Art. 1868. By the contract of agency, a person binds himself to render some service or to do something in representation or on 4.
4. That the alleged confirmation advices which indicate Pearl Bank as alleged borrower of the funds
behalf of another, with the consent or authority of the latter.
G.R. No. 194128 December 7, 2011
WESTMONT INVESTMENT CORPORATION, Petitioner,
vs.
AMOS P. FRANCIA, JR., CECILIA ZAMORA, BENJAMIN FRANCIA, and PEARLBANK SECURITIES,
INC.,Respondents.
DECISION
MENDOZA, J.:
At bench is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the (1) July 27, 2010
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 84725, which affirmed with modification the September 27,
2004 Decision2 of the Regional Trial Court, Branch 56, Makati City (RTC) in Civil Case No. 01-507; and (2) its October
14, 2010 Resolution,3 which denied the motion for the reconsideration thereof.
THE FACTS:
On March 27, 2001, respondents Amos P. Francia, Jr., Cecilia Zamora and Benjamin Francia (the Francias) filed a
Complaint for Collection of Sum of Money and Damages 4 arising from their investments against petitioner Westmont
Investment Corporation (Wincorp) and respondent Pearlbank Securities Inc. (Pearlbank) before the RTC.
Wincorp and Pearlbank filed their separate motions to dismiss. 5 Both motions were anchored on the ground that the
complaint of the Francias failed to state a cause of action. On July 16, 2001, after several exchanges of pleadings, the
RTC issued an order6 dismissing the motions to dismiss of Wincorp and Pearlbank for lack of merit.
Wincorp then filed its Answer,7 while Pearlbank filed its Answer with Counterclaim and Crossclaim (against Wincorp).8
The case was set for pre-trial but before pre-trial conference could be held, Wincorp filed its Motion to Dismiss
Crossclaim9 of Pearlbank to which the latter filed an opposition.10 The RTC denied Wincorp’s motion to dismiss
crossclaim.11
The pre-trial conference was later conducted after the parties had filed their respective pre-trial briefs. The parties
agreed on the following stipulation of facts, as contained in the Pre-Trial Order12 issued by the RTC on April 17, 2002:
1. The personal and juridical circumstances of the parties meaning, the plaintiffs and both corporate
defendants;
2. That plaintiffs caused the service of a demand letter on Pearl Bank on February 13, 2001 marked as
Exhibit E;
3. Plaintiffs do not have personal knowledge as to whether or not Pearl Bank indeed borrowed the
funds allegedly invested by the plaintiff from Wincorp; and
AGENCY - ARTICLES 1868-1879
allegedly invested by the plaintiffs in Wincorp do not bear the signature or acknowledgment of Pearl
Bank. (Emphases supplied)
After several postponements requested by Wincorp, trial on the merits finally ensued. The gist of the testimony of
Amos Francia, Jr. (Amos) is as follows:
1. Sometime in 1999, he was enticed by Ms. Lalaine Alcaraz, the bank manager of Westmont Bank,
Meycauayan, Bulacan Branch, to make an investment with Wincorp, the bank’s financial investment arm, as
it was offering interest rates that were 3% to 5% higher than regular bank interest rates. Due to the promise
of a good return of investment, he was convinced to invest. He even invited his sister, Cecilia Zamora and
his brother, Benjamin Francia, to join him. Eventually, they placed their investment in the amounts of ₱
1,420,352.72 and ₱ 2,522,745.34 with Wincorp in consideration of a net interest rate of 11% over a 43-day
spread. Thereafter, Wincorp, through Westmont Bank, issued Official Receipt Nos. 470844 13 and
470845,14both dated January 27, 2000, evidencing the said transactions.15
2. When the 43-day placement matured, the Francias wanted to retire their investments but they were told
that Wincorp had no funds. Instead, Wincorp "rolled-over" their placements and issued Confirmation
Advices16 extending their placements for another 34 days. The said confirmation advices indicated the
name of the borrower as Pearlbank. The maturity values were ₱ 1,435,108.61 and ₱ 2,548,953.86 with a
due date of April 13, 2000.
3. On April 13, 2000, they again tried to get back the principal amount they invested plus interest but, again,
they were frustrated.17
4. Constrained, they demanded from Pearlbank18 their investments. There were several attempts to settle
the case, but all proved futile.
After the testimony of Amos Francia, Jr., the Francias filed their Formal Offer of Evidence. 19 Pearlbank filed its
Comment/Objection,20 while Wincorp did not file any comment or objection. After all the exhibits of the Francias were
admitted for the purposes they were offered, the Francias rested their case.
Thereafter, the case was set for the presentation of the defense evidence of Wincorp. On March 7, 2003, three (3)
days before the scheduled hearing, Wincorp filed a written motion to postpone the hearing on even date, as its
witness, Antonio T. Ong, was unavailable because he had to attend a congressional hearing. Wincorp’s substitute
witness, Atty. Nemesio Briones, was likewise unavailable due to a previous commitment in the Securities and
Exchange Commission.
The RTC denied Wincorp’s Motion to Postpone and considered it to have waived its right to present evidence. 21The
Motion for Reconsideration of Wincorp was likewise denied.22
On August 14, 2003, Pearlbank filed its Demurrer to Evidence. 23 The RTC granted the same in its Order24 dated
January 12, 2004. Hence, the complaint against Pearlbank was dismissed, while the case was considered submitted
for decision insofar as Wincorp was concerned.
On September 27, 2004, the RTC rendered a decision 25 in favor of the Francias and held Wincorp solely liable to
them. The dispositive portion thereof reads:
WHEREFORE, judgment is rendered ordering defendant Westmont Investment Corporation to pay the plaintiffs, the
following amounts:
Page 1 of 88
 1. ₱ 3,984,062.47 representing the aggregate amount of investment placements made by plaintiffs, plus
11% per annum by way of stipulated interest, to be counted from 10 March 2000 until fully paid; and
2. 10% of the above-mentioned amount as and for attorney’s fees and costs of suit.
SO ORDERED.
Wincorp then filed a motion for reconsideration, but it was denied by the RTC in its Order 26 dated November 10, 2004.
Not in conformity with the pronouncement of the RTC, Wincorp interposed an appeal with the CA, alleging the
following arguments:
I. THE REGIONAL TRIAL COURT ERRED WHEN IT HELD THAT WINCORP AS AGENT OF PLAINTIFFS-
APPELLEES WAS LIABLE TO THE LATTER NOTWITHSTANDING THE CLEAR WRITTEN AGREEMENT
TO THE CONTRARY;
II. THE REGIONAL TRIAL COURT ALSO ERRED WHEN IT HELD THAT PEARLBANK, THE ACTUAL
BORROWER AND RECIPIENT OF THE MONEY INVOLVED IS NOT LIABLE TO THE PLAINTIFFS-
APPELLEES; and
III. THE REGIONAL TRIAL COURT ERRED IN DISMISSING ALL TOGETHER THE CROSS-CLAIM OF
WINCORP AGAINST PEARLBANK.27
The CA affirmed with modification the ruling of the RTC in its July 27, 2010 Decision, the decretal portion of which
reads:
WHEREFORE, premises considered, the present Appeal is DENIED. The Decision dated 27 September 2004 of the
Regional Trial Court, Branch 56, Makati City in Civil Case No. 01-507 is hereby AFFIRMED WITH MODIFICATIONof
the awards. Defendant-appellant Wincorp is hereby ordered to pay plaintiffs-appellees the amounts of ₱ 3,984,062.47
plus 11% per annum by way of stipulated interest to be computed from 13 April 2000 until fully paid and ₱ 100,000.00
as attorney’s fees and cost of suit."
SO ORDERED.
The CA explained:
After a careful and judicious scrutiny of the records of the present case, together with the applicable laws and
jurisprudence, this Court finds defendant-appellant Wincorp solely liable to pay the amount of ₱ 3,984,062.47 plus
11% interest per annum computed from 10 March 2000 to plaintiffs-appellees.
Preliminarily, the Court will rule on the procedural issues raised to know what pieces of evidence will be considered in
this appeal.
Section 34, Rule 132 of the Rules on Evidence states that:
"The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is
offered must be specified."
A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and
strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the purpose
AGENCY - ARTICLES 1868-1879
or purposes for which the proponent is presenting the evidence. On the other hand, this allows opposing parties to
examine the evidence and object to its admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court. Evidence not formally offered during the trial
can not be used for or against a party litigant. Neither may it be taken into account on appeal.
The rule on formal offer of evidence is not a trivial matter. Failure to make a formal offer within a considerable period
of time shall be deemed a waiver to submit it. Consequently, any evidence that has not been offered shall be excluded
and rejected.
Prescinding therefrom, the very glaring conclusion is that all the documents attached in the motion for reconsideration
of the decision of the trial court and all the documents attached in the defendant-appellant’s brief filed by defendant-
appellant Wincorp cannot be given any probative weight or credit for the sole reason that the said documents
were not formally offered as evidence in the trial court because to consider them at this stage will deny the
other parties the right to rebut them.
The arguments of defendant-appellant Wincorp that the plaintiffs-appellees made an erroneous offer of evidence as
the documents were offered to prove what is contrary to its content and that they made a violation of the parol
evidence rule do not hold water.
It is basic in the rule of evidence that objection to evidence must be made after the evidence is formally offered. In
case of documentary evidence, offer is made after all the witnesses of the party making the offer have testified,
specifying the purpose for which the evidence is being offered. It is only at this time, and not at any other, that
objection to the documentary evidence may be made.
As to oral evidence, objection thereto must likewise be raised at the earliest possible time, that is, after the
objectionable question is asked or after the answer is given if the objectionable issue becomes apparent only after the
answer was given.
xxx
In the case at bench, a perusal of the records shows that the plaintiffs-appellees have sufficiently established their
cause of action by preponderance of evidence. The fact that on 27 January 2000, plaintiffs-appellees placed their
investment in the amounts of ₱ 1,420,352.72 and ₱ 2,522,754.34 with defendant-appellant Wincorp to earn a net
interest at the rate of 11% over a 43-day period was distinctly proved by the testimony of plaintiff-appellee Amos
Francia, Jr. and supported by Official Receipt Nos. 470844 and 470845 issued by defendant-appellant Wincorp
through Westmont Bank. The facts that plaintiffs-appellees failed to get back their investment after 43 days and that
their investment was rolled over for another 34 days were also established by their oral evidence and confirmed by
the Confirmation Advices issued by defendant-appellant Wincorp, which indicate that their investment already
amounted to ₱ 1,435,108.61 and ₱ 2,548,953.86 upon its maturity on 13 April 2000. Likewise, the fact that plaintiffs-
appellees’ investment was not returned to them until this date by defendant-appellant Wincorp was proved by their
evidence. To top it all, defendant-appellant Wincorp never negated these established facts because defendant-
appellant Wincorp’s claim is that it received the money of plaintiffs-appellees but it merely acted as an agent of
plaintiffs-appellees and that the actual borrower of plaintiffs-appellees’ money is defendant-appellee PearlBank.
Hence, defendant-appellant Wincorp alleges that it should be the latter who must be held liable to the plaintiffs-
appellees.
However, the contract of agency and the fact that defendant-appellee PearlBank actually received their money were
never proven. The records are bereft of any showing that defendant-appellee PearlBank is the actual borrower of the
money invested by plaintiffs-appellees as defendant-appellant Wincorp never presented any evidence to prove the
same.
Moreover, the trial court did not err in dismissing defendant-appellant Wincorp’s crossclaim as nothing in the records
supports its claim. And such was solely due to defendant-appellant Wincorp because it failed to present any scintilla
of evidence that would implicate defendant-appellee PearlBank to the transactions involved in this case. The fact that
Page 2 of 88
the name of defendant-appellee PearlBank was printed in the Confirmation Advices as the actual borrower does not
automatically makes defendant-appellee PearlBank liable to the plaintiffs-appellees as nothing therein shows that
defendant-appellee PearlBank adhered or acknowledged that it is the actual borrower of the amount specified therein.
Clearly, the plaintiffs-appellees were able to establish their cause of action against defendant-appellant Wincorp, while
the latter failed to establish its cause of action against defendant-appellee PearlBank.
Hence, in view of all the foregoing, the Court finds defendant-appellant Wincorp solely liable to pay the amount of ₱
3,984,062.47 representing the matured value of the plaintiffs-appellees’ investment as of 13 April 2000 plus 11%
interest per annum by way of stipulated interest counted from maturity date (13 April 2000).
As to the award of attorney’s fees, this Court finds that the undeniable source of the present controversy is the failure
of defendant-appellant Wincorp to return the principal amount and the interest of the investment money of plaintiffs-
appellees, thus, the latter was forced to engage the services of their counsel to protect their right. It is elementary that
when attorney’s fees is awarded, they are so adjudicated, because it is in the nature of actual damages suffered by
the party to whom it is awarded, as he was constrained to engage the services of a counsel to represent him for the
protection of his interest. Thus, although the award of attorney’s fees to plaintiffs-appellees was warranted by the
circumstances obtained in this case, this Court finds it equitable to reduce the same from 10% of the total award to a
fixed amount of ₱ 100,000.00.28
Wincorp’s Motion for Reconsideration was likewise denied by the CA in its October 14, 2010 Resolution. 29
Not in conformity, Wincorp seeks relief with this Court via this petition for review alleging that −
PLAINTIFFS-RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST WINCORP AS THE EVIDENCE ON
RECORD SHOWS THAT THE ACTUAL BENEFICIARY OF THE PROCEEDS OF THE LOAN TRANSACTIONS
WAS PEARLBANK
SUBSTANTIAL JUSTICE DICTATES THAT THE EVIDENCE PROFERRED BY WINCORP SHOULD BE
CONSIDERED TO DETERMINE WHO, AMONG THE PARTIES, ARE LIABLE TO PLAINTIFFS-RESPONDENTS 30
ISSUE
The core issue in this case is whether or not the CA is correct in finding Wincorp solely liable to pay the Francias the
amount of ₱ 3,984,062.47 plus interest of 11% per annum.
Quite clearly, the case at bench presents a factual issue.
As a rule, a petition for review under Rule 45 of the Rules of Court covers only questions of law. Questions of fact are
not reviewable and cannot be passed upon by this Court in the exercise of its power to review. The distinction
between questions of law and questions of fact is established. A question of law exists when the doubt or difference
centers on what the law is on a certain state of facts. A question of fact, on the other hand, exists if the doubt centers
on the truth or falsity of the alleged facts. 31 This being so, the findings of fact of the CA are final and conclusive and
this Court will not review them on appeal.
While it goes without saying that only questions of law can be raised in a petition for review on certiorari under Rule
45, the same admits of exceptions, namely: (1) when the findings are grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is a grave
abuse of discretion; (4) when the judgment is based on misappreciation of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings, the same are contrary to the admissions of both appellant and appellee;
(7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s
AGENCY - ARTICLES 1868-1879
main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record.32
The Court finds that no cogent reason exists in this case to deviate from the general rule.
Wincorp insists that the CA should have based its decision on the express terms, stipulations, and agreements
provided for in the documents offered by the Francias as the legal relationship of the parties was clearly spelled out in
the very documents introduced by them which indicated that it merely brokered the loan transaction between the
Francias and Pearlbank.33
Wincorp would want the Court to rule that there was a contract of agency between it and the Francias with the latter
authorizing the former as their agent to lend money to Pearlbank. According to Wincorp, the two Confirmation Advices
presented as evidence by the Francias and admitted by the court, were competent proof that the recipient of the loan
proceeds was Pearlbank.34
The Court is not persuaded.
In a contract of agency, a person binds himself to render some service or to do something in representation or on
behalf of another with the latter’s consent.35 It is said that the underlying principle of the contract of agency is to
accomplish results by using the services of others – to do a great variety of things. Its aim is to extend the personality
of the principal or the party for whom another acts and from whom he or she derives the authority to act. Its basis is
representation.36
Significantly, the elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts within the scope of his authority.37
In this case, the principal-agent relationship between the Francias and Wincorp was not duly established by evidence.
The records are bereft of any showing that Wincorp merely brokered the loan transactions between the Francias and
Pearlbank and the latter was the actual recipient of the money invested by the former. Pearlbank did not authorize
Wincorp to borrow money for it. Neither was there a ratification, expressly or impliedly, that it had authorized or
consented to said transaction.
As to Pearlbank, records bear out that the Francias anchor their cause of action against it merely on the strength of
the subject Confirmation Advices bearing the name "PearlBank" as the supposed borrower of their investments.
Apparently, the Francias ran after Pearlbank only after learning that Wincorp was reportedly bankrupt. 38 The Francias
were consistent in saying that they only dealt with Wincorp and not with Pearlbank. It bears noting that even in their
Complaint and during the pre-trial conference, the Francias alleged that they did not have any personal knowledge if
Pearlbank was indeed the recipient/beneficiary of their investments.
Although the subject Confirmation Advices indicate the name of Pearlbank as the purported borrower of the said
investments, said documents do not bear the signature or acknowledgment of Pearlbank or any of its officers. This
cannot prove the position of Wincorp that it was Pearlbank which received and benefited from the investments made
by the Francias. There was not even a promissory note validly and duly executed by Pearlbank which would in any
way serve as evidence of the said borrowing.
Another significant point which would support the stand of Pearlbank that it was not the borrower of whatever funds
supposedly invested by the Francias was the fact that it initiated, filed and pursued several cases against Wincorp,
questioning, among others, the latter’s acts of naming it as borrower of funds from investors.391avvphi1
It bears stressing too that all the documents attached by Wincorp to its pleadings before the CA cannot be given any
weight or evidentiary value for the sole reason that, as correctly observed by the CA, these documents
Page 3 of 88
were notformally offered as evidence in the trial court. To consider them now would deny the other parties the right to 2. The court erred in holding that paragraph II of the management contract (Exhibit C) suspended the period
examine and rebut them. Section 34, Rule 132 of the Rules of Court provides: of said contract.

