretation of the rules of procedure, and ordering the CA to conduct further proceedings.

On August 22, 2005, the CA rendered the assailed decision reversing the trial court’s decision and dismissing petitioner’s complaint for specific performance and damages.
Thus, the dispositive portion thereof reads:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed Decision dated June 8, 1998 of the trial court in Civil Case No. 97-83916 is hereby
REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING the complaint for specific performance and damages filed by Plaintiff Sargasso Construction and
Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc., (Joint Venture) against the Philippine Ports Authority for lack of merit.

In setting aside the trial court’s decision, the CA ruled that the law itself should serve as the basis of the general manager’s authority to bind respondent corporation and, thus,
the trial court erred in merely relying on the wordings of the Notice of Award and the Minutes of the Board meeting in determining the limits of his authority; that the power of
the general manager "to sign contracts" is different from the Board’s power "to make or enter (into) contracts"; and that, in the execution of contracts, the general manager
only exercised a delegated power, in reference to which, evidence was wanting that the PPA Board delegated to its general manager the authority to enter into a supplementary
contract for the reclamation project.

The CA also found the disapproval of the contract on a ground other than the general manager’s lack of authority rather inconsequential because Executive Order 38012
expressly authorized the governing boards of government-owned or controlled corporations "to enter into negotiated infrastructure contracts involving… not more than fifty
million (₱50 million)." The CA further noted that the Notice of Award was only one of those documents that comprised the entire contract and, therefore, did not in itself
evidence the perfection of a contract.

Hence, this petition.

The issue to be resolved in this case is whether or not a contract has been perfected between the parties which, in turn, depends on whether or not the general manager of PPA
is vested with authority to enter into a contract for and on behalf of PPA.

The petition fails.

Petitioner contends that the existence of "Notice of Award of Contract and Contractor’s Conforme thereto," resulting from its negotiation with respondent, proves that a
contract has already been perfected, and that the other documents enumerated under the amended Rules and Regulations13 implementing P.D. 159414 are mere physical
representations of the parties’ meeting of the minds; that the "Approval of Award by Approving Authority" is only a "supporting document," and not an evidence of perfection
of contract, and which merely "facilitates the approval of the contract;"15 that PPA is bound by the acts of its general manager in issuing the Notice of Award under the doctrine
of apparent authority; and that the doctrine of estoppel, being an equitable doctrine, cannot be invoked to perpetuate an injustice against petitioner.

At the outset, it must be stated that there are two (2) separate and distinct, though related, projects involving the parties herein, viz: (i) the construction of Pier 2 and the rock
causeway for the port of San Fernando, La Union, and (ii) the reclamation of the area between the Timber Pier and Pier 2 of the same port. Petitioner’s action for specific
performance and damages merely relates to the latter.

Every contract has the following essential elements: (i) consent, (ii) object certain and (iii) cause. Consent has been defined as the concurrence of the wills of the contracting
parties with respect to the object and cause which shall constitute the contract.16 In general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth, and
consummation. Negotiation17 begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement.
Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e., consent, object and price. Consummation occurs
when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. The birth or the perfection of the contract, which is the
crux of the present controversy, refers to that moment in the life of a contract when there is finally a concurrence of the wills of the contracting parties with respect to the
object and the cause of the contract.18

A government or public contract has been defined as a contract entered into by state officers acting on behalf of the state, and in which the entire people of the state are
directly interested. It relates wholly to matter of public concern, and affects private rights only so far as the statute confers such rights when its provisions are carried out by
the officer to whom it is confided to perform.19

A government contract is essentially similar to a private contract contemplated under the Civil Code. The legal requisites of consent of the contracting parties, an object certain
which is the subject matter, and cause or consideration of the obligation must likewise concur. Otherwise, there is no government contract to speak of.20

As correctly found by the CA, the issue on the reclamation of the area between Timber Pier and Pier 2 of the Port of San Fernando involves a government infrastructure
project, and it is beyond dispute that the applicable laws, rules and regulations on government contracts or projects apply.

On the matter of entering into negotiated contracts by government-owned and controlled corporations, the provisions of existing laws are crystal clear in requiring the
governing board’s approval thereof. The Court holds that the CA correctly applied the pertinent laws, to wit:

Executive Order No. 380… provides for revised levels of authority on approval of government contracts. Section 1 thereof authorizes… GOCCs:

1. To enter into infrastructure contracts awarded through public bidding regardless of the amount involved;

2. To enter into negotiated infrastructure contracts involving not more than one hundred million pesos (P100 million) in the case of the Department of
Transportation and Communications and the Department of Public Works and Highways, and not more than fifty million pesos (P50 million) in the case
of the other Departments and governments corporations; Provided, That contracts exceeding the said amounts shall only be entered into upon prior
authority from the Office of the President; and Provided, Further, That said contracts shall only be awarded in strict compliance with Section 5 of Executive Order
No. 164, S. of 1987.

xxx

The rule on negotiated contracts, as amended on August 12, 2000 (IB 10.6.2) now reads –

1. Negotiated contract may be entered into only where any of the following conditions exists and the implementing office/agency/corporation is not capable of
undertaking the contract by administration:

a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent imminent loss of life and/or property or to
restore vital public services, infrastructure and utilities such as…

b. Failure to award the contract after competitive public bidding for valid cause or causes

c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically prosecuted by the same contractor provided
that subject contract has similar or related scope of works and it is within the contracting capacity of the contractor, in which case, direct negotiation
may be undertaken with the said contractor…

xxx

In cases a and b above, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors… Authority to negotiate contract for projects
under these exceptional cases shall be subject to prior approval by heads of agencies within their limits of approving authority."21 (emphasis in the
original)

Furthermore, the Revised Administrative Code22 lays down the same requirement, thus:

Sec. 51. Who May Execute Contracts. Contracts in behalf of the Republic of the Philippines shall be executed by the President unless authority therefore is expressly vested by
law or by him in any other public officer.

Contracts in behalf of the political subdivisions and corporate agencies or instrumentalities shall be approved by their respective governing boards or councils and executed by
their respective executive heads.

Petitioner neither disputes nor admits the application of the foregoing statutory provisions but insists, nonetheless, that the Notice of Award itself already embodies a
perfected contract having passed the negotiation stage23 despite the clear absence thereon of a condition requiring the prior approval of respondent’s higher authority.

Petitioner’s argument is untenable. Contracts to which the government is a party are generally subject to the same laws and regulations which govern the validity and
sufficiency of contracts between private individuals.24 A government contract, however, is perfected25 only upon approval by a competent authority, where such approval is
required.26

The contracting officer functions as agent of the Philippine government for the purpose of making the contract. There arises then, in that regard, a principal-agent relationship
between the Government, on one hand, and the contracting official, on the other. The latter though, in contemplation of law, possesses only actual agency authority. This is to
say that his contracting power exists, where it exists at all, only because and by virtue of a law, or by authority of law, creating and conferring it. And it is well
settled that he may make only such contracts as he is so authorized to make. Flowing from these basic guiding principles is another stating that the government is
bound only to the extent of the power it has actually given its officers-agents. It goes without saying then that, conformably to a fundamental principle in agency, the acts of
such agents in entering into agreements or contracts beyond the scope of their actual authority do not bind or obligate the Government. The moment this happens, the
principal-agent relationship between the Government and the contracting officer ceases to exist.27 (emphasis supplied)

It was stressed that

…the contracting official who gives his consent as to the subject matter and the consideration ought to be empowered legally to bind the Government and that his actuations in
a particular contractual undertaking on behalf of the government come within the ambit of his authority. On top of that, the approval of the contract by a higher authority is
usually required by law or administrative regulation as a requisite for its perfection. 28

Under Article 1881 of the Civil Code, the agent must act within the scope of his authority to bind his principal. So long as the agent has authority, express or implied, the
principal is bound by the acts of the agent on his behalf, whether or not the third person dealing with the agent believes that the agent has actual authority.29 Thus, all
signatories in a contract should be clothed with authority to bind the parties they represent.

P.D. 857 likewise states that one of the corporate powers of respondent’s Board of Directors is to "reclaim… any part of the lands vested in the Authority." It also "exercise[s] all
the powers of a corporation under the Corporation Law." On the other hand, the law merely vests the general manager the "general power… to sign contracts" and "to perform
such other duties as the Board may assign…" Therefore, unless respondent’s Board validly authorizes its general manager, the latter cannot bind respondent PPA to a contract.

The Court completely agrees with the CA that the petitioner failed to present competent evidence to prove that the respondent’s general manager possessed such actual
authority delegated either by the Board of Directors, or by statutory provision. The authority of government officials to represent the government in any contract must proceed
from an express provision of law or valid delegation of authority. 30 Without such actual authority being possessed by PPA’s general manager, there could be no real consent,
much less a perfected contract, to speak of.

It is of no moment if the phrase "approval of higher authority" appears nowhere in the Notice of Award. It neither justifies petitioner’s presumption that the required approval
"had already been granted" nor supports its conclusion that no other condition (than the completion of fendering of Pier 2 as stated in the Notice of Award) ought to be
complied with to create a perfected contract.31 Applicable laws form part of, and are read into, the contract without need for any express reference thereto; 32 more so, to a
purported government contract, which is imbued with public interest.

Adopting the trial court’s ratiocination, petitioner further argues that had it been true that respondent’s general manager was without authority to bind respondent by
contract, then the former should have disapproved the supplemental contract on that ground. 33 Petitioner also interprets the Board’s silence on the matter as an explicit
recognition of the latter’s authority to enter into a negotiated contract involving the reclamation project. This posture, however, does not conform with the basic provisions of
the law to which we always go back. Section 4 of P.D. 1594 34 provides:35

Section 4. Bidding. Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts on the matter, subject
to the approval of the Ministry of Public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the
project cost is less than ₱1 Million, and of the President of the Philippines, upon the recommendation of the Minister, if the project cost is ₱1 Million or more.

Precisely, the Board of Directors of the respondent did not see fit to approve the contract by negotiation after finding that "the Pier 2 Project was basically for the construction
of a pier while the supplemental agreement refers to reclamation. Thus, there is no basis to compare the terms and conditions of the reclamation project with the original
contract (Pier 2 Project) of Sargasso." So even granting arguendo that the Board’s action or inaction is an "explicit" recognition of the authority of the general manager, the
purported contract cannot possibly be the basis of an action for specific performance because the negotiated contract itself basically contravenes stringent legal requirements
aimed at protecting the interest of the public. The bottom line here is that the facts do not conform to what the law requires.

No wonder petitioner conveniently omitted any attempt at presenting its case within the statutory exceptions, and insisted that respondent’s disapproval of the supplemental
agreement was "a mere afterthought" "perhaps realizing the infirmity of its excuse" (referring to petitioner’s belated pre-disqualification in the construction project). But the
Court, at the very outset, has previously clarified that the two projects involved herein are distinct from each other. Hence, petitioner’s disqualification in the construction
project due to its lack of certain requirements has no significant bearing in this case.

Lastly, petitioner’s invocation of the doctrine of apparent authority 36 is misplaced. This doctrine, in the realm of government contracts, has been restated to mean that the
government is NOT bound by unauthorized acts of its agents, even though within the apparent scope of their authority. 37 Under the law on agency, however, "apparent
authority" is defined as the power to affect the legal relations of another person by transactions with third persons arising from the other’s manifestations to such third
person38 such that the liability of the principal for the acts and contracts of his agent extends to those which are within the apparent scope of the authority conferred on him,
although no actual authority to do such acts or to make such contracts has been conferred. 391avvphi1

Apparent authority, or what is sometimes referred to as the "holding out" theory, or doctrine of ostensible agency, imposes liability, not as the result of the reality of a
contractual relationship, but rather because of the actions of a principal or an employer in somehow misleading the public into believing that the relationship or the authority
exists.40 The existence of apparent authority may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to
act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of
other parties.41

Easily discernible from the foregoing is that apparent authority is determined only by the acts of the principal and not by the acts of the agent. The principal is, therefore, not
responsible where the agent’s own conduct and statements have created the apparent authority.42

In this case, not a single act of respondent, acting through its Board of Directors, was cited as having clothed its general manager with apparent authority to execute the
contract with it.

With the foregoing disquisition, the Court finds it unnecessary to discuss the other arguments posed by petitioner.

WHEREFORE, the petition is DENIED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 125138 March 2, 1999

NICHOLAS Y. CERVANTES, petitioner,

vs.
COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent.

PURISMA, J.:

This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals 1 in CA GR CV No. 41407, entitled "Nicholas Y. Cervantes vs. Philippine Air
Lines Inc.", affirming in toto the judgment of the trial court dismissing petitioner's complaint for damages.

On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for
Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an expiry of date of one year from issuance, i.e., until March 27, 1990. The issuance of the
said plane ticket was in compliance with a Compromise Agreement entered into between the contending parties in two previous suits, docketed as Civil Case Nos. 3392 and
3451 before the Regional Trial Court in Surigao City. 2

On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his arrival in Los Angeles on the same day, he immediately booked his Los
Angeles-Manila return ticket with the PAL office, and it was confirmed for the April 2, 1990 flight.

Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he would be there on April 2, 1990, petitioner made arrangements with
PAL for him to board the flight In San Francisco instead of boarding in Las Angeles.

On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not allowed to board. The PAL personnel concerned marked the following
notation on his ticket: "TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY."

Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court
of Surigao del Norte in Surigao City. But the said complaint was dismissed for lack of merit. 3

On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a Decision, on July 25, 1995, upholding the dismissal of the case.

On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.

The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject ticket extended the period of validity of petitioner's ticket; (2) Whether
or not the defense of lack of authority was correctly ruled upon; and (3) Whether or not the denial of the award for damages was proper.

To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings of fact arrived at by the trial court are entitled to great weight on
appeal and should not be disturbed unless for strong and cogent reasons. 4

The facts of the case as found by the lower court 5 are, as follows:

The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also
stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2) as follows:

8. This ticket is good for carriage for one year from date of issue, except as otherwise provided in this ticket, in carrier's tariffs,
conditions of carriage, or related regulations. The fare for carriage hereunder is subject to change prior to commencement of
carriage. Carrier may refuse transportation if the applicable fare has not been paid. 6

The question on the validity of subject ticket can be resolved in light of the ruling in the case of Lufthansa vs. Court of Appeals. 7 In the said case, the Tolentinos were issued
first class tickets on April 3, 1982, which will be valid until April 10, 1983. On June 10, 1982, they changed their accommodations to economy class but the replacement tickets
still contained the same restriction. On May 7, 1983, Tolentino requested that subject tickets be extended, which request was refused by the petitioner on the ground that the
said tickets had already expired. The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of contract of carriage against the petitioner. In
ruling against the award of damages, the Court held that the "ticket constitute the contract between the parties. It is axiomatic that when the terms are clear and leave no doubt
as to the intention of the contracting parties, contracts are to be interpreted according to their literal meaning."

In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PAL's agents in Los Angeles and San Francisco changed the compromise
agreement between the parties.

As aptly by the appellate court:

. . . on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he returned to the Philippines.' (pp.
320-321, Original Records) 8
 The question is: "Did these two (2) employees, in effect, extend the validity or lifetime of the ticket in question? The answer is in
the negative. Both had no authority to do so. Appellant knew this from the very start when he called up the Legal Department of
appellee in the Philippines before he left for the United States of America. He had first hand knowledge that the ticket in
question would expire on March 27, 1990 and that to secure an extension, he would have to file a written request for extension
at the PAL's office in the Philippines (TSN, Testimony of Nicholas Cervantes, August 2, 1991, pp. 20-23). Despite this
knowledge, appellant persisted to use the ticket in question." 9

From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to send a letter to the legal counsel of PAL for the extension of the period
of validity of his ticket.

Since the PAL agents are not privy to the said Agreement and petitioner knew that a written request to the legal counsel of PAL was necessary, he cannot use what the PAL
agents did to his advantage. The said agents, according to the Court of Appeals, 10 acted without authority when they confirmed the flights of the petitioner.

Under Article 1989 11 of the New Civil Code, the acts an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or
impliedly. Furthermore, when the third person (herein petitioner) knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the
acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook
to secure the principal's ratification. 12

Anent the second issue, petitioner's stance that the defense of lack of authority on the part of the PAL employees was deemed waived under Rule 9, Se ction 2 of the Revised
Rules of Court, is unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss is a waiver thereof.

Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the answer nor in the motion to dismiss. But records show that the question of
whether there was authority on the part of the PAL employees was acted upon by the trial court when Nicholas Cervantes was presented as a witness and the depositions of the
PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented.

The admission by Cervantes that he was told by PAL's legal counsel that he had to submit a letter requesting for an extension of the validity of subject tickets was tantamount
to knowledge on his part that the PAL employees had no authority to extend the validity of subject tickets and only PAL's legal counsel was authorized to do so.

However, notwithstanding PAL's failure to raise the defense of lack of authority of the said PAL agents in its answer or in a motion to dismiss, the omission was cured since the
said issue was litigated upon, as shown by the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:

Sec. 5. Amendment to conform, or authorize presentation of evidence. — When issues not raised by the pleadings are tried with express or implied
consent of the parties, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the
result of the trial of these issues. . . .

Thus, "when evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered
validly as regards the said issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse
party fails to object thereto." 13

Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted in bad faith in refusing to allow him to board its plane in San Francisco.

In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible acted fraudulently or with malice or
bad faith. 14 Petitioner knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a back-up ticket to ensure his departure. Should
there be a finding of bad faith, we are of the opinion that it should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury resulted on the
part of petitioner because he had a back-up ticket should PAL refuse to accommodate him with the use of subject ticket.

Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of example or correction for the public good, and the existence of bad faith is
established. The wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless or
malevolent manner. 15 Here, there is no showing that PAL acted in such a manner. An award for attorney's fees is also improper.

WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995 AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-39037 October 30, 1933

THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
PAZ AGUDELO Y GONZAGA, ET AL., defendants.
PAZ AGUDELO Y GONZAGA, appellant.

Hilado and Hilado and Norberto Romualdez for appellant.

Roman J. Lacson for appellee.

VILLA-REAL, J.:

The defendant Paz Agudelo y Gonzaga appeals to this court from the judgment rendered by the Court of First Instance of Occidental Negros, the dispositive part of which reads
as follows:

Wherefore, judgment is rendered herein absolving the defendant Mauro A. Garrucho from the complaint and ordering the defendant Paz Agudelo y Gonzaga to pay
to the plaintiff the sum of P31,091.55, Philippine currency, together with the interest on the balance of P20,774.73 at 8 per cent per annum of P4.55 daily from July
16, 1929, until fully paid, plus the sum of P1,500 as attorney's fees, and the costs of this suit.

It is hereby ordered that in case the above sums adjudged in favor of the defendant by virtue of this judgment are not paid to the Philippine National Bank or
deposited in the office of the clerk of this court, for delivery to the plaintiff, within three months from the date of this decision, the provincial sheriff of Occidental
Negros shall set at public auction the mortgaged properties described in annex E of the second amended complaint, and apply the proceeds thereof to the payment
of the sums in question.

It is further ordered that in case the proceeds of the mortgaged properties are not sufficient to cover the amount of this judgment, a writ of execution be issued
against any other property belonging to the defendant Paz Agudelo y Gonzaga, not otherwise exempt from execution, to cover the balance resulting therefrom.

In support of her appeal, the appellant assigns six alleged errors as committed by the trial court, which we shall discuss in the course of this decision.

The following pertinent facts, which have been proven without dispute during the trial, are necessary for the decision of the questions raised in the present appeal, to wit:

On November 9, 1920, the defendant-appellant Paz Agudelo y Gonzaga executed in favor of her nephew, Mauro A. Garrucho, the document Exhibit K conferring upon him a
special power of attorney sufficiently broad in scope to enable him to sell, alienate and mortgage in the manner and form he might deem convenient, all her real estate situated
in the municipalities of Murcia and Bacolod, Occidental Negros, consisting in lots Nos. 61 and 207 of the cadastral survey of Bacolod, Occidental Negros, together with the
improvement thereon.

On December 22, 1920, Amparo A. Garrucho executed the document Exhibit H whereby she conferred upon her brother Mauro A Garrucho a special power of attorney
sufficiently broad in scope to enable him to sell, alienate, mortgage or otherwise encumber, in the manner and form he might deem convenient, all her real estate situated in
the municipalities of Murcia and Bago, Occidental Negros.

Nothing in the aforesaid powers of attorney expressly authorized Mauro A. Garrucho to contract any loan nor to constitute a mortgage on the properties belonging to the
respective principals, to secure his obligations.

On December 23, 1920, Mauro A. Garrucho executed in the favor of the plaintiff entity, the Philippine National bank, the document Exhibit G, whereby he constituted a
mortgage on lot No. 878 of the cadastral survey of Murcia, Occidental Negros, with all the improvements thereon, described in transfer certificate of title No. 2415 issued in the
name of Amparo A. Garrucho, to secure the payment of credits, loans, commercial overdrafts, etc., not exceeding P6,000, together with interest thereon, which he might
obtain from the aforesaid plaintiff entity, issuing the corresponding promissory note to that effect.

During certain months of the year 1921 and 1922, Mauro A. Garrucho maintained a personal current account with the plaintiff bank in the form of a commercial credit
withdrawable through checks (Exhibits S, 1 and T).

On August 24, 1931, the said Mauro A. Garrucho executed in favor of the plaintiff entity, the Philippine National Bank, the document Exhibit J whereby he constituted a
mortgage on lots Nos. 61 and 207 of the cadastral survey of Bacolod together with the buildings and improvements thereon, described in original certificates of title Nos. 2216
and 1148, respectively, issued in the name of Paz Agudelo y Gonzaga, to secure the payment of credits, loans and commercial overdrafts which the said bank might furnish him
to the amount of P16,00, payable on August 24, 1922, executing the corresponding promissory note to that effect.

The mortgage deeds Exhibit G and J as well as the corresponding promissory notes for P6,000 and P16,000, respectively, were executed in Mauro A. Garrucho's own name
and signed by him in his personal capacity, authorizing the mortgage creditor, the Philippine National Bank, to take possession of the mortgaged properties, by means of force
if necessary, in case he failed to comply with any of the conditions stipulated therein.

On January 4, 1922, the manager of the Iloilo branch of the Philippine National Bank notified Mauro A. Garrucho that his promissory note for P6,000 of 10 days within which
to make payment thereof (Exhibit O).1awphil.net

On May 9, 1922, the said manager notified Mauro A. Garrucho that his commercial credit was closed from that date (Exhibit S).
Inasmuch as Mauro A. Garrucho had overdrawn his credit with the plaintiff-appellee, the said manager thereof, in a letter dated June 27, 1922 (Exhibit T), requested him to
liquidate his account amounting to P15,148.15, at the same time notifying him that his promissory note for P16,000 giving as security for the commercial overdraft in question,
had fallen due some time since.

On July 15, 1922, Mauro A. Garrucho, executed in favor of the plaintiff entity the deed Exhibit C whereby he constituted a mortgage on lots Nos. 61 and 207 of the cadastral
survey of Bacolod, together with the improvements thereon, described in transfer certificates of title Nos. 2216 and 1148, respectively, issued in the name of Paz Agudelo y
Gonzaga, and on lot No. 878 of the cadastral survey of Murcia, described in transfer certificate of title No. 2415, issued in the name of Amparo A. Garrucho.

In connection of the credits, loans, and commercial overdrafts amounting to P21,000 which had been granted him, Mauro A. Garrucho, on the said date July 15, 1922,
executed the promissory note, Exhibit B, for P21,000 as a novation of the former promissory notes for P6,000 and P16,000, respectively.

In view of the aforesaid consolidated mortgage, Exhibit C, the Philippine National Bank, on the said date of July 15, 1922, cancelled the mortgages constituted on lots Nos. 61,
207 and 878 described in Torrens titles Nos. 2216, 1148 and 2415, respectively.

On November 25, 1925, Amparo A. Garrucho sold lot No. 878 described in certificate of title No. 2415, to Paz Agudelo y Gonzaga (Exhibit M).

On January 15, 1926, in the City of Manila, Paz Agudelo y Gonzaga signed the affidavit, Exhibit N, which reads as follows:

Know all men by these presents: That I, Paz Agudelo y Gonzaga, single, of age, and resident of the City of Manila, P. I., by these present do hereby agree
and consent to the transfer in my favor of lot No. 878 of the Cadastre of Murcia, Occidental Negros, P. I., by Miss Amparo A. Garrucho, as evidenced by
the public instrument dated November 25, 1925, executed before the notary public Mr. Genaro B. Benedicto, and do hereby further agree to the amount
of the lien thereon stated in the mortgage deed executed by Miss Amparo A. Garrucho in favor of the Philippine National Bank.

In testimony whereof, I hereunto affix my signature in the City of Manila, P.I., this 15th of January, 1926.

(Sgd.) PAZ AGUDELO Y GONZAGA.

Pursuant to the sale made by Amparo A. Garrucho in favor of Paz Agudelo y Gonzaga, of lot No. 878 of the cadastral survey of Murcia, described in certificate of title No. 2145
issued in the name of said Amparo A. Garrucho, and to the affidavit, Exhibit N, transfer certificate of title No. 5369 was issued in the name of Paz Agudelo y Gonzaga.

Without discussing and passing upon whether or not the powers of attorney issued in favor of Mauro A. Garrucho by his sister, Amparo A. Garrucho, and by his aunt, Paz
Agudelo y Gonzaga, respectively, to mortgage their respective real estate, authorized him to obtain loans secured by mortgage in the properties in question, we shall consider
the question of whether or not Paz Agudelo y Gonzaga is liable for the payment of the loans obtained by Mauro A. Garrucho from the Philippine National Bank for the security
of which he constituted a mortgage on the aforesaid real estate belonging to the defendant-appellant Paz Agudelo y Gonzaga.

Article 1709 of the Civil Code provides the following:

ART. 1709. By the contract of agency, one person binds himself to render some service, or to do something for the account or at the request of another.

And article 1717 of the same Code provides as follows:

ART. 1717. When an agent acts in his own name, the principal shall have no right of action against the persons with whom the agent has contracted, or such persons
against the principal.

In such case, the agent is directly liable to the person with whom he has contracted, as if the transaction were his own. Cases involving things belonging to the
principal are excepted.

The provisions of this article shall be understood to be without prejudice to actions between principal and agent.

Aside from the phrases "attorney in fact of his sister, Amparo A. Garrucho, as evidenced by the power of attorney attached hereto" and "attorney in fact of Paz Agudelo y
Gonzaga" written after the name of Mauro A. Garrucho in the mortgage deeds, Exhibits G. and J, respectively, there is nothing in the said mortgage deeds to show that Mauro
A. Garrucho is attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, and that he obtained the loans mentioned in the aforesaid mortgage deeds and
constituted said mortgages as security for the payment of said loans, for the account and at the request of said Amparo A. Garrucho and Paz Agudelo y Gonzaga. The above-
quoted phrases which simply described his legal personality, did not mean that Mauro A. Garrucho obtained the said loans and constituted the mortgages in question for the
account, and at the request, of his principals. From the titles as well as from the signatures therein, Mauro A. Garrucho, appears to have acted in his personal capacity. In the
aforesaid mortgage deeds, Mauro A. Garrucho, in his capacity as mortgage debtor, appointed the mortgage creditor Philippine National Bank as his attorney in fact so that it
might take actual and full possession of the mortgaged properties by means of force in case of violation of any of the conditions stipulated in the respective mortgage contracts.
If Mauro A. Garrucho acted in his capacity as mere attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, he could not delegate his power, in view of the legal
principle of "delegata potestas delegare non potest" (a delegated power cannot be delegated), inasmuch as there is nothing in the records to show that he has been expressly
authorized to do so.

He executed the promissory notes evidencing the aforesaid loans, under his own signature, without authority from his principal and, therefore, were not binding upon the
latter (2 Corpus Juris, pp. 630-637, par. 280). Neither is there anything to show that he executed the promissory notes in question for the account, and at the request, of his
respective principals (8 Corpus Juris, pp. 157-158).

Furthermore, it is noted that the mortgage deeds, Exhibits C and J, were cancelled by the documents, Exhibits I and L, on July 15, 1922, and in their stead the mortgage deed,
Exhibit C, was executed, in which there is absolutely no mention of Mauro A. Garrucho being attorney in fact of anybody, and which shows that he obtained such credit fro
himself in his personal capacity and secured the payment thereof by mortgage constituted by him in his personal capacity, although on properties belonging to his principal
Paz Agudelo y Gonzaga.

Furthermore, the promissory notes executed by Mauro A. Garrucho in favor of the Philippine National Bank, evidencing loans of P6,000 and P16,000 have been novated by
the promissory notes for P21,000 (Exhibit B) executed by Mauro A. Garrucho, not only without express authority from his principal Paz Agudelo y Gonzaga but also under his
own signature.
In the case of National Bank vs. Palma Gil (55 Phil., 639), this court laid down the following doctrine:

A promissory note and two mortgages executed by the agent for and on behalf of his principal, in accordance with a power of attorney executed by the principal in
favor of the agent, are valid, and as provided by article 1727 of contracted by the agent; but a mortgage on real property of the principal not made and signed in the
name of the principal is not valid as to the principal.

It has been intimated, and the trial judge so stated. that it was the intention of the parties that Mauro A. Garrucho would execute the promissory note, Exhibit B, and the
mortgage deed, Exhibit C, in his capacity as attorney in facts of Paz Agudelo y Gonzaga, and that although the terms of the aforesaid documents appear to be contrary to the
intention of the parties, such intention should prevail in accordance with article 1281 of the Civil Code.

Commenting on article 1281 of the Civil Code, Manresa, in his Commentaries to the Civil Code, says the following:

IV. Intention of the contracting parties; its appreciation. — In order that the intention may prevail, it is necessary that the question of interpretation be raised,
either because the words used appear to be contrary thereto, or by the existence of overt acts opposed to such words, in which the intention of the contracting
parties is made manifest. Furthermore, in order that it may prevail against the terms of the contract, it must be clear or, in other words, besides the fact that such
intention should be proven by admissible evidence, the latter must be of such charter as to carry in the mind of the judge an unequivocal conviction. This requisite
as to the kind of evidence is laid down in the decision relative to the Mortgage Law of September 30, 1891, declaring that article 1281 of the Civil Code gives
preference to intention only when it is clear. When the aforesaid circumstances is not present in a document, the only thing left for the register of deeds to do is to
suspend the registration thereof, leaving the solution of the problem to the free will of the parties or to the decision of the courts.

However, the evident intention which prevails against the defective wording thereof is not that of one of the parties, but the general intent, which, being so, is to a
certain extent equivalent to mutual consent, inasmuch as it was the result desired and intended by the contracting parties. (8 Manresa, 3d edition, pp. 726 and
727.)

Furthermore, the records do not show that the loan obtained by Mauro A. Garrucho, evidenced by the promissory note, Exhibit B, was for his principal Paz Agudelo y Gonzaga.
The special power of attorney, Exhibit K, does not authorize Mauro A. Garrucho to constitute a mortgage on the real estate of his principal to secure his personal obligations.
Therefore, in doing so by virtue of the document, Exhibit C, he exceeded the scope if his authority and his principal is not liable for his acts. (2 Corpus Juris, p. 651; article 1714,
Civil Code.)

It is further claimed that inasmuch as the properties mortgaged by Mauro A. Garrucho belong to Paz Agudelo y Gonzaga, the latter is responsible for the acts of the former
although he acted in his own name, in accordance with the exception contained in article 1717 of the Civil Code. It would be an exception with the properties of his own name
in connection with the properties of his principal, does so within the scope of his authority. It is noted that Mauro A. Garrucho was not authorized to execute promissory notes
even in the name of his principal Paz Agudelo y Gonzaga, nor to constitute a mortgage on her real properties to secure such promissory notes. The plaintiff Philippine National
Bank should know this inasmuch as it is in duty bound to ascertain the extent of the agent's authority before dealing with him. Therefore, Mauro A. Garrucho and not Paz
Agudelo y Gonzaga is personally liable for the amount of the promissory note Exhibit B. (2 Corpus Juris, pp. 563-564.)

However, Paz Agudelo y Gonzaga in an affidavit dated January 15, 1926 (Exhibit AA), and in a letter dated January 16, 1926 (Exhibit Z), gave her consent to the lien on lot No.
878 of the cadastre of Murcia, Occidental Negros, described in Torrens title No. 5369, the ownership of which was transferred to her by her niece Amparo A. Garrucho. This
acknowledgment, however, does not extend to lots Nos. 207 and 61 of the cadastral survey of Bacolod, described in transfer certificates of title Nos. 1148 and 2216,
respectively, inasmuch as, although it is true that a mortgage is indivisible as to the contracting parties and as top their successors in interest (article 1860, Civil Code), it is not
so with respect to a third person who did not take part in the constitution thereof either personally or through an agent, inasmuch as he can make the acknowledgment thereof
in the form and to the extent he may deem convenient, on the ground that he is not in duty bound to acknowledge the said mortgage. Therefore, the only liability of the
defendant-appellant Paz Agudelo y Gonzaga is that which arises from the aforesaid acknowledgment, but only with respect to the lien and not to the principal obligation
secured by the mortgage acknowledged by her to have been constituted on said lot No. 878 of the cadastral survey of Murcia, Occidental Negros. Such liability is not direct but
a subsidiary one.

Having reach this contention, it is unnecessary to pass upon the other questions of law raised by the defendant- appellant in her brief and upon the law cited therein.

In view of the foregoing consideration, we are of the opinion and so hold that when an agent negotiates a loan in his personal capacity and executes a promissory note under
his own signature, without express authority from his principal, giving as security therefor real estate belonging to the letter, also in his own name and not in the name and
representation of the said principal, the obligation do constructed by him is personal and does not bind his aforesaid principal.

Wherefore, it is hereby held that the liability constructed by the aforesaid defendant-appellant Paz Agudelo y Gonzaga is merely subsidiary to that of Mauro A. Garrucho,
limited lot No. 878 of the cadastral survey of Murcia, Occidental Negros, described in Torrens title No. 2415. However, inasmuch as the principal obligator, Mauro A.
Garrucho, has been absolved from the complaint and the plaintiff- appellee has not appealed from the judgment absolving him, the law does not afford any remedy whereby
Paz Agudelo y Gonzaga may be required to comply with the said subsidiary obligation in view of the legal maxim that the accessory follows the principal. Wherefore, the
defendant herein should also be absolved from the complaint which is hereby dismissed, with the costs against the appellee. So ordered.

Avanceña, C.J., Malcolm, Hull, and Imperial, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8988 March 30, 1916

HARTFORD BEAUMONT, assignee of W. Borck, plaintiff-appellee,

vs.
MAURO PRIETO, BENITO LEGARDA, JR., and BENITO VALDES as administrator of the estate of Benito Legarda, deceased, and BENITO VALDES,
defendants and appellants. (See U.S. Supreme Court decision in this same case., p. 985, post.)

Hausserman, Cohn & Fisher (and subsequently) Gilbert, Cohn & Fisher, and Escaler & Salas and Ledesma, Lim & Irurreta Goyena for appellants Legarda and Valdes.
No appearance for the other appellants.
Beaumont & Tenney and Aitken & DeSelms for appellee.

ARAULLO, J.:

Negotiations having been had, prior to December 4, 1911, between W. Borck and Benito Valdes, relative to the purchase, at first, of a part of the Nagtajan Hacienda, situated in
the district of Sampaloc of this city of Manila and belonging to Benito Legarda, and later on, of the entire hacienda, said Benito Valdes, on the date above-mentioned,
addressed to said Borck the following letter (Exhibit E):

MANILA, December 4, 1911.

Mr. W. BORCK,
Real Estate Agent,
Manila, P.I.

SIR: In compliance with your request I herewith give you an option for three months to buy the property of Mr. Benito Legarda known as the Nagtahan Hacienda,
situated in the district of Sampaloc, Manila, and consisting of about, 1,993,000 sq. meters of land, for the price of its assessed government valuation.

B. VALDES.

Subsequent to the said date, W. Borck addressed to Benito Valdes several letters relative to the purchase and sale of the hacienda, and as he did not obtain what he expected or
believe he was entitled to obtain from Valdes, he filed the complaint that originated these proceedings, which was amended on the 10th of the following month, April, by
bringing his action not only against Benito Valdes but also against Benito Legarda, referred to in the letter above quoted.

In said amended complaint it is alleged that the defendant Benito Legarda was the owners of fee simple of the Nagtajan Hacienda, and that Benito Valdes was his attorney in
fact and had acted as such on the occasions reffered to in the complaint by virtue of a power of attorney duly executed under notarial seal and presented in the office of the
register of deeds, a copy of which, marked as Exhibit A, was attached to the complaint; that on or above December 4, 1911, the defendant Benito Valdez gave to the plaintiff the
document written and signed by him, Valdes, quoted at the beginning of this decision, to wit, the letter afore-mentioned, which document is inserted in the amendment to the
complaint; that on January 19, 1912, while the offer or option mentioned in said document still stood, the plaintiff in writing accepted the terms of said offer and requested of
Valdes to be allowed to inspect the property, titles and other documents pertaining to the property, and offered to pay to the defendant, immediately and in cash as soon as a
reasonable examination could be made of said property titles and other documents, the price stipulated in the contract for said hacienda which is also described in the
complaint, as well as its value and the revenue annually obtainable therefrom; that, in spite of the frequent demands made by the plaintiff, the defendants ha persistently
refused to deliver to him the property titles and other documents relative to said property and to execute any instrument of conveyance thereof in his favor; that the plaintiff,
on account of said refusal on the part of the defendant Valdes, based on instructions from the defendant Legarda, had suffered damages in the amount of P760,000, and, by
the tardiness, failure and refusal of the defend to comply with his obligation, the plaintiff had incurred great expense and suffered great losses, whereby he was prejudiced in
the mount of P80,000; that the plaintiff was and had been, on all occasions, willing to comply with the obligation imposed upon him to pay to the defendants the full
stipulated price. The plaintiff concluded by praying: (1) That the defendant Valdes be ordered to execute the necessary formal document as proof of the contract or obligation
before referred to, and to incorporate the same in a public instrument, and that the defendant Legarda be ordered to convey in absolute sale to the plaintiff, either directly or
through the defendant Valdes, by a property deed, the said Nagtajan Hacienda, described in the complaint; (2) that both defendants and each of them be ordered and required
to render an account to the plaintiff of such rents and profits as they may have collected from the said property from the 19th of January, 1912, until the date of the execution of
the judgment that may be rendered in these proceedings, together with legal interest on the amounts thereof; (3) that, in case it can shown that specific performance of the
contract is impossible, that the defendant be ordered to pay the plaintiff damages in the sum of P760,000; and finally, that the plaintiff have recovered the interests and the
costs in these proceedings.

While this complaint was not yet amended, the defendant Valdes filed a demurer, on the grounds that there was a misjoinder of parties on account of the erroneous inclusion
therein of the defendant Valdes, that the complaint did not set forth fact that constituted a cause of action against said defendant, and that it was ambiguous, unintelligible and
vague. This demurrer was overruled on April 11, 1912.

The defendant Benito Legarda also interposed a demurrer to the amended complaint on the grounds that the facts therein set forth did not constitute a right of action against
him. This demurrer was likewise overruled on June 26, 1912.

On the 22nd of the same month of June, the court, ruling on a petition made in voluntary insolvency proceedings brought on May 10, 1912, by the plaintiff W. Borck, and in
view of the agreement entered into in said proceedings by all of the latter's creditors, ordered that the plaintiff Borck be substituted in the instant proceedings by Hartford
Beaumont, as the trustee appointed therein and representative of the said plaintiff's creditors, the assignee of his rights, in said proceedings.

The defendant Benito Valdes, answering the complaint as amended, denied each and all of the allegations thereof from paragraph 4, except those which the admitted in the
special defense, in which he alleged: (1) That the option given by him to the plaintiff was an option without consideration and subject to the approval of the defendant Legarda;
(2) that, as the defendant Legarda has not approved said option, it had no value whatever, according to the understanding and agreement between himself and the plaintiff; (3)
that the option offered by him to the plaintiff had not been accepted by the latter within a reasonable period of time nor during the time it was in force, in accordance with the
conditions agreed upon between the parties; (4) that he sighed the letter of December 4, in which he tendered to the plaintiff the option which has given rise to this suit,
through deceit employed by the plaintiff with respect to its contents, for the plaintiff had stated to him that it was written in accordance with what had been agreed upon by
both parties, without which statement he would not have signed it; (5) that the plaintiff, on the prior to January 19, 1912, was insolvent, and had neither proven his solvency
nor offered to pay the price in cash, as he had agreed to do; and (6) that he, Valdes, was merely a general attorney in fact of the defendant Benito Legarda and had no interest
whatever in the subject-matter of the suit, nor in the litigation, and in all his acts had carried out the instructions of the said Legarda. He finally prayed that the complaint be
dismissed with costs against the plaintiff.

The defendant Benito Legarda, answering the complaint, denied each and all of the allegations thereof, from paragraph 3, except such as he expressly admitted and were
contained in the special defense inserted in said answer, in which he alleged: (1) That his codefendant Benito Valdes, though his attorney-in-fact, had instructions not to give
any option on the hacienda in question without Legarda's previous knowledge and consent; (2) that on and before December 4, 1911, the plaintiff had knowledge of the scope
and limitations of the powers conferred upon the defendant Valdes; (3) that the latter gave the option, alleged by the plaintiff, without his (Legarda's) knowledge or consent,
thus violating the instructions he had given to the said Valdes; (4) that he had disapproved and rejected the option in question as soon as he had learned of it; (5) that he had
been informed, and therefore alleged as true, that the option said to have been executed in behalf of the plaintiff had been obtained by the latter by a false and malicious
interruption of the letter of December 4, 1911, and that the plaintiff, availing himself of such interpretation, induced the defendant Valdes to sign the said option; (6) that the
option said to have been tendered to the plaintiff had not been legally accepted; and (7) that on the subsequently to January 19, 1912, the date on which, according to the
plaintiff, a tender of payment of the price of the Nagtajan Hacienda, in accordance with its assessed value, was made to his codefendant Valdes, as well as to the date of the
answer, the plaintiff was insolvent.

After the hearing, in which the respective parties presented their evidence, the Court of First Instance of this city of Manila, on February 12, 1912, rendered judgment in which
he found; (1) That the instrument Exhibit E that is, the letter of December 4, 1911, quoted at the beginning of this decision), as supported by Exhibit A (the power of attorney, a
copy of which accompanied the complaint) and as confirmed by Exhibit G (the letter of January 19, 1912, addressed by the plaintiff Borck to the defendant Valdes, presented in
evidence at the trial and of which mention will be made elsewhere herein), constituted a contract by which the principal defendant undertook to convey to the plaintiff the
property therein described; (2) that the plaintiff made a sufficient tender of performance, of his part, of the contract, in accordance with section 347 of the Code of Civil
Procedure; (3) that the defendants had failed to execute such conveyance in accordance with said contract, and that the plaintiff was entitled to the specific performance
thereof, and to the net income, if any, obtained from the land since January 19, 1912, but that he had not shown sufficient loss which entitle him to additional damage unless it
subsequently should appear that a conveyance could not be made. The court accordingly decreed: (1) That upon the payment by the plaintiff to the principal defendant, Benito
Legarda, or to the clerk of the court, of the sum of P307,000, the said defendant, or his codefendant and attorney-in-fact, should execute and deliver to the plaintiff good and
sufficient conveyance, free of all incumbrance, of the property described in Exhibits B and C, attached to the plaintiffs complaint, so far as the same was included within the
terms of Exhibit G; (2) that upon the said defendants' failure to execute such conveyance within a reasonable time after such payment, the clear of the court should execute
one, and the same together with the decree, should constitute a true conveyance; (3) that if for any sufficient reason such conveyance could not then be made, the plaintiff
should have and recover from the defendant Legarda, as alternative damages, the sum of P73,000, with interest thereon at 6 per cent per annum from March 13, 1912; and (4)
that the defendants should render an accounting, within thirty days, of the income and profits derived from said property since January 19, 1912, and pay the costs of the
proceedings.

The parties having being notified of this judgment, the defendant Benito Legarda and Benito Valdes excepted thereto and at the same time prayed that it be se aside and that
they be granted a new trial on the grounds that the judgment was not sufficiently supported by the evidence and was contrary to law, and that the findings of fact therein
contained were manifestly and openly contrary to the weight of the evidence. Their prayer having been denied by a ruling to which they also excepted, they have brought these
proceedings on appeal to the Supreme Court by the proper bill of exceptions, and have specified in their respective briefs several errors which they allege the lower court
committed. Some of these errors consist in that the trial judge overruled the demurrer filed to the complaint; others, in that he admitted certain evidence and excluded others,
this being the alleged cause of the erroneous consideration of the instrument Exhibit E and of the rights and obligations derived from it, both with respect to the plaintiff and
the two defendants' and still others refer to the various statements in the judgment resulting from those findings and on which the conclusions arrived at, have been founded.

The defendant Benito Legarda also alleged, among the said errors, as especially affecting his rights, that the court held that Benito Valdes was his agent, empowered to execute
contracts in his (Legarda's) name in respect to real property; that the court admitted in evidence the document Exhibit A, introduced by the plaintiff, to wit, the copy of the
power of attorney attached to the complaint, which never was offered as such; and that he based one of his findings thereon.

The defendant Benito Valdes specified, also particularly with reference to himself, other errors consisting in the court having held that he voluntarily executed the option in
question, instead of holding that it was obtained through fraud; and likewise in holding that the document Exhibit E was a contract of option and not an offer to sell, and in not
holding that said option was an offer subject to the approval of the defendant Legarda.

Inasmuch as it does not appear from the bill of exceptions that the defendants recorded the exceptions to the overruling of the demurrer respectively filed to the complaint by
both defendants, the assignment of error relative to the said ruling cannot be taken into consideration by this Supreme Court.

The plaintiff's action is based on the failure of the defendant Valdes, as the agent or attorney in fact of the other defendant Benito Legarda, to perform the obligation contracted
by the Benito Valdes to sell to the plaintiff the property belonging to the said Legarda, mentioned in the letter of December 4, 1911 (Exhibit E), within the period and for the
price specified therein; and the object or purpose of these proceedings is to require fulfillment of the said obligation and to secure the payment of a proper indemnity for
damages to the plaintiff because of its not having been duly and timely complied with.

Inasmuch as it was set forth in the document Exhibit E that the property known as the Nagtajan Hacienda, (an option to buy which was given by the defendant Valdes to the
plaintiff Borck) belonged to Benito Legarda; as negotiations had been undertaken prior to the execution of the said document, between the plaintiff Borck and the defendant
Valdes with respect to the maters set forth in that document, by virtue of which Borck knew that Valdes was Legarda's agent or attorney-in-fact, although it appears in said
instrument that the agent Valdes acted in his own name; and, further, as the plaintiff in the complaint made the necessary allegations to explain the relations that existed
between the principal Legarda and the agent Valdez with regard to the said document Exhibit E and the failure alleged by the plaintiff, to fulfill the stipulations therein
contained; therefore, the facts alleged in the complaint did constitute a right of action against either or both defendants, and the lower court did not err in so holding, for,
though the person who contracts with an agent has no action against the principal, pursuant to article 1717 of the Civil Code, when the agent acts in his own name, as in such a
case the agent would be directly liable to the person with whom he contracted as if it were a personal matter of the agent's yet this does not occur when the acts performed by
the agent involved the principal's own things, and in the document Exhibit E, which was inserted in the complaint when the latter was amended, it appears that the defendant
Valdes, who signed the said document, stated that the property, the option to buy which he gave to the plaintiff, Borck, belonged to Legarda. And as it is unquestionable that,
pursuant to the above-cited provision of law, the action was properly brought against Benito Legarda as Valdes' principal, it is also unquestionable that Valdes was properly
included in the complaint as one of the defendant, for said article 1717, in providing that in cases like the one here in question the person who contracted with the agent has an
action against the principal, does not say that such person does not have, and cannot bring an action against the agent also, and the silence of the statute on this point should
not be construed in that sense, when the rights and obligations, — the matter brought into discussion by means of the action prosecuted, — cannot be legally and juridically
determined without hearing both the principal and the agent.

Section 114 of the Code of Civil Procedure in force, treating of the parties who should be included in an action as defendants, includes any person who has or claims an interest
in the controversy or the subject-mater thereof adverse to the plaintiff, or who is a necessary party to a complete determination or settlement of the questions involved therein;
and there can be no doubt whatever, and the record itself shows, that the agent Benito Valdes was and in a necessary party in these proceedings for the complete and proper
determination of the matter involved.

As one of the allegations of the complaint was that the defendant Benito Valdes was the attorney in fact of Benito Legarda, the owner of the Nagtajan Hacienda, the option to
buy which was granted by the said defendant Valdes to the plaintiff Borck, in the letter of December 4, 1911, Exhibit E, there was attached to the complaint a copy of the power
of attorney marked Exhibit A, by virtue of which, as therein also set forth, the defendant Benito Valdes, the attorney-in-fact of Benito Legarda, in giving to the plaintiff the
option to buy the said hacienda, had acted according to the aforesaid document Exhibit F, which was likewise inserted in the amended complaint as a part thereof.

Inasmuch as the relation which, according to the plaintiff, existed between Benito Legarda and Benito Valdes as to the obligation contracted by means of Exhibit E, and the
fulfillment thereof was established by means of the said allegations, supported, as it appeared, by the power of attorney Exhibit A, and by the letter or document Exhibit E
(which were made by the plaintiff a part of the complaint), the joining of the copy of the power of attorney to the complaint cannot be considered to have been done merely for
the purpose of attesting the personality of either of the defendants, but to show the legal status of each of them in the obligation referred to, in view of the terms of the
document Exhibit E, the authority under which the defendant Valdes acted in executing this document, as well as the fact of hi having been granted such authority by the
defendant Legarda, by means of said power of attorney. So that as said two documents, to wit, Exhibit A or the power of attorney executed by Legarda in favor of Valdes,
authorizing him to perform various acts, among them, that of selling, exchanging, ceding, admitting in payment or by way of compensation or in any other manner acquiring
or conveying all kinds of real property for such prices and on such conditions he might deem proper, and the document Exhibit E, or the letter setting forth the option given to
the plaintiff Valdes to buy the said Nagtajan Hacienda belonging to Legarda, cannot be considered separately, in view of the allegations of the complaint and the action
brought thereon against the two defendants; and as said two documents, each of complement of the other, constituted the basis of the action brought in the complaint, and as
their genuineness and due execution were not denied under oath by either of the two defendants, as they might have done, pursuant to section 103 of the Code of Civil
Procedure, the plaintiff was not obliged to present at the trial, as proof, the aforementioned power of attorney to prove its existence and the fact of Valdes being his attorney in
fact, vested with the powers specified in this instrument, notwithstanding the general denial made by the defendant Legarda in his answer of the allegations contained in the
complaint from its third paragraph on, in which paragraph that averment is made, supported by the copy of the said power of attorney attached to the complaint.

On the contrary, as the said document Exhibit A constitutes prima facie proof of the fact that Benito Valdes is the attorney-in-fact of Benito Legarda, and that he is vested with
the powers specified therein, on account of Legarda's not having denied under oath the genuiness and due execution of the said document, it was therefore incumbent upon
Legarda himself to prove that he had not executed the said power of attorney in Valdes' favor and that he had not conferred upon him, by virtue thereof, the powers therein
mentioned. (Merchant vs. International Banking Corporation, 6 Phil., 314; Papa vs. Martinez, 12 Phil., 613; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222;
Banco Espanol-Filipino vs. McKay & Zoeller, 27 Phil., 183; Knight vs. Whitmore, 125 Cal., 198; McCormick Harvesting Machine Co., vs. Doucette, 61 Minn., 40.)

The lower court, therefore, did not err in holding that Benito Valdes was the agent of Benito Legarda, vested with powers to execute contracts for the sale of real estate in the
latter's name; nor in considering as proof the power of attorney, the plaintiff's Exhibit A, and making it the basis of one of the conclusions of the judgment, notwithstand that it
was not offered as such proof by the plaintiff. Consequently, the court likewise did not err in admitting the evidence introduced by the plaintiff himself to show the existence of
the contractual obligation on the part of the defendant Legarda, as principal of the other defendant, Valdes, and which was contended by the plaintiff to be one of the grounds
of the action brought in this complaint against the two defendants.

It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to
the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which
necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned, and as the grant
made by Valdes to Borck in the said letter was made as a result of the requests of Borck himself, as stated in the letter, and of the negotiations previously entered into between
the latter and Valdes with respect to the purchase of the hacienda, as shown in the letter of the 2d of the same month of December, that is, the letter which two days before was
addressed by Borck to Valdes, Exhibit C, the terms of the said document Exhibit E appear to be of the nature of an option contract between Valdes and Borck, inasmuch as, by
means of said document, the former finally accepted the propositions of the latter with respect to the granting of that right to Borck. There was, therefore a meeting of minds
on the part of the one and the other, with regard to the stipulations made in the said document. But it is not shown that there was any cause or consideration for that
agreement, and this omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, pursuant to article 121 of the Civil
Code, there can be no contract without the requisite, among others, of the cause for the obligation to be established.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:

A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to, B certain securities or
properties within a limited time at a specified price. (Story vs. Salamon, 71 N.Y., 420.)

From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been
taken:

An agreement in writing to give a person the `option' to purchase lands within a given time at a named price is neither a sale nor an agreement to sell. It is simply a
contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does
not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The
second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for the receive
lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this right, or, rather,
from his point of view, he receives the right to elect to buy.

But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case where there was cause or consideration for the obligation,
the subject of the agreement made by the parties; while in the case at bar there was no such cause or consideration.

The lower court in the judgment appealed from said:

There is some discussion in the briefs as to whether this instrument constitutes a mere offer to sell or an actual contract of option. In terms it purports to be the
latter and in fact recites the acceptance of a "request" or offer, by the plaintiff. But viewing the instrument as in itself no more than an offer, it was at least a
continuing one, "for three months," and as it is not claimed to have been withdrawn during that period, nor afterward, the plaintiff could at any time enter into an
actual contract, if it were not such already, by mere acceptance.

So the, the lower court did not insist that, by the said document Exhibit E, a real contract of option was executed. He stated that it was at least a continuing offer for three
months — an offer which it was neither alleged nor proven to have been withdrawn during that period — and held that but the plaintiff's mere acceptance at any time during
the course of said period, the terms of the said document became a contract, if such it were not already.

There is therefor no foundation for the third assignment of error made by the defendant Valdes, to wit, that the lower court erred in holding that the document Exhibit E was a
contract of option and not an offer to sell.

A certainly this document Exhibit E contains an offer or promise on the part of the defendant Valdes, who signed it, to sell the hacienda in question to the plaintiff Borck, at its
assessed valuation, to whom was granted three months within which to make use of his right to purchase the property. In order that such an offer, or proposal, or promise on
the part of Valdes, to sell the said hacienda might be converted into a binding contract for him and for Borck, it was necessary that the latter should have accepted the offer, by
making use of the right thereby granted him, within the period stipulated, and paying the price agreed upon in that document.
Referring particularly to the sale of real estate, there is in fact practically no difference between a contract of option to purchase land and an offer or promise to sell it. In both
cases the purchaser has the right to decide whether he will buy the land, and that right becomes a contract when it is exercised, or, what amounts to the same thing, when use
is made of the option, or when the offer or promise to sell the property is accepted in conformity with the terms and conditions specified in such option, offer, or promise.

An option for the purchase of a real estate is merely a right of election to purchase which when exercised, by comes a contract. (Hopwood vs. McCausland, 120
Iowa, 218.)

So that in the case at bar it is immaterial whether the contents of the document be considered as an option granted by the defendant Valdes to the plaintiff to purchase the
Nagtajan Hacienda, or as an offer or promise on the part of the former to sell the estate to the latter within the period and for the price specified in Exhibit E.

In the defendants' answer no concrete allegation was made that either of them had withdrawn said offer to sell, but the defendant Valdes introduced evidence to prove that the
withdrawal of the offer was made before the plaintiff had accepted it, that is, before January 17, 1912, and for this purpose presented a letter from the defendant Legarda (p.
103, part 1 of the record), dated November 13, 1911, and addressed from Paris to Mauro Prieto, also one of Legarda's attorneys in fact. In this letter Legarda stated to Prieto,
among other things, that, with reference to the steps taken by Borck for the purchase of the Nagtajan Hacienda, the addressee might say to Borck that the writer was not very
anxious to sell the property except for a price greater than P400,000 in cash. The defendant Valdes testified that the contents of this letter were communicated by him to
Borck, though he did not state positively on what date. Valdes also presented the witnesses Alejandro Roces and Jose E. Alemany. The first testified that sometime during the
second half of January, on an occasion when he was in Dr. Valdes' office, he heard the latter and Borck speaking, and that Borck said something to Dr. Valdes about P300,000,
and that it would be difficult to find a purchaser for cash; and that he also heard them talk about P400,000. The second witness, Dr. Jose E. Alemany, also testified that about
the 12th or 15th of January, at a time when he was in Dr. Valdes' office, he heard a conversation between Valdes and Borck in which the former said to the latter that what
Borck wanted was impossible, and that the latter replied to Valdes that it was very dear, that he did not want it, that he did not have the money. On this occasion, this witness
also heard them talking about P400,000.

As the record does not show positively that the defendant Valdes, on the occasion above referred to, told the plaintiff Borck that he (Valdes) withdrew the offer of sale
contained in the document Exhibit E, for here merely communicated to Borck the contents of the said letter from Legarda to Prieto, as the date when he did this does not
appear; and as the statements made by the witnesses with regard to the conversation they heard between Valdes and Borck are vague and as it cannot be deduced therefrom
that such statements referred expressly to the fact that Valdes withdrew the offer on that occasion, it must be concluded that there is no proof on this point. But, though it had
been proven that the withdrawal of the offer was made in the month of December, 1911, or before January 17, 1912, as stated by Valdes' counsel in his brief, such a fact could
not be a bar to, or annul the acceptance by the plaintiff Borck, of said offer on any date prior to the expiration of the three months fixed in the document Exhibit E, to wit,
March 4, 1912, because the offer or promise to sell therein contained was not made without period or limitation whatever (in which case Valdes might have withdrawn it and
the latter have accepted it at nay time until it was withdrawn) but for three months, that is, for a specific period of time; and, as the plaintiff Borck had a right to accept the
offer during that period, it was Valdes' corresponding duty not to withdraw the offer during the same period. Therefore the withdrawal of the offer claimed to have been made
by this defendant was null and void.

Consequently, the lower court did not err in holding that the offer and not been withdrawn during the three months mentioned and that it could be converted into a real
contract by the plaintiff Borck's mere acceptance within the same period.

One of the allegations made by the plaintiff in the complaint, as we have seen, is that on January 19, 1912, while the said offer was still open, the plaintiff accepted it in writing,
in conformity with its terms, and requested permission of the defendant Valdes to inspect the property titles and other documents pertaining to the estate, and offered to pay
the defendant Valdes as soon as a reasonable examination could be made of the said property titles and other documents, immediately and in cash the price stipulated and
agreed upon in the contract for the said stipulated and agreed upon in the contract for the said hacienda. To prove this allegation, the plaintiff presented the document Exhibit
G, which reads as follows:

MANILA, January 19, 1912.

DR. BENITO VALDES,

195 San Sebastian,
City.

SIR: I hereby advise you that I am ready to purchase the Hacienda Nagtahan, situated in the district of Sampaloc and Nagtahan, Manila, and in the Province of
Rizal, consisting of about 1,993,000, square meters of land, property of Mr. Benito Legarda, for the sum of three hundred and seven thousand (307,000) pesos Ph.
c. the price quoted in the option given my by you.

Full payment will be made on or before the third day of March 1912, provided all documents in connection with the Hacienda Nagtahan, as Torrens title deed,
contracts of leases and other matters be immediately placed at my disposal for inspection and if such papers have been found in good order.

Very truly yours,

W. BORCK.

In the preceding letter that plaintiff in fact did state that he accepted the offer made to him or the option given to him by the defendant Valdes in the document or letter of
December 4, 1911, Exhibit E, for, even though it was not stated therein what option it was that was mentioned in the said letter it is unquestionable that it could refer to no
other than to the option or offer mentioned in the said Exhibit E, as no other was then pending between the plaintiff and this defendant.

But aside from the fact that the complete payment of the P307,000 mentioned in the said letter was made to depend on the condition that all the documents relative to the
Nagtahan Hacienda, such as the Torrens title, etc., be immediately placed at the plaintiff's disposal for his inspection, and be found satisfactory, the said tender of payment was
offered to be made on or before March 3, 1912.

A simple statement of the last part of the letter is enough to convince that the plaintiff did not offer to pay, immediately and in cash to the defendant Valdes as he alleged in his
complaint, the price stipulated and agreed upon between themselves in the said document Exhibit E. Of court, it is undeniable that the plaintiff Borck had a right to examine
the title deed and all the documents relative to the Nagtajan Hacienda, before the sale of the property should be consummated by means of the execution of the proper deed of
conveyance in his favor by the defendant Valdes as the attorney-in-fact of the other defendant Legarda, and, consequently, the plaintiff Borck was also entitled to refrain from
making payment as long as he should not find the documents relative to the said property complete and satisfactory, an indispensable condition in order that the said deed of
conveyance might be executed in his favor. But at the very moment this instrument was executed and signed by the vendor, the payment of the stipulated price should have
been made in order that it might be an immediate cash payment. Pursuant to the language of that part of the document or letter Exhibit G to which we now refer in respect to
the payment, it cannot be understood that the plaintiff tendered payment to the defendant immediately and in cash, for the simple reason that if the documents had been
placed by the defendant at the plaintiff's disposal for his inspection, for example, on January 20th, the day following the date of the letter Exhibit G, and the plaintiff had
examined and found them satisfactory, and the defendant Valdes had executed in the plaintiff's favor the proper deed of conveyance or sale of the hacienda on the 25th of the
same month of January, according to the exact terms of the letter of acceptance of the offer, Exhibit G, dated January 19, 1912, the plaintiff, that is, the purchaser Borck, could
have made full payment to the defendant Valdes, of the P307,000, the price of the property, on the 3d of March, 1912, or on any date on which the deed of conveyance was
issued, from the 25th of January up to the said 3d day of March, for nothing else can be understood by, and no other meaning and scope can attach to, the words "full payment
will be made on or before the third day of March 1912." In short, by the way the part of said document Exhibit G relative to the offer of payment in the example above given is
drawn, the purchaser Borck might pay the stipulated price of the property, or have the period from the 25th of January to the 3d of March within which to pay it, and
meanwhile the ownership of the estate would already have been conveyed, by means of the proper deed, to the purchaser Borck, and he could not have been obliged to pay the
said price until the very day of March 3, 1912, by reason of the contents of the said letter, Exhibit G.

In connection with the allegation we have just been discussing, to wit, that the plaintiff Borck made a tender of payment to the defendant Valdes "immediately and in cash" of
the price of the hacienda fixed in the instrument Exhibit G, the plaintiff also presented as proof, in relation to the allegation as to the presentation of the letter of January 19,
1912, Exhibit G, another letter written by himself, and also addressed to the defendant Valdes, under date of the 23rd of the same month of January This document is marked
Exhibit J and is of the following tenor:

January 23, 1912.

DR. BENITO VALDES,

195 Calle San Sebastian,
City.

SIR. I have the pleasure to inform you that I can improve the conditions of payment for the Hacienda Nagtahan in so far as to agree to pay the whole amount of
purchase price, three hundred and seven thousand (307,000) pesos, Ph., c., ten days after the Torrens title deeds and all papers in connection with the hacienda
have been placed at my disposal for inspection and these documents and papers have been found in good order.

Respectfully yours,

As may be seen by the language in which the preceding letter is couched, the plaintiff virtually recognized, just as he had done in the letter of January 19th, that is, the one
written four days before, Exhibit G, that the tender of payment to the defendant Valdes, of the price of the hacienda, could not be understood to have been a tender of
"immediate and cash" payment, as alleged in the complaint, but that payment might be made on any date prior to March 3, or on this same date, even though he may have
found satisfactory all the documents that the defendant might have placed at his disposal to be examined, and consequently, although the proper deed of conveyance of the
property should have been executed in his favor. Nothing else is meant by the statement made by the plaintiff Borck to the defendant Valdes in the letter of January 23, Exhibit
J, that he had the pleasure to inform him that he could improve the conditions of payment for the Hacienda Nagtajan in so far as to agree to pay the whole amount of purchase
price, P307,000, ten days after the Torrens title deeds and all papers in connection with the hacienda should have been placed at his disposal for inspection and should have
been found satisfactory, for the payment which Borck offered to make to Valdes, of the price of the property, in said letter Exhibit J, was not indeed to be effected on the third
of March or prior thereto, but within the limited period of ten days after the documents-relative to the property should have been delivered to the plaintiff for his inspection
and been found satisfactory. And were they any doubt that the meaning or the sense; of said offer was not as just above stated, it would be removed by a mere perusal of the
statement made therein by the plaintiff telling the defendant Valdes that he, the former, had the pleasure to inform he latter that he, Borck, could improve the conditions of
payment for the hacienda, to wit, those mentioned in the letter written' four days before, that is, on January 19th, Exhibit G, in the manner aforementioned by paying the
whole amount of the purchase price ten days after the documents should have been delivered to the plaintiff and he should have found them satisfactory.

But, the letter of January 23, Exhibit J, is drawn up_in such a way that it also does not contain any tender of "immediate and cash" payment by the plaintiff Borck to the
defendant Valdes.

Indeed, as said letter makes the total payment of the price of the property depend on the delivery by the defendant Valdes to the plaintiff Borck of all the documents relative to
the hacienda, and of the further condition that, the latter should find such documents in good order and satisfactory, and as a period of ten days was fixed for the said
payment, counting from the date of the delivery of the documents, and on the condition that Borck should find them satisfactory, the date of payment cannot be-understood to
have been fixed for any certain day after those ten days, or for the eleventh day, for the simple reason that, for example, if the documents were delivered to Borck on February 1
for his inspection, and after the lapse of ten days thereafter he had not finished examining them and had kept them in his possession for this purpose for ten days longer, that
is, until February 20, and then had found them satisfactory, the result would be that the payment would have had to be made, not ten days, but twenty days, after the delivery
of the said documents, and this would have been authorized by the ambiguous terms in which the tender of payment are couched.

But supposing that as appears to be the case, it had been the purpose of the plaintiff Borck, in fixing those ten days in the letter Exhibit J, for the payment, that there should be
an interval of said ten days between the delivery and inspection of the said titles and the determination of whether they were satisfactory or not, it might also have happened
that on the third day after the delivery of the titles, these might have been found by the purchaser to be satisfactory, and that the vendor might immediately have executed the
proper deed of conveyance of the property in the purchaser's favor. In that event, according to the terms of said letter Exhibit J, the purchaser Borck would not be obliged to
make payment to the vendor Valdes until seven days after the execution of the deed of conveyance and the transfer of the property to the former that is, not until the expiration
of the period of ten days counting from the date of the delivery of the documents to‚the purchaser; and it is evident that such a payment would not be in cash, pursuant to the
provisions of article 1462, in connection with article 1500, of the Civil Code.

Furthermore: The plaintiff Borck also presented another letter in connection with his aforementioned allegation made in the complaint, and related to the other two previous
letters, Exhibit G and J, to prove what he had intended to accomplish by means of the latter, to wit, that the tender of payment made by him to the defendant was made in
accordance with the said allegation, "immediately and in cash."

This letter (Exhibit K) bears the date of February 28,t1912, and reads as follows:

MANILA, P.I., February 28, 1912.

DR. BENITO VALDES,

Attorney-in-fact for Benito Legarda
Manila.

DEAR SIR: To prevent any misunderstanding, I wish to advise you that the purchase price of the Hacienda Nagtahan is ready to be paid over to you, and I request
you to notify me whenever it is convenient for you to place at my disposal for inspection the title deed and papers in connection with said estate.
 Very respectfully,

W. BORCK.

As may also be seen by the very terms employed by the-plaintiff in this letter, he virtually admits, clearly acknowledges, that in the two previous letters, Exhibits G and J, he
had made the tender of payment of the price for the Nagtajan Hacienda in such a manner that it could not be understood to have been in accordance with the agreement
entered into between himself and Valdes, that is, that the payment should be in cash.

The letter Exhibit K in fact begins with these words:

"To prevent any misunderstanding." and then says: I wish to advise you that the purchase price for the Hacienda Nagtahan is ready to be paid over to you, and
request you to notify me whenever it is convenient for you to place at my disposal for inspection the title deed and papers in connection with said estate.

The first words of the letter of course indicate that the plaintiff Borck himself, in writing them, feared, at least the was not sure, that, in accepting, in the letter of January 19th,
Exhibit G, the offer of the sale of the hacienda to him by Valdes, and in making therein the tender of payment band in renewing this tender in the letter, Exhibit J, of the 23 of
the same month, he, the plaintiff, had not conformed to the terms of the offer of sale or of the option to buy, given to him by Valdes by means of the document Exhibit E, for in
the said last letter, Exhibit K, he takes it for granted that there was or might be some misunderstanding between himself and the defendant Valdes with)respect to the tender
made by him of the price of the estate. According to the admission of the plaintiff Borck in his complaint, this price was to be paid "at one and in cash." In the said letter
Exhibit K, to avoid that misunderstanding, the plaintiff Borck stated to the defendant Valdes that the purchase price for the hacienda was ready to be paid over to hi, and
requested to be notified by Valdes when it would be convenient for him to place at the plaintiff's disposal for inspection the title deed and papers in connection with said estate.

The notification contained in this letter written by Borck to Valdes, that the purchase price of the estate was ready to be paid over to the latter, and the mention made in this
same letter, immediately after the notification, of the inspection which the plaintiff wished to make of the titles which he desired should be delivered to him for this purpose,
show that this last letter, Exhibit K, relates to the one that preceded it, dated January 23, Exhibit J, or, what amounts to the same thing, is a result of it, for it is virtually said
therein that the price of P307,000 (which according to his previous letter, he had agreed to pay for the hacienda, ten days after the delivery to him of the documents relative to
the estate and their having been found by him to be satisfactory) was already held in readiness by the plaintiff for delivery to the defendant, but this delivery of the price was
subordinated to the delivery requested by the plaintiff to those titles and other documents,‚and to the plaintiff's finding such documents satisfactory, and the delivery of the
price was also subordinate to the period of the ten days, mentioned in the said letter Exhibit J. The letter Exhibit K can have no meaning„whatever in that part thereof where
reference is made to»the offer of payment of the price of the hacienda, or to the payment itself, except in connection with the previous Exhibit J, inasmuch as the letter Exhibit
K does not state when Borck was to deliver to Valdes the price which, according to this same letter, the plaintiff already had in readiness for that purpose. So that neither in the
letter Exhibit K is any specific offer of payment made by the plaintiff Borck to the defendant Valdes, of the price stipulated in the document Exhibit E to be paid "at open and in
cash," notwithstanding its being said therein that the plaintiff had the money ready to be turned over to the defendant.

Upon the plaintiff Borck's testifying at the trial as witness, said documents Exhibits E, G., J, and K, and also others marked from A to M, including the four just referred to,
were presented in evidence. Among these documents is found Exhibit F, which reads as follows:

MANILA, January 17, 1912.

DR. BENITO VALDES,

194 San Sebastian,
City.

SIR: In reference to our negotiations regarding the Hacienda Nagtahan at Manila, property of Mr. Benito Legarda, consisting of about 1,993,000 sq. meters of land,
I offer to purchase said property for the sum of three hundred and seven thousand (307,000) pesos P. c., cash, net to you, payable the first day of May 1912 or
before and with delivery of a Torrens title free of all encumbrances as taxes and other debts.

Respectfully,

YOURS,

On said documents being presented in evidence at the trial, the defendants objected to their admission; the court reserved his decision thereon and in the judgment appealed
from made no mention as to the contents of said document‚Exhibit F, and in ruling on the defendants' motion for a new trial, in which motion they signed as one of the error of
the said judgment the fact that no notice whatever had been taken therein of the said Exhibit F, which defendants claimed to be one of the their most important proofs, the
court stated as a reason for the omission that this Exhibit F was unsigned, unidentified and was not attested by anyone, besides the fact that no conclusion, either in favor‚of or
against the plaintiff, could be based on its because, although the said letter, that is, Exhibit F, might have been actually delivered, no right whatever could be predicated
thereon, nor any liability, and it was, therefore, inadmissible.

The record shows that when Exhibit F and Exhibits G, J, K, L, and M, were shown to the defendant Valdes by the plaintiff's counsel Beaumont, for their identification and in
order that Valdes might state to the court whether he had received the originals and, if so, where they were, defendant merely said in reply that he had received three originals
from Borck and two originals from Beaumont (p. 14 of the transcription of the stenographic notes), and exhibited the originals of Exhibits C, M. L., K, and G, but not that
of‚Exhibit F. The plaintiff Borck having been presented as a witness, after he had been asked the first four questions by Attorney Hartford Beaumont, the latter made the
following statement: "I would like to interrupt the witness at this moment in order to present all the Exhibits A to M, which were identified by the previous witness." Counsel
for the defendant Legarda objected to the admission of the said documents on the ground that they were incompetent, immaterial and irrelevant. The same objection was also
made by counsel for the defendant Valdes in behalf of his client, and the court said that he would reserve his decision (pp. 24 and 25 of the record).

During the examination of plaintiff Borck, in which Attorney Beaumont plied him with questions in regard to the aforementioned documents, beginning with Exhibit A and
showed him the documents themselves, on coming to Exhibit F, after having given attention to other exhibits among which was Exhibit O, which we shall mention later on, the
plaintiff answered the questions put to him with respect to Exhibit F in the following manner as found in the transcription of the stenographic notes in English(p. 61 on the
record):
 Q. Now I will show you Exhibit F, and call you attention to the fact that it has the same date, January 17, as Exhibit O, and ask you to state the circumstances
under which Exhibit O was signed —

A. This is may acceptance of the option of Dr. Valdes.

Q. How does it happen that it has the same date as Exhibit O? —

A. Because I don't believe in hanging back with my business. I conclude it as soon as possible. As soon as I got the offer, I made my acceptance to Dr. Valdes.

The document Exhibit F, as has been seen, is unsigned but the document Exhibit J, to wit, the aforementioned letter of January 23, 1912, is in the same condition. It is true
that although the document Exhibit J is unsigned because it is a copy of the letter addressed on that same date to Valdes by Borck, Valdes kept the original in his possession
and he did not present the original of Exhibit Fibut only the other letters before mentioned, although he stated with reference to the letter he had received from Borck, that as
he was not a business man and was not acquainted with that kind of business, he sometimes read the letters and, after taking notes of their contents, transmitted their
substance to Mr. Legarda, and at other times sent to him the letters themselves, from which testimony of Valdes it is concluded that he was not in the habit of keeping the
originals he received from Borck. However, as has already been seen, notwithstanding that Exhibit F was not identified by Valdes, the plaintiff Borck, However, as has already
been seen, notwithstanding that Exhibit F was not identified by Valdes, the plaintiff Borck, referring to the said document on its being shown to him by his attorney, who called
his attention to the fact that it has the same date, January 17, as Exhibit O, and asked him to state the circumstances under which Exhibit O was signed, said that Exhibit F was
his acceptance of Dr. Valdes' option; and in answering the next question, explained the reason why Exhibit F bore the same date as Exhibit O, saying that "he did not believe in
hanging‹back with his business;" that he "concluded it as soon as possible;" and that "as soon as he got the offer, he made his acceptance to Dr. Valdes."

Exhibit O is as follows:

MANILA, January 17, 1912.

W. BORCK, Esq.,
Manila.

DEAR SIR: Referring to our recent conversation regarding_the proposed purchase by clients of ours of the property known as the Hacienda Nagtajan, I beg to
advise you that our clients, after investigation of the physical conditions of the property, are prepared to make an offer for the purchase of the same at the price
named by you, to wit, P380,000, cash, provided that there is good titled to the property, that it contains substantially and area represented, namely, 1,993,000
square meters, and that the existing leases upon certain portions of the said property are found to be in proper form. It is the desire of our clients to have an
opportunity to investigate the legality of_the title and leases at the earliest practicable moment, and they have authorized us to say that if the conditions are
satisfactory with regard to these matters, they are prepared to make you a firm offer of the amount above named, and to make a deposit of a reasonable amount as
an evidence of good faith.

Very truly yours,

BRUCE LAWRENCE, ROSS, AND BLOCK,

"JAMES ROSS."

Connecting the contents of this document Exhibit O with those of the previous Exhibit F, and taking into account the testimony given by Borck, as above quoted, in answering
the questions put to him by his own attorney, relative to the said exhibits, it is clearly understood that on Borck's receiving the letter of January 17m 1912, from the law firm of
Bruce, Lawrence, Ross and Block, and signed by James Ross, Exhibit O, in which these gentlemen stated that they were prepared to make an offer for the purchase of the
Hacienda Nagtajan at the price of P380,000 cash, he wrote on the same date, January 17, to Dr. Valdes the letter, a copy of which is Exhibit F, in which, referring to the
negotiations between them regarding the said Nagtajan Hacienda, he offered to purchase this property for P307,000, cash and net, payable on or before the first day of May,
1912, delivery to be made to him to a Torrens title free of all encumbrance, such as taxes and other debts. For this reason the plaintiff Borck stated in his testimony that the
said letter Exhibit F was his acceptance of Dr. Valdes option, for, not believing in hanging back with his business and desiring to conclude it as soon as possible, as soon as he
received the officer, contained in the letter Exhibit O, from the said law firm, he transmitted or made known his acceptance to Dr. Valdes.

We do not think there could be a better identification of the letter Exhibit F than that made by it sown writer, the plaintiff Borck, for he admitted in his testimony that he wrote
this letter, and although the defendant Valdes did not present the original of the said letter Exhibit F, perhaps because it was one of those which he did not keep in his
possession, there can be no doubt whatever that the original of the said Exhibit F was transmitted to Valdes by the plaintiff Borck, of the latter explicitly said so in stating that
letter was his acceptance of Dr. Valdes' option, the plaintiff explaining why he had written said letter, on referring to the relation between said Exhibit F and the Exhibit C, on
account of the same date both letters bore, on making further explanations in the matter, hand saying: "As soon as I got the offer, I made my acceptance to Dr. Valdes."
Furthermore, if there were still any doubt whatever about this, it would disappear after a consideration of the following quotation taken from the plaintiff's written brief file
before the lower court rendered judgment, in which mention is made of the said brief and of the questions discussed therein said brief is found on pages 190 to 206 of the
record and is signed, by the plaintiff's attorneys, Aitken and Beaumont.

On page 195 thereof, appears the following:

3. THE ACCEPTANCE.

On the 17th of January, 1912, Mr. Borck received a written offer (Exhibit O) for the property from Mr. James Ross of this city for the price of P380,000 and
thereupon on the same day wrote Dr. Valdes the letter which appears as Exhibit T (pp. 56, 169 of the record). No question arises as to the validity of this acceptance
for reasons which will presently appear. . . .

As may be seen, in the paragraph of that brief signed by the plaintiff's attorney there is a restatement of what the plaintiff had said in his testimony, to with, that as soon as he
received, on January 17, 1912, a written offer Exhibit O, from Mr. James Ross of this city for the property in question and for the price of P380,000, he wrote on the same day
the letter of Dr. Valdes that appears as Exhibit T (pp. 56, 169, of the record). In this same brief the statement was also made that no question had arisen as to the validity of this
acceptance, for the reasons which would presently appear.
It is to be noted that Exhibit T, mentioned in the preceding paragraph transcribed from the brief, is the same Exhibit F, which was erroneously marked with the letter T in the
said paragraph, as shown by the fact that in this paragraph Exhibit T is referred to as being found on page 56 of the record, which page containes Exhibit F, and on page 169 of
the record, which contains a copy of the same Exhibit F,_the date of this latter exhibit, January 17, being also that of the Exhibit O, mentioned in the said brief.

The trial court therefore erred in not admitting in evidence‚said document Exhibit F and, consequently, in not taking it into consideration in the judgment appealed from. This
rejection cannot be warranted by the fact that the defendants themselves opposed its admission, for the latter also opposed the admission of all the documents presented by
the plaintiff, on the understanding that, as they were not bound by the documents Exhibits A and E, the one as principal and the other as agent, such documents were
immaterial, incompetent and irrelevant, nevertheless the trial court admitted some of those documents and considered them for the purpose of drawing his conclusions in the
judgment rendered.

It is hardly necessary now to show that said letter of January 17, 1912 (Exhibit F) was Borck's acceptance of the option or offer of sale made to him by the defendant Valdes in
his letter of December 4, 1911 (Exhibit E), for the plaintiff Borck himself admitted in his testimony at the trial that the letter Exhibit F was his acceptance of said option.

In fact, the plaintiff Borck, referring in the letter, Exhibit F, to the negotiations between himself and Valdes regarding the Nagtajan Hacienda belonging to Benito Legarda,
offers to purchase said property for the sum of P307,000, cash and net, payable the first day of May 1912, or before, the plaintiff to be furnished with a Torrens title free of all
encumbrances, such as taxes and other debts. The offer of sale or option of purchase contained in the document Exhibit E, was for the period of three months, from December
4, 1911, for the assessed valuation of the property, understood to be P307,000, though subsequently at the trial it was fixed by agreement of the parties at P306,954 and
payment was to be made in cash, for, even though this was not stated in the document, that failure itself so to state created the understanding that the price was to be paid in
cash when delivery of the property was made, in accordance with the provisions of article 1462, in connection with article 1500, of the Civil Code. The plaintiff Borck
recognized this in his complaint, in making the allegation we considered at the beginning of this decision, to with, that he accepted in writing the said offer in conformity with
its terms and offered to pay to the said Valdes, "immediately and in cash" the price stipulated; and he also so testified at«the trial, saying, in reference to the conditions of the
payment of the purchase price, that "the conditions were not discussed, because the payment was to be made in cash on exhibition of the documents." Now then, in the
document Exhibit F, that is, the letter of January 17, 1912, it is stated that payment of the net amount would be made in cash on_the first day of May, 1912, or before. So that it
may be said with all the more reason that in relation to the other offers of payment contained in the documents F, G, J, and K, that in the letter, Exhibit F, the plaintiff Borck,
in accepting the offer of sale, did not make an offer to pay the price "immediately and in cash," as stated in his allegation set forth in the complaint, for, by virtue of the said
documents, he reserved to himself the right to make the payment on the first day of May, 1912, or on any date prior thereto, as might suit him, that i, two months after the
termination of the option or of the offer, which would be, on or before March 4, 1912, although the deed of conveyance of the property in his favor should have been executed
by the defendant Valdes on any date within the period of the option, that is, within the three months which ended on the said 4th day of March, 1912, whereby the plaintiff
virtually gave himself five months from the date of the offer of sale or option of purchase, to effect the said payment. This is evidently not an offer to pay "immediately and in
cash," nor is it a payment in cash, as the law provides, nor such a payment as the plaintiff Borck himself understood it to be, when he stated in his testimony that the payment
was to be made in cash upon exhibition of the documents.

Duly considering the documents Exhibits F, G, J, and‚k, that is, the statements made by the plaintiff Borck in the letter of January 17, 19 and 23, 1912, and February 28th of the
same year, addressed by him to the defendant Valdes, in accepting the option that the latter had granted him for the purchase of the Nagtajan Hacienda, or the offer of sale of
the said hacienda defendant made to the plaintiff, with respect to the payment of the price therof, it is seen that in the said documents the plaintiff Borck offered to pay to the
defendant Valdes the said price, first within the period of five months from December 4, 1911, afterwards within the terms of three months from the same date of December 4,
and, finally, within a period which could as well be ten days as twenty or thirty of more days from the time Valdes should put at the plaintiff's disposal to be inspected, the titles
and other documents relative to the said hacienda, and the plaintiff should find them satisfactory and the proper deed of conveyance should, in consequence thereof, be
executed in his favor by Valdes; and this evidently is an offer of payment in installments, and not an "immediate and cash" payment.