Section 34. Offer of evidence —The court shall consider no evidence which has not been formally offered. The 3. The court erred in reversing the ruling of the trial judge, based on well-settled jurisprudence of this
purpose for which the evidence is offered must be specified. Supreme Court, that the management agreement was only suspended but not extended on account of the
war.
"The offer of evidence is necessary because it is the duty of the court to rest its findings of fact and its judgment only
and strictly upon the evidence offered by the parties. Unless and until admitted by the court in evidence for the 4. The court erred in reversing the finding of the trial judge that Nielson's action had prescribed, but
purpose or purposes for which such document is offered, the same is merely a scrap of paper barren of probative considering only the first claim and ignoring the prescriptibility of the other claims.
weight."40
Alternative Grounds:
The Court cannot, likewise, disturb the findings of the RTC and the CA as to the evidence presented by the Francias.
It is elementary that objection to evidence must be made after evidence is formally offered. 41 It appears that Wincorp
5. The court erred in holding that the period of suspension of the contract on account of the war lasted from
was given ample opportunity to file its Comment/Objection to the formal offer of evidence of the Francias but it chose
February 1942 to June 26, 1948.
not to file any.

6. Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding as damages (a) 10%
All told, the CA committed no reversible error in rendering the assailed July 27, 2010 Decision and in issuing the
of the cash dividends declared and paid in December, 1941; (b) the management fee of P2,500.00 for the
challenged October 14, 2010 Resolution.
month of January, 1942; and (c) the full contract price for the extended period of sixty months, since these
damages were neither demanded nor proved and, in any case, not allowable under the general law of
WHEREFORE, the petition is DENIED. damages.

SO ORDERED. 7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering appellee to issue
and deliver to appellant shares of stock together with fruits thereof.

8. The court erred in awarding to appellant an undetermined amount of shares of stock and/or cash, which
award cannot be ascertained and executed without further litigation.

9. The court erred in rendering judgment for attorney's fees.

G.R. No. L-21601 December 28, 1968

We are going to dwell on these grounds in the order they are presented.
NIELSON & COMPANY, INC., plaintiff-appellant,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee. 1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real nature of the
management contract entered into by and between Lepanto and Nielson, and the law that is applicable on said
contract. Lepanto now asserts for the first time and this is done in a motion for reconsideration - that the management
RESOLUTION
contract in question is a contract of agency such that it has the right to revoke and terminate the said contract, as it
did terminate the same, under the law of agency, and particularly pursuant to Article 1733 of the Old Civil Code
ZALDIVAR, J.: (Article 1920 of the New Civil Code).

Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for reconsideration is
based on two sets of grounds — the first set consisting of four principal grounds, and the second set consisting of five
alternative grounds, as follows:
Principal Grounds:
1. The court erred in overlooking and failing to apply the proper law applicable to the agency or
management contract in question, namely, Article 1733 of the Old Civil Code (Article 1920 of the new), by
virtue of which said agency was effectively revoked and terminated in 1945 when, as stated in paragraph 20
of the complaint, "defendant voluntarily ... prevented plaintiff from resuming management and operation of
said mining properties."
We have taken note that Lepanto is advancing a new theory. We have carefully examined the pleadings filed by
Lepanto in the lower court, its memorandum and its brief on appeal, and never did it assert the theory that it has the
right to terminate the management contract because that contract is one of agency which it could terminate at will.
While it is true that in its ninth and tenth special affirmative defenses, in its answer in the court below, Lepanto
pleaded that it had the right to terminate the management contract in question, that plea of its right to terminate was
not based upon the ground that the relation between Lepanto and Nielson was that of principal and agent but upon
the ground that Nielson had allegedly not complied with certain terms of the management contract. If Lepanto had
thought of considering the management contract as one of agency it could have amended its answer by stating
exactly its position. It could have asserted its theory of agency in its memorandum for the lower court and in its brief
on appeal. This, Lepanto did not do. It is the rule, and the settled doctrine of this Court, that a party cannot change his
theory on appeal — that is, that a party cannot raise in the appellate court any question of law or of fact that was not
raised in the court below or which was not within the issue made by the parties in their pleadings (Section 19, Rule 49
of the old Rules of Court, and also Section 18 of the new Rules of Court; Hautea vs. Magallon, L-20345, November

AGENCY - ARTICLES 1868-1879 Page 4 of 88

28, 1964; Northern Motors, Inc. vs. Prince Line, L-13884, February 29, 1960; American Express Co. vs. Natividad, 46
Phil. 207; Agoncillo vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil 49).
At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the proceedings, this Court
cannot sustain the same.
Lepanto contends that the management contract in question (Exhibit C) is one of cy because: (1) Nielson was to
manage and operate the mining properties and mill on behalf, and for the account, of Lepanto; and (2) Nielson was
authorized to represent Lepanto in entering, on Lepanto's behalf, into contracts for the hiring of laborers, purchase of
supplies, and the sale and marketing of the ores mined. All these, Lepanto claims, show that Nielson was, by the
terms of the contract, destined to execute juridical acts not on its own behalf but on behalf of Lepanto under the
control of the Board of Directors of Lepanto "at all times". Hence Lepanto claims that the contract is one of agency.
Lepanto then maintains that an agency is revocable at the will of the principal (Article 1733 of the Old Civil Code),
regardless of any term or period stipulated in the contract, and it was in pursuance of that right that Lepanto
terminated the contract in 1945 when it took over and assumed exclusive management of the work previously
entrusted to Nielson under the contract. Lepanto finally maintains that Nielson as an agent is not entitled to damages
since the law gives to the principal the right to terminate the agency at will.
Because of Lepanto's new theory We consider it necessary to determine the nature of the management contract —
whether it is a contract of agency or a contract of lease of services. Incidentally, we have noted that the lower court, in
the decision appealed from, considered the management contract as a contract of lease of services.
Article 1709 of the Old Civil Code, defining contract of agency, provides:
By the contract of agency, one person binds himself to render some service or do something for the account
or at the request of another.
Article 1544, defining contract of lease of service, provides:
In a lease of work or services, one of the parties binds himself to make or construct something or to render
a service to the other for a price certain.
In both agency and lease of services one of the parties binds himself to render some service to the other party.
Agency, however, is distinguished from lease of work or services in that the basis of agency is representation, while in
the lease of work or services the basis is employment. The lessor of services does not represent his employer, while
the agent represents his principal. Manresa, in his "Commentarios al Codigo Civil Español" (1931, Tomo IX, pp. 372-
373), points out that the element of representation distinguishes agency from lease of services, as follows:
Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales citamos en
las concordancias, expresan claramente esta idea de la representacion, "hacer alguna cosa por cuenta o
encargo de otra" dice nuestro Codigo; "poder de hacer alguna cosa para el mandante o en su nombre" dice
el Codigo de Napoleon, y en tales palabras aparece vivo y luminoso el concepto y la teoria de la
representacion, tan fecunda en ensenanzas, que a su sola luz es como se explican las diferencias que
separan el mandato del arrendamiento de servicios, de los contratos inominados, del consejo y de la
gestion de negocios.
En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja, en verdad, para el
dueno que remunera la labor, pero ni se le representa ni se obra en su nombre....
On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil Code has defined
the contract of agency in more explicit terms, as follows:
AGENCY - ARTICLES 1868-1879
By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
There is another obvious distinction between agency and lease of services. Agency is a preparatory contract, as
agency "does not stop with the agency because the purpose is to enter into other contracts." The most characteristic
feature of an agency relationship is the agent's power to bring about business relations between his principal and third
persons. "The agent is destined to execute juridical acts (creation, modification or extinction of relations with third
parties). Lease of services contemplate only material (non-juridical) acts." (Reyes and Puno, "An Outline of Philippine
Civil Law," Vol. V, p. 277).
In the light of the interpretations we have mentioned in the foregoing paragraphs let us now determine the nature of
the management contract in question. Under the contract, Nielson had agreed, for a period of five years, with the right
to renew for a like period, to explore, develop and operate the mining claims of Lepanto, and to mine, or mine and
mill, such pay ore as may be found therein and to market the metallic products recovered therefrom which may prove
to be marketable, as well as to render for Lepanto other services specified in the contract. We gather from the
contract that the work undertaken by Nielson was to take complete charge subject at all times to the general control of
the Board of Directors of Lepanto, of the exploration and development of the mining claims, of the hiring of a sufficient
and competent staff and of sufficient and capable laborers, of the prospecting and development of the mine, of the
erection and operation of the mill, and of the benefication and marketing of the minerals found on the mining
properties; and in carrying out said obligation Nielson should proceed diligently and in accordance with the best
mining practice. In connection with its work Nielson was to submit reports, maps, plans and recommendations with
respect to the operation and development of the mining properties, make recommendations and plans on the erection
or enlargement of any existing mill, dispatch mining engineers and technicians to the mining properties as from time
to time may reasonably be required to investigate and make recommendations without cost or expense to Lepanto.
Nielson was also to "act as purchasing agent of supplies, equipment and other necessary purchases by Lepanto,
provided, however, that no purchase shall be made without the prior approval of Lepanto; and provided further, that
no commission shall be claimed or retained by Nielson on such purchase"; and "to submit all requisition for supplies,
all constricts and arrangement with engineers, and staff and all matters requiring the expenditures of money, present
or future, for prior approval by Lepanto; and also to make contracts subject to the prior approve of Lepanto for the
sale and marketing of the minerals mined from said properties, when said products are in a suitable condition for
marketing."1
It thus appears that the principal and paramount undertaking of Nielson under the management contract was the
operation and development of the mine and the operation of the mill. All the other undertakings mentioned in the
contract are necessary or incidental to the principal undertaking — these other undertakings being dependent upon
the work on the development of the mine and the operation of the mill. In the performance of this principal undertaking
Nielson was not in any way executing juridical acts for Lepanto, destined to create, modify or extinguish business
relations between Lepanto and third persons. In other words, in performing its principal undertaking Nielson was not
acting as an agent of Lepanto, in the sense that the term agent is interpreted under the law of agency, but as one who
was performing material acts for an employer, for a compensation.
It is true that the management contract provides that Nielson would also act as purchasing agent of supplies and
enter into contracts regarding the sale of mineral, but the contract also provides that Nielson could not make any
purchase, or sell the minerals, without the prior approval of Lepanto. It is clear, therefore, that even in these cases
Nielson could not execute juridical acts which would bind Lepanto without first securing the approval of Lepanto.
Nielson, then, was to act only as an intermediary, not as an agent.
Lepanto contends that the management contract in question being one of agency it had the right to terminate the
contract at will pursuant to the provision of Article 1733 of the old Civil Code. We find, however, a proviso in the
management contract which militates against this stand of Lepanto. Paragraph XI of the contract provides:
Both parties to this agreement fully recognize that the terms of this Agreement are made possible only
because of the faith or confidence that the Officials of each company have in the other; therefore, in order to
assure that such confidence and faith shall abide and continue, NIELSON agrees that LEPANTO may
cancel this Agreement at any time upon ninety (90) days written notice, in the event that NIELSON for any
Page 5 of 88
 reason whatsoever, except acts of God, strike and other causes beyond its control, shall cease to prosecute
the operation and development of the properties herein described, in good faith and in accordance with
approved mining practice.
It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that Lepanto could not
terminate the agreement at will. Lepanto could terminate or cancel the agreement by giving notice of termination
ninety days in advance only in the event that Nielson should prosecute in bad faith and not in accordance with
approved mining practice the operation and development of the mining properties of Lepanto. Lepanto could not
terminate the agreement if Nielson should cease to prosecute the operation and development of the mining properties
by reason of acts of God, strike and other causes beyond the control of Nielson.
The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made possible only
because of the faith and confidence of the officials of each company have in the other" in paragraph XI of the
management contract does not qualify the relation between Lepanto and Nielson as that of principal and agent based
on trust and confidence, such that the contractual relation may be terminated by the principal at any time that the
principal loses trust and confidence in the agent. Rather, that phrase simply implies the circumstance that brought
about the execution of the management contract. Thus, in the annual report for 1936 2, submitted by Mr. C. A. Dewit,
President of Lepanto, to its stockholders, under date of March 15, 1937, we read the following:
To the stockholders
xxx xxx xxx
The incorporation of our Company was effected as a result of negotiations with Messrs. Nielson & Co., Inc.,
and an offer by these gentlemen to Messrs. C. I. Cookes and V. L. Lednicky, dated August 11, 1936,
reading as follows:
Messrs. Cookes and Lednicky,
Present
Re: Mankayan Copper Mines
GENTLEMEN:
After an examination of your property by our engineers, we have decided to offer as we hereby
offer to underwrite the entire issue of stock of a corporation to be formed for the purpose of taking
over said properties, said corporation to have an authorized capital of P1,750,000.00, of which
P700,000.00 will be issued in escrow to the claim-owners in exchange for their claims, and the
balance of P1,050,000.00 we will sell to the public at par or take ourselves.
The arrangement will be under the following conditions:
1. The subscriptions for cash shall be payable 50% at time of subscription and the balance
subject to the call of the Board of Directors of the proposed corporation.
2. We shall have an underwriting and brokerage commission of 10% of the P1,050,000.00 to be
sold for cash to the public, said commission to be payable from the first payment of 50% on each
subscription.
AGENCY - ARTICLES 1868-1879
3. We will bear the cost of preparing and mailing any prospectus that may be required, but no
such prospectus will be sent out until the text thereof has been first approved by the Board of
Directors of the proposed corporation.
4. That after the organization of the corporation, all operating contract be entered into between
ourselves and said corporation, under the terms which the property will be developed and mined
and a mill erected, under our supervision, our compensation to be P2,000.00 per month until the
property is put on a profitable basis and P2,500.00 per month plus 10% of the net profits for a
period of five years thereafter.
5. That we shall have the option to renew said operating contract for an additional period of five
years, on the same basis as the original contract, upon the expiration thereof.
It is understood that the development and mining operations on said property, and the erection of
the mill thereon, and the expenditures therefor shall be subject to the general control of the Board
of Directors of the proposed corporation, and, in case you accept this proposition, that a detailed
operating contract will be entered into, covering the relationships between the parties.
Yours very truly,
(Sgd.) L. R. Nielson
Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took subscriptions for One
Million Fifty Thousand Pesos (P1,050,000.00) in shares of our Company and their underwriting and
brokerage commission has been paid. More than fifty per cent of these subscriptions have been paid to the