The lower court in the judgment appealed from says that as the document Exhibit E, dated December 4, 1911, gave the plaintiff a three months' option for the purchase of the
property, a period which expired, therefore, on March 4, 1912, this necessarily allowed the plaintiff them for the payment until this last date, and as in the letter Exhibit G, of
the date of January 19, 1912, the plaintiff said that he would pay before the expiration of the said period, in no manner could this have modified the option, rather, on the
contrary, it coincided with it, the court adding, moreover, that a payment made on or before the 4th of March would have been a payment in cash, if this was required by
Exhibit E.

It is true that the period granted by the defendant Valdes to the plaintiff for purchasing the property, was three months from December 4, 1912, but not because this period
expired on March 4, 1912, that is, the last day of the said three months, may it be understood that the defendant granted to the plaintiff the period for payment until the very
last day, March 4, 1912, for the simple reason that, the period for the purchase being three months, that is,‚the time during which the plaintiff Borck could make use of the
power or the right granted by him by Valdes to arrange for the purchase of, and to purchase in fact, the said property, if Borck purchased it on any date prior to March 4, 1912
(on January 19, 1912, for example) the result would be that the proper deed of sale being consequently executed in his favor on the said date of January 19, and the time that
payment would be made not having been fixed in the said document Exhibit E, such payment would‚have to be made at the time of the delivery of the thing sold, pursuant to
article 1500 of the Civil Code; but as, in accordance with article 1462 of the same code, the execution of the deed of sale is equivalent to the delivery of the thing which is the
object of the contract, the payment would not be in cash if it were not made on the same 19th day of January, 1912, and were postponed until some other later day, or until
March 4, 1912. In short, it is impossible to confound the period of the option granted to the plaintiff Borck for the purchase of the Nagtajan Hacienda, with the period for the
payment of it price, had he purchased it. The plaintiff Borck had three months, from December 4, 1911, within which to make the purchase; to make the payment he did not
have a single day after the date on which the proper deed of sale would have been executed in his favor; he was to pay the price at the very moment the said deed was executed,
because, by this means, the property would have been delivered to his, although there still might have been lacking one or two months of the three months' period of the said
option. This is the payment in cash to which the law refers in the sale of real estate in cases where the time for making payment has not been fixed, and the plaintiff himself,
Borck, so understood when he stated in his testimony, as we have before said, that, as the conditions for the payment had not–been discussed, payment was to be made in cash
on exhibition of the documents, or, what amounts to the same thing, on the execution of the proper deed of sale of the property in his favor. It is therefore evident was not fixed
therein, the document Exhibit E, dated December 4, 1911, required the payment to be made in cash, and the lower court erred in holding that the plaintiff Borck's letter,
Exhibit G, of the date of January 19, 1912, in stating that the payment would be made on or before March 4, 1912, in no manner modified the option or offer of sale contained
in the document Exhibit E, but that on the contrary it coincided therewith; also in holding that a payment made on or before March 4, 1912, would have been a cash payment.

The letter of December 4, 1911, Exhibit E, contained, as aforesaid, an offer of sale or a proposal of sale on the partof the defendant Valdes to the plaintiff Borck, of the Nagtajan
Hacienda, for the assessed valuation of the same, effective during the period of three months counting from the said date. Such proposal or offer was an expression of the will
only of the defendant Valdes, manifested to the plaintiff Borck. In order that such a proposal might have the force of a contract, it was necessary that the plaintiff Borck's will
should have been expressed in harmony with all the terms of the said proposal.

Consent is shown by the concurrence of the offer and the acceptance of the thing and the cause which are to constitute the contract. (Art. 1262, Civil Code.)

There is no contract unless, among other requisites, there is consent of the contracting parties. (Art. 1261, par. 1, of the same code.)

Contracts are perfected by mere consent, and from that time they are binding, not only with regard to the fulfillment of what has been expressly stipulated, but also
with regard to all the consequences which, according to their character, are in accordance with good faith, use, and law. (Art. 1258, Civil Code.)

Promises are binding in just so far as they are accepted in the explicit terms in which they are made; it not being lawful to alter, against the will of the promisor, the
conditions imposed by him (Decision of the supreme court of Spain, of November 25, 1858); for only thus may the indispensable consent of the parties exist for the
perfection of the contract. (Decision of the same court, of September 26, 1871.)
 An option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell or lease his land, if the holder elects to accept them
within…the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract.
If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. (words and Phrases, vol. 6, p. 5000, citing
McMillan vs. Philadelphia Co., 28 Atl., 220; 159 Pa., 142.)

An offer of a bargain by one person to another, imposes no obligation upon the former, unless it be accepted by the latter, according to the terms in which the offer
was made. Any qualification or, or departure from, those terms, invalidates the offer, unless the same be agreed to by the person who made it. (Eliason et al. vs.
Henshaw, 4 Wheaton, 225.)

In order that an acceptance of proposition may be operative it must be unequivocal, unconditional, and without variance of any sort between it and the proposal, . .
. . An absolute acceptance of a proposal, coupled with any qualification or condition, will not be regarded as a complete contract, because there at no time exists the
requisite mutual assent to the same thing in the same senses. (Bruner et al. vs. Wheaton, 46 Mo., 363.)

As already seen while we were considering the documents Exhibits F, G, J, and K, the plaintiff Borck accepted the offer of sale made to hi, or the option of purchase given him
in document Exhibit E by the defendant Valdes, of the Nagtajan Hacienda, for the assessed valuation of the same, but his acceptance was not in accordance with the condition
with regard to the payment of the price of the property, under which the offer or the option was made for, while this payment was to be paid in cash, as the plaintiff Borck
himself admitted and the defendant Valdes positively stated in his testimony, and also a provided by law, for the reason that the time was not fixed in said offer or option when
the payment should be made in the aforesaid four documents Exhibits F, G, J, and K, the plaintiff Borck made the offer to pay the said price, in the first of them, within the
period of five months from December 14, 1911; in the second, within the period of three months from the same date, and, finally, in the other two documents, within an
indefinite period which could as well be ten days as twenty or thirty or more, counting from the date when the muniments of title relative to the said hacienda should have
been placed at his disposal to be inspected and he should have found them satisfactory and, in consequence thereof, the deed of conveyance should have been executed in his
favor by the defendant Valdes.

So that there was no concurrence of the offer and the acceptance as to one of the conditions related to the cause of the contract, to wit, the form in which the payment should
be made. The expression of Borck's will was not in accordance with all the terms of Valdes' proposal, or, what amounts to the same thing, the latter's promise was not accepted
by the former in the specific terms, in which it was made, and finally, the acceptance of the said proposal on Borck's part was not unequivocal and without variance of any sort
between it and the proposal, because, in view of the terms in which the payment was offered by Borck in his said letters of January 17, 19 and 23, Exhibits F, G, J, and K, there
was variance from the moment in which according to said terms, in the first two letters, the payment of the price should be made on or before the 1st of May and on or before
the 3d of March, 1912, respectively, that is, within a period limited in those letters, and the offer of payment was equivocal inasmuch as, by the last two letters, it was made to
depend on certain acts as a basis for fixing the period in which the said payment should have to be made; finally, there was no mutual conformity between the person who
made the proposal or offer, Valdes, and the person who accepted it, Borck, in the same sense with respect to the form of payment, and Borck deviated from the terms of the
proposition with regard to the form of payment and the record does not show that Valdes assented to such variance.

It is, therefore, evident that, in accordance with the provision of law and the principles laid down in the decisions above cited, the proposal or offer of sale made by the
defendant Valdes to the plaintiff Borck, or the option of purchase granted by the former to the latter, with respect to the Nagtajan Hacienda, in the document Exhibit E, was
not converted into a perfect and binding contract for the, and that as Valdes did not assent to the modification introduced by Borck in the offer of sale made by this defendant
in regard to one of its terms, to with, the form of payment, the said offer became null and void, and, consequently, Borck has no right to demand of the defendant Valdes and of
the latter's principal, the other defendant, Legarda, or of the administrators of the estate left by Legarda at his death which occurred during the course of th ese proceedings,
and whose names appear at the beginning of this decision, the fulfillment of that offer, nor, therefore, any indemnity whatever for such nonfulfillment.

The lower court erred, than, in finding otherwise in the three conclusions of law contained in the judgment appealed from which were mentioned at the beginning of this
decision and on which, in short, the pronouncement made in that judgment was founded.

As the power of attorney conferred by Benito Legarda upon Benito Valdes was explicit and positive, according to the document Exhibit A, a copy of which was attached to the
complaint, to sell and convey all kinds of real estate at such prices and on such conditions as Valdes might deem proper, and also as the terms of the option granted by Valdes
to Borck, or of the offer of sale made by the former to the latter in the document Exhibit E, of the Nagtajan Hacienda belonging to Benito Legarda, are clear; and, furthermore,
as the plaintiff made the said documents an integral part of the complaint as the grounds thereof, the testimony introduced by the defendant Valdes to prove that said offer of
sale made by him to Borck was subject to the approval of his, Valdes', principal was improper (sections 103 and 285, Code Civ. Proc.) and the lower court did not err in not
taking that testimony into consideration in his judgment. Likewise the evidence presented by the defendant Valdes in an endeavor to prove that said offer of sale was obtained
from him by the plaintiff Borck by means of fraud and deceit, was improper. Consequently the trial court did not err by making no finding in the judgment on those two points.

In conclusion, as the offer of sale of the Nagtajan Hacienda, made by Valdes to Borck, or the option of purchase thereof granted by the former to the latter by the letter of
December 4, 1911, Exhibit E, did not constitute a perfect contract and, consequently, was not binding upon the defendants Valdes and Legarda or the plaintiff Borck, by reason
of the lack of the mutual assent of the parties concerned therein, which is wholly in accordance with the terms of the said offer, there can be no obligation demandable in law
by virtue of the stipulations contained in said document, and the action prosecuted by the plaintiff for that purpose in these proceedings in improper.

For the foregoing reasons the judgment appealed from is reversed and we absolve the defendants from the complaint. The costs of the first instance shall be imposed upon the
plaintiff. No special finding is made with respect to those of this second instance. So ordered.

Arellano, C.J., Torres and Johnson, JJ., concur.

Moreland and Trent, JJ., concur in the result.
 Republic of the Philippines
SUPREME COURT
Manila

G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.
JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his
motion to set aside the order declaring him in default, 1 and from the order of said court in the same case denying his motion to set aside the judgment rendered after he was
declared in default. 2 These two appeals of the defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.

Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one consolidated record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO.
27940-R. 4

In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal to the Supreme Court on the ground that only questions of
law are involved. 5

On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of about P35,000.00 with
daily interest thereon from November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees equivalent
to 10% of the total amount due and costs. 6 The complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered
represents the cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate the payment of the printing the defendant obtained a credit
accommodation from the plaintiff. Thus, for every printing of the "World Current Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added security for the payment of the amounts advanced to Encal Press
and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for
plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all
obligations arising from the draft. 8

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959 defendant filed an urgent motion for extension of time to
plead, and set the hearing on December 16, 1959. 10 At the hearing, the court denied defendant's motion for extension. Whereupon, the defendant filed a motion to dismiss the
complaint on December 17, 1959 on the ground that the complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts thereof had already been paid by the plaintiff to the drawer
(Encal Press and Photo Engraving), without knowledge or consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating party only for the drawer (Encal Press and Photo-
Engraving) and win be liable in the event that the accommodating party (drawer) fails to pay its obligation to the plaintiff. 11

The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on December 24, 1959. 12

On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon the motion for reconsideration filed by the plaintiff, the trial court set
aside its order dismissing the complaint and set the case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal was
received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the following
day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on the ground that there having been no answer as yet, the issues had not yet been joined. 15
On the same date, the defendant filed his answer to the complaint interposing the following defenses: That he signed the document upon which the plaintiff sues in his
capacity as President of the Philippine Education Foundation; that his liability is only secondary; and that he believed that he was signing only as an accommodation party. 16

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the defendant should have filed his answer on March 11, 1960.
He contends that by filing his answer on March 12, 1960, defendant was one day late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The defendant
learned of the order declaring him in default on March 21, 1960. On March 22, 1960 the defendant filed a motion to set aside the order of default alleging that although the
order of the court dated March 7, 1960 was received on March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the defendant to file his answer
on the last day of the reglementary period, March 11, 1960, within office hours, especially because the order of the court dated March 7, 1960 was brought to the attention of
counsel only in the early hours of March 12, 1960. The defendant also alleged that he has a good and substantial defense. Attache d to the motion are the affidavits of deputy
sheriff Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the defendant
Aruego that he has a good and substantial defense. 19 The trial court denied the defendant's motion on March 25, 1960. 20 On May 6, 1960, the trial court rendered judgment
sentencing the defendant to pay to the plaintiff the sum of P35,444.35 representing the total amount of his obligation to the said plaintiff under the twenty-two (22) causes of
action alleged in the complaint as of November 15, 1957 and the sum of P10,000.00 as attorney's fees. 21

On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his motion to set aside the order declaring him in default, an appeal bond
in the amount of P60.00, and his record on appeal. The plaintiff filed his opposition to the approval of defendant's record on appeal on May 13, 1960. The following day, May
14, 1960, the lower court dismissed defendant's appeal from the order dated March 25, 1960 denying his motion to set aside the order of default. 22 On May 19, 1960, the
defendant filed a motion for reconsideration of the trial court's order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's motion for
reconsideration of the order dismissing appeal. 24 On May 21, 1960, the trial court reconsidered its previous order dismissing the appeal and approved the defendant's record
on appeal. 25 On May 30, 1960, the defendant received a copy of a notice from the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal filed
ed by the defendant was forwarded to the Clerk of Court of Appeals. 26

On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in default reiterating the same ground previously advanced by him in his
motion for relief from the order of default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the defendant's motion to set aside the judgment
by default in an order of June 11, 1960. 29 On June 20, 1960, the defendant filed his notice of appeal from the order of the court denying his motion to set aside the judgment
by default, his appeal bond, and his record on appeal. The defendant's record on appeal was approved by the trial court on June 25, 1960. 30 Thus, the defendant had two
appeals with the Court of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the order of default docketed as CA-G.R. NO. 27734-R; (2)
Appeal from the order denying his motion to set aside the judgment by default docketed as CA-G.R. NO. 27940-R.

In his brief, the defendant-appellant assigned the following errors:

I THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.

II THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS
ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION.

III THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT
AGAINST DEFENDANT. 31

It has been held that to entitle a party to relief from a judgment taken against him through his mistake, inadvertence, surprise or excusable neglect, he must show to the court
that he has a meritorious defense. 32 In other words, in order to set aside the order of default, the defendant must not only show that his failure to answer was due to fraud,
accident, mistake or excusable negligence but also that he has a meritorious defense.

The record discloses that Aruego received a copy of the complaint together with the summons on December 2, 1960; that on December 17, 1960, the last day for filing his
answer, Aruego filed a motion to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the trial court issued an order setting aside the order of dismissal; that a copy of the order
was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as shown in the affidavit of the deputy sheriff; and that on the following day, March 12, 1960,
the defendant filed his answer to the complaint.

The failure then of the defendant to file his answer on the last day for pleading is excusable. The order setting aside the dismissal of the complaint was received at 5:00 o'clock
in the afternoon. It was therefore impossible for him to have filed his answer on that same day because the courts then held office only up to 5:00 o'clock in the afternoon.
Moreover, the defendant immediately filed his answer on the following day.

However, while the defendant successfully proved that his failure to answer was due to excusable negligence, he has failed to show that he has a meritorious defense. The
defendant does not have a good and substantial defense.

Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a representative capacity, as the then President of the Philippine Education Foundation
Company, publisher of "World Current Events and Decision Law Journal," printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in favor of the
plaintiff bank;

b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party obligor, to add to the security of said plaintiff bank. The
reason for this statement is that unlike real bills of exchange, where payment of the face value is advanced to the drawer only upon acceptance of the same by the drawee, in
the case in question, payment for the supposed bills of exchange were made before acceptance; so that in effect, although these documents are labelled bills of exchange, legally
they are not bills of exchange but mere instruments evidencing indebtedness of the drawee who received the face value thereof, with the defendant as only additional security
of the same. 33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is president. Section
20 of the Negotiable Instruments Law provides that "Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not exempt him from personal liability."

An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation
Company. 34 He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally liable for the drafts
he accepted.

The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made liable only after a showing that the drawer is incapable of
paying. This contention is also without merit.

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some
other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodation party.35 In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the
defendant who is a lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before
acceptance. This is also without merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writting addressed by one person to another,
signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to
bearer. 36 As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important
only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will result in a new trial which will serve no purpose and will just waste the time
of the courts as well as of the parties because the defense is nil or ineffective. 37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the petition for relief from the judgment rendered in said case
is hereby affirmed, without pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 75640 April 5, 1990

NATIONAL FOOD AUTHORITY, (NFA), petitioner,

vs.
INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING CORPORATION, respondents.

Zapanta, Gloton & Ulejorada for petitioner.

Sison, Ortiz & Associates for private respondents.

PARAS, J.:

This is a petition for review on certiorari made by National Food Authority (NFA for brevity) then known as the National Grains Authority or NGA from the decision 1 of the
Intermediate Appellate Court affirming the decision 2 of the trial court, the decretal portion of which reads:

WHEREFORE, defendants Gil Medalla and National Food Authority are ordered to pay jointly and severally the plaintiff:

a. the sum of P25,974.90, with interest at the legal rate from October 17, 1979 until the same is fully paid; and,

b. the sum of P10,000.00 as and for attorney's fees.

Costs against both defendants.

SO ORDERED. (p. 22, Rollo)

Hereunder are the undisputed facts as established by the then Intermediate Appellate Court (now Court of Appeals), viz:

On September 6, 1979 Gil Medalla, as commission agent of the plaintiff Superior Shipping Corporation, entered into a contract for hire of ship known as "MV Sea
Runner" with defendant National Grains Authority. Under the said contract Medalla obligated to transport on the "MV Sea Runner" 8,550 sacks of rice belonging
to defendant National Grains Authority from the port of San Jose, Occidental Mindoro, to Malabon, Metro Manila.

Upon completion of the delivery of rice at its destination, plaintiff on October 17, 1979, wrote a letter requesting defendant NGA that it be allowed to collect the
amount stated in its statement of account (Exhibit "D"). The statement of account included not only a claim for freightage but also claims for demurrage and
stevedoring charges amounting to P93,538.70.

On November 5, 1979, plaintiff wrote again defendant NGA, this time specifically requesting that the payment for freightage and other charges be made to it and
not to defendant Medalla because plaintiff was the owner of the vessel "MV Sea Runner" (Exhibit "E"). In reply, defendant NGA on November 16, 1979 informed
plaintiff that it could not grant its request because the contract to transport the rice was entered into by defendant NGA and defendant Medalla who did not
disclose that he was acting as a mere agent of plaintiff (Exhibit "F"). Thereupon on November 19, 1979, defendant NGA paid defendant Medalla the sum of
P25,974.90, for freight services in connection with the shipment of 8,550 sacks of rice (Exhibit "A").

On December 4, 1979, plaintiff wrote defendant Medalla demanding that he turn over to plaintiff the amount of P27,000.00 paid to him by defendant NFA.
Defendant Medalla, however, "ignored the demand."

Plaintiff was therefore constrained to file the instant complaint.

Defendant-appellant National Food Authority admitted that it entered into a contract with Gil Medalla whereby plaintiffs vessel "MV Sea Runner" transported
8,550 sacks of rice of said defendant from San Jose, Mindoro to Manila.

For services rendered, the National Food Authority paid Gil Medalla P27,000.00 for freightage.

Judgment was rendered in favor of the plaintiff. Defendant National Food Authority appealed to this court on the sole issue as to whether it is jointly and severally
liable with defendant Gil Medalla for freightage. (pp. 61-62, Rollo)

The appellate court affirmed the judgment of the lower court, hence, this appeal by way of certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant
case falls within the exception of the general rule provided for in Art. 1883 of the Civil Code of the Philippines.

It is contended by petitioner NFA that it is not liable under the exception to the rule (Art. 1883) since it had no knowledge of the fact of agency between respondent Superior
Shipping and Medalla at the time when the contract was entered into between them (NFA and Medalla). Petitioner submits that "(A)n undisclosed principal cannot maintain
an action upon a contract made by his agent unless such principal was disclosed in such contract. One who deals with an agent acquires no right against the undisclosed
principal."

Petitioner NFA's contention holds no water. It is an undisputed fact that Gil Medalla was a commission agent of respondent Superior Shipping Corporation which owned the
vessel "MV Sea Runner" that transported the sacks of rice belonging to petitioner NFA. The context of the law is clear. Art. 1883, which is the applicable law in the case at bar
provides:
 Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons
against the principal.

In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract
involves things belonging to the principal.

The provision of this article shall be understood to be without prejudice to the actions between the principal and agent.

Consequently, when things belonging to the principal (in this case, Superior Shipping Corporation) are dealt with, the agent is bound to the principal although he does not
assume the character of such agent and appears acting in his own name. In other words, the agent's apparent representation yields to the principal's true representation and
that, in reality and in effect, the contract must be considered as entered into between the principal and the third person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634).
Corollarily, if the principal can be obliged to perform his duties under the contract, then it can also demand the enforcement of its rights arising from the contract.

WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the appealed decision is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 95703 August 3, 1992

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,

vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S. AQUINO, respondents.

L.M. Maggay & Associates for petitioner.

GRIÑO-AQUINO, J.:

This petition for review seeks reversal of the decision dated September 18, 1990 of the Court of Appeals, reversing the decision of the Regional Trial Court of Makati, Branch
150, which dismissed the private respondents' complaint and awarded damages to the petitioner, Rural Bank of Bombon.

On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special power of attorney in favor of Rufina S. Aquino authorizing him:

1. To secure a loan from any bank or lending institution for any amount or otherwise mortgage the property covered by Transfer Certificate of Title No.
S-79238 situated at Las Piñas, Rizal, the same being my paraphernal property, and in that connection, to sign, or execute any deed of mortgage and
sign other document requisite and necessary in securing said loan and to receive the proceeds thereof in cash or in check and to sign the receipt
therefor and thereafter endorse the check representing the proceeds of loan. (p. 10, Rollo.)

Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of Transfer Certificate of Title No. S-79238 (19963-A).

On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural
Bank) over the three parcels of land covered by TCT No. S-79238. The deed stated that the property was being given as security for the payment of "certain loans, advances, or
other accommodations obtained by the mortgagor from the mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of
fourteen (14%) per annum . . ." (p. 11, Rollo).

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against Rufino Aquino and the Bank because Aquino allegedly left his residence at San
Pascual, Hagonoy, Bulacan, and transferred to an unknown place in Bicol. She discovered that Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and then later, at
San Vicente, Calabanga, Camarines Sur, and that they (plaintiffs) were allegedly surprised to discover that the property was mortgaged to pay personal loans obtained by
Aquino from the Bank solely for personal use and benefit of Aquino; that the mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo whose address up to
now is Manuyo, Las Piñas, M.M., per the title (TCT No. S-79238) and in the deed vesting power of attorney to Aquino; that correspondence relative to the mortgage was sent to
Aquino's address at "Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address at Las Piñas, Metro Manila; and that defendant Aquino, in the real estate
mortgage, appointed defendant Rural Bank as attorney in fact, and in case of judicial foreclosure as receiver with corresponding power to sell and that although without any
express authority from Gallardo, defendant Aquino waived Gallardo's rights under Section 12, Rule 39, of the Rules of Court and the proper venue of the foreclosure suit.

On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily restrained the Rural Bank "from enforcing the real estate mortgage and from
foreclosing it either judicially or extrajudicially until further orders from the court" (p.36, Rollo).

Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a bank so that he could use the proceeds to liquidate her obligation of
P350,000 to him. The obligation to pay the Rural Bank devolved on Gallardo. Of late, however, she asked him to pay the Bank but defendant Aquino set terms and conditions
which plaintiff did not agree to. Aquino asked for payment to him of moral damages in the sum of P50,000 and lawyer's fees of P35,000.

The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses, exemplary damages, and attorney's fees. It also filed a crossclaim against Aquino for
P350,000 with interest, other bank charges and damages if the mortgage be declared unauthorized.

Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Rufino Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in
Branch 141, RTC Makati. On motion of the plaintiff, the foreclosure case and the annulment case (Civil Case No. 6062) were consolidated.

On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062, dismissing the complaint for annulment of mortgage and declaring the Rural Bank
entitled to damages the amount of which will be determined in appropriate proceedings. The court lifted the writ of preliminary injunction it previously issued.

On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure proceedings until after the decision in the annulment case (Civil Case No.
6062) shall have become final and executory.

The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September 18, 1990, reversed the trial court. The dispositive portion of the decision reads:

UPON ALL THESE, the summary judgment entered by the lower court is hereby REVERSED and in lieu thereof, judgment is hereby RENDERED,
declaring the deed of real estate mortgage dated August 26, 1981, executed between Rufino S. Aquino with the marital consent of his wife Bibiana
Aquino with the appellee Rural Bank of Bombon, Camarines Sur, unauthorized, void and unenforceable against plaintiff Ederlinda Gallardo; ordering
the reinstatement of the preliminary injunction issued at the onset of the case and at the same time, ordering said injunction made permanent.

Appellee Rural Bank to pay the costs. (p. 46, Rollo.)

Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court of Appeals erred:

1. in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and unenforceable against the private respondent Ederlinda Gallardo;
and

2. in not upholding the validity of the Real Estate Mortgage executed by Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank of
Bombon, (Cam. Sur), Inc.

Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-
fact of Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.

The Rural Bank contends that the real estate mortgage executed by respondent Aquino is valid because he was expressly authorized by Gallardo to mortgage her property
under the special power of attorney she made in his favor which was duly registered and annotated on Gallardo's title. Since the Special Power of Attorney did not specify or
indicate that the loan would be for Gallardo's benefit, then it could be for the use and benefit of the attorney-in-fact, Aquino.

However, the Court of Appeals ruled otherwise. It held:

The Special Power of Attorney above quoted shows the extent of authority given by the plaintiff to defendant Aquino. But defendant Aquino in
executing the deed of Real Estate Mortgage in favor of the rural bank over the three parcels of land covered by Gallardo's title named himself as the
mortgagor without stating that his signature on the deed was for and in behalf of Ederlinda Gallardo in his capacity as her attorney-in-fact.

At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by Rufino S. Aquino
attorney in fact of Ederlinda H. Gallardo, of legal age, Filipino, married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but which of itself,
was merely descriptive of the person of defendant Aquino. Defendant Aquino even signed it plainly as mortgagor with the marital consent yet of his
wife Bibiana P. Aquino who signed the deed as "wife of mortgagor."

xxx xxx xxx

The three (3) promissory notes respectively dated August 31, 1981, September 23, 1981 and October 26, 1981, were each signed by Rufino Aquino on top
of a line beneath which is written "signature of mortgagor" and by Bibiana P. Aquino on top of a line under which is written "signature of spouse,"
without any mention that execution thereof was for and in behalf of the plaintiff as mortgagor. It results, borne out from what were written on the deed,
that the amounts were the personal loans of defendant Aquino. As pointed out by the appellant, Aquino's wife has not been appointed co-agent of
defendant Aquino and her signature on the deed and on the promissory notes can only mean that the obligation was personally incurred by them and
for their own personal account.

The deed of mortgage stipulated that the amount obtained from the loans shall be used or applied only for "fishpond (bangus and sugpo production)."
As pointed out by the plaintiff, the defendant Rural Bank in its Answer had not categorically denied the allegation in the complaint that defendant
Aquino in the deed of mortgage was the intended user and beneficiary of the loans and not the plaintiff. And the special power of attorney could not be
stretched to include the authority to obtain a loan in said defendant Aquino's own benefit. (pp. 40-41, Rollo.)

The decision of the Court of Appeals is correct. This case is governed by the general rule in the law of agency which this Court, applied in "Philippine Sugar Estates
Development Co. vs. Poizat," 48 Phil. 536, 538:

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in
fact authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent
describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the
mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend
that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the
principal, it is not valid as to the principal.

In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, without any indication that he was signing for and in behalf of
the property owner, Ederlinda Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo.
The Court of Appeals further observed:

It will also be observed that the deed of mortgage was executed on August 26, 1981 therein clearly stipulating that it was being executed "as security for
the payment of certain loans, advances or other accommodation obtained by the Mortgagor from the Mortgagee in the total sum of Three Hundred
Fifty Thousand Pesos only (P350,000.00)" although at the time no such loan or advance had been obtained. The promissory notes were dated August
31, September 23 and October 26, 1981 which were subsequent to the execution of the deed of mortgage. The appellant is correct in claiming that the
defendant Rural Bank should not have agreed to extend or constitute the mortgage on the properties of Gallardo who had no existing indebtedness with
it at the time.

Under the facts the defendant Rural Bank appeared to have ignored the representative capacity of Aquino and dealt with him and his wife in their
personal capacities. Said appellee Rural Bank also did not conduct an inquiry on whether the subject loans were to benefit the interest of the principal
(plaintiff Gallardo) rather than that of the agent although the deed of mortgage was explicit that the loan was for purpose of the bangus and sugpo
production of defendant Aquino.

In effect, with the execution of the mortgage under the circumstances and assuming it to be valid but because the loan taken was to be used exclusively
for Aquino's business in the "bangus" and "sugpo" production, Gallardo in effect becomes a surety who is made primarily answerable for loans taken by
Aquino in his personal capacity in the event Aquino defaults in such payment. Under Art. 1878 of the Civil Code, to obligate the principal as a guarantor
or surety, a special power of attorney is required. No such special power of attorney for Gallardo to be a surety of Aquino had been executed. (pp. 42-43,
Rollo.)

Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since it was executed in accordance with Article 1883 which provides:
 Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have
such persons against the principal.

In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal.

The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to the case at bar. Herein respondent Aquino acted purportedly as an agent of
Gallardo, but actually acted in his personal capacity. Involved herein are properties titled in the name of respondent Gallardo against which the Bank proposes to foreclose the
mortgage constituted by an agent (Aquino) acting in his personal capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates Development Co. vs.
Poizat, supra, that Gallardo's property is not liable on the real estate mortgage:

There is no principle of law by which a person can become liable on a real mortgage which she never executed either in person or by attorney in fact. It
should be noted that this is a mortgage upon real property, the title to which cannot be divested except by sale on execution or the formalities of a will
or deed. For such reasons, the law requires that a power of attorney to mortgage or sell real property should be executed with all of the formalities
required in a deed. For the same reason that the personal signature of Poizat, standing alone, would not convey the title of his wife in her own real
property, such a signature would not bind her as a mortgagor in real property, the title to which was in her name. (p. 548.)

WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in toto. Costs against the petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,

vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of respondent Court of Appeals1 promulgated on September 7, 1995, which
affirmed the award of damages and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of private
respondent GOP Mahtani as well as the dismissal of its third-party complaint against Philippine Airlines (PAL).2

The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he obtained the services of a certain Mr. Gumar
to prepare his travel plans. The latter, in turn, purchased a ticket from BA where the following itinerary was indicated:3

CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310 Y 16 APR. 1730 OK

HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

HONGKONG HKG PR 311 Y

MANILA MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via PAL, and upon arrival in Hongkong he had to take
a connecting flight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing his clothings and personal effects,
confident that upon reaching Hongkong, the same would be transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that upon inquiry from the BA representatives, he
was told that the same might have been diverted to London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim
by accomplishing the "Property Irregularity Report."4

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and attorney's fees 5 against BA and Mr. Gumar before
the trial court, docketed as Civil Case No. CEB-9076.

On September 4, 1990, BA filed its answer with counter claim6 to the complaint raising, as special and affirmative defenses, that Mahtani did not have
a cause of action against it. Likewise, on November 9, 1990, BA filed a third-party complaint 7 against PAL alleging that the reason for the non-transfer
of the luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any time for the proper transfer of Mahtani's luggage to the BA
aircraft bound for Bombay.

On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any liability, arguing that there was, in fact, adequate
time to transfer the luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should be considered as
transfer to BA.8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor of Mahtani, 9 the dispositive portion of which
reads as follows:

WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendant for which defendant is ordered to pay
plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
representing the value of the contents of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty
percent (20%) of the total amount imposed against the defendant for attorney's fees and costs of this action.

The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack of cause of action.

SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's findings. Thus:

WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in accordance with law and evidence,
the same is hereby AFFIRMED in toto, with costs against defendant-appellant.

SO ORDERED. 10

BA is now before us seeking the reversal of the Court of Appeals' decision.

In essence, BA assails the award of compensatory damages and attorney's fees, as well as the dismissal of its third-party complaint against PAL.11

Regarding the first assigned issue, BA asserts that the award of compensatory damages in the separate sum of P7,000.00 for the loss of Mahtani's two
pieces of luggage was without basis since Mahtani in his complaint12 stated the following as the value of his personal belongings:

8. On the said travel, plaintiff took with him the following items and its corresponding value, to wit:

1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for in the ticket, which reads:13

Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in advance and additional charges are paid:

1. For most international travel (including domestic corporations of international journeys) the liability limit is approximately U.S. $9.07
per pound (U.S. $20.000) per kilo for checked baggage and U.S. $400 per passenger for unchecked baggage.

Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's contract of carriage partakes of two types, namely: a
contract to deliver a cargo or merchandise to its destination and a contract to transport passengers to their destination. A business intended to serve
the traveling public primarily, it is imbued with public interest, hence, the law governing common carriers imposes an exacting standard.14 Neglect or
malfeasance by the carrier's employees could predictably furnish bases for an action for damages.15

In the instant case, it is apparent that the contract of carriage was between Mahtani and BA. Moreover, it is indubitable tha t his luggage never arrived
in Bombay on time. Therefore, as in a number of cases16 we have assessed the airlines' culpability in the form of damages for breach of contract
involving misplaced luggage.

In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant satisfactorily prove during the trial the existence
of the factual basis of the damages and its causal connection to defendant's acts.17

In this regard, the trial court granted the following award as compensatory damages:

Since plaintiff did not declare the value of the contents in his luggage and even failed to show receipts of the alleged gifts for the members of
his family in Bombay, the most that can be expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per
kilo, or combined value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand
(P7,000.00) Pesos representing the purchase price of the two (2) suit cases.

However, as earlier stated, it is the position of BA that there should have been no separate award for the luggage and the contents thereof since
Mahtani failed to declare a separate higher valuation for the luggage,18 and therefore, its liability is limited, at most, only to the amount stated in the
ticket.

Considering the facts of the case, we cannot assent to such specious argument.

Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to recover a greater amo unt. Article 22(1) of the
Warsaw Convention,19 provides as follows:

xxx xxx xxx

(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram,
unless the consignor has made, at time the package was handed over to the carrier, a special declaration of the value at delivery and has paid
a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he
proves that the sum is greater than the actual value to the consignor at delivery.

American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in excess of the limits specified in the tariff
which was filed with the proper authorities, such tariff being binding, on the passenger regardless of the passenger's lack of knowledge thereof or
assent thereto.20 This doctrine is recognized in this jurisdiction.21

Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion contracts where the facts and circumstances justify
that they should be disregarded.22

In addition, we have held that benefits of limited liability are subject to waiver such as when the air carrier failed to raise timely objections during the
trial when questions and answers regarding the actual claims and damages sustained by the passenger were asked.23
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited liability when it allowed Mahtani to testify as
to the actual damages he incurred due to the misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript of
stenographic notes of Mahtani's direct testimony:24

Q — How much are you going to ask from this court?

A — P100,000.00.

Q — What else?

A — Exemplary damages.

Q — How much?

A — P100,000.00.

Q — What else?

A — The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00.

Q — What about the filing of this case?

A — The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the adverse party to be inadmissible for any
reason, the latter has the right to object. However, such right is a mere privilege which can be waived. Necessarily, the objection must be made at the
earliest opportunity, lest silence when there is opportunity to speak may operate as a waiver of objections.25 BA has precisely failed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even conducted his own cross-examination as well.26 In
the early case of Abrenica v. Gonda,27 we ruled that:

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the admission of any evidence must be made at
the proper time, and that if not so made it will be understood to have been waived. The proper time to make a protest or objection is when,
from the question addressed to the witness, or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is,
or may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to great respect.28 Since the actual value of the
luggage involved appreciation of evidence, a task within the competence of the Court of Appeals, its ruling regarding the amount is assuredly a
question of fact, thus, a finding not reviewable by this Court.29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals justified its ruling in this wise, and we quote:30

Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint against PAL.

The contract of air transportation in this case pursuant to the ticket issued by appellant to plaintiff-appellee was exclusively between the
plaintiff Mahtani and defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a
subcontractor or agent of BA. This is shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically provided
on the "Conditions of Contract," paragraph 4 thereof that:

4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.

The rule that carriage by plane although performed by successive carriers is regarded as a single operation and that the carrier issuing the passenger's
ticket is considered the principal party and the other carrier merely subcontractors or agent, is a settled issue.

We cannot agree with the dismissal of the third-complaint.

In Firestone Tire and Rubber Company of the Philippines v. Tempengko,31 we expounded on the nature of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "third party" who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts, as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The
third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for this pro vision of
the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-
party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of
plaintiff's claim against a third-party in the original and principal case with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts.

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their contract of carriage. Yet, BA adamantly disclaimed its
liability and instead imputed it to PAL which the latter naturally denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was exclusively between Mahtani and BA, the latter merely
endorsing the Manila to Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of
Contracts" of the ticket32 issued by BA to Mahtani confirms that the contract was one of continuous air transportation from Manila to Bombay.

4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila to Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent is also responsible for any negligence in the
performance of its function.33 and is liable for damages which the principal may suffer by reason of its negligent act.34 Hence, the Court of Appeals
erred when it opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the International Air Transport Association (IATA), wherein member airlines are
regarded as agents of each other in the issuance of the tickets and other matters pertaining to their relationship.35 Therefore, in the instant case, the
contractual relationship between BA and PAL is one of agency, the former being the principal, since it was the one which issued the confirmed ticket,
and the latter the agent.

Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines v. Court of Appeals.36 In that case, Lufthansa
issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to
carry Antiporda to a specific destination "bumped" him off.

An action for damages was filed against Lufthansa which, however, denied any liability, contending that its responsibility towards its passenger is
limited to the occurrence of a mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the
contract of carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya.

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so,
regardless of those instances when actual carriage was to be performed by various carriers. The issuance of confirmed Lufthansa ticket in
favor of Antiporda covering his entire five-leg trip abroad successive carriers concretely attest to this.

Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone, and not PAL, since the latter was not a party to
the contract. However, this is not to say that PAL is relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of
Appeals,37 while not exactly in point, the case, however, illustrates the principle which governs this particular situation. In that case, we recognized
that a carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent acts or omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of ultimately determining who was
primarily at fault as between them, is without legal basis. After all, such proceeding is in accord with the doctrine against multiplicity of cases which
would entail receiving the same or similar evidence for both cases and enforcing separate judgments therefor. It must be borne in mind that the
purpose of a third-party complaint is precisely to avoid delay and circuitry of action and to enable the controversy to be disposed of in one suit.38 It is
but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven that the latter's negligence was the proximate cause of
Mahtani's unfortunate experience, instead of totally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED,
reinstating the third-party complaint filed by British Airways dated November 9, 1990 against Philippine Airlines. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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.

Valera, Urmeneta & Associates for petitioner.

Pompeyo L. Bautista for private respondents.

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.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8346 March 30, 1915

GUTIERREZ HERMANOS, plaintiff-appellant,

vs.
ORIA HERMANOS & CO., defendant-appellant.

Rafael de la Sierra for plaintiff.

Chicote and Miranda for defendant.

TORRES, J.:

On August 12, 1909, counsel for the mercantile firm of Gutierrez Hermanos of this city filed a written complaint in the Court of First Instance of Manila against the commercial
concern of Oria Hermanos & Co. of Laoang, Province of Samar, alleging therein as a cause of action that between plaintiff and defendant there have existed commercial
relations which gave rise to the opening of a mutual current account, at 8 percent interest, under the name of Oria Hermanos & Co., on the books of the plaintiff Gutierrez
Hermanos; that, on January 11, 1909, plaintiff transmitted to defendant an abstract of the latter's current account on December 31, 1908, which showed a balance in plaintiff's
favor of P144,473.78 and which was approved by defendant, Oria Hermanos & Co., by a letter of March 9, 1909, which was copied literally in the complaint; that, on May 25,
1909, plaintiff notified defendant that the current account existing between them would be closed at the end of thirty days counting from that date, at the expiration of which
period defendant should pay any debit balance that might be owing; that, on June 30 of the same year, Gutierrez Hermanos transmitted to the defendant, Oria Hermanos &
Co., the statement of the latter's current account up to that date and, confirming its previous letter to the defendant of May 25, 1909, called attention to the necessity of paying
the balance, which then amounted to P147,204.28; that the defendant firm, notwithstanding the said demands and others subsequently made, and without having made any
objection whatever to the said statement of account, refused to pay the principal and interest owing on the said account. Plaintiff's counsel therefore prayed that Oria
Hermanos and Co. be sentenced to pay the sum of P147,204.28, besides the interest thereon at the rate of 8 per cent annum from June 30, 1909, and the costs.

Defendant filed its answer on November 9, 1909, setting up four cross complaints and six counterclaims against the plaintiff, Gutierrez Hermanos, and specifically denied such
of the allegations of the complaint as were not in agreement with its answer. Plaintiff demurred to certain paragraphs of the answer and as to the others thereof prayed the
court to order defendant to make its allegations more specific. The court overruled this demurrer, but granted the petition that defendant should make its allegations more
specific in the second, third, and fourth cross complaints and first counterclaim.

In compliance with the said order, defendant, on May 4, 1910, filed am amended answer in which it specifically admitted paragraphs 1 and 2 of the complaint, and as the first
cross complaint, alleged that, by reason of mercantile relations and the opening of a mutual current account from May 1, 1900, the plaintiff had obligated itself periodically to
send to the defendant firm a memorandum or statement of the current account, and further obligated itself, in case the said mercantile relations should be finally terminated,
to present a general and complete account, duly supported by vouchers and other proofs; that plaintiff, Gutierrez Hermanos, had contended itself by sending to Oria
Hermanos and Co. some memoranda or abstracts of account, accepted by defendant as such "abstract of account," without the latter's having waived its right to demand the
presentation, as agreed upon, of the vouchers and other proofs upon the closing of the current account, a stipulation which Gutierrez Hermanos had failed to comply with.
Defendant therefore prayed that the plaintiff, Gutierrez Hermanos, be sentenced to render and present the said final account, duly accompanied by vouchers, in conformity
with the agreement made.