Company in cash. The claim owners have transferred their claims to the Corporation, but the P700,000.00
in stock which they are to receive therefor, is as yet held in escrow.
Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed the Management of the
property under the control of the Board of Directors. A modification in the Management Contract was made
with the consent of all the then stockholders, in virtue of which the compensation of Messrs. Nielson & Co.,
was increased to P2,500.00 per month when mill construction began. The formal Management Contract
was not entered into until January 30, 1937.
xxx xxx xxx
Manila, March 15, 1937
(Sgd.) C. A. DeWitt President
We can gather from the foregoing statements in the annual report for 1936, and from the provision of paragraph XI of
the Management contract, that the employment by Lepanto of Nielson to operate and manage its mines was
principally in consideration of the know-how and technical services that Nielson offered Lepanto. The contract thus
entered into pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed operating contract". It
was not a contract of agency. Nowhere in the record is it shown that Lepanto considered Nielson as its agent and that
Lepanto terminated the management contract because it had lost its trust and confidence in Nielson.
The contention of Lepanto that it had terminated the management contract in 1945, following the liberation of the
mines from Japanese control, because the relation between it and Nielson was one of agency and as such it could
terminate the agency at will, is, therefore, untenable. On the other hand, it can be said that, in asserting that it had
terminated or cancelled the management contract in 1945, Lepanto had thereby violated the express terms of the
management contract. The management contract was renewed to last until January 31, 1947, so that the contract had
yet almost two years to go — upon the liberation of the mines in 1945. There is no showing that Nielson had ceased
Page 6 of 88
to prosecute the operation and development of the mines in good faith and in accordance with approved mining
practice which would warrant the termination of the contract upon ninety days written notice. In fact there was no such
written notice of termination. It is an admitted fact that Nielson ceased to operate and develop the mines because of
the war — a cause beyond the control of Nielson. Indeed, if the management contract in question was intended to
create a relationship of principal and agent between Lepanto and Nielson, paragraph XI of the contract should not
have been inserted because, as provided in Article 1733 of the old Civil Code, agency is essentially revocable at the
will of the principal — that means, with or without cause. But precisely said paragraph XI was inserted in the
management contract to provide for the cause for its revocation. The provision of paragraph XI must be given effect.
In the construction of an instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all, 3 and if some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most adequate to render it effectual. 4
It is Our considered view that by express stipulation of the parties, the management contract in question is not
revocable at the will of Lepanto. We rule that this management contract is not a contract of agency as defined in
Article 1709 of the old Civil Code, but a contract of lease of services as defined in Article 1544 of the same Code. This
contract can not be unilaterally revoked by Lepanto.
The first ground of the motion for reconsideration should, therefore, be brushed aside.
2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this Court erred, in
holding that paragraph 11 of the management contract suspended the period of said contract, in holding that the
agreement was not only suspended but was extended on account of the war, and in holding that the period of
suspension on account of the war lasted from February, 1942 to June 26, 1948. We are going to discuss these three
grounds together because they are interrelated.
In our decision we have dwelt lengthily on the points that the management contract was suspended because of the
war, and that the period of the contract was extended for a period equivalent to the time when Nielson was unable to
perform the work of mining and milling because of the adverse effects of the war on the work of mining and milling.
It is the contention of Lepanto that the happening of those events, and the effects of those events, simply suspended
the performance of the obligations by either party in the contract, but did not suspend the period of the contract, much
less extended the period of the contract.
We have conscientiously considered the arguments of Lepanto in support of these three grounds, but We are not
persuaded to reconsider the rulings that We made in Our decision.
We want to say a little more on these points, however. Paragraph II of the management contract provides as follows:
In the event of inundation, flooding of the mine, typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot, fire, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely affects the work of mining and milling;
NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of this
Agreement,the same shall remain in suspense, wholly or partially during the terms of such inability.
(Emphasis supplied)
A reading of the above-quoted paragraph II cannot but convey the idea that upon the happening of any of the events
enumerated therein, which adversely affects the work of mining and milling, the agreement is deemed suspended for
as long as Nielson is unable to perform its work of mining and milling because of the adverse effects of the happening
of the event on the work of mining and milling. During the period when the adverse effects on the work of mining and
milling exist, neither party in the contract would be held liable for non-compliance of its obligation under the contract.
In other words, the operation of the contract is suspended for as long as the adverse effects of the happening of any
of those events had impeded or obstructed the work of mining and milling. An analysis of the phraseology of the
AGENCY - ARTICLES 1868-1879
above-quoted paragraph II of the management contract readily supports the conclusion that it is the agreement, or the
contract, that is suspended. The phrase "the same" can refer to no other than the term "Agreement" which
immediately precedes it. The "Agreement" may be wholly or partially suspended, and this situation will depend on
whether the event wholly or partially affected adversely the work of mining and milling. In the instant case, the war had
adversely affected — and wholly at that — the work of mining and milling. We have clearly stated in Our decision the
circumstances brought about by the war which caused the whole or total suspension of the agreement or of the
management contract.
LEPANTO itself admits that the management contract was suspended. We quote from the brief of LEPANTO:
Probably, what Nielson meant was, it was prevented by Lepanto to assume again the management of the
mine in 1945, at the precise time when defendant was at the feverish phase of rehabilitation and although
the contract had already been suspended. (Lepanto's Brief, p. 9).
... it was impossible, as a result of the destruction of the mine, for the plaintiff to manage and operate the
same and because, as provided in the agreement, the contract was suspended by reason of the war
(Lepanto's Brief, pp. 9-10).
Clause II, by its terms, is clear that the contract is suspended in case fortuitous event or force majeure,
such as war, adversely affects the work of mining and milling. (Lepanto's Brief, p. 49).
Lepanto is correct when it said that the obligations under the contract were suspended upon the happening of any of
the events enumerated in paragraph II of the management contract. Indeed, those obligations were suspended
because the contract itself was suspended. When we talk of a contract that has been suspended we certainly mean
that the contract temporarily ceased to be operative, and the contract becomes operative again upon the happening
of a condition — or when a situation obtains — which warrants the termination of the suspension of the contract.
In Our decision We pointed out that the agreement in the management contract would be suspended when two
conditions concur, namely: (1) the happening of the event constituting a force majeure that was reasonably beyond
the control of Nielson, and (2) that the event constituting the force majeure adversely affected the work of mining and
milling. The suspension, therefore, would last not only while the event constituting the force majeure continued to
occur but also for as long as the adverse effects of the force majeure on the work of mining and milling had not been
eliminated. Under the management contract the happening alone of the event constituting the force majeure which did
not affect adversely the work of mining and milling would not suspend the period of the contract. It is only when the
two conditions concur that the period of the agreement is suspended.
It is not denied that because of the war, in February 1942, the mine, the original mill, the original power plant, the
supplies and equipment, and all installations at the Mankayan mines of Lepanto, were destroyed upon order of the
United States Army, to prevent their utilization by the enemy. It is not denied that for the duration of the war Nielson
could not undertake the work of mining and milling. When the mines were liberated from the enemy in August, 1945,
the condition of the mines, the mill, the power plant and other installations, was not the same as in February 1942
when they were ordered destroyed by the US army. Certainly, upon the liberation of the mines from the enemy, the
work of mining and milling could not be undertaken by Nielson under the same favorable circumstances that obtained
before February 1942. The work of mining and milling, as undertaken by Nielson in January, 1942, could not be
resumed by Nielson soon after liberation because of the adverse effects of the war, and this situation continued until
June of 1948. Hence, the suspension of the management contract did not end upon the liberation of the mines in
August, 1945. The mines and the mill and the installations, laid waste by the ravages of war, had to be reconstructed
and rehabilitated, and it can be said that it was only on June 26, 1948 that the adverse effects of the war on the work
of mining and milling had ended, because it was on that date that the operation of the mines and the mill was
resumed. The period of suspension should, therefore, be reckoned from February 1942 until June 26, 1948, because
it was during this period that the war and the adverse effects of the war on the work of mining and milling had lasted.
The mines and the installations had to be rehabilitated because of the adverse effects of the war. The work of
rehabilitation started soon after the liberation of the mines in August, 1945 and lasted until June 26, 1948 when, as
stated in Lepanto's annual report to its stockholders for the year 1948, "June 28, 1948 marked the official return to
operation of this company at its properties at Mankayan, Mountain Province, Philippines" (Exh. F-1).
Page 7 of 88
Lepanto would argue that if the management contract was suspended at all the suspension should cease in August of
1945, contending that the effects of the war should cease upon the liberation of the mines from the enemy. This
contention cannot be sustained, because the period of rehabilitation was still a period when the physical effects of the
war — the destruction of the mines and of all the mining installations — adversely affected, and made impossible, the
work of mining and milling. Hence, the period of the reconstruction and rehabilitation of the mines and the installations
must be counted as part of the period of suspension of the contract.
Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the mines because
soon after the liberation of the mines Nielson insisted to resume the management work, and that Nielson was under
obligation to reconstruct the mill in the same way that it was under obligation to construct the mill in 1937. This
contention is untenable. It is true that Nielson insisted to resume its management work after liberation, but this was
only for the purpose of restoring the mines, the mill, and other installations to their operating and producing condition
as of February 1942 when they were ordered destroyed. It is not shown by any evidence in the record, that Nielson
had agreed, or would have agreed, that the period of suspension of the contract would end upon the liberation of the
mines. This is so because, as found by this Court, the intention of the parties in the management contract, and as
understood by them, the management contract was suspended for as long as the adverse effects of the force majeure
on the work of mining and milling had not been removed, and the contract would be extended for as long as it was
suspended. Under the management contract Nielson had the obligation to erect and operate the mill, but not to erect
or reconstruct the mill in case of its destruction by force majeure.
It is the considered view of this court that it would not be fair to Nielson to consider the suspension of the contract as
terminated upon the liberation of the mines because then Nielson would be placed in a situation whereby it would
have to suffer the adverse effects of the war on the work of mining and milling. The evidence shows that as of January
1942 the operation of the mines under the management of Nielson was already under beneficial conditions, so much
so that dividends were already declared by Lepanto for the years 1939, 1940 and 1941. To make the management
contract immediately operative after the liberation of the mines from the Japanese, at the time when the mines and all
its installations were laid waste as a result of the war, would be to place Nielson in a situation whereby it would lose all
the benefits of what it had accomplished in placing the Lepanto mines in profitable operation before the outbreak of
the war in December, 1941. The record shows that Nielson started its management operation way back in 1936, even
before the management contract was entered into. As early as August 1936 Nielson negotiated with Messrs. C. I.
Cookes and V. L. Lednicky for the operation of the Mankayan mines and it was the result of those negotiations that
Lepanto was incorporated; that it was Nielson that helped to capitalize Lepanto, and that after the formation of the
corporation (Lepanto) Nielson immediately assumed the management of the mining properties of Lepanto. It was not
until January 30, 1937 when the management contract in question was entered into between Lepanto and Nielson
(Exhibit A).
A contract for the management and operation of mines calls for a speculative and risky venture on the part of the
manager-operator. The manager-operator invests its technical know-how, undertakes back-breaking efforts and
tremendous spade-work, so to say, in the first years of its management and operation of the mines, in the expectation
that the investment and the efforts employed might be rewarded later with success. This expected success may never
come. This had happened in the very case of the Mankayan mines where, as recounted by Mr. Lednicky of Lepanto,
various persons and entities of different nationalities, including Lednicky himself, invested all their money and failed.
The manager-operator may not strike sufficient ore in the first, second, third, or fourth year of the management
contract, or he may not strike ore even until the end of the fifth year. Unless the manager-operator strikes sufficient
quantity of ore he cannot expect profits or reward for his investment and efforts. In the case of Nielson, its corps of
competent engineers, geologists, and technicians begun working on the Mankayan mines of Lepanto since the latter
part of 1936, and continued their work without success and profit through 1937, 1938, and the earlier part of 1939. It
was only in December of 1939 when the efforts of Nielson started to be rewarded when Lepanto realized profits and
the first dividends were declared. From that time on Nielson could expect profit to come to it — as in fact Lepanto
declared dividends for 1940 and 1941 — if the development and operation of the mines and the mill would continue
unhampered. The operation, and the expected profits, however, would still be subject to hazards due to the
occurrence of fortuitous events, fires, earthquakes, strikes, war, etc., constituting force majeure, which would result in
the destruction of the mines and the mill. One of these diverse causes, or one after the other, may consume the whole
period of the contract, and if it should happen that way the manager-operator would reap no profit to compensate for
the first years of spade-work and investment of efforts and know-how. Hence, in fairness to the manager-operator, so
that he may not be deprived of the benefits of the work he had accomplished, the force majeure clause is
incorporated as a standard clause in contracts for the management and operation of mines.
AGENCY - ARTICLES 1868-1879
The nature of the contract for the management and operation of mines justifies the interpretation of the force majeure
clause, that a period equal to the period of suspension due to force majeure should be added to the original term of
the contract by way of an extension. We, therefore, reiterate the ruling in Our decision that the management contract
in the instant case was suspended from February, 1942 to June 26, 1948, and that from the latter date the contract
had yet five years to go.
3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in reversing the
finding of the trial court that Nielson's action has prescribed, by considering only the first claim and ignoring the
prescriptibility of the other claims.
This ground of the motion for reconsideration has no merit.
In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the cause of
action prescribes in ten years. 5 Inasmuch as there are different claims which accrued on different dates the
prescriptive periods for all the claims are not the same. The claims of Nielson that have been awarded by this Court
are itemized in the dispositive part of the decision.
The first item of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00, which is
equivalent to 10% of the cash dividends declared by Lepanto in December, 1941. As we have stated in Our decision,
this claim accrued on December 31, 1941, and the right to commence an action thereon started on January 1, 1942.
We declared that the action on this claim did not prescribe although the complaint was filed on February 6, 1958 — or
after a lapse of 16 years, 1 month and 5 days — because of the operation of the moratorium law.
We declared that under the applicable decisions of this Court 6 the moratorium period of 8 years, 2 months and 8 days
should be deducted from the period that had elapsed since the accrual of the cause of action to the date of the filing
of the complaint, so that there is a period of less than 8 years to be reckoned for the purpose of prescription.
This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides as follows:
Enforcement of payments of all debts and other monetary obligations payable in the Philippines, except
debts and other monetary obligations entered into in any area after declaration by Presidential Proclamation
that such area has been freed from enemy occupation and control, is temporarily suspended pending action
by the Commonwealth Government. (41 O.G. 56-57; Emphasis supplied)
Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before December 8,
1941) and those contracted subsequent to December 8, 1941 and during the Japanese occupation. Republic Act No.
342, approved on July 26, 1948, lifted the moratorium provided for in Executive Order No. 32 on pre-war (or pre-
December 8, 1941) debts of debtors who had not filed war damage claims with the United States War Damage
Commission. In other words, after the effectivity of Republic Act No. 342, the debt moratorium was limited: (1) to debts
and other monetary obligations which were contracted after December 8, 1941 and during the Japanese occupation,
and (2) to those pre-war (or pre-December 8, 1941) debts and other monetary obligations where the debtors filed war
damage claims. That was the situation up to May 18, 1953 when this Court declared Republic Act No. 342
unconstitutional.7 It has been held by this Court, however, that from March 10, 1945 when Executive Order No. 32
was issued, to May 18, 1953 when Republic Act No. 342 was declared unconstitutional — or a period of 8 years, 2
months and 8 days — the debt moratorium was in force, and had the effect of suspending the period of prescription.8
Lepanto is wrong when in its motion for reconsideration it claims that the moratorium provided for in Executive Order
No. 32 was continued by Republic Act No. 342 "only with respect to debtors of pre-war obligations or those incurred
prior to December 8, 1941," and that "the moratorium was lifted and terminated with respect to obligations incurred
after December 8, 1941."9
Page 8 of 88
This Court has held that Republic Act No. 342 does not apply to debts contracted during the war and did not lift the
moratorium in relations thereto.10 In the case of Abraham, et al. vs. Intestate Estate of Juan C. Ysmael, et al., L-
16741, Jan. 31, 1962, this Court said:
Respondents, however, contend that Republic Act No. 342, which took effect on July 26, 1948, lifted the
moratorium on debts contracted during the Japanese occupation. The court has already held that Republic
Act No. 342 did not lift the moratorium on debts contracted during the war (Uy vs. Kalaw Katigbak, G.R. No.
L-1830, Dec. 31, 1949) but modified Executive Order No. 32 as to pre-war debts, making the protection
available only to debtors who had war damage claims (Sison v. Mirasol, G.R. No. L-4711, Oct. 3, 1952).
We therefore reiterate the ruling in Our decision that the claim involved in the first item awarded to Nielson had not
prescribed.
What we have stated herein regarding the non-prescription of the cause of action of the claim involved in the first item
in the award also holds true with respect to the second item in the award, which refers to Nielson's claim for
management fee of P2,500.00 for January, 1942. Lepanto admits that this second item, like the first, is a monetary
obligation. The right of action of Nielson regarding this claim accrued on January 31, 1942.
As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not applicable. That is the
reason why in Our decision We did not discuss the question of prescription regarding these items. The claims of
Nielson involved in these items are based on the management contract, and Nielson's cause of action regarding
these claims prescribes in ten years. Corollary to Our ruling that the management contract was suspended from
February, 1942 until June 26, 1948, and that the contract was extended for five years from June 26, 1948, the right of
action of Nielson to claim for what is due to it during that period of extension accrued during the period from June 26,
1948 till the end of the five-year extension period or until June 26, 1953. And so, even if We reckon June 26, 1948 as
the starting date of the ten-year period in connection with the prescriptibility of the claims involved in items 3, 4, 5, 6
and 7 of the awards in the decision, it is obvious that when the complaint was filed on February 6, 1958 the ten-year
prescriptive period had not yet lapsed.
In Our decision We have also ruled that the right of action of Nielson against Lepanto had not prescribed because of
the arbitration clause in the Management contract. We are satisfied that there is evidence that Nielson had asked for
arbitration, and an arbitration committee had been constituted. The arbitration committee, however, failed to bring
about any settlement of the differences between Nielson and Lepanto. On June 25, 1957 counsel for Lepanto
definitely advised Nielson that they were not entertaining any claim of Nielson. The complaint in this case was filed on
February 6, 1958.
4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court "erred in awarding as
damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the management fee of P2,500.00
for the month of January 1942; and (c) the full contract price for the extended period of 60 months, since the damages
were never demanded nor proved and, in any case, not allowable under the general law on damages."
We have stated in Our decision that the original agreement in the management contract regarding the compensation
of Nielson was modified, such that instead of receiving a monthly compensation of P2,500.00 plus 10% of the net
profits from the operation of the properties for the preceding month, 11 Nielson would receive a compensation of
P2,500.00 a month, plus (1) 10% of the dividends declared and paid, when and as paid, during the period of the
contract, and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any
amount expended during the year out of surplus earnings for capital account.
It is shown that in December, 1941, cash dividends amounting to P175,000.00 was declared by Lepanto. 12 Nielson,
therefore, should receive the equivalent of 10% of this amount, or the sum of P17,500.00. We have found that this
amount was not paid to Nielson.
In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of its cash disbursement book,
allegedly for 1941, in an effort to show that this amount of P17,500.00 had been paid to Nielson. It appears, however,
AGENCY - ARTICLES 1868-1879
in this photographic copy of page 127 of the cash disbursement book that the sum of P17,500.00 was entered on
October 29 as "surplus a/c Nielson & Co. Inc." The entry does not make any reference to dividends or participation of
Nielson in the profits. On the other hand, in the photographic copy of page 89 of the 1941 cash disbursement book,
also attached to the motion for reconsideration, there is an entry for P17,500.00 on April 23, 1941 which states "Accts.
Pay. Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the participation of Nielson in the profits
based on dividends declared in April 1941 as shown in Exhibit L. But in the same Exhibit L it is not stated that any