In the second cross complaint defendant alleged that, by virtue of a commission contract, Oria Hermanos & Co. had from the 1st of May, 1900, to the 7th of September, 1909,
forwarded 65,119.66 piculs of copra, 70,420 bales of hemp, and 5,175.03 piculs of loose hemp to Gutierrez Hermanos for sale on commission; that the latter firm informed the
defendant that it, the plaintiff, had sold the said products to third persons for the account of the defendant, Oria Hermanos & Co.; that by reason of said sale or sales Gutierrez
Hermanos collected large and important sums for commission and brokerage and had turned in for the goods sold amounts less than what they were actually worth in Manila;
that defendant, Oria Hermanos & Co., had recently received information that these lots of hemp and copra were purchased by the firm of Gutierrez Hermanos for itself,
notwithstanding that the latter had stated to its principals, Oria Hermanos & Co., that they had been sold to third persons; that it collected by reason of such sale, commission
and brokerage; acts which redound to the fraud, injury, and prejudice of the defendant, Oria Hermanos and Co. Therefore the latter prayed that Gutierrez Hermanos be
sentenced to render a general and complete account of the amounts of hemp and copra received by it for sale on commission from the year 1900 to 1909, setting out the dates
of the receipt of the said merchandise, dates of the sales, names of the purchasers, prices stipulated, discounts obtained, and commissions collected by Gutierrez Hermanos,
etc.

Defendant alleged as the third cross complaint that, by virtue of the said commission contract, Gutierrez Hermanos sent to the firm of Oria Hermanos & Co., at different times
according to the latter's request, from May 1, 1900, up to the date of the closing of the current account, 193,310 sacks of rice alleged to have been purchased from third persons,
wherefore Oria Hermanos & Co. paid a certain stipulated percentage as commission or brokerage for the sales; but that now Oria Hermanos & Co. have received information
which it believes to be true, and so alleges, that the rice so forwarded had not been purchased from third persons, but belonged to Gutierrez Hermanos who sold it directly to
defendant, collecting from the latter excessive prices, advance payments, commission and interest, all to the fraud and injury of the defendant firm. Oria Hermanos & Co.,
therefore, prayed that Gutierrez Hermanos be sentenced to render an account, duly supported by vouchers, of all the lots of rice forwarded to Oria Hermanos, with a statement
of the dates of the orders, amounts, dates of the purchases, names of purchasers, amounts charged to Oria Hermanos & Co., etc.

In the fourth cross complaint defendant related that, by reason of the same commission contract existing between the two firms, Gutierrez Hermanos had sent to Oria
Hermanos & Co., from the 1st of May, 1900, up to the closing of the current account, various quantities of salt, petroleum, tobacco, groceries and beverages, and had collected
a commission for the purchase thereof, that afterwards Oria Hermanos & Co. learned that the forwarding firm, the plaintiff, had set larger prices on the said goods than it had
actually paid for them and had unduly charged such prices, before it had paid them, to the defendant's account, collecting for itself commission and interest thereon, to the
fraud and prejudice of the defendant firm. Therefore the latter prayed that Gutierrez Hermanos be sentenced to render a complete account, accompanied by vouchers, of the
shipments aforementioned.

In the first counterclaim filed by the defendant, Oria Hermanos & Co., petition was made that Gutierrez Hermanos be sentenced to pay it the sum of P13,894.60, as the
amount of an overcharge of 3 per cent in interest collected from defendant, in a charge of 8 percent interest per annum on a private debt of P47,649 drawing 5 per cent interest
per annum, which latter amount Juan T. Molleda owed the firm of Gutierrez Hermanos and payment for which was assumed by Oria Hermanos & Co. upon its organization
into a mercantile firm in May, 1900.

In the second counterclaim the defendant firm, Oria Hermanos & Co. set forth: That, on April 18, 1900, its predecessor had ordered its consignee in Manila, Gutierrez
Hermanos, to insure against all war risks the stocks of hemp and merchandise which the said firm possessed in the pueblo of Laoang, for P35,000, and likewise those it had in
Catubig, for P32,000; that Gutierrez Hermanos did not comply with the said order, only insuring the stocks in Laoang for P67,000, leaving those of Catubig totally
unprotected; that when, on May 10, 1900, this latter pueblo was destroyed by fire Oria Hermanos & Co. lost all its stocks there and could not collect the insurance of P32,000
on the said property, which, through the fault, negligence, and omission of Gutierrez Hermanos had not been insured. This amount last mentioned, added to the premiums,
expenses, and interest paid by Oria Hermanos & Co. aggregates the sum of P63,700, payment of which defendant demanded of plaintiff.
As a third counterclaim it is alleged that, on May 18, 1900, the firm of Gutierrez Hermanos, complying with orders from Oria Hermanos, & Co., insured against all war risks, in
a certain insurance company of London, England, whose agent in the Philippine Islands was Stevenson & Co., the stock of hemp which the defendant company had in the
pueblo of Catarman, Samar, for 3,000 pounds sterling, and paid the premiums thereon at the rate of 10 per cent per quarter; that, during the first quarter for which the
premiums had been so paid, all the insured tobacco belonging to Oria Hermanos & Co., in Catarman, was stolen by the insurgent forces; that then the underwriter refused to
pay the amount of the insurance on the ground that Gutierrez Hermanos had made out the said insurance defectively wherefore Oria Hermanos & Co. ordered its agent
Gutierrez Hermanos to institute proceedings before the courts of these Islands for the collection of the amount of the said insurance; but that plaintiff instead brought suit for
the purpose before the courts of England and by its negligence, indolence, and carelessness had, during a period of eight years, obliged the defendant firm to incur costly
expenditures which, added to the amount of the insurance premiums paid, attorney's fees, costs, interest, etc., aggregated P67,000; that for this sum, together with legal
interests thereon, it prayed that it be reimbursed by Gutierrez Hermanos.

With respect to the fourth counterclaim, the defendant firm set forth that, under the commission contract and the current account contract existing between both companies,
Gutierrez Hermanos bound itself to acquire for and forward to Oria Hermanos & Co. such rice and other effects, including cash, as defendant might order from plaintiff; but
that, since the beginning of 1904, the firm of Gutierrez Hermanos maliciously failed to make the consignments of rice and other effects, under the false pretext that there were
no such articles in the market, thereby preventing the said firm of Oria Hermanos & Co. from obtaining a profit of not less than P25,000 and, besides, injuring its fame, credit,
and mercantile reputation in the Island of Samar to the extent of approximately P50,000. Therefore defendant prayed that Gutierrez Hermanos be sentenced to pay it the sum
of P75,000 as the amount of such losses and damages occasioned it.

As the fifth counterclaim defendant alleged that, for a period of twenty-two months, from the month of May, 1900, it chartered several of its boats to the American military
government; that the charter parties aggregated a value of P400,000; that these contracts were executed and the amounts thereof collected by Messrs. Oria & Fuster, members
of the defendant company, who turned the said amounts into the current account they had with the firm of Gutierrez Hermanos; but the plaintiff charged in the current
account, appropriated to itself, and collected from the funds of Oria Hermanos & Co. which it had in its possession, 2 1/2 per cent of the amount collected by reason of the said
charter parties for commission and brokerage, there being no stipulation whatever relative to the collection of this commission; that Gutierrez Hermanos, moreover, charged
against the said amount collected by it 8 per cent compound interest; and that the sum in such wise improperly charged and ap propriated amounted, together with the
accumulated interest, to P15,000, which defendant prayed be returned to it by Gutierrez Hermanos.

The object of the sixth counterclaim is the recovery of P31,000, in which amount defendant, Oria Hermanos & Co., alleged it was injured by Gutierrez Hermanos having
arbitrarily charged in the current account compound interest at the rate of 8 per cent per semester from the year 1900 up to the time of the closing of the said current account,
while the agreement made between both firms upon opening the said account was that the latter should bear a mutual interest of 8 per cent per annum only.

On May 14, 1910, counsel for Gutierrez Hermanos filed a written answer to the foregoing countercomplaints and counterclaims, and prayed that plaintiff be absolved
therefrom.

On August 1, 1910, this case came up for hearing and was continued on the following days until on April 24, 1912, the Honorable S. del Rosario, judge, rendering judgment
therein, the dispositive part of which is as follows: "Messrs. Oria Hermanos & Co. are sentenced to pay to Messrs. Gutierrez Hermanos the sum of P147,204.28, with interest
thereon at the rate of 8 per cent per annum from the 30th of June, 1909, after deduction of all the sums that result as balances, in favor of the former, from the accounts that
shall be rendered by the latter, in conformity with the cross complaints and counterclaims that have been admitted.

Messrs. Gutierrez Hermanos are sentenced:

(a) With respect to the first cross complaint, to render to Messrs. Oria Hermanos & co. accounts, supported by vouchers, only of those articles in the acquisition of
which fraud, deceit, or error has been proven and to which the following pronouncements refer.

(b) As regards the second cross complaint, to return to Messrs. Oria Hermanos & Co., after due settlement of the accounts, all the sums collected as internal-
revenue tax and referred to in the invoices of rice, salt, petroleum, lime, rattan, flour, aniseed spirit, cigarettes, and other articles mentioned in their respective
places in the record, unless plaintiff shows in a satisfactory manner that it did actually pay to the Bureau of Internal Revenue, the contents of Exhibit 178
notwithstanding, the sums which, for the reason aforestated, were debited to defendant, in which case the latter may bring an action against the said Bureau of
Internal Revenue.

(c) With respect to the third cross complaint, plaintiff must render to defendant an account, supported by vouchers, of the shipments of rice concerned in the
invoices examined in which fraud or error was discovered, and said account shall embrace the 153 invoices referred to by the litigants in this suit (page 324 of the
transcript of the stenographic notes, session of November 29, 1910).

(d) With regard to the fourth cross complaint, plaintiff shall render an account, supported by vouchers, of all the purchases it made of petroleum for Messrs. Oria
Hermanos & Co., and in connection with the invoices held in the latter's possession and referred to on page 391 of the transcript of the stenographic notes of the
session of November 29, 1910.

(e) In the matter of the second counterclaim, plaintiff shall return to Messrs. Oria Hermanos & Co. the sum of P1,812 with interest thereon at the rate of 8 per cent
per annum from the 5th of May, 1910, to the date of payment. The interest due shall be compounded after each semester, reckoning from June 1, 1900, and both
the principal and the interest so compounded shall bear the same interest of 8 per cent per annum.

Messrs. Gutierrez Hermanos are absolved, in the first place, from the second cross complaint in so far as concerns the demand therein made for a rendition of
accounts in connection with the hemp and copra; and in the second place, from the first, third, fourth, fifth, and sixth counterclaims.

Without special finding as to costs.

The parties, upon their notification of this judgment, duly excepted thereto and by written motion prayed for a reopening of the case and a new trial. These motions were
overruled, with exception by the appellants, and the proper bills of exceptions having been filed, the same were approved and forwarded to the clerk of this court.

This action was brought to recover the sum of P147,204.28, the balance of a current account opened on May 1, 1900, between Gutierrez Hermanos and the commercial firm of
Oria Hermanos & Co., at the rate 8 per cent mutual interest up to June 30, 1909, which sum was found to be owing by Oria Herm anos & Co. to the commercial firm of
Gutierrez Hermanos.

Other subject matters of the present suit are the rendition of accounts by Gutierrez Hermanos, as commission agent, to Oria Hermanos & Co., as principal, and the collection
of various sums demanded by the latter in the cross complaints and counterclaims filed, during the trial, by its counsel against the claim made by Gutierrez Hermanos for the
payment of the amount specified in the preceding paragraph.
To prove the propriety and justice of its complaint, Gutierrez Hermanos, plaintiff, alleged: That, in accordance with the agreement made, it sent semiannually a general
account that comprised a statement of the business transacted during the preceding six months, to Oria Hermanos & Co. who, after examining the account with its
specification and vouchers, sometimes approved the same without comment of any kind, and at others, after some objections, but that, in the latter cases, upon explanations
being subsequently given by Gutierrez Hermanos, the defendant firm used at last to accept the account rendered; that such was the procedure followed during the nine years
approximately that both firms maintained commercial relations, and that the record showed that during the said nine years Oria Hermanos & Co. had given in favor of
Gutierrez Hermanos 17 agreements or approvals of account, the last of which, transcribed in the complaint, is of the following tenor:

LAOAG, March 9, 1909.

Messrs. GUTIERREZ HERMANOS, Manila.

DEAR SIRS: In our possession, your very esteemed letter dated December 31 last, from which we have withdrawn the extract of our current account with your firm,
closed the same day, showing a balance in your favor of P144,473.78, which extract meets with our approval.

We remain, Yours, very respectfully, ORIA HERMANOS & Co.

That, on May 25, 1909, the plaintiff firm notified the defendant firm that it could not continue to do business with the latter and therefore the current account stipulated
between both parties would be closed within a period of thirty days; plaintiff therefore transmitted to defendant a general detailed account that comprised the period from
January, 1909, to June 30 of the same year, with the warning that after that date (May 25, 1909) defendant would have to pay the debit balance, inasmuch as, although the
said last account had not been approved, no objection whatever had been made thereto by Oria Hermanos & Co. Therefore in the said letter of May 25, plaintiff demanded of
defendant the payment of the sum mentioned of P147,204.28 which the latter had not paid in spite of plaintiff's demands and notwithstanding the fact that defendant had
made no objection whatever to the last account rendered.

Counsel for defendant, Oria Hermanos & Co., after a denial of the facts that had not been admitted prayed in special defense and in four cross complaints that the plaintiff,
Gutierrez Hermanos, be compelled to present a general account, duly verified and supported by vouchers, of all the shipments of hemp, copra, rice and other effects
specifically mentioned, and to render a final account in conformity with the agreement made between both parties and converting the details mentioned in the said cross
complaints.

Notwithstanding the proof shown in the record of the certainty and reality of the debt as a balance resulting from the current account kept between the parties, it is of course
impossible to determine the net amount, the object of the claim presented by plaintiff, until there shall have first been decided whether there should or not be rendered a
general account, accompanied by vouchers, comprehensive of the business transacted in connection with the different commercial articles dealt in, and of the mercantile
relations between both firms from May 1, 1900, to June 30, 1909, and also whether Gutierrez Hermanos is indebted to Oria Hermanos & Co. and what is the amount of the
debt.

Even upon the supposition that the plaintiff, Gutierrez Hermanos, is obliged to make a general rendition of accounts comprehensive of the business transacted between both
firms within the dates mentioned, it is evident that, until it be known whether plaintiff is or is not indebted to Oria Hermanos & Co. and what is the amount owing as disclosed
by the account rendered, it cannot be decided whether plaintiff is or is not entitled to collect the whole amount claimed in the complaint, for only in view of the result of the
rendition of accounts requested by plaintiff can it be lawfully established whether Gutierrez Hermanos is a creditor of Oria Hermanos & Co. and what amount is owing to it by
the latter. All this is referred to in the first error alleged by defendant.

In case it should be held that the law does not allow the rendition of accounts requested by the defendant, Oria Hermanos & Co., and that this latter is not a creditor of
Gutierrez Hermanos, it is evident of course that plaintiff would be unquestionably entitled to collect the amount specified in the complaint, or some other amount duly proved
at trial to be owing it by defendant. It is therefore incumbent upon us to elucidate hereinafter the propriety or impropriety of the contentions made by defendant in its four
cross complaints.

Defendant's counsel in his first cross-complaint and special defense prayed that the plaintiff, Gutierrez Hermanos, be compelled to render and present a general, final,
complete and verified account, pursuant to the agreement made between both parties, inasmuch as plaintiff bound itself to send periodically to defendant a note or numerical
extract of the current account, and in case the mercantile relations between both firms should come to an end or be finally closed, Gutierrez Hermanos bound itself to present a
general and complete account, duly supported by vouchers, and defendant, in accepting and approving the semiannual accounts rendered by plaintiff, did not waive its right to
demand the general account agreed upon, at the time of the final closing of the said current account, the obligation to furnish which was not complied with by the plaintiff,
Gutierrez Hermanos.

The latter denied in its answer the allegations made by Oria Hermanos & Co. in its cross-complaint, and set forth that, in consequence of the mutual current account opened
between the parties from the year 1900, plaintiff transmitted weekly or fortnightly, according to circumstances, a specific statement of the transactions effected, as well as,
semiannually, a general account of the business done during the six months last elapsed, and that defendant, after an examination of such semiannual account together with
its details and vouchers, and after some objections thereto had been explained, was accustomed to prove the same. This was the produre carried on for more than nine years
during which Oria Hermanos & Co. from time to time approved each one of the 17 account that were presented to it, and upon Gutierrez Hermanos closing the current account
from January to June, 1909, it also presented to defendant a general detailed account, which, nothwithstanding that no objection whatever was made to it, was not approved.
Therefore the complaint was filed that initiated this litigation.

Had the agreement between the parties been recorded with all its conditions in some instrument, it would have appeared whether Gutierrez Hermanos actually bound itself to
present to Oria Hermanos and Co., besides the semiannual accounts rendered, a general account comprising all the business undertaken between 1900 and June, 1909, on
which latter date it was considered by Gutierrez Hermanos as terminated. The allegation made by defendant relative to this point had not been substantiated by any evidence
whatever, and therefore there is no reason nor legal ground whereby plaintiff could be compelled to present that general account requested in the first cross-complaint.

It is, in our opinion, appropriate it insert hereinafter what the trial court, in the judgment rendered, says with respect to this matter: "If commission agents be obliged to
render to their principals itemized accounts, supported by vouchers, of the sums they collect as commission and of the transactions effected by them in relation with their
principals, as often as the latter may desire, in cases where there arises some trouble, some difference of opinion or a conflict of interests, or where the commission agents
close the account, as occurs in the case at bar because the principals did not pay what they were owing or because, instead of the debt being diminished, it was increased, the
commission contract would become an inexhaustible and never ending source of litigation and of claims without number, a formidable arm for spiteful principals against
which it would be insufficient to oppose an arsenal of vouchers such as might be treasured by the most prescient commission agent, because there could be avoided neither the
brother resulting from their necessary examination, nor the heavy expenses and loss of time that are the inevitable accompaniment of this class of work."

When an account has been presented or rendered and has been approved by the party whom it concerns or interests, it is not proper to revise it, unless it should be proved that
in its approval there was deceit, fraud, or error seriously prejudicial to the party who gave such approval. Arts. 1265 and 1266, Civil Code.)

In the decision rendered in the case of Pastor vs. Nicasio, (6 Phil. Rep., 152), the following doctrine was laid down;
 When accounts of the agent to the principal are once approved by the principal, the latter has no right to ask afterwards for a revision of the same or for a detailed
account of the business, unless he can show that there was fraud, deceit, error or mistake in the approval of the accounts — facts not proven in this case.

The record does not show it to have been duly proven that upon Oria Hermanos & Co. giving its approval to the 17 accounts presented by Gutierrez Hermanos there was deceit,
fraud, or mistake prejudicial to the former's interests. For the sole reason that Gutierrez Hermanos, upon closing the current account with Oria Hermanos & Co. was obliged,
certainly an unwarranted obligation, to render a general account comprehensive of all the business transacted between both parties during more than nine years, and there
being no proof of the alleged agreement between them, it would be improper to hold that the plaintiff is obliged to render and present a general account in the sense requested
by Oria Hermanos & Co. in its first cross-complaint.

With respect to the second cross-complaint, relative to the sale on commission of lots of hemp and copra by defendants to plaintiff during the period from may, 1900, until the
close of the mercantile relations between both firms, it was alleged that for such sale or sale on commission Gutierrez Hermanos collected a large and important commission of
many thousands of pesos and credited defendant in the current account with lesser prices than those obtained and that defendant received information that these lots of hemp
and copra which were said to have sold to third persons were afterwards found to have been purchased by the firm of Gutierrez Hermanos itself, to the fraud, injury, and
prejudice of the defendant, Oria Hermanos and Co.; wherefore the latter prayed that plaintiff should present a general and complete account, duly verified by vouchers and
with the details specified of each and all of the shipments of hemp and copra forwarded to plaintiff from May, 1900, to 1909. These facts were denied by plaintiff, and the
court, in view of the evidence adduced by both parties, held that the record showed absolutely no proof that plaintiff, Gutierrez Hermanos, had committed any fraud or error
prejudicial to defendant.

In fact it was not proved that Gutierrez Hermanos credited in the current account a lesser price than that obtained from the sale on commission of the lots of hemp and copra
sent to it by Oria Hermanos and Co., for from the documentary evidence consisting of account transmitted by plaintiff to the commercial firms of Stevenson and Co. and
Warner, Barnes and Co. (Limited), in collection of the price of hemp and copra acquired by these houses, it appears that the prices fixed at sale to the latter are the same and
agree with those specified in the statements transmitted by plaintiff to defendant, Oria Hermanos and Co., and that the hemp and copra shipped by the defendant were sold on
commission to third persons — that is, to the aforesaid commercial firms.

The charge laid against plaintiff, that it did not disclose the name of the commercial firm or concern from whom the hemp that it sold had come, does not, although it may
have concealed this fact, constitute a fraudulent act, nor one originating civil liability, inasmuch as plaintiff realized on the lots of hemp under the marks of Oria Hermanos &
Co. which they bore from their point of origin and by which they were known both in Manila and abroad (Exhibit DD) and not only in the invoices, but also in the accounts
presented by Gutierrez Hermanos upon its collecting the price of such hemp sold on commission, there appeared the marks stamped by Oria Hermanos & Co. on their lots of
hemp, and therefore it cannot be affirmed that Gutierrez Hermanos superseded Oria Hermanos & Co. as the owner of the hemp that plaintiff sold on commission and that
came from defendant during the more than nine years in which the former was a commission agent of the latter.

With respect to the fact of Gutierrez Hermanos not having disclosed the name of the concern to which the hemp belonged, in the cases where plaintiff sold it in its own name,
plaintiff's procedure cannot be qualified as deceitful or fraudulent, inasmuch as article 245 of the Code of Commerce authorized it to act as it did, to contract on its own
account without need of disclosing the name of its principal, in which case Gutierrez Hermanos was liable to the person or concern with whom it contracted, as if the business
were its own. So, then, the purchaser has no right of action against the principal, nor the latter against the former, without prejudice to the actions which lie respectively in
behalf of the principal and the commission agent, pursuant to the provisions of article 246 of the Civil Code.

With regard to the lots of copra, notwithstanding the allegations made in this cross-complaint, defendant has not produced any proof whatever of the facts charged, in face of
plaintiff's denial in its answer. Therefore, in consideration of the reasons set forth with respect to the lots of hemp, the judgment of the lower court disallowing defendant's
petition that plaintiff render accounts relative to the sales of hemp and copra is held to be in accordance with law.

In this part of the judgment of the trial court consideration was also given to the fact of plaintiff's having debited against defendant in the account rendered it the payment of
the internal-revenue tax of one-third of 1 per cent.

With respect to the tax paid on the price of the hemp and copra sold by the plaintiff in the name and for the account of the defendant, the procedure of the plaintiff is perfectly
legal, in accordance with the provisions of section 139 of the Internal Revenue Law, in laying upon Oria Hermanos & Co. the obligation to pay the said tax as the owner of the
hemp and copra sold, and, therefore, the claim made by defendant against the account drawn up by Gutierrez Hermanos is unreasonable and unfounded.

As regards the tax of one-third of 1 per cent which, according to accounts presented by Gutierrez Hermanos to Oria Hermanos & Co., plaintiff had paid on the price of the rice,
salt, kerosene, lime, mats, rattan, flour, anise-seed spirits, and cigarettes, inasmuch as the said section of the above cited Act obliges the vendors and not the purchasers of
these articles to pay the said tax, it is undeniable that the firm of Gutierrez Hermanos that had acquired the said articles which were forwarded to Oria Hermanos & Co. should
neither have paid the tax in question, nor should have charged it for payment against defendant, since it had already been paid to the Government by the owners of the articles
sold to plaintiff.

In view of the provisions of law contained in the aforesaid section 139, it is not understood how Gutierrez Hermanos could have been compelled to pay the said tax on the rice,
salt, petroleum, lime, mats, rattan, flour, anise-seed spirit, and cigarettes, nor on the price of the beer, on the supposition that plaintiff acquired these articles from third
persons in this city. In the case of the rice imported from abroad, the payment of the tax thereon pertains to the importer who sells it to third persons.

If Gutierrez Hermanos made a mistake, notwithstanding the clear phraseology of the said section, said mistake should not prejudice defendant who, in July, 1905, had already
stated that it did not agree with plaintiff's action in the matter for, in the letter Exhibit FF, defendant demanded that plaintiff investigate the case in order to avoid a double
payment of the tax.

For the foregoing reasons the plaintiffs, Gutierrez Hermanos, after liquidation of the sums paid as a tax of one-third of 1 per cent on the price of the rice acquired in this city
and of the salt, kerosene, lime, mats, flour, anise-seed spirit, cigarettes, and beer, referred to in the second counter-complaint, must pay to Oria Hermanos & Co. the amount
shown by said liquidation to be owing.

As regards the third cross-complaint, wherein it is alleged that fraud, deceit, or error was committed or incurred by Gutierrez Hermanos in connection w ith the accounts for
the rice forwarded to Oria Hermanos & Co., a fact denied by plaintiff, the trial judge, in view of the evidence introduced at the hearing of the case, established the following
conclusion:

Justice, therefore, demands that Messers. Gutierrez Hermanos render a new account of the lots of rice which they shipped to Messrs. Oria Hermanos & Co.,
inasmuch as they, as proved in the verification of some of the lots, committed the fraud of having collected a commission of 2 per cent for the purchase of the rice,
as commission agents, in addition to a profit in reference to the said lots, in their capacity of merchants, on the price of the rice imported by them from Saigon.

If they acted as committed agents, they could have contented themselves with the 2 per cent commission and should not have charged any extra price. If, as
commission agents, it was more advantageous for them to reap the profits from the rice imported from Saigon, they should neither have charged nor collected the 2
per cent commission. The commission agent is obliged to acquire the articles or effects for which he has received an order from his principal in the most
advantageous and less onerous conditions for the latter. Such an obligation, prescribed by article 258 of the Code of Commerce, was not fulfilled by the procedure
 observed by plaintiff in the matter of the verified invoices of rice, in some of which, as has been proved, there appears to have been charged a larger amount than
the cost price.

This court reserves its opinion, unit at such proper time it shall have seen to result, shown by the new accounts to be presented by plaintiff, as to whether, in the rice accounts
rendered by it to defendant, there was fraud or only error susceptible of correction, for plaintiff alleges in turn, as shown in the letter Exhibit ññ, that Oria Hermanos & Co.
required plaintiff to increase the price in the invoices of rice, anise-seed spirit, petroleum, etc., by 25 per cent of the cost of these articles. Therefore plaintiff shall render an
account, verified by vouchers, to Oria Hermanos of all the shipments of rice concerned, not only in the invoices examined, but also ion those that have not been examined, up
to No. 153, which invoices are those mentioned on page 324 of the transcript of the stenographic notes of the session of November 29, 1910.

The approval and agreement given by defendant to the 17 semiannual accounts presented by plaintiff is no impediment to a revision of the same, once it shall have been shown
that there was fraud, error, or serious in correction prejudicial to the party who accepted the said accounts. The law which protects him who acts in good faith cannot permit
any considerable prejudice to be caused to the rights and interests of a third party who had neither the occasion nor the opportunity to acquaint himself with the truth of the
facts which he had admitted as true in such manner as they were presented to him.

Oria Hermanos & Co., upon its accepting and approving the accounts which were presented to it by Gutierrez Hermanos, as transcripts or copies from the latter's books, did
not have an opportunity to make the required verification of the entries of rice contained in the said accounts or of the invoices of this article in all their details, and whenever
it has discovered that Gutierrez Hermanos, as commission agent, has made overcharged or placed extra prices in addition to the 2 per cent commission, it has a right to
demand reimbursement of the excess in price which it had erroneously paid as principal. The judgment of the lower court must, therefore, be affirmed with respect to the
entries of rice made in the 170 invoices referred to in the accounts presented by plaintiff, by means of a revision of the accounts presented in connection with the said article of
the Code of Commerce.

With respect to the fourth crosscomplaint relative to Gutierrez Hermanos having entered in the invoices transmitted to Oria Hermanos & Co. higher prices than those paid for
the salt, beverages, tobacco, wine, beer, and groceries, in spite of the allegations made by plaintiff the record of the proceedings shows no proof of the truth of the act charged
to plaintiff. The fact of not having recorded in the invoices of the said effects shipped to defendant the names of the persons who had acquired them does not constitute proof
nor even a presumption of illegal procedure on the part of Gutierrez Hermanos. Neither is plaintiff obliged by any law to state the names of the owners of such articles, nor
does the omission thereof show bad faith on the part of the commission agents.

As regards the petroleum, it is undeniable that in the invoices to which the fourth cross-complaint refers higher prices were given than those it actually cost. Moreover, Oria
Hermanos & Co. is entitled to the discount obtained by the commission house from the commercial firm which sold the petroleum.

The trial judge, as grounds for his finding, says the following: "It is therefore evident that, according to the proofs submitted, Messrs. Gutierrez Hermanos committed fraud in
the purchase and shipments of the said article, not only because they kept the discount allowed by the selling firm by which their principals, for whom they purchased the
petroleum should have profited, and not the commission agents who acted for them simply in the capacity of agents; but also because in one of the invoices they charged,
besides, a greater price than they paid to the vendors, and then collected a commission of 2 per cent on all the invoices. It is the obligation of commission agents to make the
purchases for their principals on the most advantageous terms. For this they are paid the rate of commission stipulated. They have no right to keep the discount allowed by the
vendors on the price of the articles they purchase for their principals, even less to increase, to their benefit, the price charged them."

In consideration, then, of evidence introduced relative to the purchase of the petroleum shipped to defendant, referred to in the fourth cross-complaint, plaintiff must render
an account, verified by vouchers, of the price of all the petroleum that it acquired for Oria Hermanos & Co. and which is covered by the invoices mentioned on page 391 of the
transcript of the stenographic notes taken of the session of December 28, 1910.

The judgment of the lower court treats of the fact that Gutierrez Hermanos charged interest on the value of the articles which it had purchased for Oria Hermanos & Co.,
before even having paid the vendors the price of the articles acquired. Defendant has complaint against this procedure on the part of plaintiff and qualifies as improper and
illegal the collection of the 8 per cent interest on the price of the effects forwarded to Oria Hermanos & Co. from the date of their shipment, when actual payment of such
purchases was made many days afterwards.

The accounts presented by Gutierrez Hermanos, wherein note was made of the collection of interest at the rate of 8 per cent on the price of the effects acquired by plaintiff for
Oria Hermanos & Co. and shipped to defendant for its disposal, notwithstanding that they were not paid for unit many days afterwards, were approved and accepted by
plaintiff without any objection thereto whatever and with no protest against the notation of the interest on the price of the articles purchased. Therefore, aside from the
reasons given by the lower court in his judgment and relative to this point, it can not be held that there was either fraud or error in the procedure observed by Gutierrez
Hermanos in charging in its account the stipulated interest from the date when it acquired the effects, afterwards shipped to the defendant, Oria Hermanos & Co., because
Gutierrez Hermanos could have paid cash for the articles purchased. Even though payment might have been delayed for a few days more it is certain that Gutierrez Hermanos
as commission agent was obliged to pay the price of the articles acquired and, consequently, said price began to draw interest chargeable to the consignee who, as owner of
such articles, could dispose of them freely. For these reasons defendant's claim can not be sustained.

We now take up the fifth special defense, or the first counterclaim presented by defendant against plaintiff, wherein it is prayed that the latter be sentenced to pay to the
former the sum of P13,894.60, together with the legal interest thereon, which sum is the difference between the 5 per cent which was all Oria Hermanos & Co. should have the
sum of P47,649, the debt contracted by Juan T. Molleda in favor of Gutierrez Hermanos and transferred to Oria Hermanos and Co. who assumed its payment instead of
Molleda.

The reasons, set forth in the judgment appealed from and based on documentary evidence, are so clear and conclusive that they could not be rejected by defendant, nor
invalidated at trial by other evidence in rebuttal. Consequently, we are constrained to admit them as decisive of the point in controversy and as duly showing that the interest
stipulated on the amount which was transferred to Oria Hermanos and Co. is 8 per cent and not 5 per cent as defendant claims. Therefore the sum of P13,894.60 claimed
cannot be recovered, and it is held that the finding made by the trial judge in respect to the first counterclaim filed by defendant is in accord with the law and the evidence.
This finding is based on the following grounds: "If the firm of Molleda and Oria as well as that of Oria Hermanos & Co., of which latter Mr. Tomas Oria is manager, both
consented to Messrs. Gutierrez Hermanos charging in all the extracts of current account sent to them an interest of 8 per cent on the sum of P47,649 56; and if they willingly
and constantly acquiesced in the payment of a particular rate of interest instead of that of 5 per cent, during nine years without raising any objection whatever, they are not
entitled to obtained restitution for the difference paid of 3 per cent, nor have they any right to consider as unlawfully collected the 8 per cent interest on the sum above
mentioned. The record shows no proof of the existence of any of the vices which, according to law, might invalidate the consent given by defendant to the collection from it of
the interest of 8 per cent, which must be that stipulated, nor was such a vice alleged by Oria Hermanos & Co." Moreover, against this finding in plaintiff's favor no error
whatever has been alleged by defendant.

In the second counterclaim, the sixth special defense, defendant prays that Gutierrez Hermanos be sentenced to the payment of P63,700, with legal interest thereon from the
date of the presentation of this counterclaim, and alleged; that the firm of Gutierrez Hermanos, disregarding the instructions of Molleda and Oria, the predecessor of Oria
Hermanos and Co., merely insured the stocks of hemp and merchandise which the latter had in Laoang, for an imaginary value of P67,000, leaving totally unprotected the
stocks of hemp and merchandise in Catubig, valued at P32,000; that such failure to comply with said instruction caused Oria Hermanos and Co., by reason of the fire that
occurred in Catubig, to lose the sum of P63,700, including the premiums. expenses, and interest paid, and that defendant, immediately upon discovery of the loss by plaintiff's
fault and negligence, filed claim therefor and protested against the same.
In answer Gutierrez Hermanos alleged that in the letter from Oria Hermanos and Co., of the date of April 28, 1900, the latter stated that it recommended to plaintiff the
question of the insurance of the warehouses in Laoang and of the houses in Catubig, advised that if the stocks of hemp and merchandise therein were insured, as defendant
believed they were, plaintiff should endeavor to increase the insurance thereon; and that in another letter of the same date Don Tomas Oria, after relating the fact that the
insurgents had attacked the pueblo of Catubig and killed the troops there garrisoned, stated that he earnestly recommended to Gutierrez the matter of the insurance in order
that it might be made as soon as possible in the manner explained in the official letter of the same date.

Gutierrez Hermanos, supposing that Catubig might already have been burned and destroyed as a result of the occurrences related by Oria in his letter, judging by the news
published in the newspapers of this city on May 2, 1900, deemed that it would be a useless expense to increase the insurance of the merchandise held in stock in the said
pueblo under ordinary fire insurance which was that taken out by the firm of Molleda and Oria, for the reason that the insurance companies would refuse to pay the amount of
the insurance in case the damage was caused by war, invasion, riot, military force, etc. As Gutierrez Hermanos then had no means whereby it might communicates with
Molleda and Oria to request specific instructions from this latter firm in regard to the insurance ordered, which ordinary and not war insurance, it had to consult Don Casimiro
Oria, a partner of Oria Hermanos and Co., and this gentleman, with a full knowledge of the state of affairs in Catubig, advised that no further attempt be made to increase the
ordinary fire insurance on the goods in Catubig, because it would be a useless expense and because there were well-founded reasons for supposing that at that date the pueblo
had already been completely destroyed, together with the buildings and stocks of merchandise which it was proposed to insure. But after taking into account the importance of
the buildings and the large stocks of goods stored in Laoang, which pueblo, according to a letter from Oria to Gutierrez Hermanos, was also in danger of being attacked by the
insurgents, plaintiff proceeded to insure them against war risks for three months for P7,000 sterling, a transaction which was communicated by plaintiff to Molleda and Oria
by a letter of May 5, 1900, and which this latter firm acknowledged without making any objection whatever to the war insurance placed; that, since the 2d of June of the same
year, neither was any claim or protest made by the firm of Oria Hermanos, but, on the contrary, Oria Hermanos and Co. applied to the Government of the United States
claiming an indemnity of P90,000 Philippine currency for the burning of the buildings and goods in the pueblo of Catubig — a claim still pending decision by the Government.

The judge of the Court of First Instance, deciding the question raised in this counterclaim, set forth among others the following considerations: "If Messrs. Gutierrez
Hermanos had taken steps to insure the stocks of merchandise in Catubig and had declared to any officer of the insuring company the truth about the terrible slaughter which
had just taken place, it would have been impossible to obtain a war insurance on the said merchandise; and if, instead of declaring the truth, plaintiff had omitted it, the
insurance if obtained could not have been collected. The insurance company would have learned of the circumstances which had not been stated and had been omitted in the
application and would have refused to pay the insurance, as it did in the case of the Catarman insurance, as will be seen further on. And if plaintiff had applied to the English
courts, as it did in the case referred to, the result would have been the same."

Even though Gutierrez Hermanos had increased by value of the insurance on the hemp and merchandise in Catubig through means of ordinary fire insurance, pursuant to the
instructions given by Molleda and Oria, the predecessors of Oria Hermanos & Co. and whose rights this latter firm represents, the same result would have followed, inasmuch
as in this class of insurance the insuring company does not assume risks for fires and damages caused by war, riot, and military force; and as in the official letter
aforementioned plaintiff was not authorized to increase the insurance through means of a war insurance policy, it is unquestionable that plaintiff, in not increasing the
ordinary insurance, proceeded in a prudent and reasonable manner and for the benefit of the defendant by saving the latter from uselessly paying an important premium for
an insurance which it afterwards could not have collected, Furthermore, the news was already disseminated in Manila that the pueblo of Catubig had been completely burned
to the ground. Not only, therefore, would it have been impossible to obtain the increase of an ordinary insurance, but even a war insurance, though offering to pay a large and
excessive premium.

In the letter of the date of May 34, 1900, Exhibit 5, page 190 of the file of the record, Gutierrez Hermanos informed Oria Hermanos and Co. that the insurance firm refused to
pay the amount of the insurance on the merchandise in Catubig, for the reason that the cases of fire caused through military force, etc., were excluded from the policy. So that
even though Gutierrez Hermanos had, in compliance with orders from Oria Hermanos & Co., increased the amount of the insurance on the stock of merchandise stored in
Catubig, Oria Hermanos & Co. would not have been benefited thereby, because the insurance company would have refused to pay the increase, just as it did not pay the
amount of the original insurance for the reason aforementioned. Furthermore, as we have already stated, the order to increase the insurance only refers to ordinary insurance
against fire, and not to extraordinary insurance against war risks.

With respect to the war insurance placed on the stocks of goods in Laoang, the trial court could not in accordance with law hold plaintiff to be liable for the payment of the
sum Oria Hermanos and Co. did not protest nor object in any wise against the placing of the said war insurance on the merchandise in Laoang, and also because in the second
counterclaim no petition or demand whatever was made in connection with this transaction. For these reasons therefore, Gutierrez Hermanos must be absolved of the second
counterclaim.

We now come to the third counterclaim, the seventh special defense presented by defendant, wherein petition was made that the firm of Gutierrez Hermanos be compelled to
pay to Oria Hermanos the sum of P67,000, besides the legal interest thereon since the filing of this claim, which sum was the amount of the insurance, premiums paid, fees,
costs, interest, and charges for telegrams, etc., alleged to have been expended and lost through the inattention, negligence, improvidence, and carelessness of the plaintiff,
Gutierrez Hermanos, without defendant's being able to collect the amount of the insurance on the stock of hemp in Catarman, Samar.

In a letter of May 10, 1900, addressed by Oria Hermanos & Co. to Gutierrez Hermanos, the former commissioned the latter to try to insure against war risks some 1,400 piculs
of hemp that Oria Hermanos and Co. had in the pueblo of Catarman which had been evacuated by the American troops; and in another letter of the same date Tomas Oria said
to Gutierrez Hermanos that Catarman had been evacuated by the troops three days after the departure of the steamer Santander which was unable to load about 3,000 piculs
of hemp that his firm had there, and, as he knew that the said pueblo had not been burned, he wished to have insurance taken out on the value of about 1,400 piculs of hemp
stored in the Delgado warehouse. Gutierrez Hermanos had Stevenson and Co., of Manila, cable to the latter's head office in London for the desired insurance, and as soon as it
was obtained Gutierrez Hermanos wrote to Oria Hermanos & Co. informing defendant that plaintiff had insured against war risks 1,400 piculs of hemp deposited in the
Delgado warehouse in Catarman, for three months from the 18th of May, 1900.

A few days subsequent to the placing of this insurance, Oria Hermanos & Co. ordered Gutierrez Hermanos to collect the amount of the insurance, for the reason that all the
stock of hemp in Catarman had been stolen by the insurgents. The representative of the underwriter refused, however, to pay the amount of the insurance because Oria
Hermanos and Co. had concealed certain facts which, had they been known to the underwriter, would have deterred the company from issuing a policy for the hemp, and all
the steps taken for the purpose of obtaining the collection of the £3,000 sterling for which the hemp had been insured, resulted in failure.

Therefore, on petition of the firm of Oria Hermanos & Co. through the firm of Stevenson and Co., suit was duly brought before the English courts in London. The prosecution
of this suit was commended to English attorneys to whom Oria Hermanos & Co. furnished, through Gutierrez Hermanos, all the documents and data conducive to a successful
issue. Notwithstanding, the claim of Oria Hermanos & Co. was rejected by the London courts. No liability attached to Gutierrez Hermanos for the failure of the suit in London.

The firm of Gutierrez Hermanos merely complied with the orders of Oria Hermanos & Co. to insure the stock of hemp in Cataraman, with an insurance company established in
London, through Stevenson and Co. of Manila, in view of the fact that there was no insurance company in this city which would issue policies against war risks. For this
purpose, by a letter of October 17, 1905, Exhibit F-2 Oria Hermanos & Co. transmitted to Gutierrez Hermanos the power of attorney and the letter for Messrs. Horsley, Kibble
and Co. for the purpose of the latter's negotiating with the underwriters for some honorable settlement of the matter, during the time required for the receipt of all the
documents that had been requested. In another letter of January 25, 1906, Oria Hermanos & Co. stated to Stevenson and Co. that it took pleasure in replying to the latter's
favor of the 19th instant, addressed to Mr. Oria; that Delgado's letter to Oria of the date of October 19, 1901, was forwarded in the original to London, through Messrs.
Gutierrez Hermanos, to Stevenson and Co., on July 16, 1904; that defendant inclosed a copy of Delgado's declaration before the municipal judge of Catarman, transmitted to
Stevenson and Co. on November 21, 1903; and that the two letters to Gutierrez Hermanos, of May 28, 1903, and October 2, 1901, as well as the memorandum of the values of
the goods, had been transmitted to Gutierrez Hermanos with a telegraphic order to said firm to deliver them to Stevenson and Co. If the amount of the insurance could not
afterwards be collected, it was not through fault of Gutierrez Hermanos, who acted in the matter in accordance with instructions from Oria Hermanos and Co.
So that firm of Gutierrez Hermanos was a mere conductor through which the stock of hemp in Catarman was insured by a firm in London through mediation of Messrs.
Stevenson and Co., for the firm of Oria Hermanos and Co. had to grant a power of attorney on behalf of the said Messrs. Horsley, Kibble and Co. in order that the latter might
represent the former before the courts in England. If afterwards the representatives of Oria Hermanos and Co. did not obtain a favorable decision in those courts, the loss of
the suit cannot be ascribed to either the fault or the negligence of Gutierrez Hermanos, inasmuch as this plaintiff merely complied with the orders of the defendant, Oria
Hermanos and Co., to bring suit in the English courts, not against Stevenson and Co. of these Islands, but against the insurance company of London.

The firm of Gutierrez Hermanos, in executing orders and charges of Oria Hermanos and Co., became, by virtue of an implied agency, an agent of the latter and, in the
fulfillment of the orders of the principal, adjusted its action to the instructions of Oria Hermanos & Co. The record does not show that in so doing it proceeded with negligence
or with deceit. Therefore there is no reason nor legal ground whereby plaintiff should be compelled to pay the sum demanded in the third counterclaim for the causes therein
stated. (Arts. 1710, 1719 and 1726 of the Civil Code.) Consequently Gutierrez Hermanos should be absolved from the third counterclaim filed by defendant.

In the fourth counterclaim, the eighth special defense, defendant, Oria Hermanos & Co., prays that plaintiff, Gutierrez Hermanos, be sentenced to pay P75,000 for losses and
damages, with interest, inasmuch as by reason of a contract executed between both parties, plaintiff bound itself to acquire for and transmit to defendant rice and other
articles, including coin, which Oria Hermanos & Co. might request at Laoang, Samar, and so plaintiff did; but since 1904, the fifth year of their mercantile relations, plaintiff
failed repeatedly to comply with its obligation to send the rice and other article requested by defendant, totally sometimes and at other times partially limiting the shipment of
the effects ordered and excusing itself from remitting money on the pretext that it could not obtain insurance for the shipment of cash; that defendant afterwards discovered
that there were in this city large stocks of rice and other effects which plaintiff [defendant] had requested, and could surely have been sold in Laoang and the pueblos of the
coast of Samar, as Oria Hermanos & Co. was the only importing firm in that island; and had defendant received from plaintiff the rice and the other effects the former had
requested to be shipped to it, defendant would have obtained a profit of not less than P25,000 whereupon it could have bought large quantities of hemp which would have
brought it great profit. Defendant further alleged that such failure on the part of plaintiff to comply with the agreement made caused injury to the reputation and mercantile
credit of Oria Hermanos and Co., in Samar, and losses and damages of the value of about P50,000, the total of the losses and damages suffered on both accounts amounting to
a sum of not less than P75, 000; and that the motive of such procedure on the part of Gutierrez Hermanos was to injure and destroy defendant's credit in Laoang and on the
entire coast of Samar, because plaintiff planned to establish there a business of its own like that of Oria Hermanos and Co.

Plaintiff, Gutierrez Hermanos, specifically denied the facts alleged by defendant in its counterclaim and set forth that the evidence introduced relative to such facts showed
that since 1904 plaintiff had been reducing the shipments of rice, wine, and other effects to such extent that in 1906 and 1907 cases occurred where the order shipped was
reduced to one-third, and in 1908 also where the steamer Serantes was sent without any cargo whatever, for the reason that the debit balance in defendant's current account
amounted, in 1905, to P321,000 and because Oria Hermanos and Co. did not send a quantity of hemp and copra sufficient in value to cover the value of the remittance of
money and of the shipments of the effects requested; that defendant, instead of sending hemp to plaintiff for the gradual payment of its debt, sent it to Cebu; that therefore
Oria Hermanos & Co. had no well-founded grounds whereupon to claim indemnity for losses and damages, especially since, according to the stipulations of the agreement and
as shown by the evidence, the part of the credit utilized by defendant was to be covered and paid for with the price of the hemp, copra and other effects which Oria Hermanos
& Co. should have to send to Gutierrez Hermanos; and that, if the debtor balance of the current account continued to increase instead of decreasing, it must be concluded that
the procedure of Gutierrez Hermanos in reducing the amount of the shipments of the orders was due to the conduct of Oria Hermanos & Co. who did not endeavor by the
shipment of copra, hemp, and other effects gradually to pay even a part of the credit opened, notwithstanding that the rights and obligations established in the contract should
have been mutual.

If defendant, without concerning itself with diminishing its debtor balance, did no more than order goods for sale and remit drafts to the paid by Gutierrez Hermanos, not
sending in exchange to plaintiff hemp, copra, and other effects, plaintiff, Gutierrez Hermanos, in refusing discretionally to furnish certain effects to defendant and to pay drafts
drawn by the latter, did not violate the obligations it assumed in the contract.

The fact that the debtor balance accepted by Oria Hermanos and Co. on March 9, 1909, Exhibit A, was raised to P144,473.78, is the best proof of the good conduct observed by
plaintiff during the nine years of mercantile relations between both parties, and is at the same time the most graphical demonstration that defendant's contention made in its
fourth counterclaim is not based on any just or legal grounds.

Article 1100, last paragraph of subarticle 2, of the Civil Code prescribes: "In mutual obligations none of the persons bound shall incur default if the other does not fulfill or does
not submit to properly fulfill what is incumbent upon him. From the time one of the persons obligated fulfills his obligation the default begins for the other party." Article 1124
of the same Code provides as follows: "The right to rescind the obligations is considered as implied in mutual ones, in case one of the obligated persons does not comply with
what is incumbent upon him.

The person prejudiced may chose between exacting the fulfillment of the obligation or its rescission, with indemnity for damages and payment of interest in either
case. He may also demand the rescission, even after having requested its fulfillment, should the latter appear impossible." Under these grounds we hold that the
absolutory finding contained in the judgment appealed from is in accordance with the law and the evidence.

In the fifth counterclaim, the ninth special defense, defendant, Oria Hermanos and CO., prayed that Gutierrez Hermanos be sentenced to pay the sum of P15,000, together
with the legal interest thereon, inasmuch as plaintiff, Gutierrez Hermanos, charged in the current account, collected and appropriated to itself the funds which Oria Hermanos
& Co. had in plaintiff's possession and assessed against the same compound interest at 8 per cent and 2 ½ per cent on the net amount of the collection made as charterage for
the steamers Serantes and Laoang, the launches Comillas and Golondrina, and the cutter Remedios, as commission for said charterage, when all the steps for the collection of
the same were taken personally by Messrs. Oria and further, defendant's partners and there was no contracts whatever between the parties whereby Gutierrez Hermanos
might collect, enter into the current account and appropriate to itself the said amount as commission through the collection of the aforesaid charterage.

Plaintiff's counsel merely denied the facts alleged, which certainly were not proved at the trial. It was, on the contrary, fully proven that Don Tomas Oria and the managers of
Oria Hermanos & Co. knew, by reason of the accounts Gutierrez Hermanos had been sending them, that the plaintiff firm charged the 2 per cent commission on the amount of
the charterages, for it is so recorded in the letter from Oria addressed to Gutierrez Hermanos under date of June 12, 1901, in which P690 appears annotated as the amount of
plaintiff's 2 per cent commission for the charterage of the Laoang and the Serantes, and in other letter from Oria Hermanos and Co. of October 18, 1900, (Exhibit A-2, page
476 of the record) wherein demand was made for vouchers and a memorandum of the collections effected for the charterage of these steamers, the Laoang, and the Serates.
Furthermore, it appears in this same letter for it is stead that credit has been given in Gutierrez Hermanos' account for P272.50, as being the amount this firm was entitled to
receive as 2 per cent commission on the P15,625 collected by it from the quartermaster for the charterage of the Serates and for the transportation of eight passengers on the
steamer Laoang; and it is also therein stated that Gutierrez Hermanos' account has been credited with the sum of P24, as the amount of 2 per cent commission on P1,200
collected for four days' charterage of the Laoang. These documents show that Gutierrez Hermanos has taken part in the collection of the said charterages and, therefore, was
entitled to receive the amount agreed upon as commission for such collection. Oria's assertion that Gutierrez Hermanos did nothing for the collection of the P400,000, the
amount of the charterage for the boats of Oria Hermanos and Co., Gutierrez Hermanos relative to the collection of the charterages due for the launches Golondrina and Adela,
and for this purpose he sent the proper vouchers for such collection. Consequently there is neither reason nor legal ground to prevent our holding as proper the finding
established by the trial court that Oria Hermanos & Co. did, with due knowledge of the matter, approve the amount of the commissions collected by Gutierrez Hermanos on
the sums it had collected as charterage for the defendant's boats, in accordance with the agreement made between the parties, which defendant can not repudiate, nor can its
regret for the part it took therein avail it for the reimbursement sought in its fifth counterclaim. The finding of the trial judge in regard to the latter is, therefore, in conformity
with the law.

The object of the sixth counterclaim is to obtain reimbursement of the sum of P31,000, the amount of the interest charged and compounded semiannually, instead of annually,
at the rate of 8 per cent net interest. Oria Hermanos & Co. demands this sum from Gutierrez Hermanos, alleging that there was an agreement between the parties to the effect
that a settlement of the interest should be made at the end of each year, and also that the interest due and unpaid should be capitalized annually.
The firm of Oria Hermanos & Co., Tomas Oria, one of the partners of the same, and the defendant's bookkeeper, a relative of the said Oria and also a partner of the firm, had
been receiving extracts or copies of the semiannual accounts rendered by Gutierrez Hermanos, and, after a careful examination of the same, after offering objections thereto
which sometimes delayed Oria Hermanos and Co.'s approval thereof for more than six months, after receiving the explanations requested and vouchers demanded of plaintiff,
they concluded by admitting and agreeing to the accounts rendered and the amounts involved, and made neither objection nor protest whatever against the system or method
employed by Gutierrez Hermanos in capitalizing at the end of each year the interest of the semiannual accounts rendered, nor against the interest charged on the capitalized
interest, not only in defendant's debit, but also by reciprocation in the credit given it in the account of the receipts obtained from price of the hemp, copra and other products
shipped to Gutierrez Hermanos. All the foregoing facts appear on page 18 of the transcript of the stenographic notes taken of the hearing on July 14, 1914.

The transaction effected by Gutierrez Hermanos in the accounts it presented to defendant, Oria Hermanos & Co., is confirmed by some twenty letters signed, some of them, by
Pria Hermanos and Co., others, the greater part of them, by Tomas Oria, and still others by Mr. Fuster, a partner of the latter firm. Therefore the semiannual capitalization
made by plaintiff, Gutierrez Hermanos, was sanctioned and approved by defendant on the seventeen occasions that it approved the accounts presented by plaintiff, expressive
of such capitalization of the reciprocal interest stipulated between the contracting parties.

Article 1109 of the Civil Code prescribes as follows: "Interest due shall earn legal interest from the time it is judicially demanded, even if the obligation should have been silent
on this point.

In commercial transactions the provisions of the Code of Commerce shall be observed.

Article 317 of the Code of Commerce provides: "Interest which has fallen due and has not been paid shall not earn interest. The contracting parties may, however, capitalized
the net interest which has not been paid, which, as new principal, shall earn interest."

Upon the execution of the contract which was the origin of the mercantile relations between Gutierrez Hermanos and Oria Hermanos & Co., the stipulation made between both
parties were not sent forth in any document, they being content with a verbal agreement in which it was stipulated that the rate of interest of the reciprocal current account to
be kept between them should be 8 per cent, without determining whether such interest was to fall due annually, as affirmed by Tomas Oria, the manager of Oria Hermanos &
Co., or semiannually, as contended by Gutierrez Hermanos. However, it is certain that in the seventeen accounts presented by plaintiff to defendant, at the end of each period
of six months from 1900 to December 31, 1908, embracing nearly nine years, the interest due was liquidated every six months in the reciprocal current account between both
firms, without opposition or protest on the part of Oria Hermanos and Co. In the absence of a written agreement defendant's procedure raises the presumption that such were
the stipulations verbally made between made between the interested parties, and the verbal agreement was constantly maintained and confirmed without protest or objection
whatever on the part of the managers of Oria Hermanos & Co. If Tomas Oria, changing his opinion, after the firm of which he is principal member had approved the said
seventeen accounts, believed that he was authorized to contradict his own acts and to allege another manner of computing and liquidating the 8 per cent interests stipulated by
stating that it should have been collected annually, and not semiannually as was done and approved in the seventeen accounts rendered during a period of more than nine
years, the rectification afterwards made of an assent and agreement repentance what he himself did in agreement with defendant, since they were authorized to take such
action by article 317 of the Code of Commerce. Therefore the ruling of the trial judge absolving plaintiff of the sixth counterclaim filed by defendant is in accordance with the
law and with the evidence as disclosed by the record.

For all the reasons hereinabove set forth as grounds for the findings rendered in respect to the complaint and to each one of the cross-complaints and counterclaims presented
by defendant, the errors assigned to the judgment appealed from and not admitted in this decision have been duly refused.

Therefore, for the reasons assigned in this decision, we sentence the commercial firm of Oria Hermanos & Co. to the payment of the sum of P147,204.28 and of the stipulated
interest at the rate of 8 per cent per annum from June 30, 1909, after deduction of all the sums which as balances in favor of defendant may result from the accounts to be
rendered by Gutierrez Hermanos, in conformity with the finding made, especially in reference to the second, third, and fourth cross-complaints.

Gutierrez Hermanos is absolved from the first cross-complaint, and also from the second, in which latter defendant prayed for an accounting of the hemp and copra business.
Plaintiff is likewise absolved from the fourth cross-complaint, excepting the part thereof relative to the petroleum, and also from the first, second, third, fourth, fifth, and sixth
counterclaims filed by defendant.

Held: (1) That Gutierrez Hermanos, after Liquidation of the sums paid as a one-third per cent tax on the price of the rice acquired in this city, of that of the salt,
kerosene, lime, mats, rattan, flour, anisette, cigarettes, beer, and other articles, for which plaintiff paid said sums and charged them to defendant's account, must
pay to Oria Hermanos & Co. the sum disclosed by the said liquidation, in conformity with the second cross-complaint.

(2) That Gutierrez Hermanos shall render to defendant an account, supported by vouchers, of the price, expenses, and all amounts paid for the shipments of rice
covered by the invoices examined during the trial of this case, as well as the 153 invoices mentioned by the parties in the hearing of November 29, 1910.

(3) That plaintiff shall render an account, supported by vouchers, of all the petroleum it acquired for Oria Hermanos & Co., the invoices of which are mentioned in
the transcript of the stenographic notes taken at the hearing of December 28, 1910.

The judgment appealed from is affirmed in so far as it is in accord with this decision and is reversed in so far as it is not, without special finding as to costs.

Arellano, C.J. and Johnson, J., concur.

Carson and Trent, JJ., concur in the result.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 114311 November 29, 1996

COSMIC LUMBER CORPORATION, petitioner,

vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

BELLOSILLO, J.:

COSMIC LUMBER CORPORATION through its General Manager executed on 28 January 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as
attorney-in-fact —

. . . to initiate, institute and file any court action for the ejectment of third persons and/or squatters of the entire lot 9127 and 443 and covered by TCT
Nos. 37648 and 37649, for the said squatters to remove their houses and vacate the premises in order that the corporation may take material
possession of the entire lot, and for this purpose, to appear at the pre-trial conference and enter into any stipulation of facts and/or compromise
agreement so far as it shall protect the rights and interest of the corporation in the aforementioned lots. 1

On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action for the ejectment of private respondent Isidro Perez and recover
the possession of a portion of Lot No. 443 before the Regional Trial Court of Dagupan, docketed as Civil Case No. D-7750. 2

On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with respondent Perez, the terms of which follow:

1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela Cruz the area at present occupied by defendant wherein his
house is located is 333 square meters on the easternmost part of lot 443 and which portion has been occupied by defendant for several years now;

2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact the sum of P26,640.00 computed at P80.00/square meter;

3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of this compromise agreement over said portion of 333 square
m. of lot 443 which portion will be located on the easternmost part as indicated in the sketch as annex A;

4. Whatever expenses of subdivision, registration, and other incidental expenses shall be shouldered by the defendant. 3

On 27 November 1985 the "Compromise Agreement" was approved by the trial court and judgment was rendered in accordance therewith. 4

Although the decision became final and executory it was not executed within the 5-year period from date of its finality allegedly due to the failure of petitioner to
produce the owner's duplicate copy of Title No. 37649 needed to segregate from Lot No. 443 the portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to
private respondent under the compromise agreement. Thus on 25 January 1993 respondent filed a complaint to revive the judgment, docketed as Civil Case No. D-
10459. 5

Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival of judgment was served upon it that it came to know of the
compromise agreement entered into between Paz G. Villamil-Estrada and respondent Isidro Perez upon which the trial court based its decision of 26 July 1993 in
Civil Case No. D-7750. Forthwith, upon learning of the fraudulent transaction, petitioner sought annulment of the decision of the trial court before respondent
Court of Appeals on the ground that the compromise agreement was void because: (a) the attorney-in-fact did not have the authority to dispose of, sell, encumber
or divest the plaintiff of its ownership over its real property or any portion thereof; (b) the authority of the attorney-in-fact was confined to the institution and filing
of an ejectment case against third persons/squatters on the property of the plaintiff, and to cause their eviction therefrom; (c) while the special power of attorney
made mention of an authority to enter into a compromise agreement, such authority was in connection with, and limited to, the eviction of third persons/squatters
thereat, in order that "the corporation may take material possession of the entire lot;" (d) the amount of P26,640.00 alluded to as alleged consideration of said
agreement was never received by the plaintiff; (e) the private defendant acted in bad faith in. the execution of said agreement knowing fully well the want of
authority of the attorney-in-fact to sell, encumber or dispose of the real property of plaintiff; and, (f) the disposal of a corporate property indispensably requires a
Board Resolution of its Directors, a fact which is wanting in said Civil Case No. D-7750, and the General Manager is not the proper officer to encumber a corporate
property. 6

On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that not one of the grounds for annulment, namely, lack of jurisdiction,
fraud or illegality was shown to exist. 7 It also denied the motion for reconsideration filed by petitioner, discoursing that the alleged nullity of the compromise
judgment on the ground that petitioner's attorney-in-fact Villamil-Estrada was not authorized to sell the subject propety may be raised as a defense in the
execution of the compromise judgment as it does not bind petitioner, but not as a ground for annulment of judgment because it does not affect the jurisdiction of
the trial court over the action nor does it amount to extrinsic fraud. 8

Petitioner challenges this verdict. It argues that the decision of the trial court is void because the compromise agreement upon which it was based is void. Attorney-
in-fact Villamil-Estrada did not possess the authority to sell or was she armed with a Board Resolution authorizing the sale of its property. She was merely
empowered to enter into a compromise agreement in the recovery suit she was authorized to file against persons squatting on Lot No. 443, such authority being
expressly confined to the "ejectment of third persons or squatters of . . . lot . . . (No.) 443 . . . for the said squatters to remove their houses and vacate the premises
in order that the corporation may take material possession of the entire lot . . ."

We agree with petitioner. The authority granted Villamil-Estrada under the special power of attorney was explicit and exclusionary: for her to institute any action
in court to eject all persons found on Lots Nos. 9127 and 443 so that petitioner could take material possession thereof, and for this purpose, to appear at the pre-
trial and enter into any stipulation of facts and/or compromise agreement but only insofar as this was protective of the rights and interests of petitioner in the
property. Nowhere in this authorization was Villamil-Estrada granted expressly or impliedly any power to sell the subject property nor a portion thereof. Neither
can a conferment of the power to sell be validly inferred from the specific authority "to enter into a compromise agreement" because of the explicit limitation fixed
by the grantor that the compromise entered into shall only be "so far as it shall protect the rights and interest of the corporation in the aforementioned lots." In
the context of the specific investiture of powers to Villamil-Estrada, alienation by sale of an immovable certainly cannot be deemed protective of the right of
petitioner to physically possess the same, more so when the land was being sold for a price of P80.00 per square meter, very much less than its assessed value of
P250.00 per square meter, and considering further that petitioner never received the proceeds of the sale.

When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. 9 Thus
the authority of an agent to execute a contract for the sale of real estate must be conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. 10 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. 11 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. 12 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. 13

It is therefore clear that by selling to respondent Perez a portion of petitioner's land through a compromise agreement, Villamil-Estrada acted without or in obvious
authority. The sale ipso jure is consequently void. So is the compromise agreement. This being the case, the judgment based thereon is necessarily void. Antipodal
to the opinion expressed by respondent court in resolving petitioner's motion for reconsideration, the nullity of the settlement between Villamil-Estrada and Perez
impaired the jurisdiction of the trial court to render its decision based on the compromise agreement. In Alviar v. Court of First Instance of La Union, 14 the Court
held —

. . . this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not binding upon and cannot be executed against
the petitioners. It is evident that the compromise upon which the judgment was based was not subscribed by them . . . Neither could Attorney Ortega
bind them validly in the compromise because he had no special authority . . .

As the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to render it, much less to order the execution
thereof . . .

. . . A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is without legal efficacy and may properly be
impugned in any proceeding by the party against whom it is sought to be enforced . . .

This ruling was adopted in Jacinto v. Montesa,15 by Mr. Justice J. B.L. Reyes, a much-respected authority on civil law, where the Court declared that a judgment
based on a compromise entered into by an attorney without specific authority from the client is void. Such judgment may be impugned and its execution restrained
in any proceeding by the party against whom it is sought to be enforced. The Court also observed that a defendant against whom a judgment based on a
compromise is sought to be enforced may file a petition for certiorari to quash the execution. He could not move to have the compromise set aside and then appeal
from the order of denial since he was not a party to the compromise. Thus it would appear that the obiter of the appellate court that the alleged nullity of the
compromise agreement should be raised as a defense against its enforcement is not legally feasible. Petitioner could not be in a position to question the
compromise agreement in the action to revive the compromise judgment since it was never privy to such agreement. Villamil-Estrada who signed the compromise
agreement may have been the attorney-in-fact but she could not legally bind petitioner thereto as she was not entrusted with a special authority to sell the land, as
required in Art. 1878, par. (5), of the Civil Code.

Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul and set aside judgments of Regional Trial Courts. 16
"Thus, the Intermediate Appellant Court (now Court of Appeals) shall exercise . . . (2) Exclusive original jurisdiction over action for annulment of judgments of the
Regional Trial Courts . . ." However, certain requisites must first be established before a final and executory judgment can be the subject of an action for
annulment. It must either be void for want of jurisdiction or for lack of due process of law, or it has been obtained by fraud. 17

Conformably with law and the above-cited authorities, the petition to annul the decision of the trial court in Civil Case No. D-7750 before the Court of Appeals was
proper. Emanating as it did from a void compromise agreement, the trial court had no jurisdiction to render a judgment based thereon. 18

It would also appear, and quite contrary to the finding of the appellate court, that the highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case
No. 7750 constituted an extrinsic or collateral fraud by reason of which the judgment rendered thereon should have been struck down. Not all the legal semantics
in the world can becloud the unassailable fact that petitioner was deceived and betrayed by its attorney-in-fact, Villamil-Estrada deliberately concealed from
petitioner, her principal, that a compromise agreement had been forged with the end-result that a portion of petitioner's property was sold to the deforciant,
literally for a song. Thus completely kept unaware of its agent's artifice, petitioner was not accorded even a fighting chance to repudiate the settlement so much so
that the judgment based thereon became final and executory.

For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits. Fraud may assume different shapes and be committed in as many
different ways and here lies the danger of attempting to define fraud. For man in his ingenuity and fertile imagination will always contrive new schemes to fool the
unwary.

There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one the effect of which prevents a party from hearing a trial, or real
contest, or from presenting all of his case to the court, or where it operates upon matters, not pertaining to the judgment itself, but to the manner in which it was
procured so that there is not a fair submission of the controversy. In other words, extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation
which is committed outside of the trial of the case, whereby the defeated party has been prevented from exhibiting fully his side of the case by fraud or deception
practiced on him by his opponent. 19 Fraud is extrinsic where the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, a false promise of a compromise; or where the defendant never had knowledge of the suit,
being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority connives at his defeat; these and similar cases which
show that there has never been a real contest in the trial or hearing of the case are reasons for which a new suit may be sustained to set aside and annul the former
judgment and open the case for a new and fair hearing. 20

It may be argued that petitioner knew of the compromise agreement since the principal is chargeable with and bound by the knowledge of or notice to his agent
received while the agent was acting as such. But the general rule is intended to protect those who exercise good faith and not as a shield for unfair dealing. Hence
there is a well-established exception to the general rule as where the conduct and dealings of the agent are such as to raise a clear presumption that he will not
communicate to the principal the facts in controversy. 21 The logical reason for this exception is that where the agent is committing a fraud, it would be contrary to
common sense to presume or to expect that he would communicate the facts to the principal. Verily, when an agent is engaged in the perpetration of a fraud upon
his principal for his own exclusive benefit, he is not really acting for the principal but is really acting for himself, entirely outside the scope of his agency. 22 Indeed,
the basic tenets of agency rest on the highest considerations of justice, equity and fair play, and an agent will not be permitted to pervert his authority to his own
personal advantage, and his act in secret hostility to the interests of his principal transcends the power afforded him. 23
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of Appeals dated 29 October 1993 and 10 March 1994, respectively, as
well as the decision of the Regional Trial Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE. The
"Compromise Agreement" entered into between Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared VOID. This is without prejudice
to the right of petitioner to pursue its complaint against private respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot
No. 443.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21237 March 22, 1924

JAMES D. BARTON, plaintiff-appellee,

vs.
LEYTE ASPHALT & MINERAL OIL CO., LTD., defendant-appellant.

Block, Johnston & Greenbaum and Ross, Lawrence & Selph for appellant.
Frank B. Ingersoll for appellee.

STREET, J.:

This action was instituted in the Court of First Instance of the City of Manila by James D. Barton, to recover of the Leyte Asphalt & Mineral Oil Co., Ltd., as damages for breach
of contract, the sum of $318,563.30, United States currency, and further to secure a judicial pronouncement to the effect that the plaintiff is entitled to an extension of the
terms of the sales agencies specified in the contract Exhibit A. The defendant answered with a general denial, and the cause was heard upon the proof, both documentary and
oral, after which the trial judge entered a judgment absolving the defendant corporation from four of the six causes of action set forth in the complaint and giving judgment for
the plaintiff to recover of said defendant, upon the first and fourth causes of action, the sum of $202,500, United States currency, equivalent to $405,000, Philippine currency,
with legal interest from June 2, 1921, and with costs. From this judgment the defendant company appealed.

The plaintiff is a citizen of the United States, resident in the City of Manila, while the defendant is a corporation organized under the law of the Philippine Islands with its
principal office in the City of Cebu, Province of Cebu, Philippine Islands. Said company appears to be the owner by a valuable deposit of bituminous limestone and other
asphalt products, located on the Island of Leyte and known as the Lucio mine. On April 21, 1920, one William Anderson, as president and general manager of the defendant
company, addressed a letter Exhibit B, to the plaintiff Barton, authorizing the latter to sell the products of the Lucio mine in the Commonwealth of Australia and New Zealand
upon a scale of prices indicated in said letter.

In the third cause of action stated in the complaint the plaintiff alleges that during the life of the agency indicated in Exhibit B, he rendered services to the defendant company
in the way of advertising and demonstrating the products of the defendant and expended large sums of money in visiting various parts of the world for the purpose of carrying
on said advertising and demonstrations, in shipping to various parts of the world samples of the products of the defendant, and in otherwise carrying on advertising work. For
these services and expenditures the plaintiff sought, in said third cause of action, to recover the sum of $16,563.80, United States currency. The court, however, absolved the
defendant from all liability on this cause of action and the plaintiff did not appeal, with the result that we are not now concerned with this phase of the case. Besides, the
authority contained in said Exhibit B was admittedly superseded by the authority expressed in a later letter, Exhibit A, dated October 1, 1920. This document bears the
approval of the board of directors of the defendant company and was formally accepted by the plaintiff. As it supplies the principal basis of the action, it will be quoted in its
entirety.

(Exhibit A)
CEBU, CEBU, P. I.
October 1, 1920.

JAMES D. BARTON, Esq.,

Cebu Hotel City.

DEAR SIR: — You are hereby given the sole and exclusive sales agency for our bituminous limestone and other asphalt products of the Leyte Asphalt and Mineral Oil
Company, Ltd., May first, 1922, in the following territory:

Australia Saigon Java

New Zealand India China

Tasmania Sumatra Hongkong

Siam and the Straits Settlements, also in the United States of America until May 1, 1921.

As regard bituminous limestone mined from the Lucio property. No orders for less than one thousand (1,000) tons will be accepted except under special agreement with us. All
orders for said products are to be billed to you as follows:

Per ton
In 1,000 ton lots ........................................... P15
In 2,000 ton lots ........................................... 14
In 5,000 ton lots ........................................... 12
In 10,000 ton lots .......................................... 10

with the understanding, however that, should the sales in the above territory equal or exceed ten thousand (10,000) tons in the year ending October 1, 1921, then in that event
the price of all shipments made during the above period shall be ten pesos (P10) per ton, and any sum charged to any of your customers or buyers in the aforesaid territory in
excess of ten pesos (P10) per ton, shall be rebated to you. Said rebate to be due and payable when the gross sales have equalled or exceeded ten thousand (10,000) tons in the
twelve months period as hereinbefore described. Rebates on lesser sales to apply as per above price list.
You are to have full authority to sell said product of the Lucio mine for any sum see fit in excess of the prices quoted above and such excess in price shall be your extra and
additional profit and commission. Should we make any collection in excess of the prices quoted, we agree to remit same to your within ten (10) days of the date of such
collections or payments.

All contracts taken with municipal governments will be subject to inspector before shipping, by any authorized representative of such governments at whatever price may be
contracted for by you and we agree to accept such contracts subject to draft attached to bill of lading in full payment of such shipment.

It is understood that the purchasers of the products of the Lucio mine are to pay freight from the mine carriers to destination and are to be responsible for all freight, insurance
and other charges, providing said shipment has been accepted by their inspectors.

All contracts taken with responsible firms are to be under the same conditions as with municipal governments.

All contracts will be subject to delays caused by the acts of God, over which the parties hereto have no control.

It is understood and agreed that we agree to load all ships, steamers, boats or other carriers prompty and without delay and load not less than 1,000 tons each twenty-four
hours after March 1, 1921, unless we so notify you specifically prior to that date we are prepared to load at that rate, and it is also stipulated that we shall not be required to ship
orders of 5,000 tons except on 30 days notice and 10,000 tons except on 60 days notice.

If your sales in the United States reach five thousand tons on or before May 1, 1921, you are to have sole rights for this territory also for one year additional and should your
sales in the second year reach or exceed ten thousand tons you are to have the option to renew the agreement for this territory on the same terms for an additional two years.

Should your sales equal exceed ten thousand (10,000) tons in the year ending October 1, 1921, or twenty thousand (20,000) tons by May 1, 1922, then this contract is to be
continued automatically for an additional three years ending April 30, 1925, under the same terms and conditions as above stipulated.

The products of the other mines can be sold by you in the aforesaid territories under the same terms and conditions as the products of the Lucio mine; scale of prices to be
mutually agreed upon between us.

LEYTE ASPHALT & MINERAL OIL CO., LTD.

By (Sgd.) WM. ANDERSON
President

(Sgd.) W. C. A. PALMER
Secretary

Approved by Board of Directors,

October 1, 1920.
(Sgd.) WM. ANDERSON
President

Accepted.
(Sgd.) JAMES D. BARTON
Witness D. G. MCVEAN

Upon careful perusal of the fourth paragraph from the end of this letter it is apparent that some negative word has been inadvertently omitted before "prepared," so that the
full expression should be "unless we should notify you specifically prior to that date that we are unprepared to load at that rate," or "not prepared to load at that rate."

Very soon after the aforesaid contract became effective, the plaintiff requested the defendant company to give him a similar selling agency for Japan. To this request the
defendant company, through its president, Wm. Anderson, replied, under date of November 27, 1920, as follows:

In re your request for Japanese agency, will say, that we are willing to give you, the same commission on all sales made by you in Japan, on the same basis as your
Australian sales, but we do not feel like giving you a regular agency for Japan until you can make some large sized sales there, because some other people have
given us assurances that they can handle our Japanese sales, therefore we have decided to leave this agency open for a time.

Meanwhile the plaintiff had embarked for San Francisco and upon arriving at that port he entered into an agreement with Ludvigsen & McCurdy, of that city, whereby said
firm was constituted a subagent and given the sole selling rights for the bituminous limestone products of the defendant company for the period of one year from November 11,
1920, on terms stated in the letter Exhibit K. The territory assigned to Ludvigsen & McCurdy included San Francisco and all territory in California north of said city. Upon an
earlier voyage during the same year to Australia, the plaintiff had already made an agreement with Frank B. Smith, of Sydney, whereby the latter was to act as the plaintiff's
sales agent for bituminous limestone mined at the defendant's quarry in Leyte, until February 12, 1921. Later the same agreement was extended for the period of one year from
January 1, 1921. (Exhibit Q.)

On February 5, 1921, Ludvigsen & McCurdy, of San Francisco, addressed a letter to the plaintiff, then in San Francisco, advising hi that he might enter an order for six
thousand tons of bituminous limestone to be loaded at Leyte not later than May 5, 1921, upon terms stated in the letter Exhibit G. Upon this letter the plaintiff immediately
indorsed his acceptance.

The plaintiff then returned to Manila; and on March 2, 1921, Anderson wrote to him from Cebu, to the effect that the company was behind with construction and was not then
able to handle big contracts. (Exhibit FF.) On March 12, Anderson was in Manila and the two had an interview in the Manila Hotel, in the course of which the plaintiff
informed Anderson of the San Francisco order. Anderson thereupon said that, owing to lack of capital, adequate facilities had not been provided by the company for filling
large orders and suggested that the plaintiff had better hold up in the matter of taking orders. The plaintiff expressed surprise at this and told Anderson that he had not only
the San Francisco order (which he says he exhibited to Anderson) but other orders for large quantities of bituminous limestone to be shipped to Australia and Shanghai. In
another interview on the same Anderson definitely informed the plaintiff that the contracts which be claimed to have procured would not be filled.

Three days later the plaintiff addressed a letter (Exhibit Y) to the defendant company in Cebu, in which he notified the company to be prepared to ship five thousand tons of
bituminous limestone to John Chapman Co., San Francisco, loading to commence on May 1, and to proceed at the rate of one thousand tons per day of each twenty-four hours,
weather permitting.
On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff an order for five thousand tons of bituminous limestone; and in his letter of March 15 to the defendant,
the plaintiff advised the defendant company to be prepared to ship another five thousand tons of bituminous limestone, on or about May 6, 1921, in addition to the intended
consignment for San Francisco. The name Henry E. White was indicated as the name of the person through whom this contract had been made, and it was stated that the
consignee would be named later, no destination for the shipment being given. The plaintiff explains that the name White, as used in this letter, was based on an inference
which he had erroneously drawn from the cable sent by Frank B. Smith, and his intention was to have the second shipment consigned to Australia in response to Smith's order.

It will be noted in connection with this letter of the plaintiff, of March 15, 1921, that no mention was made of the names of the person, or firm, for whom the shipments were
really intended. The obvious explanation that occurs in connection with this is that the plaintiff did not then care to reveal the fact that the two orders had originated from his
own subagents in San Francisco and Sydney.

To the plaintiff's letter of March 15, the assistant manager of the defendant company replied on March, 25, 1921, acknowledging the receipt of an order for five thousand tons
of bituminous limestone to be consigned to John Chapman Co., of San Francisco, and the further amount of five thousand tons of the same material to be consigned to Henry
E. White, and it was stated that "no orders can be entertained unless cash has been actually deposited with either the International Banking Corporation or the Chartered Bank
of India, Australia and China, Cebu." (Exhibit Z.)

To this letter the plaintiff in turn replied from Manila, under date of March, 1921, questioning the right of the defendant to insist upon a cash deposit in Cebu prior to the filling
of the orders. In conclusion the plaintiff gave orders for shipment to Australia of five thousand tons, or more, about May 22, 1921, and ten thousand tons, or more, about June
1, 1921. In conclusion the plaintiff said "I have arranged for deposits to be made on these additional shipments if you will signify your ability to fulfill these orders on the dates
mentioned." No name was mentioned as the purchaser, or purchases, of these intended Australian consignments.

Soon after writing the letter last above-mentioned, the plaintiff embarked for China and Japan. With his activities in China we are not here concerned, but we note that in
Tokio, Japan, he came in contact with one H. Hiwatari, who appears to have been a suitable person for handling bituminous limestone for construction work in Japan. In the
letter Exhibit X, Hiwatari speaks of himself as if he had been appointed exclusive sales agent for the plaintiff in Japan, but no document expressly appointing him such is in
evidence.

While the plaintiff was in Tokio he procured the letter Exhibit W, addressed to himself, to be signed by Hiwatari. This letter, endited by the plaintiff himself, contains an order
for one thousand tons of bituminous limestone from the quarries of the defendant company, to be delivered as soon after July 1, 1921, as possible. In this letter Hiwatari states,
"on receipt of the cable from you, notifying me of date you will be ready to ship, and also tonnage rate, I will agree to transfer through the Bank of Taiwan, of Tokio, to the Asia
Banking Corporation, of Manila, P. I., the entire payment of $16,000 gold, to be subject to our order on delivery of documents covering bill of lading of shipments, the customs
report of weight, and prepaid export tax receipt. I will arrange in advance a confirmed or irrevocable letter of credit for the above amounts so that payment can be ordered by
cable, in reply to your cable advising shipping date."

In a letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff that he had shown the contract, signed by himself, to the submanager of the Taiwan Bank who had given it
as his opinion that he would be able to issue, upon request of Hiwatari, a credit note for the contracted amount, but he added that the submanager was not personally able to
place his approval on the contract as that was a matter beyond his authority. Accordingly Hiwatari advised that he was intending to make further arrangements when the
manager of the bank should return from Formosa.

In the letter of May 5, 1921, containing Hiwatari's order for one thousand tons of bituminous limestone, it was stated that if the material should prove satisfactory after being
thoroughly tested by the Paving Department of the City of Tokio, he would contract with the plaintiff for a minimum quantity of ten thousand additional tons, to be used
within a year from September 1, 1921, and that in this event the contract was to be automatically extended for an additional four years. The contents of the letter of May 5
seems to have been conveyed, though imperfectly, by the plaintiff to his attorney, Mr. Frank B. Ingersoll, of Manila; and on May 17, 1921, Ingersoll addressed a note to the
defendant company in Cebu in which he stated that he had been requested by the plaintiff to notify the defendant that the plaintiff had accepted an order from Hiwatari, of
Tokio, approved by the Bank of Taiwan, for a minimum order of ten thousand tons of the stone annually for a period of five years, the first shipment of one thousand tons to be
made as early after July 1 as possible. It will be noted that this communication did not truly reflect the contents of Hiwatari's letter, which called unconditionally for only one
thousand tons, the taking of the remainder being contingent upon future eventualities.

It will be noted that the only written communications between the plaintiff and the defendant company in which the former gave notice of having any orders for the sale of
bituminous limestone are the four letters Exhibit Y, AA, BB, and II. In the first of these letters, dated March 15, 1921, the plaintiff advises the defendant company to be
prepared to ship five thousand tons of bituminous limestone, to be consigned to John Chapman, Co., of San Francisco, to be loaded by March 5, and a further consignment of
five thousand tons, through a contract with Henry E. White, consignees to be named later. In the letter Exhibit BB dated May 17, 1921, the plaintiff's attorney gives notice of
the acceptance by plaintiff of an order from Hiwatari, of Tokio, approved by the Bank of Taiwan, for a minimum of ten thousand annually for a period of five years, first
shipment of a thousand tons to be as early after July 1 as possible. In the letter Exhibit H the plaintiff gives notice of an "additional" (?) order from H. E. White, Sydney, for two
lots of bituminous limestone of five thousand tons each, one for shipment not later than June 30, 1921, and the other by July 20, 1921. In the same letter thousand tons from F.
B. Smith, to be shipped to Brisbane, Australia, by June 30, and a similar amount within thirty days later.

After the suit was brought, the plaintiff filed an amendment to his complaint in which he set out, in tabulated form, the orders which he claims to have received and upon
which his letters of notification to the defendant company were based. In this amended answer the name of Ludvigsen & McCurdy appears for the first time; and the name of
Frank B. Smith, of Sydney, is used for the first time as the source of the intended consignments of the letters, Exhibits G, L, M, and W, containing the orders from Ludvigen &
McCurdy, Frank B. Smith and H. Hiwatari were at no time submitted for inspection to any officer of the defendant company, except possibly the Exhibit G, which the plaintiff
claims to have shown to Anderson in Manila on March, 12, 1921.