dividend was declared in October 1941. On the contrary it is stated in Exhibit L that dividends were declared in
December 1941. We cannot entertain this piece of evidence for several reasons: (1) because this evidence was not
presented during the trial in the court below; (2) there is no showing that this piece of evidence is newly discovered
and that Lepanto was not in possession of said evidence when this case was being tried in the court below; and (3)
according to Exhibit L cash dividends of P175,000.00 were declared in December, 1941, and so the sum of
P17,500.00 which appears to have been paid to Nielson in October 1941 could not be payment of the equivalent of
10% of the cash dividends that were later declared in December, 1941.
As regards the management fee of Nielson corresponding to January, 1942, in the sum of P2,500.00, We have also
found that Nielson is entitled to be paid this amount, and that this amount was not paid by Lepanto to Nielson.
Whereas, Lepanto was able to prove that it had paid the management fees of Nielson for November and December,
1941,13 it was not able to present any evidence to show that the management fee of P2,500.00 for January, 1942 had
been paid.
It having been declared in Our decision, as well as in this resolution, that the management contract had been
extended for 5 years, or sixty months, from June 27, 1948 to June 26, 1953, and that the cause of action of Nielson to
claim for its compensation during that period of extension had not prescribed, it follows that Nielson should be
awarded the management fees during the whole period of extension, plus the 10% of the value of the dividends
declared during the said period of extension, the 10% of the depletion reserve that was set up, and the 10% of any
amount expended out of surplus earnings for capital account.
5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this Court erred in ordering Lepanto
to issue and deliver to Nielson shares of stock together with fruits thereof.
In Our decision, We declared that pursuant to the modified agreement regarding the compensation of Nielson which
provides, among others, that Nielson would receive 10% of any dividends declared and paid, when and as paid,
Nielson should be paid 10% of the stock dividends declared by Lepanto during the period of extension of the contract.
It is not denied that on November 28, 1949, Lepanto declared stock dividends worth P1,000,000.00; and on August
22, 1950, it declared stock dividends worth P2,000,000.00). In other words, during the period of extension Lepanto
had declared stock dividends worth P3,000,000.00. We held in Our decision that Nielson is entitled to receive l0% of
the stock dividends declared, or shares of stock worth P300,000.00 at the par value of P0.10 per share. We ordered
Lepanto to issue and deliver to Nielson those shares of stocks as well as all the fruits or dividends that accrued to
said shares.
In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock dividends as compensation
for its services under the management contract is a violation of the Corporation Law, and that it was not, and it could
not be, the intention of Lepanto and Nielson — as contracting parties — that the services of Nielson should be paid in
shares of stock taken out of stock dividends declared by Lepanto. We have assiduously considered the arguments
adduced by Lepanto in support of its contention, as well as the answer of Nielson in this connection, and We have
arrived at the conclusion that there is merit in the contention of Lepanto.
Section 16 of the Corporation Law, in part, provides as follows:
No corporation organized under this Act shall create or issue bills, notes or other evidence of debt, for
circulation as money, and no corporation shall issue stock or bonds except in exchange for actual cash paid
to the corporation or for: (1) property actually received by it at a fair valuation equal to the par or issued
value of the stock or bonds so issued; and in case of disagreement as to their value, the same shall be
Page 9 of 88
 presumed to be the assessed value or the value appearing in invoices or other commercial documents, as duly ordered by the director, or by the stockholders at a corporate meeting, to be divided or distributed among the
the case may be; and the burden or proof that the real present value of the property is greater than the stockholders according to their respective interests.20
assessed value or value appearing in invoices or other commercial documents, as the case may be, shall
be upon the corporation, or for (2) profits earned by it but not distributed among its stockholders or
It is Our considered view, therefore, that under Section 16 of the Corporation Law stock dividends can not be issued
members; Provided, however, That no stock or bond dividend shall be issued without the approval of
to a person who is not a stockholder in payment of services rendered. And so, in the case at bar Nielson can not be
stockholders representing not less than two-thirds of all stock then outstanding and entitled to vote at a
paid in shares of stock which form part of the stock dividends of Lepanto for services it rendered under the
general meeting of the corporation or at a special meeting duly called for the purpose.
management contract. We sustain the contention of Lepanto that the understanding between Lepanto and Nielson
was simply to make the cash value of the stock dividends declared as the basis for determining the amount of
xxx xxx xxx compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends
declared. And this conclusion of Ours finds support in the record.
No corporation shall make or declare any dividend except from the surplus profits arising from its business,
or divide or distribute its capital stock or property other than actual profits among its members or We had adverted to in Our decision that in 1940 there was some dispute between Lepanto and Nielson regarding the
stockholders until after the payment of its debts and the termination of its existence by limitation or lawful application and interpretation of certain provisions of the original contract particularly with regard to the 10%
dissolution: Provided, That banking, savings and loan, and trust corporations may receive deposits and participation of Nielson in the net profits, so that some adjustments had to be made. In the minutes of the meeting of
issue certificates of deposit, checks, drafts, and bills of exchange, and the like in the transaction of the the Board of Directors of Lepanto on August 21, 1940, We read the following:
ordinary business of banking, savings and loan, and trust corporations. (As amended by Act No. 2792, and
Act No. 3518; Emphasis supplied.)
The Chairman stated that he believed that it would be better to tie the computation of the 10% participation
of Nielson & Company, Inc. to the dividend, because Nielson will then be able to definitely compute its net
From the above-quoted provision of Section 16 of the Corporation Law, the consideration for which shares of stock participation by the amount of the dividends declared. In addition to the dividend, we have been setting up a
may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the special name depletion reserve and it does not seem fair to burden the 10% participation of Nielson with the depletion
"stock dividends" only if they are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of reserve, as the depletion reserve should not be considered as an operating expense. After a prolonged
cash or property then those shares do not fall under the category of "stock dividends". A corporation may legally issue discussion, upon motion duly made and seconded, it was —
shares of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its
indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of
RESOLVED, That the President, be, and he hereby is, authorized to enter into an agreement with Nielson &
property, because services is equivalent to property. 14 Likewise a share of stock issued in payment of indebtedness is
Company, Inc., modifying Paragraph V of management contract of January 30, 1937, effective January 1,
equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original
1940, in such a way that Nielson & Company, Inc. shall receive 10% of any dividends declared and paid,
capital stock of the corporation upon its organization, or part of the stocks issued when the increase of the
when and as paid during the period of the contract and at the end of each year, 10% of any depletion
capitalization of a corporation is properly authorized. In other words, it is the shares of stock that are originally issued
reserve that may be set up and 10% of any amount expended during the year out of surplus earnings for
by the corporation and forming part of the capital that can be exchanged for cash or services rendered, or property;
capital account. (Emphasis supplied.)
that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from the original
capitalization or from the increased capitalization. Those shares of stock may be issued to a person who is not a
stockholder, or to a person already a stockholder in exchange for services rendered or for cash or property. But a From the sentence, "The Chairman stated that he believed that it would be better to tie the computation of the 10%
share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a participation of Nielson & Company, Inc., to the dividend, because Nielson will then be able to definitely compute its
corporation. net participation by the amount of the dividends declared" the idea is conveyed that the intention of Lepanto, as
expressed by its Chairman C. A. DeWitt, was to make the value of the dividends declared — whether the dividends
were in cash or in stock — as the basis for determining the amount of compensation that should be paid to Nielson, in
A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend.
the proportion of 10% of the cash value of the dividends so declared. It does not mean, however, that the
It is, what the term itself implies, a distribution of the shares of stock of the corporation among the stockholders as
compensation of Nielson would be taken from the amount actually declared as cash dividend to be distributed to the
dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of cash, and is properly
stockholder, nor from the shares of stocks to be issued to the stockholders as stock dividends, but from the other
payable only out of surplus profits. 15 So, a stock dividend is actually two things: (1) a dividend, and (2) the enforced
assets or funds of the corporation which are not burdened by the dividends thus declared. In other words, if, for
use of the dividend money to purchase additional shares of stock at par. 16 When a corporation issues stock dividends,
example, cash dividends of P300,000.00 are declared, Nielson would be entitled to a compensation of P30,000.00,
it shows that the corporation's accumulated profits have been capitalized instead of distributed to the stockholders or
but this P30,000.00 should not be taken from the P300,000.00 to be distributed as cash dividends to the stockholders
retained as surplus available for distribution, in money or kind, should opportunity offer. Far from being a realization of
but from some other funds or assets of the corporation which are not included in the amount to answer for the cash
profits for the stockholder, it tends rather to postpone said realization, in that the fund represented by the new stock
dividends thus declared. This is so because if the P30,000.00 would be taken out from the P300,000.00 declared as
has been transferred from surplus to assets and no longer available for actual distribution. 17 Thus, it is apparent that
cash dividends, then the stockholders would not be getting P300,000.00 as dividends but only P270,000.00. There
stock dividends are issued only to stockholders. This is so because only stockholders are entitled to dividends. They
would be a dilution of the dividend that corresponds to each share of stock held by the stockholders. Similarly, if there
are the only ones who have a right to a proportional share in that part of the surplus which is declared as dividends. A
were stock dividends worth one million pesos that were declared, which means an issuance of ten million shares at
stock dividend really adds nothing to the interest of the stockholder; the proportional interest of each stockholder
the par value of ten centavos per share, it does not mean that Nielson would be given 100,000 shares. It only means
remains the same.18If a stockholder is deprived of his stock dividends - and this happens if the shares of stock forming
that Nielson should be given the equivalent of 10% of the aggregate cash value of those shares issued as stock
part of the stock dividends are issued to a non-stockholder — then the proportion of the stockholder's interest
dividends. That this was the understanding of Nielson itself is borne out by the fact that in its appeal brief Nielson
changes radically. Stock dividends are civil fruits of the original investment, and to the owners of the shares belong
urged that it should be paid "P300,000.00 being 10% of the P3,000,000.00 stock dividends declared on November 28,
the civil fruits.19
1949 and August 20, 1950...."21

The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the profits of the
We, therefore, reconsider that part of Our decision which declares that Nielson is entitled to shares of stock worth
enterprise which the corporation, by its governing agents, sets apart for ratable division among the holders of the
P300,000.00 based on the stock dividends declared on November 28, 1949 and on August 20, 1950, together with all
capital stock. It means the fund actually set aside, and declared by the directors of the corporation as dividends and
the fruits accruing thereto. Instead, We declare that Nielson is entitled to payment by Lepanto of P300,000.00 in cash,

AGENCY - ARTICLES 1868-1879 Page 10 of 88

which is equivalent to 10% of the money value of the stock dividends worth P3,000,000.00 which were declared on (7) Six hundred ninety four thousand three hundred sixty four pesos and seventy six centavos (P694,364.76),
November 28, 1949 and on August 20, 1950, with interest thereon at the rate of 6% from February 6, 1958. equivalent to 10% of the expenses for capital account during the period of extension, with legal interest thereon from
the date of the filing of the complaint;
6. In the eighth ground of its motion for reconsideration Lepanto maintains that this Court erred in awarding to Nielson
an undetermined amount of shares of stock and/or cash, which award can not be ascertained and executed without (8) Fifty thousand pesos (P50,000.00) as attorney's fees; and
further litigation.
(9) The costs.
In view of Our ruling in this resolution that Nielson is not entitled to receive shares of stock as stock dividends in
payment of its compensation under the management contract, We do not consider it necessary to discuss this ground
It is so ordered.
of the motion for reconsideration. The awards in the present case are all reduced to specific sums of money.