The different items conspiring the award which the trial judge gave in favor of the plaintiff are all based upon the orders given by Ludvigsen & McCurdy (Exhibit G), by Frank
B. Smith (Exhibit L and M), and by Hiwatari in Exhibit W; and the appealed does not involve an order which came from Shanghai, China. We therefore now address ourselves
to the question whether or not the orders contained in Exhibit G, L, M, and W, in connection with the subsequent notification thereof given by the plaintiff to the defendant,
are sufficient to support the judgment rendered by the trial court.

The transaction indicated in the orders from Ludvigsen, & McCurdy and from Frank B. Smith must, in our opinion, be at once excluded from consideration as emanating from
persons who had been constituted mere agents of the plaintiff. The San Francisco order and the Australian orders are the same in legal effect as if they were orders signed by
the plaintiff and drawn upon himself; and it cannot be pretended that those orders represent sales to bona fide purchasers found by the plaintiff. The original contract by
which the plaintiff was appointed sales agent for a limited period of time in Australia and the United States contemplated that he should find reliable and solvent buyers who
should be prepared to obligate themselves to take the quantity of bituminous limestone contracted for upon terms consistent with the contract. These conditions were not met
by the taking of these orders from the plaintiff's own subagents, which was as if the plaintiff had bought for himself the commodity which he was authorized to sell to others.
Article 267 of the Code of Commerce declares that no agent shall purchase for himself or for another that which he has been ordered to sell. The law has placed its ban upon a
broker's purchasing from his principal unless the latter with full knowledge of all the facts and circumstances acquiesces in such course; and even then the broker's action must
be characterized by the utmost good faith. A sale made by a broker to himself without the consent of the principal is ineffectual whether the broker has been guilty of
fraudulent conduct or not. (4 R. C. L., 276-277.) We think, therefore, that the position of the defendant company is indubitably sound in so far as it rest upon the contention
that the plaintiff has not in fact found any bona fide purchasers ready and able to take the commodity contracted for upon terms compatible with the contract which is the
basis of the action.

It will be observed that the contract set out at the beginning of this opinion contains provisions under which the period of the contract might be extended. That privilege was
probably considered a highly important incident of the contract and it will be seen that the sale of five thousand tons which the plaintiff reported for shipment to San Francisco
was precisely adjusted to the purpose of the extension of the contract for the United States for the period of an additional year; and the sales reported for shipment to Australia
were likewise adjusted to the requirements for the extention of the contract in that territory. Given the circumstances surrounding these contracts as they were reported to the
defendant company and the concealment by the plaintiff of the names of the authors of the orders, -- who after all were merely the plaintiff's subagents, — the officers of the
defendant company might justly have entertained the suspicion that the real and only person behind those contracts was the plaintiff himself. Such at least turns out to have
been the case.

Much energy has been expended in the briefs upon his appeal over the contention whether the defendant was justified in laying down the condition mentioned in the letter of
March 26, 1921, to the effect that no order would be entertained unless cash should be deposited with either the International Banking Corporation of the Chartered Bank of
India, Australia and China, in Cebu. In this connection the plaintiff points to the stipulation of the contract which provides that contracts with responsible parties are to be
accepted "subject to draft attached to bill of lading in full payment of such shipment." What passed between the parties upon this point appears to have the character of mere
diplomatic parrying, as the plaintiff had no contract from any responsible purchaser other than his own subagents and the defendant company could no probably have filled
the contracts even if they had been backed by the Bank of England.

Upon inspection of the plaintiff's letters (Exhibit Y and AA), there will be found ample assurance that deposits for the amount of each shipment would be made with a bank in
Manila provided the defendant would indicated its ability to fill the orders; but these assurance rested upon no other basis than the financial responsibility of the plaintiff
himself, and this circumstance doubtless did not escape the discernment of the defendant's officers.

With respect to the order from H. Hiwatari, we observe that while he intimates that he had been promised the exclusive agency under the plaintiff for Japan, nevertheless it
does not affirmatively appear that he had been in fact appointed to be such at the time he signed to order Exhibit W at the request of the plaintiff. It may be assumed,
therefore, that he was at that time a stranger to the contract of agency. It clearly appears, however, that he did not expect to purchase the thousand tons of bituminous
limestone referred to in his order without banking assistance; and although the submanager of the Bank of Taiwan had said something encouraging in respect to the matter,
nevertheless that official had refrained from giving his approval to the order Exhibit W. It is therefore not shown affirmatively that this order proceeds from a responsible
source.

The first assignment of error in the appellant's brief is directed to the action of the trial judge in refusing to admit Exhibit 2, 7, 8, 9 and 10, offered by the defendant, and in
admitting Exhibit E, offered by the plaintiff. The Exhibit 2 is a letter dated June 25, 1921, or more than three weeks after the action was instituted, in which the defendant's
assistant general manager undertakes to reply to the plaintiff's letter of March 29 proceeding. It was evidently intended as an argumentative presentation of the plaintiff's
point of view in the litigation then pending, and its probative value is so slight, even if admissible at all, that there was no error on the part of the trial court in excluding it.

Exhibit 7, 8, 9 and 10 comprise correspondence which passed between the parties by mail or telegraph during the first part of the year 1921. The subject-matter of this
correspondence relates to efforts that were being made by Anderson to dispose of the controlling in the defendant corporation, and Exhibit 9 in particular contains an offer
from the plaintiff, representing certain associates, to but out Anderson's interest for a fixed sum. While these exhibits perhaps shed some light upon the relations of the parties
during the time this controversy was brewing, the bearing of the matter upon the litigation before us is too remote to exert any definitive influence on the case. The trial court
was not in error in our opinion in excluding these documents.

Exhibit E is a letter from Anderson to the plaintiff, dated April 21, 1920, in which information is given concerning the property of the defendant company. It is stated in this
letter that the output of the Lucio (quarry) during the coming year would probably be at the rate of about five tons for twenty-four hours, with the equipment then on hand, but
that with the installation of a model cableway which was under contemplation, the company would be able to handle two thousand tons in twenty-four hours. We see no
legitimate reason for rejecting this document, although of slight probative value; and her error imputed to the court in admitting the same was not committed.

Exhibit 14, which was offered in evidence by the defendant, consists of a carbon copy of a letter dated June 13, 1921, written by the plaintiff to his attorney, Frank B. Ingersoll,
Esq., of Manila, and in which plaintiff states, among other things, that his profit from the San Francisco contract would have been at the rate of eigthy-five cents (gold) per ton.
The authenticity of this city document is admitted, and when it was offered in evidence by the attorney for the defendant the counsel for the plaintiff announced that he had no
objection to the introduction of this carbon copy in evidence if counsel for the defendant would explain where this copy was secured. Upon this the attorney for the defendant
informed the court that he received the letter from the former attorneys of the defendant without explanation of the manner in which the document had come into their
possession. Upon this the attorney for the plaintiff made this announcement: "We hereby give notice at this time that unless such an explanation is made, explaining fully how
this carbon copy came into the possession of the defendant company, or any one representing it, we propose to object to its admission on the ground that it is a confidential
communication between client and lawyer." No further information was then given by the attorney for the defendant as to the manner in which the letter had come to his
hands and the trial judge thereupon excluded the document, on the ground that it was a privileged communication between client and attorney.

We are of the opinion that this ruling was erroneous; for even supposing that the letter was within the privilege which protects communications between attorney and client,
this privilege was lost when the letter came to the hands of the adverse party. And it makes no difference how the adversary acquired possession. The law protects the client
from the effect of disclosures made by him to his attorney in the confidence of the legal relation, but when such a document, containing admissions of the client, comes to the
hand of a third party, and reaches the adversary, it is admissible in evidence. In this connection Mr. Wigmore says:

The law provides subjective freedom for the client by assuring him of exemption from its processes of disclosure against himself or the attorney or their agents of
communication. This much, but not a whit more, is necessary for the maintenance of the privilege. Since the means of preserving secrecy of communication are
entirely in the client's hands, and since the privilege is a derogation from the general testimonial duty and should be strictly construed, it would be improper to
extend its prohibition to third persons who obtain knowledge of the communications. One who overhears the communication, whether with or without the client's
knowledge, is not within the protection of the privilege. The same rule ought to apply to one who surreptitiously reads or obtains possession of a document in
original or copy. (5 Wigmore on Evidence, 2d ed., sec. 2326.)

Although the precedents are somewhat confusing, the better doctrine is to the effect that when papers are offered in evidence a court will take no notice of how they were
obtained, whether legally or illegally, properly or improperly; nor will it form a collateral issue to try that question. (10 R. C. L., 931; 1 Greenl. Evid., sec. 254 a; State vs.
Mathers, 15 L. R. A., 268; Gross vs. State, 33 L. R. A., [N. S.], 477, note.)

Our conclusion upon the entire record is that the judgment appealed from must be reversed; and the defendant will be absolved from the complaint. It is so ordered, without
special pronouncement as to costs of either instance.

Araullo, C.J., Johnson, Avanceña, Ostrand, Johns and Romualdez, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-2886 August 22, 1952

GREGORIO ARANETA, INC., plaintiff-appellant,

vs.
PAZ TUASON DE PATERNO and JOSE VIDAL, defendants-appellants.

Araneta and Araneta for appellant.

Ramirez and Ortigas for defendants-appellants.
Perkins, Ponce Enrile and Contreras And La O and Feria for appellee.

TUASON, J.:

This is a three-cornered contest between the purchasers, the seller, and the mortgagee of certain portions (approximately 40,703 square meters) of a big block of residential
land in the district of Santa Mesa, Manila. The plaintiff, which is the purchaser, and the mortgagee elevated this appeal. Though not an appellant, the seller and mortgagor has
made assignments of error in her brief, some to strengthen the judgment and others for the purpose of new trial.

The case is extremely complicated and multiple issues were raised.

The salient facts in so far as they are not controverted are these. Paz Tuason de Paterno is the registered owner of the aforesaid land, which was subdivided into city lots. Most
of these lots were occupied by lessees who had contracts of lease which were to expire on December 31,1952, and carried a stipulation to the effect that in the event the owner
and lessor should decide to sell the property the lessees were to be given priority over other buyers if they should desire to buy their leaseholds, all things being equal. Smaller
lots were occupied by tenants without formal contract.

In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans totalling P90,098 and constituted a first mortgage on the aforesaid property to secure the debt. In
January and April, 1943, she obtained additional loans of P30,000 and P20,000 upon the same security. On each of the last-mentioned occasions the previous contract of
mortgage was renewed and the amounts received were consolidated. In the first novated contract the time of payment was fixed at two years and in the second and last at four
years. New conditions not relevant here were also incorporated into the new contracts.

There was, besides, a separate written agreement entitled "Penalidad del Documento de Novacion de Esta Fecha" which, unlike the principal contracts, was not registered. The
tenor of this separate agreement, all copies, of which were alleged to have been destroyed or lost, was in dispute and became the subject of conflicting evidence. The lower
court did not make categorical findings on this point, however, and it will be our task to do so at the appropriate place in this decision.

In 1943 Paz Tuason decided to sell the entire property for the net amount of P400,000 and entered into negotiations with Gregorio Araneta, Inc. for this purpose. The result of
the negotiations was the execution on October 19, 1943, of a contract called "Promesa de Compra y Venta" and identified as Exhibit "1." This contract provided that subject to
the preferred right of the lessees and that of Jose Vidal as mortgagee, Paz Tuason would sell to Gregorio Araneta, Inc. and the latter would buy for the said amount of
P400,000 the entire estate under these terms.

El precio sera pagado como sigue: un 40 por ciento juntamente con la carta de aceptacion del arrendatario, un 20 por ciento delprecio al otorgarse la escritura de
compromiso de venta, y el remanente 40 por ciento al otorgarse la escritura de venta definitiva, la cual sera otorgada despues de que se habiese canceladola
hipoteca a favor de Jose Vidal que pesa sobre dichos lotes. Lacomision del 5 por ciento que corresponde a Jose Araneta serapagada al otorgarse la escritura de
compromiso de venta.

Paz Tuason se obliga a entregar mediante un propio las cartasque dirigira a este efecto a los arrendatarios, de conformidad con el formulario adjunto, que se marca
como Apendice A.

Expirado el plazo arriba mencionado, Paz Tuason otorgara las escrituras correspondientes de venta a los arrendatarios que hayan decidido comprar sus respectivos
lotes.

9. Los alquieres correspondientes a este año se prorratearan entre la vendedora y el comprador, correspondiendo al comprador los alquileres correspondientes a
Noviembre y Diciembre de este año y asimismo sera por cuenta del comprador el amillaramiento correspondiente a dichos meses.

10. Paz Tuason, reconoce haver recibido en este acto de Gregorio Araneta, Inc., la suma de Ciento Noventa Mil Pesos (P190,000)como adelanto del precio de venta
que Gregorio Araneta, Inc., tuviere que pagar a Paz Tuason.

La cantidad que Paz Tuason recibe en este acto sera aplicadapor ella a saldar su deuda con Jose Vidal, los amillaramientos, sobre el utilizado por Paz Tuason para
otros fines.

11. Una vez determinados los lotes que Paz Tuason podra vendera Gregorio Araneta, Inc., Paz Tuason otorgara una escritura deventa definitiva sobre dichos lotes a
favor de Gregorio Araneta, Inc.

Gregorio Araneta, Inc., pagara el precio de venta como sigue: 90 por ciento del mismo al otorgarse la escritura de venta definitiva descontandose de la cantidad que
entonces se tenga que pagar de adelanto de P190,000 que se entrega en virtud de esta escritura. El 10 por ciento remanente se pagara a Paz Tuazon, una vez se
haya cancelado la hipoteca que pesa actualmente sobre el terreno.

No obstante la dispuesto en el parrafo 8, cualquier arrendatario que decida comprar el lote que occupa con contrato de arrendamiento podra optar por pedir el
otorgamiento inmediato a su favor el acto de la escritura de venta definitiva pagando en el acto el 50 por ciento del precio (ademas del 40 por ciento que debio
incluir en su carta de aceptacion) y el remanente de 10 por ciento inmediatemente despues de cancelarse la hipoteca que pesa sobre el terreno.
 12. Si la mencionada cantidad de P190,000 excediere del 90 por ciento de la cantidad que Gregorio Araneta, Inc., tuviere que vender a dicho comprador, el saldo
sera pagado inmediatamente por Paz Tuazon, tomandolo de las cantidades que reciba de los arrendatarios como precio de venta.

In furtherance of this promise to buy and sell, letters were sent the lessees giving them until August 31, 1943, an option to buy the lots they occupied at the price and terms
stated in said letters. Most of the tenants who held contracts of lease took advantage of the opportunity thus extended and after making the stipulated payments were giving
their deeds of conveyance. These sales, as far as the record would show, have been respected by the seller.

With the elimination of the lots sold or be sold to the tenants there remained unencumbered, except for the mortgage to Jose Vidal, Lots 1, 8-16 and 18 which have an
aggregate area of 14,810.20 square meters; and on December 2, 1943, Paz Tuason and Gregorio Araneta, Inc. executed with regard to these lots an absolute deed of sale, the
terms of which, except in two respects, were similar to those of the sale to the lessees. This deed, copy of which is attached to the plaintiff's complaint as Exhibit A, provided,
among other things, as follows:

The aforesaid lots are being sold by he Vendor to the Vendee separately at the prices mentioned in paragraph (6) of the aforesaid contract entitled "Promesa de
Compra y Venta," making a total sum of One Hundred Thirty-Nine Thousand Eighty-three pesos and Thirty-two centavos (P139,083.32), ninety (90%) per cent of
which amount, i.e., the sum of One Hundred Twenty-five Thousand One Hundred Seventy-four Pesos and Ninety-nine centavos (P125,174.99), the Vendor
acknowledges to have received by virtue of the advance of One Hundred Ninety Thousand (P190,000) Pesos made by the Vendee to the Vendor upon the execution
of the aforesaid contract entitled "Promesa de Compra y Venta". The balance of Sixty-Four Thousand Eight Hundred Twenty-five Pesos and One centavo
(P64,825.01) between the sum of P125,174.99, has been returned by the Vendor to the Vendee, which amount the Vendee acknowledges to have received by these
presents;

The aforesaid sum of P190,000 was delivered by the Vendee to the Vendor by virtue of four checks issued by the Vendee against the Bank of the Philippine Islands,
as follows:

No. C-286445 in favor of Paz Tuason de Paterno P13,476.62

No. C-286444 in favor of the City Treasurer, Manila 3,373.38
No. C-286443 in favor of Jose Vidal 30,000.00
No. C-286442 in favor of Jose Vidal 143,150.00
Total P190,000.00

The return of the sum of P64,825.01 was made by the Vendor to the Vendee in a liquidation which reads as follows:

Hemos recibido de Da. Paz Tuason de Paterno la cantidad de Sesenta y Cuatro mil
Ochocientos Veinticinco Pesos y un centimo (P64,825.01) enconcepto de devolucion
que nos hace del excesode lo pagadoa ella de P190,000.00
Menos el 90% de P139,083.32, importe de los lotes que vamos a comprar 125,174.99
Exceso 64,825.01

Cheque BIF No. D-442988 de Simplicio del Rosario 21,984.20

Cheque PNB No. 177863-K de L.E. Dumas 21,688.60
Cheque PNB No. 267682-K de Alfonso Sycip 20,000.00
Cheque PNB No. 83940 de Josefina de Pabalan 4,847.96
Billetes recibidos de Alfonso Sycip 42.96
P68,563.21

Menos las comisiones de 5 % recibidas de Josefina de Pabalan P538.60

L.E. Dumas 1,084.43
Angela S. Tuason 1,621.94 3,244.97
P65,318.24
Menos cheque BIF No. C-288642 a favor de Da. Paz Tuason de
Paterno que le entregamos como exceso 493.23
P64,825.01

Manila, Noviembre 2, 1943

GREGORIO ARANETA, INCORPORATED

Por;
(Fdo.) "JOSE ARANETA
Presidente

Recibido cheque No. C-288642 BIF-P493.23

Por:
(Fdo.) "M.J. GONZALEZ

In view of the foregoing liquidation, the vendor acknowledges fully and unconditionally, having received the sum of P125,174.99 of the present legal currency and
hereby expressly declares that she will not hold the Vendee responsible for any loss that she might suffer due to the fact that two of the checks paid to her by the
Vendee were issued in favor of Jose Vidal and the latter has, up to the present time, not yet collected the same.
 The ten (10%) per cent balance of the purchase price not yet paid in the total sum of P13,908.33 will be paid by the Vendee to the Vendor when the existing
mortgage over the property sold by the Vendor to the Vendee is duly cancelled in the office of the Register of Deeds, or sooner at the option of the Vendee.

This Deed of Sale is executed by the Vendor free from all liens and encumbrances, with the only exception of the existing lease contracts on parcels Nos. 1, 10, 11,
and 16, which lease contracts will expire on December 31, 1953, with the understanding, however, that this sale is being executed free from any option or right on
the part of the lessees to purchase the lots respectively leased by them.

It is therefore clearly understood that the Vendor will pay the existing mortgage on her property in favor of Jose Vidal.

The liquidation of the amounts respectively due between the Vendor and the Vendee in connection with the rents and real estate taxes as stipulated in paragraph
(9) of the contract entitled "Promesa de Compara y Venta" will be adjusted between the parties in a separate document.

Should any of the aforesaid lessees of lots Nos. 2, 3, 4, 5, 6, 7, 9 and 17 fail to carry out their respective obligations under the option to purchase exercised by them
so that the rights of the lessee to purchase the respective property leased by him is cancelled, the Vendor shall be bound to sell the same to the herein Vendee,
Gregorio Araneta, Incorporated, in conformity with the terms and conditions provided in the aforesaid contract of "Promesa de Compra y Venta";

The documentary stamps to be affixed to this deed will be for the account of the Vendor while the expenses for the registration of this document will be for the
account of the Vendee.

The remaining area of the property of the Vendor subject to Transfer Certificates of Title Nos. 60471 and 60472, are lots Nos. 2, 3, 4, 5, 6, 7, 9, and 17, all of the
Consolidation of lots Nos. 20 and 117 of plan II-4755, G.L.R.O. Record No. 7680.

Before the execution of the above deed, that is, on October 20, 1943, the day immediately following the signing of the agreement to buy and sell, Paz Tuason had offered to
Vidal the check for P143,150 mentioned in Exhibit A, in full settlement of her mortgage obligation, but the mortgagee had refused to receive that check or to cancel the
mortgage, contending that by the separate agreement before mentioned payment of the mortgage was not to be effected totally or partially before the end of four years from
April, 1943.

Because of this refusal of Vidal's Paz Tuason, through Atty. Alfonso Ponce Enrile, commenced an action against the mortgagee in October or the early paret of November 1943.
the record of that case was destroyed and no copy of the complaint was presented in evidence. Attached to the complaint or deposited with the clerk of court by Attorney Ponce
Enrile simultaneously with the docketing of the suit were the check for P143,150 previously turned down by Vidal, another certified check for P12,932.61, also drawn by
Gregorio Araneta, Inc., in favor of Vidal, and one ordinary check for P30,000 issued by Paz Tuazon. These three checks were supposed to cover the whole indebtedness to
Vidal including the principal and interest up to that time and the penalty provided in the separate agreement.

But the action against Vidal never came on for trial and the record and the checks were destroyed during the war operations in January or February, 1945; and neither was the
case reconstituted afterward. This failure of the suit for the cancellation of Vidal's mortgage, coupled with the destruction of the checks tendered to the mortgagee, the
nullification of the bank deposit on which those checks had been drawn, and the tremendous rise of real estate value following the termination of the war, gave occasion to the
breaking off the schemes outlined in Exhibits 1 and A; Paz Tuason after liberation repudiated them for the reasons to be hereafter set forth. The instant action was the offshoot,
begun by Gregorio Araneta, Inc. to compel Paz Tuason to deliver to the plaintiff a clear title to the lots described in Exhibit A free from all liens and encumbrances, and a deed
of cancellation of the mortgage to Vidal. Vidal came into the case in virtue of a summon issued by order of the court, and filed a cross-claim against Paz Tuazon to foreclose his
mortgage.

It should be stated that the outset that all the parties are in agreement that Vidal's loans are still outstanding. Paz Tuason's counsel concede that the tender of payment to Vidal
was legally defective and did not operate to discharge the mortgage, while the plaintiff is apparently uninterested in this feature of the case considering the matter one largely
between the mortgagor and the mortgagee, although to a certain degree this notion is incorrect. At any rate, the points of discord between Paz Tuason and Vidal concern only
the accrual of interest on the loans, Vidal's claim to attorney's fees, and the application of the debt moratorium law which the debtor now invokes. These matters will be taken
up in the discussion of the controversy between Paz Tuason and Jose Vidal.

The principal bone of contention between Gregorio Araneta, Inc., and Paz Tuason was the validity of the deed of sale of Exhibit A on which the suit was predicated. The lower
court's judgment was that this contract was invalid and was so declared, "sin per juicio de que la demandada Paz Tuason de Paterno pague a la entidad demandante todas las
cantidades que habia estado recibiendo de lareferida entidad demandante, en concepto de pago de losterrenos, en moneda corriente, segun el cambio que debiaregir al tiempo
de otorgarse la escritura segun la escalade "Ballentine", descontando, sin embargo, de dichas cantidades cualesquiera que la demandante haya estadorecibiendo como
alquileres de los terrenos supuestamentevendidos a ella." The court based its opinion that Exhibit 1. His Honor, Judge Sotero Rodas, agreedwith the defendant that under
paragraph 8 of Exhibit 1 there was to be no absolute sale to Gregorio Araneta, Inc., unless Vidal's mortgage was cancelled.

In our opinion the trial court was in error in its interpretation of Exhibit 1. The contemplated execution of an absolute deed of sale was not contingent on the cancellation of
Vidal's mortgage. What Exhibit 1 did provide (eleventh paragraph) was that such deed of absolute sale should be executed "una vez determinado los lotes que Paz Tuason
podra vender a Gregorio Araneta, Inc." The lots which could be sold to Gregorio Araneta, Inc. were definitely known by October 31, 1943, which was the expiry of the tenants'
option to buy, and the lots included in the absolute of which the occupants' option to buy lapsed unconditionally. Such deed as Exhibit A was then in a condition to be made.

Vidal's mortgage was not an obstacle to the sale. An amount had been set aside to take care of it, and the parties, it would appear, were confident that the suit against the
mortgagee would succeed. The only doubt in their minds was in the amount to which Vidal was entitled. The failure of the court to try and decide that the case was not
foreseen either.

This refutes, were think, the charge that there was undue rush on the part of the plaintiff to push across the sale. The fact that simultaneously with Exhibit A similar deeds
were given the lessees who had elected to buy their leaseholds, which comprise an area about twice as big as the lots described in Exhibit A, and the further fact that the sale to
the lessees have never been questioned and the proceeds thereof have been received by the defendant, should add to dispel any suspicion of bad faith on the part of the
plaintiff. If anyone was in a hurry it could have been the defendant. The clear preponderance of the evidence that Paz Tuason was pressed for cash and that the payment of the
mortgage was only an incident, or a necessary means to effectuate the sale. Otherwise she could have settled her mortgage obligation merely by selling a portion of her estate,
say, some of the lots leased to tenants who, except two who were in concentration camps, were only too anxious to buy and own the lots on which their houses were built.

Whatever the terms of Exhibit 1, the plaintiff and the defendant were at perfect liberty to make a new agreement different from or even contrary to the provisions of that
document. The validity of the subsequent sale must of necessity depend on what it said and not on the provisions of the promise to buy and sell.

It is as possible proof or fraud that the discrepancies between the two documents bear some attention. It was alleged that Attorneys Salvador Araneta and J. Antonio Araneta
who the defendant said had been her attorneys and had drawn Exhibit A, and not informed or had misinformed her about its contents; that being English, she had not read the
deed of sale; that if she had not trusted the said attorneys she would not have been so foolish as to affix her signature to a contract so one-sided.
The evidence does not support the defendant. Except in two particulars, Exhibit A was a substantial compliance with Exhibit 1 in furtherance of which Exhibit A was made.
One departure was the proviso that 10 per cent of the purchase price should be paid only after Vidal's mortgage should have been cancelled. This provisional deduction was not
onerous or unusual. It was not onerous or unusual that the vendee should withhold a relatively small portion of the purchase price before all the impediments to the final
consummation of the sale had been removed. The tenants who had bought their lots had been granted the privilege to deduct as much as 40 per cent of the stipulated price
pending discharge of the mortgage, although his percentage was later reduced to 10 as in the case of Gregorio Araneta, Inc. It has also been that the validity of the sales to the
tenants has not been contested; that these sales embraced in the aggregate 24,245.40 square meters for P260,916.68 as compared to 14,811.20 square meters sold to Gregorio
Araneta, Inc. for P139,083.32; that the seller has already received from the tenant purchasers 90 per cent of the purchase money.

There is good reason to believe that had Gregorio Araneta, Inc. not insisted on charging to the defendant the loss of the checks deposited with the court, the sale in question
would have gone the smooth way of the sales to the tenants. Thus Dindo Gonzales, defendant's son, declared:

P. Despues de haberse presentado esta demanda, recuerda usted haber tenido conversacion con Salvador Araneta acerca de este asunto?

R. Si Señor.

P. Usted fue quien se acerco al señor Salvador Araneta?

R. Si, señor.

P. Quiero usted decir al Honorable Juzgado que era lo que usted dijo al señor Salvador Araneta?

R. No creo que es propio que yo diga, por tratarse de mi madre.

P. En otras palabras, usted quiere decir que no quiere usted que se vuelva decir o repetir ante este Honorable Juzgado lo que usted dijo al señor Salvador Araneta,
pues, se trata de su madre?

R. No, señor.

P. Puede usted decirnos que quiso usted decir cuando que no quisiera decir?

R. Voy a decir lo que Salvador Araneta, yo me acerque a Don Salvador Araneta, y yo le dije que es una verguenza de que nosotros, en la familia tengamos que ir a la
Corte por este, y tambien dije que mi madre de por si quiere vender el terreno a ellos, porque mi madre quiere pagar al señor Vidal, y que es una verguenza, siendo
entre parientes, tener que venir por este; era lo que yo dije al señor Salvador Araneta.

xxx xxx xxx

P. No recuerda usted tambien dijo al señor Salvador Araneta que usted no comulgaba con ella (su madre) en este asunto?

R. Si, Señor; porque yo creia que mi madre solamente queria anular esta venta, pero cuando me dijo el señor La O y sus abogados que, encima de quitar la
propiedad, todavia tendria ella que pagar al señor Vidal, este no veso claro.

xxx xxx xxx

P. Ahora bien; de tal suerte que, tal como nosotros desperendemos de su testimonio, tanto, usted como, su madre, esteban muy conformes en la venta, es asi?

R. Si, señor.

The other stipulation embodied in Exhibit A which had no counterpart in Exhibit 1 was that by which Gregorio Araneta Inc. would hold Paz Tuason liable for the lost checks
and which, as stated, appeared to be at the root of the whole trouble between the plaintiff and the defendant.

The stipulation reads:

In view of the foregoing liquidation, the Vendor acknowledges fully and unconditionally, having received the sum of P125,174.99 of the present legal currency and
hereby expressly declares that she will not hold the Vendee responsible for any loss that she might suffer due to the fact that two of the checks paid to her by the
Vendee were used in favor of Jose Vidal and the latter has, up to the present time, not yet collected the same.

It was argued that no person in his or her right senses would knowingly have agreed to a covenant so iniquitous and unreasonable.

In the light of all the circumstances, it is difficult to believe that the defendant was deceived into signing Exhibit A, in spite of the provision of which she and her son complaint.
Intelligent and well educated who had been managing her affairs, she had an able attorney who was assisting her in the suit against Vidal, a case which was instituted precisely
to carry into effect Exhibit A or Exhibit 1, and a son who is leading citizen and a business-man and knew the English language very well if she did not. Dindo Gonzalez took
active part in, if he was not the initiator of the negotiations that led to the execution of Exhibit 1, of which he was an attesting witness besides. If the defendant signed Exhibit A
without being apprised of its import, it can hardly be conceived that she did not have her attorney or her son read it to her afterward. The transaction involved the alienation of
property then already worth a fortune and now assessed by the defendant at several times higher. Doubts in defendant's veracity are enhanced by the fact that she denied or at
least pretended in her answer to be ignorant of the existence of Exhibit A, and that only after she was confronted with the signed copy of the document on the witness did she
spring up the defense of fraud. It would look as if she gambled on the chance that no signed copy of the deed had been saved from the war. She could not have forgotten having
signed so important a document even if she had not understood some of its provisions.

From the unreasonableness and inequity of the aforequoted Exhibit A it is not to be presumed that the defendant did not understand it. It was highly possible that she did not
attach much importance to it, convinced that Vidal could be forced to accept the checks and not foreseeing the fate that lay in store for the case against the mortgagee.

Technical objections are made against the deed of sale.

First of these is that Jose Araneta, since deceased, was defendant's agent and at the same time the president of Gregorio Araneta, Inc.

The trial court found that Jose Araneta was not Paz Tuason's agent or broker. This finding is contrary to the clear weight of the evidence, although the point would be
irrelevant, if the court were right in its holding that Exhibit A was void on another ground, i.e., it was inconsistent with Exhibit 1.

Without taking into account defendant's Exhibit 7 and 8, which the court rejected and which, in our opinion, should have been admitted, Exhibit 1 is decisive of the defendant's
assertion. In paragraph 8 of Exhibit 1 Jose Araneta was referred to as defendant's agent or broker "who acts in this transaction" and who as such was to receive a commission
of 5 per cent, although the commission was to be charged to the purchasers, while in paragraph 13 the defendant promised, in consideration of Jose Araneta's services
rendered to her, to assign to him all her right, title and interest to and in certain lots not embraced in the sales to Gregorio Araneta, Inc. or the tenants.

However, the trial court hypothetically admitting the existence of the relation of principal and agent between Paz Tuason and Jose Araneta, pointed out that not Jose Araneta
but Gregorio Araneta, Inc. was the purchaser, and cited the well-known distinction between the corporation and its stockholders. In other words, the court opined that the sale
to Gregorio Araneta, Inc. was not a sale to Jose Araneta the agent or broker.

The defendant would have the court ignore this distinction and apply to this case the other well-known principle which is thus stated in 18 C.J.S. 380: "The courts, at law and
in equity, will disregard the fiction of corporate entity apart from the members of the corporation when it is attempted to be used as a means of accomplishing a fraud or an
illegal act.".

It will at once be noted that this principle does not fit in with the facts of the case at bar. Gregorio Araneta, Inc. had long been organized and engaged in real estate business.
The corporate entity was not used to circumvent the law or perpetrate deception. There is no denying that Gregorio Araneta, Inc. entered into the contract for itself and for its
benefit as a corporation. The contract and the roles of the parties who participated therein were exactly as they purported to be and were fully revealed to the seller. There is no
pretense, nor is there reason to suppose, that if Paz Tuason had known Jose Araneta to Gregorio Araneta, Inc's president, which she knew, she would not have gone ahead with
the deal. From her point of view and from the point of view of public interest, it would have made no difference, except for the brokerage fee, whether Gregorio Araneta, Inc. or
Jose Araneta was the purchaser. Under these circumstances the result of the suggested disregard of a technicality would be, not to stop the commission of deceit by the
purchaser but to pave the way for the evasion of a legitimate and binding commitment buy the seller. The principle invoked by the defendant is resorted to by the courts as a
measure or protection against deceit and not to open the door to deceit. "The courts," it has been said, "will not ignore the corporate entity in order to further the perpetration
of a fraud." (18 C.J.S. 381.)

The corporate theory aside, and granting for the nonce that Jose Araneta and Gregorio Araneta, Inc. were identical and that the acts of one where the acts of the other, the
relation between the defendant and Jose Araneta did not fall within the purview of article 1459 of the Spanish Civil Code. 1

Agency is defined in article 1709 in broad term, and we have not come across any commentary or decision dealing directly with the precise meaning of agency as employed in
article 1459. But in the opinion of Manresa(10 Manresa 4th ed. 100), agent in the sense there used is one who accepts another's representation to perform in his name certain
acts of more or less transcendency, while Scaevola (Vol. 23, p. 403) says that the agent's in capacity to buy his principal's property rests in the fact that the agent and the
principal form one juridicial person. In this connection Scaevola observes that the fear that greed might get the better of the sentiments of loyalty and disinterestedness which
should animate an administrator or agent, is the reason underlying various classes of incapacity enumerated in article 1459. And as American courts commenting on similar
prohibition at common law put it, the law does not trust human nature to resist the temptations likely to arise of antogonism between the interest of the seller and the buyer.

So the ban of paragraph 2 of article 1459 connotes the idea of trust and confidence; and so where the relationship does not involve considerations of good faith and integrity
the prohibition should not and does not apply. To come under the prohibition, the agent must be in a fiduciary with his principal.

Tested by this standard, Jose Araneta was not an agent within the meaning of article 1459. By Exhibits 7 and 8 he was to be nothing more than a go-between or middleman
between the defendant and the purchaser, bringing them together to make the contract themselves. There was no confidence to be betrayed. Jose Araneta was not authorize to
make a binding contract for the defendant. He was not to sell and he did not sell the defendant's property. He was to look for a buyer and the owner herself was to make, and
did make, the sale. He was not to fix the price of the sale because the price had been already fixed in his commission. He was not to make the terms of payment because these,
too, were clearly specified in his commission. In fine, Jose Araneta was left no power or discretion whatsoever, which he could abuse to his advantage and to the owner's
prejudice.

Defendant's other ground for repudiating Exhibit A is that the law firm of Araneta & Araneta who handled the preparation of that deed and represented by Gregorio Araneta,
Inc. were her attorneys also. On this point the trial court's opinion is likewise against the defendant.

Since attorney Ponce Enrile was the defendant's lawyer in the suit against Vidal, it was not likely that she employed Atty. Salvador Araneta and J. Antonio Araneta as her
attorneys in her dealings with Gregorio Araneta, Inc., knowing, as she did, their identity with the buyer. If she had needed legal counsels, in this transaction it seems certain
that she would have availed herself of the services of Mr. Ponce Enrile who was allegedly representing her in another case to pave the way for the sale.

The fact that Attys. Salvador and Araneta and J. Antonio Araneta drew Exhibits 1 and A, undertook to write the letters to the tenants and the deeds of sale to the latter, and
charged the defendant the corresponding fees for all this work, did not themselves prove that they were the seller's attorneys. These letters and documents were wrapped up
with the contemplated sale in which Gregorio Araneta, Inc. was interested, and could very well have been written by Attorneys Araneta and Araneta in furtherance of Gregorio
Araneta's own interest. In collecting the fees from the defendant they did what any other buyer could have appropriately done since all such expenses normally were to be
defrayed by the seller.

Granting that Attorney Araneta and Araneta were attorneys for the defendant, yet they were not forbidden to buy the property in question. Attorneys are only prohibited from
buying their client's property which is the subject of litigation. (Art. 1459, No. 5, Spanish Civil Code.) The questioned sale was effected before the subject thereof became
involved in the present action. There was already at the time of the sale a litigation over this property between the defendant and Vidal, but Attys. Salvador Araneta and J.
Antonio Araneta were not her attorneys in that case.

From the pronouncement that Exhibit A is valid, however, it does not follow that the defendant should be held liable for the loss of the certified checks attached to the
complaint against Vidal or deposited with the court, or of the funds against which they had been issued. The matter of who should bear this loss does not depend upon the
validity of the sale but on the extent and scope of the clause hereinbefore quoted as applied to the facts of the present case.

The law and the evidence on this branch of the case revealed these facts, of some of which passing mention has already been made.

The aforesaid checks, one for P143,150 and one for P12,932.61, were issued by Gregorio Araneta, Inc. and payable to Vidal, and were drawn against the Bank of the Philippines
with which Gregorio Araneta, Inc. had a deposit in the certification stated that they were to be "void if not presented for payment date of acceptance" office (Bank) within 90
days from date of acceptance."
Under banking laws and practice, by the clarification" the funds represented by the check were transferred from the credit of the maker to that of the payee or holder, and, for
all intents and purposes, the latter became the depositor of the drawee bank, with rights and duties of one such relation." But the transfer of the corresponding funds from the
credit of the depositor to that of that of the payee had to be co-extensive with the life of the checks, which in the case was 90 days. If the checks were not presented for payment
within that period they became invalid and the funds were automatically restored to the credit of the drawer though not as a current deposit but as special deposit. This is the
consensus of the evidence for both parties which does not materially differ on this proposition.

The checks were never collected and the account against which they were drawn was not used or claimed by Gregorio Araneta, Inc.; and since that account "was opened during
the Japanese occupation and in Japanese currency," the checks "became obsolete as the account subject thereto is considered null and void in accordance with Executive Order
No. 49 of the President of the Philippines", according to the Bank.

Whether the Bank of the Philippines could lawfully limit the negotiability of certified checks to a period less than the period provided by the Statute of Limitations does not
seem material. The limitation imposed by the Bank as to time would adversely affect the payee, Jose Vidal, who is not trying to recover on the instruments but on the contrary
rejected them from the outset, insisting that the payment was premature. As far as Vidal was concerned, it was of no importance whether the certification was or was not
restricted. On the other hand, neither the plaintiff nor the defendant now insists that Vidal should present, or should have presented, the checks for collection. They in fact
agree that the offer of those checks to Vidal did not, for technical reason, work to wipe out the mortgage.

But as to Gregorio Araneta and Paz Tuason, the conditions specified in the certification and the prevailing regulations of the Bank were the law of the case. Not only this, but
they were aware of and abided by those regulations and practice, as instanced by the fact that the parties presented testimony to prove those regulations and practice. And that
Gregorio Araneta, Inc. knew that Vidal had not cashed the checks within 90 days is not, and could not successfully be denied.

In these circumstances, the stipulation in Exhibit A that the defendant or seller "shall not hold the vendee responsible for any loss of these checks" was unconscionable, void
and unenforceable in so far as the said stipulation would stretch the defendant's liability for this checks beyond 90 days. It was not in accord with law, equity or good
conscience to hold a party responsible for something he or she had no access to and could not make use of but which was under the absolute control and disposition of the
other party. To make Paz Tuason responsible for those checks after they expired and when they were absolutely useless would be like holding an obligor to answer for the loss
or destruction of something which the obligee kept in its safe with no power given the obligor to protect it or interfere with the obligee's possession.

To the extent that the contract Exhibit A would hold the vendor responsible for those checks after they had lapsed, the said contract was without consideration. The checks
having become obsolete, the benefit in exchange for which the defendant had consented to be responsible for them had vanished. The sole motivation on her part for the
stipulation was the fact that by the checks the mortgage might or was to be released. After 90 days the defendant stood to gain absolutely nothing by them, which had become
veritable scraps of paper, while the ownership of the deposit had reverted to the plaintiff which alone could withdraw and make use of it.

What the plaintiff could and should have done if the disputed stipulation was to be kept alive was to keep the funds accessible for the purpose of paying the mortgage, by
writing new checks either to Vidal or to the defendant, as was done with the check for P30,000, or placing the deposit at the defendant's disposal. The check for P30,000
intended for the penalty previously had been issued in the name of Vidal and certified, too, but by mutual agreement it was changed to an ordinary check payable to Paz
Tuason. Although that check was also deposited with the court and lost, its loss undoubtedly was imputable to the defendant's account, and she did not seem to disown her
liability for it.

Let it be remembered that the idea of certifying the lost checks was all the plaintiff's. The plaintiff would not trust the defendant and studiously so arranged matters that she
could not by any possibility put a finger on the money. For all the practical intents and purposes the plaintiff dealt directly with the mortgagee and excluded the defendant
from meddling in the manner of payment to Vidal. And let it also be kept in mind that Gregorio Araneta, Inc. was not a mere accommodator in writing these checks. It was as
much interested in the cancellation of the mortgage as Paz Tuason.

Coming down to Vidal's cross-claim Judge Rodas rendered no judgment other than declaring that the mortgage remained intact and subsisting. The amount to be paid Vidal
was not named and the question whether interest and attorney's fees were due was not passed upon. The motion for reconsideration of the decision by Vidal's attorney's
praying that Paz Tuason be sentenced to pay the creditor P244,917.90 plus interest at the rate of 1 percent monthly from September 10, 1948 and that the mortgaged property
be ordered sold in case of default within 90 days, and another motion by the defendant seeking specification of the amount she had to pay the mortgagee were summarily
denied by Judge Potenciano Pecson, to whom the motions were submitted, Judge Rodas by that time having been appointed to the Court of Appeals.

All the facts and evidence on this subject are on the record, however, and we may just as well determine from these facts and evidence the amount to which the mortgagee is
entitled, instead of remanding the case for new trial, if only to avoid further delay if the disposition of this case.

It is obvious that Vidal had a right to judgment for his credit and to foreclose the mortgage if the credit was not paid.

There is no dispute as to the amount of the principal and there is agreement that the loans made in 1943, in Japanese war notes, should be computed under the Ballantyne
conversion table. As has been said, where the parties do not see eye-to-eye was in regard to the mortgagee's claim to attorney's fees and interest from October, 1943, which was
reached a considerable amount. It was contended that, having offered to pay Vidal her debt in that month, the defendant was relieved thereafter from paying such interest.

It is to be recalled that Paz Tuason deposited with the court three checks which were intended to cover the principal and interest up to October, 1943, plus the penalty provided
in the instrument "Penalidad del Documento de Novacion de Esta Fecha." The mortgagor maintains that although these checks may not have constituted a valid payment for
the purpose of discharging the debt, yet they did for the purpose of stopping the running of interest. The defendant draws attention to the following citations:

An offer in writing to pay a particular sum of money or to deliver a written instrument or specific personal property is, if rejected, equivalent to the actual
production and tender of the money, instrument or property. (Sec. 24, Rule 123.)

It is not accord with either the letter or the spirit of the law to impose upon the person affecting a redemption of property, in addition to 12 per cent interest per
annum up to the time of the offer to redeem, a further payment of 6 per cent per annum from the date of the officer to redeem. (Fabros vs. Villa Agustin, 18 Phil.,
336.)

A tender by the debtor of the amount of this debt, if made in the proper manner, will suspend the running of interest on the debt for the time of such tender. (30
Am. Jur., 42.)

In the case of Fabrosa vs. Villa Agustin, supra, a parcel of land had been sold on execution to one Tabliga. Within the period of redemption Fabros, to whom the land had been
mortgaged by the execution debtor, had offered to redeem the land from the execution creditor and purchaser at public auction. The trial court ruled that the redemptioner
was not obliged to pay the stipulated interest of 12 per cent after he offered to redeem the property; nevertheless he was sentenced to pay 6 per cent interest from the date of
the offer.
This court on appeal held that "there is no reason for this other (6 per cent) interest, which appears to be a penalty for delinquency while there was no delinquency." The court
cited an earlier decision, Martinez vs. Campbell, 10 Phil., 626, where this doctrine was laid down: "When the right of redemption is exercised within the term fixed by section
465 of the Code of Civil Procedure, and an offer is made of the amount due for the repurchase of the property to which said right refers, it is neither reasonable nor just that the
repurchaser should pay interest on the redemption money after the time when he offered to repurchase and tendered the money therefor."

In the light of these decisions and law, the next query is; Did the mortgagor have the right under the contract to pay the mortgage on October 20, 1943? The answer to this
question requires an inquiry into the provision of the "Penalidad del Documento de Novacion de Esta Fecha."

Vidal introduced oral evidence to the effect that he reserved unto himself in that agreement the right "to accept or refuse the total payment of the loan outstanding . . ., if at the
time of such offer of payment he considered it advantageous to his interest." This was gist of Vidal's testimony and that of Lucio M. Tiangco, one of Vidal's former attorneys
who, as notary public, had authenticated the document. Vidal's above testimony was ordered stricken out as hearsay, for Vidal was blind and, according to him, only had his
other lawyer read the document to him.

We are of the opinion that the court erred in excluding Vidal's statement. There is no reason to suspect that Vidal's attorney did not correctly read the paper to him. The
reading was a contemporaneous incident of the writing and the circumstances under which the document was read precluded every possibility of design, premeditation, or
fabrication.

Nevertheless, Vidal's testimony, like the testimony of Lucio M. Tiangco's, was based on recollection which, with the lapse of time, was for from infallible. By contrast, the
testimony of Attorneys Ponce Enrile, Salvador Araneta, and J. Antonio Araneta does not suffer from such weakness and is entitled to full faith and credit. The document was
the subject of a close and concerted study on their part with the object of finding the rights and obligations of the mortgagee and the mortgagor in the premises and mapping
out the course to be pursued. And the results of their study and deliberation were translated into concrete action and embodied in a letter which has been preserved. In line
with the results of their study, action was instituted in court to compel acceptance by Vidal of the checks consigned with the complaint, and before the suit was commenced,
and with the document before him, Atty. Ponce Enrile, in behalf of his client, wrote Vidal demanding that he accept the payment and execute a deed of cancellation of the
mortgage. In his letter Atty. Ponce Enrile reminded Vidal that the recital in the "Penalidad del Documento de Novacion de Esta Fecha" was "to the effect that should the debtor
wish to pay the debt before the expiration of the period the reinstated (two years) such debtor would have to pay, in addition to interest due, the penalty of P30,000 — this is in
addition to the penalty clause of 10 per cent of the total amount due inserted in the document of mortgage of January 20, 1943."

Atty. Ponce Enrile's concept of the agreement, formed after mature and careful reading of it, jibes with the only possible reason for the insertion of the penalty provision. There
was no reason for the penalty unless it was for defendant's paying her debt before the end of the agreed period. It was to Vidal's interest that the mortgage be not settled in the
near future, first, because his money was earning good interest and was guaranteed by a solid security, and second, which was more important, he, in all probability, shared
the common belief that Japanese war notes were headed for a crash and that four years thence, judging by the trends of the war, the hostilities would be over.

To say, as Vidal says, that the debtor could not pay the mortgage within four years and, at the same time, that there would be penalty if she paid after that period, would be a
contradiction. Moreover, adequate remedy was provided for failure to pay or after the expiration of the mortgage: increased rate or interest, foreclosure of the mortgage, and
attorney's fees.

It is therefore to be concluded that the defendant's offer to pay Vidal in October, 1943, was in accordance with the parties' contract and terminated the debtor's obligation to
pay interest. The technical defects of the consignation had to do with the discharge of the mortgage, which is conceded on all sides to be still in force because of the defects. But
the matter of the suspension of the running of interest on the loan stands of a different footing and is governed by different principles. These principles regard reality rather
than technicality, substance rather than form. Good faith of the offer or and ability to make good the offer should in simple justice excuse the debtor from paying interest after
the offer was rejected. A debtor can not be considered delinquent who offered checks backed by sufficient deposit or ready to pay cash if the creditor chose that means of
payment. Technical defects of the offer cannot be adduced to destroy its effects when the objection to accept the payment was based on entirely different grounds. If the
creditor had told the debtor that he wanted cash or an ordinary check, which Vidal now seems to think Paz Tuason should have tendered, certainly Vidal's wishes would have
been fulfilled, gladly.

The plain truth was that the mortgagee bent all his efforts to put off the payment, and thanks to the defects which he now, with obvious inconsistency, points out, the mortgage
has not perished with the checks.

Falling within the reasons for the stoppage of interest are attorney's fees. In fact there is less merit in the claim for attorney's fees than in the claim for interest; for the creditor
it was who by his refusal brought upon himself this litigation, refusal which, as just shown, resulted greatly to his benefit.

Vidal, however, is entitled to the penalty, a point which the debtor seems to a grant. The suspension of the running of the interest is premised on the thesis that the debt was
considered paid as of the date the offer to pay the principal was made. It is precisely the mortgagor's contention that he was to pay said penalty if and when she paid the
mortgage before the expiration of the four-year period provided in the mortgage contract. This penalty was designed to take the place of the interest which the creditor would
be entitled to collect if the duration of the mortgage had not been cut short and from which interest the debtor has been relieved. "In obligations with a penalty clause the
penalty shall substitute indemnity for damages and the payment of interest. . ." (Art. 1152, Civil Code of Spain.).

To summarize, the following are our findings and decision:

The contract of sale Exhibit A was valid and enforceable, but the loss of the checks for P143,150 and P12,932.61 and invalidation of the corresponding deposit is to be borne by
the buyer. Gregorio Araneta, Inc. the value of these checks as well as the several payments made by Paz Tuason to Gregorio Araneta, Inc. shall be deducted from the sum of
P190,000 which the buyer advanced to the seller on the execution of Exhibit 1.

The buyer shall be entitled to the rents on the land which was the subject of the sale, rents which may have been collected by Paz Tuason after the date of the sale.

Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated interest up to October 20,1943, plus the penalty of P30,000, provided that the loans obtained
during the Japanese occupation shall be reduced according to the Ballantyne scale of payment, and provided that the date basis of the computation as to the penalty is the date
of the filing of the suit against Vidal.

Paz Tuason shall pay the amount that shall have been found due under the contracts of mortgage within 90 days from the time the court's judgment upon the liquidation shall
have become final, otherwise the property mortgaged shall be ordered sold provided by law.

Vidal's mortgage is superior to the purchaser's right under Exhibit A, which is hereby declared subject to said mortgage. Should Gregorio Araneta, Inc. be forced to pay the
mortgage, it will be subrogated to the right of the mortgagee.

This case will be remanded to the court of origin with instruction to hold a rehearing for the purpose of liquidation as herein provided. The court also shall hear and decide all
other controversies relative to the liquidation which may have been overlooked at this decision, in a manner not inconsistent with the above findings and judgment.
The mortgagor is not entitled to suspension of payment under the debt moratorium law or orders. Among other reasons: the bulk of the debt was a pre-war obligation and the
moratorium as to such obligations has been abrogated unless the debtor has suffered war damages and has filed claim for them; there is no allegation or proof that she has. In
the second place, the debtor herself caused her creditor to be brought into the case which resulted in the filing of the cross-claim to foreclose the mortgage. In the third place,
prompt settlement of the mortgage is necessary to the settlement of the dispute and liquidation between Gregorio Araneta, Inc. and Paz Tuason. If for no other reason, Paz
Tuason would do well to forego the benefits of the moratorium law.

There shall be no special judgments as to costs of either instance.

Paras, C.J., Pablo, Bengzon, Padilla, Bautista Angelo and Labrador, JJ., concur.
 Republic of the Philippines

SUPREME COURT

Manila

EN BANC

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

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR.,
SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants,

vs.

GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.

Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

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

MAKASIAR, J.:

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

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

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad
Estate with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a commission of 5% on the total price, if the property is sold
by Vicente or by anyone else during the 30-day duration of the agency or if the property is sold by Vicente within three months from the termination of the agency to
apurchaser to whom it was submitted by Gregorio during the continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy was given to
Vicente, while the original and another copy were retained by Gregorio.

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

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

Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to
raise his offer. After several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which
Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after which Vicente
advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D".
Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended
to the effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the purchase price. It was again
amended to the effect that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay in lot No. 883 of Piedad
Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to
Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a
total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did
Oscar pay Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in
Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the United States, for which reason he
was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to
Gregorio as propina or gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked
habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three months after the expiration of the 30-day period
of the exclusive agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period.
Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit
"A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on
September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de
Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he
demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon,
who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for One Hundred Four Thousand
Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to
Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.

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

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

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were extensively
discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that it does not constitute breach of trust or
fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and that the
commitment from the prospect buyer that he would give a reward to Gregorio if he could effect better terms for him from the seller, independent of his legitimate commission,
is not fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes that such terms are onerous disadvantageous to him. On the other
hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and constituted a breach of trust,
which should deprive him of his right to the commission.

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is
guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by reason of
such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of
any wrong, not to remedy or repair an actual damage.3 By taking such profit or bonus or gift or propina from the vendee, the agent thereby assumes a position wholly
inconsistent with that of being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no agency had existed. The fact that the
principal may have been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to blame for such a result by reason of his
treachery or perfidy.

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

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

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

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

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

xxx xxx xxx

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

xxx xxx xxx

The intent with which the agent took a secret profit has been held immaterial where the agent has in fact entered into a relationship inconsistent with his agency, since the law
condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260.9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency exists, so to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of it for himself in excess of his lawful compensation; and if he does so he may be held as a trustee and may be
compelled to account to his principal for all profits, advantages, rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties, and
be required to transfer them to his principal upon being reimbursed for his expenditures for the same, unless the principal has consented to or ratified the transaction knowing
that benefit or profit would accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to change his condition that he cannot be put in
status quo. The application of this rule is not affected by the fact that the principal did not suffer any injury by reason of the agent's dealings or that he in fact obtained better
results; nor is it affected by the fact that there is a usage or custom to the contrary or that the agency is a gratuitous one. (Emphasis applied.) 10

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

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

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to be valid,
must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No. 40 Denver Street,
Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence,
both in law and in fact, it was still Oscar de Leon who was the buyer.

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

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

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

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of
Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum
of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concur.
 SECOND DIVISION

[G.R. No. 141485. June 30, 2005]

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

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

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

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

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

Private complainant Federicos first successful transaction as sales agent of LMICE involved two fire extinguishers sold to Landbank of the Philippines (Landbank), Puerto
Princesa City Branch, for the price of P7,200.00. Landbank issued a check, dated 08 November 1993, pay to the order of L.M. Industrial Comml. Enterprises c/o Chito
Federico, for the amount of P5,936.40,[8] after deducting from the original sales price the 15% discount granted by private complainant Federico to Landbank and the 3%
withholding tax. Private complainant Federico encashed the check at Landbank and remitted only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his
commission from the sale.[9]

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

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

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

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

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

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

INFORMATION

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

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

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

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

1. With unfaithfulness or abuse of confidence, namely:

(a)

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

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

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

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

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

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

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

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

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

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

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

a. Sales Commission equivalent to

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

with legal interest thereon from

June 17, 1994 until fully paid;

b. Attorneys fees ---------------------------- P 30,0000.00.[21]

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

WHEREFORE, the appealed decision is hereby AFFIRMED with the MODIFICATION that appellants PABLITO MURAO and NELIO HUERTAZUELA are hereby each
sentenced to an indeterminate penalty of eight (8) years and One (1) day of prision mayor, as minimum, to Twenty (20) years of reclusion temporal, as maximum. The award
for attorneys fee of P30,000.00 is deleted because the prosecution of criminal action is the task of the State prosecutors. All other aspects of the appealed decision are
maintained.[22]

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

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

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

This Court finds the instant Petition impressed with merit. Absent herein are two essential elements of the crime of estafa by misappropriation or conversion under Article
315(1)(b) of the Revised Penal Code, namely: (1) That money, goods or other personal property be received by the offender in trust, or on commission, or for administration, or
under any other obligation involving the duty to make delivery of, or to return, the same; and (2) That there be a misappropriation or conversion of such money or property by
the offender.
The findings of the RTC and the Court of Appeals that petitioners committed estafa rest on the erroneous belief that private complainant Federico, due to his right to
commission, already owned 50% of the amount paid by the City Government of Puerto Princesa to LMICE by virtue of Check No. 611437, so that the collection and deposit of
the said check by petitioners under the account of LMICE constituted misappropriation or conversion of private complainant Federicos commission.

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

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

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

Since LMICE is the lawful owner of the entire proceeds of the check payment from the City Government of Puerto Princesa, then the petitioners who collected the payment on
behalf of LMICE did not receive the same or any part thereof in trust, or on commission, or for administration, or under any other obligation involving the duty to make
delivery of, or to return, the same to private complainant Federico, thus, the RTC correctly found that no fiduciary relationship existed between petitioners and private
complainant Federico. A fiduciary relationship between the complainant and the accused is an essential element of estafa by misappropriation or conversion, without which
the accused could not have committed estafa.[29]

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

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

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

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

Based on the very same definition, this Court finds that petitioners did not convert nor misappropriate the proceeds from Check No. 611437 because the same belonged to
LMICE, and was not anothers property. Petitioners collected the said check from the City Government of Puerto Princesa and deposited the same under the Current Account
of LMICE with PCIBank. Since the money was already with its owner, LMICE, it could not be said that the same had been converted or misappropriated for one could not very
well fraudulently appropriate to himself money that is his own.[33]

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

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

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

SO ORDERED.

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

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 192085 February 22, 2012

CARIDAD SEGARRA SAZON, Petitioner,

vs.
LETECIA VASQUEZ-MENANCIO, represented by Attorney-in-Fact EDGAR S. SEGARRA, Respondent.

Villarama*

DECISION

SERENO, J.:

The present case stems from a Complaint for Recovery of Possession of Real Properties, Accounting and Injunction1 filed by Leticia Vasquez-Menancio (respondent) against
Caridad S. Sazon (petitioner) in the Regional Trial Court (RTC) of Ligao City, Albay. The RTC ruled in favor of respondent, but reversed itself when petitioner filed a Motion
for Reconsideration (MR). Respondent appealed the case to the Court of Appeals (CA), but it affirmed the first Decision of the RTC. She filed another MR, but the CA denied it
for lack of merit.

The Case

Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the 26 November 2009 Decision3 of the appellate court in CA-GR CV No. 91570. The
challenged Decision disposed as follows:

WHEREFORE, the appeal is DISMISSED. The Decision dated 31 July 2007 of the Regional Trial Court, Branch 13, Ligao City, in Civil Case No. T-1944 is AFFIRMED with
MODIFICATION in that Caridad S. Sazon is ORDERED to pay Leticia Vasquez-Menancio the amount of ₱ 908,112.62, representing the unremitted fruits and income of the
subject properties from 1979 to 1997. This is already net of administration expenses, allowance for compensation and proved real estate taxes paid. The Decision is affirmed in
all other respects.

SO ORDERED.4

Antecedents

Respondent is a resident of the United States of America. Sometime in 1979, she entrusted the management, administration, care and preservation of her properties to
petitioner. These properties are more specifically described as follows:

I. Residential lot, with an area of 573 sq. m., located in Zone III, Libon, Albay, declared under Tax No. 097-03-0066 in the sum of ₱ 24,070.00

II. Residential lot, with an area of 299 sq. m., located in Zone III, Libon, Albay, declared under Tax No. 097-003-00115 in the sum of ₱ 12,560.00

III. Residential lot, with an area of 873 sq. m., located in San Antonio St., Libon, Albay, declared under Tax No. 097-003-00068 in the sum of ₱ 36,670.00

IV. Irrigated riceland, Cad. Lot No. 852, with an area of 3.1304 hectares, located at San Isidro, Libon, Albay, declared under Tax No. 07-039-235 in the sum of ₱
96,580.00

V. Irrigated riceland, with an area of 1.5652 hectares, located at Bololo Centro, Libon, Albay, declared under Tax No. 07-005-104 in the sum of ₱ 48,290.00

VI. Irrigated riceland, with an area of .6720 hectares, located at Bololo Centro, Libon, Albay, declared under Tax No. 07-005-103 in the sum of ₱ 29,730.00

VII. Irrigated riceland, with an area of .6380 hectares, located at Balagon Centro, Libon, Albay, declared under Tax No. 07-005-222 in the sum of ₱ 19,680.00

VIII. Coconut land, with an area of ten (10) hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-85 in the sum of ₱ 42,840.00

IX. Coconut land, with an area of 3.7102 hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-86 in the sum of ₱ 15,740.005

The properties shall hereinafter be referred to individually as "Lot I," "Lot II" and so on for brevity.

Respondent avers that Lots I to IX are productive, and that petitioner as the administrator has collected and received all the fruits and income accruing therefrom. Petitioner,
on the other hand, claims that several of the properties do not produce any fruit or generate any income at all,6 and that any supposed income derived from them is not
sufficient to answer for all the expenses incurred to maintain them.7

According to respondent, petitioner never rendered a full accounting of the fruits and income derived from the properties, but has instead appropriated and in fact applied
these for her own use and benefit. Denying this allegation, petitioner presented five letters—dated 21 January 1983, 12 March 1984, 15 September 1986, 2 December 1988, and
one undated—which had been sent to respondent as proof of the accounting.8
Furthermore, petitioner denies receipt of any letter asking her to make an accounting or to remit the fruits collected from the properties. 9 She further avers that, since the
start of her agency agreement with respondent, the latter never answered "any of the communications" petitioner had sought to initiate.10

As a result of the foregoing, respondent revoked, in writing, all the powers and authority of administration granted to petitioner effective March 1997. Thereafter, the former
demanded that petitioner return and/or turn over the possession and administration of the properties.

Respondent claims that she made repeated verbal, and served written, demands upon petitioner, asking the latter to render an accounting and to remit the owner’s share of the
fruits. Petitioner, however, continued to fail and to refuse to perform her obligation.11 In fact, she continues to hold on to the properties and the management and
administration thereof. Further, she continues to collect, receive, and keep all the income generated by the properties.

Thus, on 30 October 1997, respondent filed her Complaint with Preliminary Injunction,12 praying that the RTC order petitioner to render an accounting and remit all the
fruits and income the latter, as the administrator, received from the properties.

In her Answer with Counterclaim,13 petitioner alleges as follows:

2.a. Lot area of 573 sq.m.-is being leased by Salome S. Segarra which is duly covered by a Lease Contract executed during the effectivity of the Special Power of
Attorney granted to the herein defendant. Furthermore, the said Lease Contract was entered into with the express consent, and without any objection on the part of
the plaintiff since she was consulted prior to its execution; xxx,

2.b. Lot area of 299 sq. m. – This is included in the [L]ease [C]ontract above-mentioned.

2.c. Lot area of 873 sq. m. – This is likewise duly covered by a Lease Contract executed between the herein defendant as lessee and Ana C. Segarra when the latter
was still the administrator of the properties of the plaintiff. The said Lease Contract was likewise entered into with the express consent and without any objection
on the part of the plaintiff since she was again consulted prior to its execution; xxx.

2.d. Lot area of 3.1304 hectares – this is administered as to 2/3 of the total land area but not as to the other 1/3 as the same is owned by the defendant’s mother
Ana C. Segarra by virtue of a contract of sale from Mrs. Josefina Segarra, the co-owner of the plaintiff over the said land; xxx,

2.e. Lot area of 1.5652 hectares and .6720 hectares are not owned by the plaintiff but that of the mother of the herein defendant Ana C. Segarra by virtue of a Deed
of Redemption, as in fact, they are in possession thereof as owners and not as administrator of the plaintiff; xxx,

2.f. Lot area of .6380 hectares – said land is presently possessed by the alleged administrator of the plaintiff yet the plaintiff still seeks the return of the same which
constitutes an act that trifles with the administration of justice and further prove that this groundless case was filed with this court purely to harass the herein
defendant;

2.g. Lot area of 10 hectares and Lot area of 3.7102 hectares – the herein defendant is no longer in possession of these lots as in fact, the fruits of these lands are not
being turned over to the defendant ever since the plaintiff revoked the authority given to the defendant, xxx.14

In short, petitioner argues that respondent has no cause of action against her for the following reasons:15

1. The properties that cannot be returned because they are under valid lease agreements—Lots I-III—and those that have been transferred to a third party by virtue
of contracts of sale with corresponding deeds of redemption—Lots V and VI—can no longer be given to respondent;16

2. Some properties are already in respondent’s possession—Lots IV and VII-IX.17

By way of compulsory counterclaim, petitioner is asking this Court to order respondent to return the one-third portion of Lot IV allegedly owned by petitioner’s mother and
the fruits collected therefrom.18

During the pretrial conference held on 24 July 1998, the parties agreed that respondent already had possession over Lots IV, VII, VIII, and IX. They also agreed that all the
income derived from Lots I to IX since 1979 were received by petitioner.19

In a Decision20 dated 31 July 2007, the RTC ruled in favor of respondents. The dispositive portion thereof reads:

WHEREFORE, the foregoing premises duly considered, judgment is hereby rendered in favor of plaintiff Leticia Vasquez-Menancio and against defendant Caridad S. Sazon, as
follows:

a) ordering the defendant to turn over the possession, management and administration of all the properties enumerated in paragraph 2 of the complaint, except
parcels 4, 7, 8 and 9 which were already under plaintiff’s possession since August, 1977, to the plaintiff, thru attorney-in-fact Edgar S. Segarra;

b) ordering the defendant to remit to the plaintiff the total sum of ₱ 1,265,493.75 representing unremitted fruits and income of the subject properties, less the
amount of ₱ 150,000.00 by way of administration expenses incurred by defendant;

c) ordering the defendant to pay the plaintiff the sum of ₱ 50,000.00 as moral damages;

d) ordering the defendant to reimburse the plaintiff the sum of ₱ 20,000.00 as and for attorney’s fees, plus the sum of ₱ 1,000.00 for every court appearance of
counsel; and —

e) ordering the defendant to pay the costs of the suit.

On the other hand, plaintiff Leticia Vasquez-Menancio is hereby ordered to pay defendant Caridad S. Sazon the total sum of ₱ 180,000.00, representing the latter’s
compensation in administering the former’s properties based on quantum meruit.
SO ORDERED.21

Petitioner filed her MR on 20 August 2007 questioning the trial court’s Decision to rely on the computation made by respondent’s attorney-in-fact. These computations,
reflected in paragraph (b) of the dispositive portion, were used by the RTC to determine the prices of palay, corn and copra at the time that petitioner administered the
properties. Realizing, however, that it should have considered the Certifications issued by the National Food Authority (NFA) and the Philippine Coconut Authority (PCA) for
that purpose, the RTC ruled in favor of respondent and partly reversed its 28 March 2008 Decision, the dispositive portion of which reads:

WHEREFORE, the foregoing premises duly considered, the Court resolves to set aside the Decision dated July 31, 2007. In lieu thereof, a new decision is hereby rendered as
follows:

a) ordering the defendant Caridad S. Sazon to turn over the possession, management and administration of all the properties enumerated in paragraph 2 of the
complaint, except parcels 4, 7, 8 and 9 which were already under plaintiff’s possession since August, 2007, to plaintiff Leticia Vasquez-Menancio, thru her
attorney-in-fact Edgar S. Segarra;

b) ordering the defendant to render full, accurate and complete accounting of all the fruits and proceeds of the subject properties during the period of her
administration; and

c) ordering the defendant to reimburse the plaintiff the sum of ₱ 20,000.00, as and for attorney’s fees;

Costs against defendant.

SO ORDERED.22 (Emphasis supplied in the original)

Still aggrieved, petitioner raised the matter to the CA, but it dismissed her appeal. It affirmed the trial court’s 31 July 2007 Decision, except for the amount ordered to be
remitted to respondent, which was reduced to ₱ 908,112.62. The MR filed by petitioner was also denied on 29 April 2010.23

Petitioner is now asking this Court to set aside the CA’s Decision.24

In questioning the Decision of the CA, petitioner first raises a procedural issue. She argues that the appellate court should not have affirmed the RTC Decision in this case,
because when the trial court abandoned its original Decision, the latter impliedly admitted that it had "committed erroneous findings of facts."25 Respondent argues that the
CA had the power to affirm the RTC’s second Decision—the Resolution on the MR—because the entire case was opened for review upon appeal.

We agree with respondent.

In Heirs of Carlos Alcaraz v. Republic of the Philippines,26 we reiterated the cardinal rule that when a case is appealed, the appellate court has the power the review the case in
its entirety, to wit:

In any event, when petitioners interposed an appeal to the Court of Appeals, the appealed case was thereby thrown wide open for review by that court, which is thus necessarily
empowered to come out with a judgment as it thinks would be a just determination of the controversy. Given this power, the appellate court has the authority to either affirm,
reverse or modify the appealed decision of the trial court. To withhold from the appellate court its power to render an entirely new decision would violate its power of review
and would, in effect, render it incapable of correcting patent errors committed by the lower courts.

Thus, we agree with respondent that the CA was free to affirm, reverse, or modify either the Decision or the Order of the RTC.

Next, petitioner avers that she cannot turn over possession of Lots I to III, because these are subject of valid lease agreements. None of the parties question the appellate
court’s finding that the lease agreements covering Lots I-III should be respected. After all, when petitioner entered into these agreements, she acted within her authority as
respondent’s agent.27

In this matter, we agree with the CA in its ruling that even though the lease agreements covering these lots should be respected, petitioner must turn over the administration of
the leases to respondent’s attorney-in-fact.28 The reason is that respondent has already revoked the authority of petitioner as administrator. Hence, the latter no longer has
the right to administer the properties or to receive the income they generate on respondent’s behalf.

With respect to the one-third portion of Lot IV, the parties also agree that the sale of one-third of this lot to petitioner’s mother should be respected by respondent.29 Lot IV
has been in the latter’s possession since 1997. Since it is not controverted that one-third of this lot is now owned by petitioner’s mother, respondent should turn over
possession of the corresponding one-third portion and remit all fruits collected therefrom since 1997.

Petitioner questions the factual findings of the appellate court. She claims that the CA erred in finding that "the reason why petitioner allegedly never rendered an accounting
of income is because the respondent never demanded it."30 According to petitioner, she never claimed that this was the reason why she never rendered an accounting of
income. In fact, she insists that she actually sent letters of accounting to respondent. Supposedly, she only said that respondent never demanded accounting from her to refute
the claim of respondent that such demand letter was sent to her.

Petitioner insists, however, that Article 1891 of the Civil Code contains a few of the obligations owed by an agent to his principal, viz:

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

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

It is evident that the reason behind the failure of petitioner to render an accounting to respondent is immaterial. What is important is that the former fulfill her duty to render
an account of the relevant transactions she entered into as respondent’s agent.

Petitioner claims that in the course of her administration of the properties, the letters she sent to respondent should be considered as a fulfillment of her obligation, as
respondent’s agent, to render an accounting of her administration.31 Both the RTC and the CA found these letters insufficient. We agree. Petitioner was the administrator of
respondent’s properties for 18 years or from 1979 to 1997, and four letters within 18 years can hardly be considered as sufficient to keep the principal informed and updated of
the condition and status of the latter’s properties.

As to Lots V and VI, petitioner avers that ownership thereof was transferred to her mother through a Deed of Redemption,32 viz:

Defendant averred that her mother owned parcels 5 and 6. She Identified a Deed of Redemption purporting to have transferred the property to her mother. When the deed was
executed, plaintiff was in the United States but defendant’s mother notified her. She saw her mother putting 100-peso bills amounting to ₱ 6,500.00 in a big brown envelope to
pay for the lot. Her father Simeon Segarra who just came from the United States gave her the money.33

On this matter, the RTC found thus:

As regards parcels 5 and 6, the defendant averred that they were owned by her mother Ana Segarra because she was the one who redeemed the properties. But the evidence
extant in the records disclosed that the said parcels of land were declared for taxation purposes in the name of plaintiff Leticia Vasquez-Menancio. In many cases, it has been
repeatedly held that although tax declarations are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of an owner for no one
in his right mind would be paying taxes for a property that is not under his actual or at least constructive possession. Hence, the fruits and profits of these properties shall still
incur to the plaintiff.34

For its part, the CA held as follows:

To prove that one of Leticia’s properties now belongs to her mother, Ana Segarra, Sazon presented evidence showing that when Ana was still the administrator of Leticia’s
properties, she redeemed Leticia’s property that was sold by Leticia’s father to vendee-a-retro, Loreto San Andres-Seda. However, the Deed of Redemption clearly shows that
Ana redeemed the property only in her capacity as attorney-in-fact of Leticia, and not in her personal capacity.35

Factual findings of the trial court are accorded high respect and are generally not disturbed by appellate courts, unless found to be clearly arbitrary or baseless.36 This Court
does not review the factual findings of an appellate court, unless these findings are "mistaken, absurd, speculative, conjectural, conflicting, tainted with grave abuse of
discretion, or contrary to the findings culled by the trial court of origin."37

Although the pronouncement of the trial court is not identical to that of the CA, the declaration of one corroborates the findings of the other. We rule that the findings of the
lower court and the CA regarding Lots V and VI should be respected. The mother of petitioner purchased both of these lots in her capacity as respondent’s attorney-in-fact,
which explains why these lots were—for taxation purposes—declared in the name of respondent.

Petitioner bewails the appellate court’s supposed failure to rule on her claim that respondent promised to give the former a 20% commission for the sale of respondent’s
properties in Las Piñas, Quiapo; and Fraternal, Sampaloc, Manila.38 We rule that petitioner failed to prove that this agreement had been entered into. No other evidence,
except for her testimony, was presented to prove that an agreement of this nature had been entered into between the parties.39

Finally, the crux of the present Petition is the determination of the value of all the fruits and proceeds collected from respondent’s properties from 1979 to 1997 and the total
sum thereof.

Petitioner does not deny that she never remitted to respondent any of the fruits or income derived from the properties. Instead, petitioner claims that (1) the properties did not
produce any fruit or generate any income at all;40 (2) any supposed income derived from the properties was not sufficient to answer for all the expenses incurred to maintain
them;41 and (3) she was never compensated for the services she rendered as the administrator of respondent’s properties.

As previously mentioned, every agent is bound to deliver to the principal whatever the former may have received by virtue of the agency, even though that amount may not be
owed to the principal.42

In determining the value of the fruits, the RTC—in its original Decision—relied on the computation submitted by respondent’s attorney-in-fact and ordered petitioner to remit
to respondent the total sum of ₱ 1,265,493.75, to wit:

At the outset, it may be stated that plaintiff’s attorney-in-fact Edgar S. Segarra, being a farmer himself and a resident of the area where the subject properties are located can
best testify regarding the income thereof. In preparing a computation of income of his principal, plaintiff Leticia Vasquez-Menancio, he consulted people from the agrarian
sector, as well as grains buyers. He also referred to the lease contracts entered into between the former administratrix and the tenants. Based on his computation, the amount
which represented the fruits of the properties being administered by the defendant but were not remitted to the plaintiff totaled ₱ 1,265,493.75 xxx, which amount to the mind
of the Court, is not colossal but a reasonable claim, especially in this instance where the subject properties have been administered by defendant and her mother for more than
(10) years.43

The computation is based on the alleged prevailing price of ₱ 8.75 per kilo for palay and ₱ 12 per kilo for copra. The trial court also ordered respondent to reimburse petitioner
in the amount of ₱ 150,000 representing the administrative expenses the latter incurred as the agent. Furthermore, petitioner was awarded ₱ 180,000 as compensation for
administering respondent’s properties. Lastly, petitioner was ordered to pay respondent attorney’s fees in the amount of ₱ 20,000 plus ₱ 1,000 for every appearance of
counsel.

In the Order of the RTC reversing its Decision, it found that it should have considered the Certifications issued by the NFA and PCA with respect to the prevailing prices of
palay, corn, and copra at the time of petitioner’s administration. These Certifications revealed that the prevailing prices from 1979 to 1997 were as follows: (1) from ₱ 1.75 to ₱
8 per kilo for palay; (2) from ₱ 1to ₱ 6 per kilo for corn; and (3) from ₱ 3.15 to ₱ 10.77 per kilo for copra. The RTC found that the parties failed to prove the exact quantity and
quality of harvests for the period. Consequently, it ordered petitioner to "render full, accurate, and complete accounting of all the fruits and proceeds of the subject properties
during the period of her administration."44

The CA affirmed the RTC’s original Decision and ordered petitioner to pay respondent the amount of ₱ 1,315,533.75—even though the trial court had ordered the return of only
₱ 1,265,493.75—representing the total value of the fruits and rents derived from the properties from 1979 to 1997 less the ₱ 150,000 administrative expenses, the ₱ 180,000
compensation for administering the properties, and the ₱ 77,221.13 real estate taxes paid by petitioner from 1979 to 1997.

We disagree with the appellate court’s finding with respect to the total value of fruits and rents earned by the properties from 1979 to 1997.

As found by the RTC, the following computation of the amounts owed by petitioner to respondent was submitted by the latter’s attorney-in-fact, Edgar S. Segarra:
Witness Edgar S. Segarra testified that the properties which were administered by defendant Caridad S. Sazon consisted of residential and agricultural lands. Caridad Sazon
leased the residential lots to one Salome Segarra in the amount of 100 pesos a month since 1988. Another parcel of land was leased to defendant’s mother Ana Segarra in
exchange for one sack or 46 kilograms of palay for a period of 20 years. A cornland which is being tenanted by Orlando Macalinao produced ₱ 72,000.00. The computation
was based on a 75/25 sharing plan multiplied by the price of corn at 6 pesos and again multiplied by 15 years, the number of years that the properties were being tenanted.
Another riceland was tilled by the defendant’s husband. This 1.56 hectares Riceland produced 1,932 kilograms of rice per year and at ₱ 8.75 a kilogram, for 14 years, the
amount which was not remitted to the plaintiff amounted to ₱ 836,670.00. Another property, located at Libon, Albay, containing an area of .6720 hectare and tilled by
defendant’s husband produced harvest amounting to ₱ 121,030.00. Further, a riceland with an area of .6380 hectare being farmed by the defendant’s daughter produced ₱
183,720.00. Two coconut lands, located at Macabugos, Libon, Albay, produced coconuts made into copras, thus bringing in profits of about ₱ 705,600.00.

The foregoing amounts correspond to the years by which the properties were administered by the defendant, the number of crops they harvested, the sharing plan, and the
prevailing price of the produce during the years of administration. He also asked the comprador (buyer of grains) about the prices and consulted employees of the department
of Agrarian Reform regarding the sharing of the crops. The lease contracts affecting the properties were also considered. All these amounts were never remitted by the
defendant to the owner-plaintiff. 45

Petitioner correctly posits that it was wrong for the CA to base the computation of unremitted fruits and rents solely on the evidence submitted by respondent’s attorney-in-
fact, as this computation was obviously self-serving. Furthermore, the Certifications issued by the NFA and PCA should have been be given weight, as they are documentary
evidence issued by government offices mainly responsible for determining the buying/selling price of palay, corn, and other food and coconut products.

We shall review the findings of fact of the Court of Appeals in view of some inconsistencies with those of the trial court and the evidence on record.

This Court is convinced that the Certifications are genuine, authentic, valid, and issued in the proper exercise and regular performance of the issuing authority’s official duties.
Under Section 3(m), Rule 131 of the Revised Rules of Court, there is a legal presumption that official duty has been regularly performed. No evidence was presented to rebut or
dispute this presumption.

Petitioner claims that several of the properties did not produce any fruit or generate any income at all.46 However, the trial court found that not only was there evidence on
record showing that the properties administered yielded agricultural produce and rents, but petitioner herself had testified that the properties increased when she served as
administrator. In effect, she admitted that the properties indeed generated income.47

This Court is left with no other choice but to order both parties to present their evidence in support of their respective claims considering that no evidence was submitted to
prove the quantity and quality of harvests for the relevant period. Neither the RTC nor the CA was able to explain or present a breakdown to show how it arrived at the
supposed amount representing the total value of the fruits and rents derived from the properties.

The trial court correctly ordered petitioner to "render full, accurate, and complete accounting of all the fruits and proceeds of the subject properties during the period of her
administration." However, it should have also ordered petitioner to present all her evidence regarding the alleged transportation expenses, attorney’s fees, docket fees, and
other fees; 48 the total amount expended for the purchase of respondent’s Las Piñas property;49 and the total amount of real property taxes paid. These claimed expenses, if
and when duly proven by sufficient evidence, should be deducted from the total income earned by the properties.

Both parties should be required to present their evidence to finally resolve the following issues: (1) the total amount of the income generated by Lots I to IX during the
administration of petitioner; and (2) the total amount of expenses incurred by petitioner that should be borne by respondent as the owner of the properties, or the total
deductibles in petitioner’s favor.

There is no doubt that petitioner is entitled to compensation for the services she rendered. Respondent does not deny that she never paid the former, since they had no
agreement regarding the amount, the determination of which she left to petitioner.50

Petitioner now argues that since the expenses for the maintenance of the properties exceeded whatever income they generated, then whatever is left of the income should now
belong to her as compensation.51 She says that the "admission of the respondent admitted during cross-examination that she expected petitioner to fix her own salary out of
the remaining income, if any, of the administered property" is enough reason to reverse and Decision and Resolution of the CA.52

The contention is not acceptable. Considering that neither of the parties was able to prove how much the properties earned, this Court cannot just agree with petitioner’s claim
that whatever is left of this income, after the expenses have been deducted, should be considered as her salary. To begin with, she repeatedly claimed that all the income
derived from these properties was insufficient to cover even just the expenses; thus, there is no "remaining income" left to speak of.

We have already ruled that petitioner should be compensated for the services she rendered. Since there was no exact amount agreed upon, and she failed to fix her own salary
despite the authority given to her, the RTC correctly applied the doctrine of quantum meruit. With respect to this matter, the trial court found thus:

And where the payment is based on quantum meruit, the amount of recovery would only be the reasonable value of the thing or services rendered regardless of any agreement
as to value. In the instant case, the amount of ₱ 1,000.00 per month for 15 years representing defendant’s compensation for administering plaintiff’s properties appears to be
just, reasonable and fair.53

The doctrine of quantum meruit (as much as one deserves) prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without
paying for it.54 Being an equitable principle, it should only be applied if no express contract was entered into, and no specific statutory provision is applicable. Although
petitioner was given the authority to set the amount of her salary, she failed to do so. Thus, she should at least be given what she merits for her services. We find no reason to
reverse the finding of both the RTC and the CA that ₱ 1,000 per month for 15 years is a just, reasonable, and fair compensation to petitioner for administering respondent’s
properties. The lower court is ordered to add this amount to the deductibles that petitioner is able to prove or, if the deductibles exceed the monetary value of the income
generated by the properties, to add this amount to whatever respondent ends up owing petitioner.

We delete the award of moral damages and attorney's fees in the absence of proof of bad faith and malice on the part of petitioner.

WHEREFORE, in view of the foregoing, the Petition is PARTLY GRANTED, as follows:

(1) Petitioner Caridad S. Sazon is ordered to TURN OVER the possession, management, and administration of Lots I, II, III, V, and VI to respondent Leticia
Vasquez-Menancio through the latter’s attorney-in-fact, Edgar S. Segarra.

(2) Respondent is ordered to TURN OVER the possession, management, and administration of one-third of Lot IV to petitioner.
 (3) The case is REMANDED to the Regional Trial Court of Ligao City, Albay, the court of origin, which is ordered to do the following:

(a) ORDER petitioner to render full, accurate, and complete accounting of all the fruits and proceeds earned by respondent’s properties during
petitioner’s administration thereof;

(b) ORDER petitioner to submit a detailed list with a breakdown of all her claimed expenses, including but not limited to the following: maintenance
expenses including transportation expenses, legal expenses, attorney’s fees, docket fees, etc; the total amount expended for the purchase of
respondent’s Las Piñas property;55 and the total amount of real property taxes paid, all for the period 1979 to 1997;

(c) ORDER the parties to submit their evidence to prove the exact quantity and quality of the harvests or the fruits produced by the properties and all
the expenses incurred in maintaining them from 1979 to 1997;

(d) DETERMINE the total amount earned by the properties by using as basis the declaration of the National Food Authority and the Philippine Coconut
Authority with respect to the prevailing prices of palay, corn, and copra for the period 1979 to 1997; and

(e) SUBTRACT from the determined total amount the expenses proven by petitioner and the ₱ 180,000 serving as her compensation for administering
the properties from 1979 to 1997.

COSTS against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-42958 October 21, 1936

C. N. HODGES, plaintiff-appellant,
vs.
CARLOTA SALAS and PAZ SALAS, defendants-appellees.

Jose P. Orozco and Gibbs, McDonough and Ozaeta for appellant.

Vicente Varela and Conrado V. Sanchez for appellees.

IMPERIAL, J.:

The action was brought by the plaintiff to foreclose a certain real estate mortgage constituted by the defendants to secure a loan. The plaintiff appealed from the judgment of
the Court of First Instance of Occidental Negros absolving the defendants from the complaint and stating: That of the capital of P28,000 referred to in Exhibit A, the
defendants were liable only for the sum of P14,451.71; that the transactions and negotiations specified in Exhibit A as well as the interest charged are usurious; that the sum of
P14,778.77 paid by the defendants to the plaintiff should be applied to the payment of the capital of P14,451.71; that the plaintiff must refund the sum of P3,327.06 to the
defendants and, lastly, he must pay the costs.

On September 2, 1923, the defendants executed a power of attorney in favor of their brother-in-law Felix S. Yulo to enable him to obtain a loan and secure it with a mortgage
on the real property described in transfer certificate of title No. 3335. The power of attorney was registered in the registry of deeds of the Province of Occidental Negros and the
pertinent clauses thereof read as follows:

That we confer upon our brother-in-law Mr. Felix S. Yulo, married, of age and resident of the municipality of Bago, Province of Occidental Negros, P. I., as required
by law, a special power of attorney to obtain, in our respective names and representation, a loan in any amount which our said brother-in-law may deem necessary,
being empowered, by virtue of the authority conferred in this power of attorney, to constitute a mortgage on a parcel of land absolutely belonging to us, the
technical description of which is as follows:

"TRANSFER CERTIFICATE OF TITLE NO. 3335

"A parcel of land (lot No. 2464 of the Cadastral Survey of Bago) with the improvements thereon, situated in municipality of Bago. Bounded on the NE. and NW. by
the Lonoy Sapa and lot No. 2465; on the SE. by the Ilabo Sapa; and on the SW. by the Ilabo Sapa, lot No. 2508 and the Sapa Talaptapan. Containing an area of one
million nine hundred ninety-four thousand eight hundred and thirty-four square meters (1,994,834), more or less."

That we confer and grant to our said brother-in-law Mr. Felix S. Yulo power and authority to perform and execute each and every act necessary to the performance
of his trust, which acts shall be for all purposes as if we had performed or executed them personally, hereby ratifying and confirming everything that our said
brother-in-law Mr. Felix S. Yulo may execute or cause to be executed.

Acting under said power of attorney, Felix S. Yulo, on March 27, 1926, obtained a loan of P28,000 from the plaintiff, binding his principals jointly and severally, to pay it
within ten (10) years, together with interest thereon at 12 per cent per annum payable annually in advance, to which effect he signed a promissory note for said amount and
executed a deed of mortgage of the real property described in transfer certificate of title No. 3335 and the improvements thereon consisting in concrete buildings. It was stated
in the deed that in case the defendants failed to pay the stipulated interest and the taxes on the real property mortgaged and if the plaintiff were compelled to bring an action to
recover his credit, said defendants would be obliged to pay 10 per cent more on the unpaid capital, as fees for the plaintiff's attorneys. The mortgage so constituted was
registered in the registry of deeds of the Province of Occidental Negros and noted on the back of the transfer certificate of title.

The sum of P28,000 was not delivered to Felix S. Yulo, but by agreement between him and the plaintiff, it was employed as follows:

Interest for one year from March 27, 1926, to March 26, 1927, collected in
advance by the plaintiff ......................... P3,360.00
Paid for the mortgage constituted by Felix S. Yulo, cancelled on the date of the
loan .......................................................... 8,188.29
Paid by Felix S. Yulo on account of the purchase price of the real property bought
by him on Ortiz Street ........................ 2,000.00

Check No. 4590 delivered to Felix S. Yulo .......................... 3,391.71

Check No. 4597 in the name of Rafael Santos, paid to him to cancel the mortgage
constituted by the defendants ..... 9,200.00

Check No. 4598 delivered to Felix S. Yulo ........................... 1,860.00

Total ........................................................................ 28,000.00

The defendants failed to pay at maturity the interest stipulated which should have been paid one year in advance. All the sums paid by them on account of accrued interest up
to March 27, 1934, on which the complaint was filed, together with the corresponding exhibits, are as follows:

Date Amount
Exhibit 1 April 5, 1927 ............................................................... P1,500.00
 Exhibit 2 May 2, 1927 ................................................................ 500.00
Exhibit 4 August 30, 1927 ......................................................... 336.00
Exhibit 7 June 4, 1928 ................................................................ 3,360.00
Exhibit 8 May 15, 1929 .............................................................. 67.20
Exhibit 9 June 19, 1929 .............................................................. 67.20
Exhibit 10 July 25, 1929 ............................................................... 33.60
Exhibit 11 August 26, 1929 ......................................................... 33.60
Exhibit 12 October 7, 1929 .......................................................... 392.55
Exhibit 13 October 7, 1929 .......................................................... 30.00
Exhibit 14 November 9, 1929 ...................................................... 29.67
Exhibit 15 November 9, 1929 ...................................................... 938.95
Exhibit 16 February 8, 1930 ........................................................ 61.04
Exhibit 17 February 8, 1930 ........................................................ 936.46
Exhibit 18 No date ....................................................................... 498.75
Exhibit 19 February 10, 1931 ...................................................... 498.75
Exhibit 20 August 20, 1931 ......................................................... 498.75
Exhibit 21 July 7, 1932 ................................................................. 498.75
Exhibit 22 July 29, 1932 ............................................................... 500.00
Exhibit 23 September 23, 1932 .................................................... 500.00
Exhibit 24 December 17, 1932 ..................................................... 997.50
Exhibit 25 No date ........................................................................ 1,000.00
Exhibit 26 January 23, 1934 ......................................................... 500.00

Total ............................................................................................. 14,779.77

To the foregoing amount must be added the sum of P3,360 deducted by the plaintiff upon granting the loan, as interest for one year, thereby making the total amount of
interest paid by the defendants and received by the plaintiff P18,138.77.

The foregoing are facts inferred from the evidence and are not controverted by the parties, with the exception of the existence of the promissory note, the registration of the
mortgage deed and the notation on the back of the certificate of title.lâwphi1.nêt

I. The action brought by the plaintiff was for the foreclosure of a mortgage in accordance with the provisions of sections 254 to 261 of the Code of Civil Procedure. It was not
expressly alleged in the complaint that the mortgage deed had been registered in accordance with Act No. 496, which was the law applicable in the case of the real property
registered under the Torrens system. A copy of the mortgage deed was attached to the complaint and made a part thereof, but said copy did not show that the original had been
duly registered. In paragraph 3 of the complaint, however, it was alleged that the mortgage deed had been noted on the back of transfer certificate of title No. 3335 by the
register of deeds of the Province of Occidental Negros, in accordance with the provisions of the Mortgage Law. This specific allegation is equivalent to a statement that the
mortgage deed had been duly registered.

At the trial of the case, the attorney for the plaintiff did not present the mortgage deed showing the registration thereof in the registry, or the owner's transfer certificate of title.
In their stead the plaintiff testified that the mortgage had been duly registered in the registry of deeds of Occidental Negros and had been noted on the back of the transfer
certificate of title. The oral evidence was admitted without any objection on the part of the attorney for the defendants. In the appealed decision the court held that the plaintiff
had failed to substantiate his foreclosure suit and, not having presented competent evidence, the action arising from his evidence was merely a personal action for the recovery
of a certain sum of money. The plaintiff excepted to this conclusion and assigns it in his brief as the first error of law committed by the court.

Section 284 of the Code of Civil Procedure requires the contents of a writing to be proven by the writing itself, except in cases therein specified. Section 313, No. 6, provides
that official or public documents must be proven by presenting the original or a copy certified by the legal keeper thereof. According to this, the plaintiff was obliged to present
the original or a certified copy of the mortgage deed showing the registration thereof, as well as the owner's transfer certificate of title. Both would have been the best evidence
to prove the registration of the mortgage and the notation thereof on the back of the title. Had the defendants objected to the oral evidence offered, there is no doubt that it
would have been rejected as incompetent. But it is universally accepted that when secondary or incompetent evidence is presented and accepted without any objection on the
part of the other party, the latter is bound thereby and the court is obliged to grant it, the probatory value it deserves. (City of Manila vs. Cabangis, 10 Phil., 151; Bersabal vs.
Bernal, 13 Phil., 463; Kuenzle & Streiff vs. Jiongco, 22 Phil., 110; U. S. vs. Choa Tong, 22 Phil., 562; U. S. vs. Ong Shiu, 28 Phil., 242; De Leon vs. Director of Prisons, 31 Phil.,
60: U. S. vs. Hernandez, 31 Phil., 342; 23 C. J., 39, section 1783, and the cases therein cited; 10 R. C. L., 1008, paragraph 197, and the cases therein cited.)

Inasmuch as the registration of the mortgage and the notation thereof on the back of the transfer certificate of title have been established by the oral evidence above stated, the
court was without authority to conclude that the action was personal in character and, consequently, the first assignment of error is well founded.

II. The court held that the loan and the mortgage were usurious and illegal for two reasons: First, because the plaintiff charged compound interest notwithstanding the fact
that it had not been stipulated, and second, because the plaintiff charged interest yearly in advance in accordance with the agreement. These conclusions are the subject matter
of the plaintiff's second assignment of error.

The plaintiff categorically denied having charged compound interest, stating in his brief that all the interest charged by him should be applied to the interest unpaid by the
defendants. We have examined Exhibits 8 to 17 of the defendants, which are the evidence offered to establish the fact that compound interest had been charged, and we have,
without any difficulty, arrived at the conclusion that the plaintiff has really charged said unauthorized and unstipulated interest. If there is any doubt on this fact, it is dispelled
by Exhibit 10, in the handwriting of the plaintiff himself, wherein it appears that the sum of P33.60 was charged by him on account of interest on unpaid interest. But the fact
of charging illegal interest that may be charged, does not make the loan or the mortgage usurious because the transactions took place subsequent to the execution of said
contracts and the latter do not appear to be void ab initio (66 C. J., pages 243, 244, section 194). Said interest should be applied first to the payment of the stipulated and
unpaid interest and, later, to that of the capital. (Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil., 570; Go Chioco vs. Martinez, 45 Phil., 256; Gui Jong & Co. vs. Rivera and
Avellar, 45 Phil., 778; Lopez and Javelona vs. El Hogar Filipino, 47 Phil., 249; Sajo vs. Gustilo, 48 Phil, 451.)

The plaintiff admits having charged in advance the interest corresponding to the first year. The mortgage deed contains the stipulation that the defendants should pay in
advance the stipulated interest corresponding to each year. The court declared the contract usurious for this reason, basing its opinion upon some American authorities
holding the same point of view. This court cannot adopt said doctrine in this jurisdiction. Section 5 of Act No. 2655, as amended by section 3 of Act No. 3291, expressly permit
a creditor to charge in advance interest corresponding to not more than one year, whatever the duration of the loan. What is prohibited is the charging in advance of interest
for more than one year. Section 6 reiterates said rule in exempting a creditor found guilty of usury from the obligation to return the interest and commissions collected by him
in advance, provided said interest and commissions are not for a period of more than one year and the rate of interest does not exceed the maximum limit fixed by law.

This court concludes, therefore, that the second assignment of error is well founded in the sense that both the loan and the mortgage are not usurious or illegal.

III. In his third assignment of error, the plaintiff contends that the court should have declared the action for the usury interposed by the defendants in their cross-complaint
barred by the statute of limitations, in accordance with the provision of section 6 of Act No. 2655, as amended by section 4 of Act No. 3291. It is true that according to the
evidence more than two years have already elapsed from the time the defendants paid and the plaintiff received the usurious interest to the registration of the cross-complaint,
but the plaintiff cannot successfully invoke the defense of prescription because he failed to allege it in his reply to the cross-complaint. In order that prescription may
constitute a valid defense and it may be considered on appeal, it must be specifically pleaded in the answer and proven with the same degree of certainty with which an
essential allegation in a civil action is established. Otherwise it will not be taken into consideration, much less if it is alleged for the first time on appeal. (Aldeguer vs. Hoskyn,
2 Phil., 500; Domingo vs. Osorio, 7 Phil, 405; Marzon vs. Udtujan, 20 Phil., 232; Pelaez vs. Abreu, 26 Phil., 415; Corporacion de PP. Agustinos Recoletos vs. Crisostomo, 32
Phil., 427; Karagdag vs. Barado, 33 Phil., 529.)

IV. The defendants proved that their attorney's fees were contracted at P3,000. The evidence has not been contradicted. The amount so fixed is not unreasonable or
unconscionable. In the fourth assignment of error, the plaintiff questions that part of the judgment ordering him to pay said fees. He contends that he is not responsible for the
payment thereof because neither the loan nor the mortgage is usurious. However, this court has already stated that the plaintiff violated the Usury Law in charging compound
interest notwithstanding the fact that it has not been so stipulated and that adding these sums to the stipulated interest the average exceeds the maximum rate of interest that
may be charged for the loan which has been the subject matter of the transaction. This violation falls under the precept of section 6 of the Usury Law and the plaintiff is obliged
to pay the fees of the attorney for the defendants. This court holds that the fourth assignment of error is unfounded.

V. In the fifth assignment of error, the plaintiff alleges that the judgment is erroneous for not having declared that the defendants ratified all the obligations contracted by their
attorney in fact. In the sixth assignment of error he contends that an error was likewise committed in not declaring that by virtue of the authority conferred by the defendants,
agent Yulo was authorized to borrow money and invest it as he wished, without being obliged to apply it necessarily for the benefit of his principals. In the seventh assignment
of error the plaintiff alleges that the court erred in fixing the capital, which the defendants are obliged to pay him by virtue of the power of attorney executed by them, at only
P14,451.71. In the eighth and last assignment of error, he insists that the court should have ordered the defendants to pay the entire capital owed, with interest thereon in
accordance with the mortgage deed, together with 10 per cent thereof as attorney's fees, the action having been instituted due to nonfeasance on the part of the defendants.

These four assignments of errors refer to the interpretation and scope of the power of attorney and to the computation of the capital and the interest to be paid by the
defendants and, finally, to whether or not the latter are obliged to pay the fees of the attorney for the plaintiff. For this reason, this court passes upon them jointly.

The pertinent clauses of the power of attorney from which may be determined the intention of the principals in authorizing their agent to obtain a loan, securing it with their
real property, were quoted at the beginning. The terms thereof are limited; the agent was thereby authorized only to borrow any amount of money which he deemed necessary.
There is nothing, however, to indicate that the defendants had likewise authorized him to convert the money obtained by him to his personal use. With respect to a power of
attorney of special character, it cannot be interpreted as also authorizing the agent to dispose of the money as he pleased, particularly when it does not appear that such was
the intention of the principals, and in applying part of the funds to pay his personal obligations, he exceeded his authority (art. 1714, Civil Code; Bank of the Philippine Islands
vs. De Coster, 47 Phil., 594 and 49 Phil., 574). In the case like the present one, it should be understood that the agent was obliged to turn over the money to the principals or, at
least, place it at their disposal. In the case of Manila Trading & Supply Co., vs. Uy Tiepo (G.R. No. 30339, March 2, 1929, not reported), referring to a power of attorney to
borrow any amount of money in cash and to guarantee the payment thereof by the mortgage of certain property belonging to the principals, this court held that the agent
exceeded his authority in guaranteeing his personal account for automobile parts by the mortgage, not having been specially authorized to do so. This court then said:

Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and Emilio Villarosa, was only authorized to "borrow any amount of cash", and to guaranty the payment of
the sums of money so borrowed by the mortgage of the property stated in the power of attorney, he exceeded the authority conferred upon him in mortgaging his
principal's property to secure the payment of his personal debt for automobile parts, and the guaranties so made are null and void, the principals in question not
being responsible for said obligations.

The plaintiff contends that the agent's act of employing part of the loan to pay his personal debts was ratified by the defendants in their letter to him dated August 21, 1927
(Exhibit E). This court has carefully read the contents of said document and has found nothing implying ratification or approval of the agent's act. In it the defendants confined
themselves to stating that they would notify their agent of the maturity of the obligation contracted by him. They said nothing about whether or not their agent was authorized
to use the funds obtained by him in the payment of his personal obligations.

In view of the foregoing, this court concludes that the fifth and sixth assignments of error are unfounded.

In the seventh assignment of error, the plaintiff insists that the defendants should answer for the entire loan plus the stipulated interest thereon. This court has already stated
the manner in which the agent employed the loan, according to the plaintiff. Of the loan of P28,000, the agent applied the sum of P10,188.29 to the payment of his personal
debt to the plaintiff. The balance of P17,811.71 constitutes the capital which the defendants are obliged to pay by virtue of the power conferred upon their agent and the
mortgage deed.

In connection with the stipulated interest, it appears that the capital of P17,811.71 bore interest at 12 per cent per annum from March 27, 1926, to September 30, 1936,
equivalent to P22,460.56. All the interest paid by the defendants to the plaintiff, including that which is considered as usurious, amounts to P18,138.77, so that they are still
indebted in said concept in the sum of P4,321.79. Adding this sum to the capital of P17,811.71, makes a total of P22,133.50, from which the sum of P3,000 constituting the fees
of the attorney for the defendants must be deducted, leaving a net balance of P19,133.50 which is all that the defendants must pay to the plaintiff up to said date.

The foregoing disposes of the seventh assignment of error.

In the mortgage deed the defendants bound themselves to pay the fees of the attorney for the plaintiff were to resort to the courts to foreclose the mortgage. Said fees were
fixed at 10 per cent of the capital which the defendants might owe. This penalty according to what has been stated heretofore, amounts to P1,781.17 which would have to be
added to the total amount to be paid to the plaintiff by the defendants. The court, having declared the contracts usurious, did not order the defendants to pay the penalty and
for this reason the plaintiff assigns the omission as the eighth and last assignment of alleged error. Inasmuch as the fees agreed upon are neither excessive nor unreasonable,
this court finds no good reason to disapprove it, particularly because the defendants were also granted a larger amount in the same concept.

In view of the conclusions arrived at, the motion for a new trial filed by the attorneys for the plaintiff on March 12, 1935, is denied, and the amendments to the complaint
proposed by them in their pleading of March 20 of said year are admitted.For all the foregoing reasons, the appealed judgment is modified and the defendants are ordered to,
pay jointly and severally to the plaintiff the sums of P19,133.50 and P1,781.17. Within three months they shall make payment of said two sums of money or deposit them with
the clerk of court, at the disposal of the plaintiff, upon failure to do which the real property mortgaged with the improvements thereon shall be sold at public auction and the
proceeds thereof applied to the payment of the two sums of money above-stated; without special pronouncement as to the costs of this instance. So ordered.

Avanceña, C. J., Villa-Real, Abad Santos, Diaz, and Laurel, JJ., concur.
 FIRST DIVISION

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

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

Las Pinas, September 24, 1992.1

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

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

Subsequently, Quilatan, through counsel, sent a formal letter of demand2 to petitioner for failure to settle her obligation. Quilatan executed a complaint affidavit 3 against
petitioner before the Office of the Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315, paragraph 1(b)4 of the Revised Penal Code was filed
against petitioner, which was raffled to Branch 255 of the Regional Trial Court of Las Pinas. The information alleged:

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

CONTRARY TO LAW.5

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

Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of jewelriy; 7 that at the start, petitioner was prompt in settling her obligation;
however, subsequently the payments were remitted late;8 that petitioner still owed her in the amount of P424,750.00. 9

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

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

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

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the
penalty provided under the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the maximum period plus one (1) year for every
additional P10,000.00.

Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of
prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to
suffer the accessory penalties provided by law; and to pay the costs.

SO ORDERED.14

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

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

SO ORDERED.15

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

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN
ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.

II

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF
PETITIONER WHEN SHE FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT. 17

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

We find merit in the petition.

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

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

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

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

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

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

In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the instant case. Accused-appellant therein undertook to sell two diamond rings in
behalf of the complainant on commission basis, with the obligation to return the same in a few days if not sold. However, by reason of the fact that the rings were delivered
also for sale on commission to sub-agents who failed to account for the rings or the proceeds of its sale, accused-appellant likewise failed to make good his obligation to the
complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant of the crime charged, we held:

Where, as in the present case, the agents to whom personal property was entrusted for sale, conclusively proves the inability to return the same is solely due to malfeasance of
a subagent to whom the first agent had actually entrusted the property in good faith, and for the same purpose for which it was received; there being no prohibition to do so
and the chattel being delivered to the subagent before the owner demands its return or before such return becomes due, we hold that the first agent can not be held guilty of
estafa by either misappropriation or conversion. The abuse of confidence that is characteristic of this offense is missing under the circumstances.23

Accordingly, petitioner herein must be acquitted. The lower courts’ reliance on People v. Flores 24 and U.S. v. Panes25 to justify petitioner’s conviction is misplaced, considering
that the factual background of the cited cases differ from those which obtain in the case at bar. In Flores, the accused received a ring to sell under the condition that she would
return it the following day if not sold and without authority to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was obliged to return the jewelry he
received upon demand, but passed on the same to a sub-agent even after demand for its return had already been made. In the foregoing cases, it was held that there was
conversion or misappropriation.

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

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

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

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

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

SO ORDERED.

Davide, Jr., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 137162 January 24, 2007

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

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 respondent’s title.

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

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

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

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

Respondent has no cause of action, because Rubio has not entered into a contract of sale with her; that he has appointed his daughter Patricia Llamas to be his attorney-in-fact
and not in favor of Virginia Rubio Laygo Lim (Lim for brevity) who was the one who represented him in the sale of the disputed lots in favor of respondent; that 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 attorney’s fees. The adverse claim annotated at the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of
Alejandrino Baloloy and Bayani Baloloy are concerned[,] [is] ordered cancelled.

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

SO ORDERED.3

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

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

SO ORDERED.4

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

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

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

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

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

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

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

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

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

SO ORDERED.5

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

The issues are:

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

II

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

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

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

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

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

III

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

IV

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

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

Petitioners argue, as follows:

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

As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect, because petitioner Bayani was in the United States. There was no service of the
notice of pre-trial or order. Neither did the former counsel of record inform him. Consequently, the order declaring him in default is void, and all subsequent proceedings,
orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf of Bayani at the pre-trial conference.

Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize Virginia to transact business in his behalf pertaining to the property. The Special
Power of Attorney was constituted in favor of Llamas, and the latter was not empowered to designate a substitute attorney-in-fact. Llamas even disowned her signature
appearing on the "Joint Special Power of Attorney," which constituted Virginia as her true and lawful attorney-in-fact in selling Rubio’s properties.

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

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

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

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

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

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

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

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

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

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

There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period is reckoned from the time the party acquired knowledge of the order,
judgment or proceedings and not from the date he actually read the same."13 As aptly put by the appellate court:

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

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

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

Article 1892 of the Civil Code provides:

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

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

Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in favor of his daughter Patricia Llamas, it is clear that she is not prohibited
from appointing a substitute. By authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the limits of the authority given by her father, but she will
have to be "responsible for the acts of the sub-agent,"19 among which is precisely the sale of the subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she executed in favor of respondent is not void, but simply unenforceable, under
the second paragraph of Article 1317 of the Civil Code which reads:

Art. 1317. x x x

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

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

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

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

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

Nothing in the contract "prevents the obligation of the vendor to convey title from becoming effective" 24 or gives "the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period." 25 Petitioners 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. 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 Memorandum 5 of the OSP duly approved by the Ombudsman on November 27, 1998 which denied
petitioner's Motion for Reconsideration.6 Previously, the filing of the Information against said respondents was authorized by the May 10, 1996 Resolution 7 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 letter 12 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-P’93 entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L.
Lapid for Maintenance of Peaceful Possession, Collection of Sum of Money and Supervision of Harvest. The Complaint was signed by respondent Jose D. Jimenez, Jr., Legal
Officer of the Department of Agrarian Reform (DAR) Region III Office in San Fernando, Pampanga, as counsel for respondent Salenga; whereas respondent Eulogio M.
Mariano was the Chief Legal Officer of DAR Region III. The case was assigned to respondent Toribio E. Ilao, Jr., Provincial Adjudicator of DARAB, Pampanga.

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

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

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

Complaint Before the Ombudsman

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

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

Ombudsman’s Determination of Probable Cause

On May 10, 1996, the Ombudsman issued a Resolution20 finding cause to bring respondents to court, denying the motion to dismiss of respondent Ilao, Jr., and recommending
the filing of an Information for violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his September 16, 1996 Motion for Reconsideration and/or Re-
investigation21 which was denied through the October 3, 1996 Order. 22 Consequently, the March 17, 1997 Information 23 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 Order 26 which
recommended the dismissal of the complaint in OMB-1-94-3425 against all private respondents. Upon review, the Ombudsman approved the OSP’s recommendation on
August 21, 1998.

Petitioner’s Motion for Reconsideration27 was likewise denied by the OSP through the October 30, 1998 Memorandum 28 which was approved by the Ombudsman on
November 27, 1998. Consequently, the trial prosecutor moved orally before the Sandiganbayan for the dismissal of Criminal Case No. 23661 which was granted through the
December 11, 1998 Order.29

Thus, the instant petition is before us.

The Issues

Petitioner raises two assignments of errors, to wit:

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

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

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

Preliminary Issue: Legal Standing

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

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

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

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

Petitioner has no legal standing

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

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

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

The same concept is applied in criminal and administrative cases.

In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is clear that petitioner is not a real party in interest. Except being the
complainant, the records show that petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of the fishpond is Paciencia Regala, who
intervened in DARAB Case No. 552-P’93 through her Attorney-in-Fact Faustino Mercado in order to protect her interest. The motion for intervention filed by Faustino
Mercado, as agent of Paciencia Regala, was granted by respondent Provincial Adjudicator Ilao, Jr. through the November 15, 1993 Order in DARAB Case No. 552-P’93.

Agency cannot be further delegated

Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented a Special Power of Attorney 35 (SPA) from Faustino Mercado. However,
such SPA is unavailing for petitioner. For one, petitioner’s principal, Faustino Mercado, is an agent himself and as such cannot further delegate his agency to another.
Otherwise put, an agent cannot delegate to another the same agency. The legal maxim potestas delegata non delegare potest; a power once delegated cannot be re-delegated,
while applied primarily in political law to the exercise of legislative power, is a principle of agency. 36 For another, a re-delegation of the agency would be detrimental to the
principal as the second agent has no privity of contract with the former. In the instant case, petitioner has no privity of contract with Paciencia Regala, owner of the fishpond
and principal of Faustino Mercado.

Moreover, while the Civil Code under Article 189237 allows the agent to appoint a substitute, such is not the situation in the instant case. The SPA clearly delegates the agency
to petitioner to pursue the case and not merely as a substitute. Besides, it is clear in the aforecited Article that what is allowed is a substitute and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real party in interest in the criminal proceedings conducted by the Ombudsman
as elevated to the Sandiganbayan. He is not a party who will be benefited or injured by the results of both cases.

Petitioner: a stranger and not an injured private complainant

Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from that, not being an agent of the parties in the agrarian case, he has no locus
standi to pursue this petition. He cannot be likened to an 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 court’s directive to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed. Indeed, petitioner did not contest nor question
the August 29, 1997 Order of the graft court. Moreover, petitioner did not file any reply-affidavit in the re-investigation despite notice.

Re-investigation upon sound discretion of graft court

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

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

Second Issue: Agrarian Dispute

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

Nature of the case determined by allegations in the complaint

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

Issuance of TRO upon the sound discretion of hearing officer

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

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

Court will not review prosecutor’s determination of probable cause

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-10099 January 27, 1916

TEOFILA DEL ROSARIO DE COSTA and BERNARDO COSTA, plaintiffs-appellants,

vs.
LA BADENIA, a corporation, defendant-appellee.

Albert E. Somersille for appellant.

Williams, Ferrier and SyCip for appellee.

CARSON, J.:

The plaintiffs, Teofila del Rosario de Costa and her husband, Bernardino Costa, brought this action to recover from the defendant corporation the sum of P1,795.25 a balance
alleged to be due Teofila del Rosario de Costa as the agent of the defendant corporation for services rendered and expenses incurred in the sale of its products. The defendant
denied the claim and set up counterclaim for P55.43. Judgment having been rendered in favor of the defendant, the record is now before us on plaintiff's bill of exceptions.

The plaintiffs are residents of Legaspi, Albay, and the defendant corporation is engaged in the manufacture and sale of tobacco products with its head office in the city of
Manila. The record shows that in the year 1911 the defendant corporation, a new concern, inaugurated an extensive selling campaign for the purpose of introducing its
products to the retail trade. Celestino Aragon, a general agent of the defendant corporation, was in charged of this campaign in Albay, Sorsogon, and other provinces in the
southern end of Luzon. He established a central distributing agency or depot at Legaspi with the plaintiff, Teofila del Rosario de Costa, nominally in charge, though her
husband, Bernardino de Costa appears to have been the actual manager of the agency. The business relations between the plaintiffs and the defendant extended from February
1, 1911, to March 24, 1912, and during this time no settlement of their accounts was ever had. When Aragon, the general agent, came to Legaspi in 1911 he established his
headquarters there and took up his residence with the plaintiffs, using the lower part of their house as a store room or depository for large quantities of cigarettes and cigars.
He employed a number of persons as solicitors and paid their salaries; he paid the internal revenue fees incident to the conduct of the business in Legaspi, and also the rent of
the building in which he lived with the plaintiffs and which he made use of as the general headquarters for the agency. The record shows that business amounting to more than
P24,000 (wholesale) was done by the Legaspi agency from February 1, 1911, to March 24, 1912. All goods sent to Legaspi were charged by the head office at Manila against the
general agent, Aragon, while on the books kept by Aragon these goods were charged against the plaintiffs, and as goods were withdrawn by himself, he credited the amount of
the withdrawals to the account of the plaintiffs. The business at Legaspi appears to have been that of a distributing agency actively in charge of the plaintiffs but over which the
general agent maintained a close supervision. Goods were withdrawn from the depository at Legaspi from time to time by the general agent for shipment to other points; goods
were likewise withdrawn by plaintiffs and shipped to neighboring towns without any intervention on the part of the general agent. All accounts incident to the business were
carried on the books of Aragon. The plaintiffs do not appear to have kept a separate set of books. The account as carried on the books of Aragon, the general agent, was
between Teofila del Rosario de Costa and La Badenia, the defendant corporation. On March 24, 1912, the general agent had a settlement with the plaintiffs and acknowledged
over his signature that these books showed a balance in favor of the plaintiffs amounting to P1,795.25.

Plaintiffs' Exhibit B is a tabulated statement taken from the books of account kept by Aragon and shows in detail the whole course of the business at Legaspi from February 1,
1911, to March 24, 1912. In this statement goods received by the Legaspi agency from the factory in Manila are charged against Teofila del Rosario de Costa, while credits are
given on various items, such as, withdrawals of goods from the depository at Legaspi shipped to other towns, remittances made to the head office in Manila, money paid over
to the general agent, advertising expenses, commissions on sales, salaries of employees, and other expenses incident to the conduct of the business.

When this final settlement of accounts was had on the 24th of March, 1912, both Aragon and the plaintiff, Teofila del Rosario de Costa, confirmed it as a true statement of the
account. The defendant corporation however, refused to pay over to plaintiffs the balance of P1,795.25, claiming that plaintiffs had been improperly allowed a credit of
P1,850.68 which represented unpaid accounts due the business in Legaspi for cigars and cigarettes sold by it. If these uncollected claims are charged to the defendant
corporation a balance is left in favor of plaintiffs amounting to P1,795.25; and if charged to plaintiffs there remains a balance in favor of the defendant corporation amounting
to P55.43.

It is the contention of the defendant corporation that the plaintiffs were simply merchants who purchased the goods at fixed wholesale prices and sold them on their own
account, and that they were never employed as their agents. On the other hand plaintiffs contend that they were the agents of the defendant corporation; that they received
commissions on the sales made by the agency; and that they were authorized to extend a reasonable credit under the supervision of the general agent.

It is not clear from the record just what were the precise terms of the arrangement made by Aragon with the plaintiffs. It is not denied however, that Aragon was acting as the
general agent of the defendant corporation and that as such he was invested with authority to inaugurate and carry out a selling campaign with a view of interesting the sale of
the defendant's products in the territory assigned to him. The record does not show what limitations, if any, were placed upon his powers to act for the corporation. The
general conduct of the selling campaign intrusted to him was approved and commended by the head office, and judging from the amount of the sales the business appears to
have been a very prosperous one for the corporation.

It appears further that the head office at Manila was fully informed of plaintiffs' relations with the general agent in extending the sales of its products. Plaintiffs made direct
remittances to the head office in Manila and these remittances were credited to the account of the agency at Legaspi, and acknowledgment was made directly to the plaintiffs.
Neither the head office nor Aragon appear to have made any distinction between the business done by Aragon and that done by the plaintiffs. The purchases, sales and
remittances made by the plaintiffs do not seem to have been considered as those of an independent business concern, but rather as a part of the work of the Legaspi agency
under the control and supervision of Aragon. The fact that the defendant corporation carried the Legaspi account in the name of the general agent, Aragon, and carried no
account with the plaintiffs, would seem to negative the contention that plaintiffs were simply merchants purchasing their goods in Manila at wholesale and selling them locally
on their own account.

The active management and participation of the plaintiffs in the conduct of the business at Legaspi are fully recognized in the following letters written by the assistant manager
of the defendant corporation to one of the plaintiffs.

EXHIBIT A.

MANILA, P.I., October 9, 1911.

Mr. BERNARDINO COSTA, Legaspi, Albay.

 DEAR SIR: We have the pleasure of hereby acknowledging receipt of your two letters dated the 4th instant, in which we found enclosed two drafts, to wit:

No. 528________________c/ Ang Siliong P200

No. 1240_______________c/ Smith, Bell & Co 980

1,180

Which sum of one thousand one hundred and eighty pesos we have duly credited on the account current of Mr. Celestino Aragon.

We also acknowledge receipt of the bill of lading for the eight packages you have forwarded to us, but to date we have not received said packages. As soon as we get
then we will send you timely notice.

We are, yours very sincerely,

LA BADENIA, INC.,
__________ __________, Assistant Manager.

EXHIBIT B.

MANILA, P. I., Sept. 19, 1911.

Mr. BERNARDINO COSTA, Legaspi, Albay.

DEAR SIR: We have the pleasure of hereby acknowledging receipt of your letter dated the 12th instant, of which we have made note.

By the steamer Cebu we are sending, according to the attached invoice, 3 boxes of small cigars (cajas de tabaquitos) for the agency in your charge.

We are, yours very sincerely,

LA BADENIA, INC.,
__________ __________, Assistant Manager.

Several other letters received by the plaintiffs from the defendant corporation were offered in evidence, but the two letters just quoted are sufficient to show that the defendant
was fully aware of plaintiffs' connection with the agency at Legaspi, and recognized them as agents of the company, and clearly did not consider them as independent
merchants buying solely on their own account, but rather as subagents working under the supervision of the general agent, Aragon.

It seems equally clear that Aragon did not consider the plaintiffs as independent merchants operating on their own account, but rather as agents cooperating with him and
working under his supervision. This fact is clearly borne out by the nature of the entries made in his books of account. A reference to that statement taken from the books of
account shows that the plaintiffs were given credit on various items, such as advertising expenses, the free distribution of cigars and cigarettes for advertising purposes, freight
and carriage charges on shipments to neighboring towns, and the like, and it does not seem at all likely that plaintiffs would have been allowed credit on such items if they had
been conducting the business solely on their own account.

Aragon extended credit to certain purchasers of cigars and cigarettes and the entries made by him on his books of account show that he knew that the plaintiffs were also
extending credit to some of the purchasers of the goods shipped from Legaspi. He approved the very items now questioned when as general agent of the defendant corporation
he signed the statement of account showing a balance of P1,795.25 in favor of the plaintiffs. Aragon thereby admitted that he, at least, considered these outstanding claims as
properly chargeable against the defendant corporation, and unless the plaintiffs had been specifically authorized by him to extend credit it seems certain that he would never
have approved this balance in their favor.

It is contended that it is unreasonable that plaintiffs would have so large a balance in their favor, and that they are now merely seeking to saddle upon the defendant
corporation a lot of unpaid accounts. In view of the fact that plaintiffs are only seeking to enforce the payment of a balance admitted by the general agent of the defendant
corporation to be rightly due them, we fail to see how it can be reasonably urged that plaintiffs are attempting to saddle these unpaid claims on the defendant. The general
agent who was in control of the Legaspi business, and who was fully conversant with all of its details, clearly recognized the right of the plaintiffs to have credit on their account
for the amount of these unpaid claims. This agent had employed the plaintiffs to assist him in extending the sale of the defendant's products, and the defendant was well aware
of this fact. Certainly the only reliable source of information as to what plaintiffs' account with the defendant corporation was, is to be found in the books kept by the general
agent, Aragon. The defendant carried no account whatever with the plaintiffs, and having intrusted the entire management of the Legaspi business to Aragon, it can not now
come into court and repudiate the account confirmed by him, unless it can show that he acted beyond the scope of his authority in making the arrangement he did with the
plaintiffs. Aragon's powers as a selling agent appear to have been very broad, and there is no evidence in the record to indicate that he acted beyond his powers in conducting
the business at Legaspi as he did; and there can be no doubt that plaintiffs had been authorized by him to extend credit on behalf of the agency. There is no other reasonable
explanation of the entries made by Aragon in his books of account, and his approval of the balance in favor of the plaintiffs.

The lower court was of the opinion that the specific goods sold to the delinquent debtors, whose unpaid accounts form the basis of this litigation, had already been paid for by
the plaintiffs and that this was conclusive evidence that the plaintiffs were not acting as the agents of the defendant corporation, and that in effect, the purpose of this suit was
to recover back money already paid for the goods purchased and sold by the plaintiffs. We find ourselves unable to agree with the conclusions of the trial court in this respect.

It appears that the plan under which the business was conducted was as follows: a shipment of cigars and cigarettes was made from the Manila office and charged against the
account of the general agent, Aragon; these goods were deposited in the store room at Legaspi, and in the account carried by Aragon were charged against the plaintiffs.
Withdrawals were made from the Legaspi stock by Aragon and the plaintiffs, and credit was given the plaintiffs for the amount of the withdrawals by Aragon. Both Aragon and
the plaintiffs drew on the Legaspi stock for advertising purposes, such as the free distribution of cigars and cigarettes, and plaintiffs were credited with the value of the goods
so withdrawn. The stock on hand was being replenished from time to time by new shipments received from Manila. The plaintiffs made remittances to Manila which were
credited to the account of the Legaspi agency and this account included not only the goods sold and withdrawn from stock by the plaintiffs, but also the goods withdrawn by
Aragon. Thus evidently these remittances were not in payment of any particular shipments, but were simply payments on account and covered goods sold by Aragon as well as
those sold by the plaintiffs. Remittances were doubtless made to Manila by Aragon and credited on the agency account in the same manner. Under this method of conducting
the business a balance for or against the plaintiffs might well remain at any time, and such a balance would not be determined solely by the value of the goods withdrawn from
stock by the plaintiffs, and the amount of the remittances made by them, but would be determined by the total value of the stock of the Legaspi agency charged against the
plaintiffs and the amounts allowed them as credits; these credits would include not only the remittances made to Manila, but also goods withdrawn by Aragon, and such other
items as might constitute proper credits on the account. We do not therefore think it at all unreasonable that a balance should have remained in favor of the plaintiffs when the
settlement was made, nor do we see that the existence of such a balance would necessarily indicate that the plaintiffs had overpaid their account with the defendant
corporation.

It is further contended that the goods were charged to plaintiffs at wholesale prices, and that they were to have as profits any amounts received over and above the wholesale
cost price on the goods sold by them, and it is urged that such an arrangement indicates that they were independent merchants doing business on their own account. Even
granting that such was the arrangement made with the plaintiffs by Aragon, it does not necessarily follow that they were conducting an independent business on their own
account. As already stated, the record does not disclose what were the precise terms of arrangement made with the plaintiffs. The record does show however, that in many
instances the plaintiffs were allowed commissions on sales made by them, but whether or not these were in addition to other profits allowed them the record does not show.
Upon a careful examination of the whole record we are satisfied that plaintiffs were not conducting an independent business but were the agents of the defendant corporation
operating under the supervision of the general agent, Aragon.

For the reasons set out we are of the opinion, and so hold, that plaintiffs are entitled to the reversal of the judgment appealed from and to a judgment against La Badenia, the
defendant corporation, for the sum of P1,795.25, with legal interest thereon from August 5, 1914, the date of filing the complaint, until paid, and under their costs in both
instances.

Let judgment be entered in accordance herewith. So ordered.

Arellano, C.J., Torres, Johnson, Moreland and Trent, JJ., concur.