7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court erred in rendering judgment
or attorney's fees.
G.R. No. 143978 December 3, 2002
The matter of the award of attorney's fees is within the sound discretion of this Court. In Our decision We have stated
the reason why the award of P50,000.00 for attorney's fees is considered by this Court as reasonable. MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA, petitioners,
vs.
EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
Accordingly, We resolve to modify the decision that We rendered on December 17, 1966, in the sense that instead of
awarding Nielson shares of stock worth P300,000.00 at the par value of ten centavos (P0.10) per share based on the
stock dividends declared by Lepanto on November 28, 1949 and August 20, 1950, together with their fruits, Nielson DECISION
should be awarded the sum of P300,000.00 which is an amount equivalent to 10% of the cash value of the stock
dividends thus declared, as part of the compensation due Nielson under the management contract. The dispositive
YNARES-SANTIAGO, J.:
portion of the decision should, therefore, be amended, to read as follows:

This is a petition for review seeking to set aside the decision 1 of the Court of Appeals2 in CA-G.R. CV No. 46539,
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter in
which reversed and set aside the decision3 of the Regional Trial Court of Cebu City, Branch 22 in Civil Case No. CEB-
lieu thereof another, ordering the appellee Lepanto to pay the appellant Nielson the different amounts as specified
12740.
hereinbelow:

(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the cash dividends of December,
1941, with legal interest thereon from the date of the filing of the complaint;
(2) Two thousand five hundred pesos (P2,500.00) as management fee for January 1942, with legal interest thereon
from the date of the filing of the complaint;
(3) One hundred fifty thousand pesos (P150,000.00), representing management fees for the sixty-month period of
extension of the management contract, with legal interest thereon from the date of the filing of the complaint;
(4) One million four hundred thousand pesos (P1,400,000.00), equivalent to 10% of the cash dividends declared
during the period of extension of the management contract, with legal interest thereon from the date of the filing of the
complaint;
(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value of the stock dividends
declared on November 28, 1949 and August 20, 1950, with legal interest thereon from the date of the filing of the
complaint;
The records show that private respondents, Spouses Eduardo R. Gullas and Norma S. Gullas, were the registered
owners of a parcel of land in the Municipality of Minglanilla, Province of Cebu, measuring 104,114 sq. m., with
Transfer Certificate of Title No. 31465.4 On June 29, 1992, they executed a special power of attorney 5 authorizing
petitioners Manuel B. Tan, a licensed real estate broker,6 and his associates Gregg M. Tecson and Alexander
Saldaña, to negotiate for the sale of the land at Five Hundred Fifty Pesos (P550.00) per square meter, at a
commission of 3% of the gross price. The power of attorney was non-exclusive and effective for one month from June
29, 1992.7
On the same date, petitioner Tan contacted Engineer Edsel Ledesma, construction manager of the Sisters of Mary of
Banneaux, Inc. (hereafter, Sisters of Mary), a religious organization interested in acquiring a property in the
Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with Engineer Ledesma. Thereafter, the two men
accompanied Sisters Michaela Kim and Azucena Gaviola, representing the Sisters of Mary, to see private respondent
Eduardo Gullas in his office at the University of Visayas. The Sisters, who had already seen and inspected the land,
found the same suitable for their purpose and expressed their desire to buy it. 8 However, they requested that the
selling price be reduced to Five Hundred Thirty Pesos (P530.00) per square meter instead of Five Hundred Fifty
Pesos (P550.00) per square meter. Private respondent Eduardo Gullas referred the prospective buyers to his wife.

(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos (P53,928.88), equivalent to 10%
It was the first time that the buyers came to know that private respondent Eduardo Gullas was the owner of the
of the depletion reserve set up during the period of extension, with legal interest thereon from the date of the filing of
property. On July 3, 1992, private respondents agreed to sell the property to the Sisters of Mary, and subsequently
the complaint;
executed a special power of attorney9 in favor of Eufemia Cañete, giving her the special authority to sell, transfer and
convey the land at a fixed price of Two Hundred Pesos (P200.00) per square meter.

AGENCY - ARTICLES 1868-1879 Page 11 of 88

On July 17, 1992, attorney-in-fact Eufemia Cañete executed a deed of sale in favor of the Sisters of Mary for the price
of Twenty Million Eight Hundred Twenty Two Thousand Eight Hundred Pesos (P20,822.800.00), or at the rate of Two
Hundred Pesos (P200.00) per square meter.10 The buyers subsequently paid the corresponding taxes.11Thereafter,
the Register of Deeds of Cebu Province issued TCT No. 75981 in the name of the Sisters of Mary of Banneaux, Inc. 12
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private respondent Eduardo Gullas to claim their
commission, but the latter told them that he and his wife have already agreed to sell the property to the Sisters of
Mary. Private respondents refused to pay the broker’s fee and alleged that another group of agents was responsible
for the sale of land to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint13 against the defendants for recovery of their broker’s fee in the sum
of One Million Six Hundred Fifty Five Thousand Four Hundred Twelve and 60/100 Pesos (P1,655,412.60), as well as
moral and exemplary damages and attorney’s fees. They alleged that they were the efficient procuring cause in
bringing about the sale of the property to the Sisters of Mary, but that their efforts in consummating the sale were
frustrated by the private respondents who, in evident bad faith, malice and in order to evade payment of broker’s fee,
dealt directly with the buyer whom petitioners introduced to them. They further pointed out that the deed of sale was
undervalued obviously to evade payment of the correct amount of capital gains tax, documentary stamps and other
internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners’ claim, they were not the efficient procuring
cause in bringing about the consummation of the sale because another broker, Roberto Pacana, introduced the
property to the Sisters of Mary ahead of the petitioners. 14 Private respondents maintained that when petitioners
introduced the buyers to private respondent Eduardo Gullas, the former were already decided in buying the property
through Pacana, who had been paid his commission. Private respondent Eduardo Gullas admitted that petitioners
were in his office on July 3, 1992, but only to ask for the reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim, 15 petitioners alleged that although the Sisters of Mary knew that the subject
land was for sale through various agents, it was petitioners who introduced them to the owners thereof.
After trial, the lower court rendered judgment in favor of petitioners, the dispositive portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby rendered for the plaintiffs and against
the defendants. By virtue hereof, defendants Eduardo and Norma Gullas are hereby ordered to pay jointly and
severally plaintiffs Manuel Tan, Gregg Tecson and Alexander Saldaña;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX HUNDRED EIGHTY FOUR PESOS
(P624,684.00) as broker’s fee with legal interest at the rate of 6% per annum from the date of filing of the
complaint; and
2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney’s fees and costs of litigation.
For lack of merit, defendants’ counterclaim is hereby DISMISSED.
IT IS SO ORDERED.16
Both parties appealed to the Court of Appeals. Private respondents argued that the lower court committed errors of
fact and law in holding that it was petitioners’ efforts which brought about the sale of the property and disregarding the
previous negotiations between private respondent Norma Gullas and the Sisters of Mary and Pacana. They further
alleged that the lower court had no basis for awarding broker’s fee, attorney’s fees and the costs of litigation to
petitioners.17
AGENCY - ARTICLES 1868-1879
Petitioners, for their part, assailed the lower court’s basis of the award of broker’s fee given to them. They contended
that their 3% commission for the sale of the property should be based on the price of P55,180.420.00, or at P530.00
per square meter as agreed upon and not on the alleged actual selling price of P20,822,800.00 or at P200.00 per
square meter, since the actual purchase price was undervalued for taxation purposes. They also claimed that the
lower court erred in not awarding moral and exemplary damages in spite of its finding of bad faith; and that the
amount of P50,000.00 as attorney’s fees awarded to them is insufficient. Finally, petitioners argued that the legal
interest imposed on their claim should have been pegged at 12% per annum instead of the 6% fixed by the court. 18
The Court of Appeals reversed and set aside the lower court’s decision and rendered another judgment dismissing the
complaint.19
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE PETITIONERS ARE NOT ENTITLED
TO THE BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS DEPRIVED THE PETITIONERS OF MORAL
AND EXEMPLARY DAMAGES, ATTORNEYS’ FEES AND INTEREST IN THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real estate broker, and petitioners Gregg M. Tecson and
Alexander Saldaña are his associates. In Schmid and Oberly v. RJL Martinez Fishing Corporation, 20 we defined a
"broker" as "one who is engaged, for others, on a commission, negotiating contracts relative to property with the
custody of which he has no concern; the negotiator between other parties, never acting in his own name but in the
name of those who employed him. x x x a broker is one whose occupation is to bring the parties together, in matters
of trade, commerce or navigation." (Emphasis supplied)
During the trial, it was established that petitioners, as brokers, were authorized by private respondents to negotiate for
the sale of their land within a period of one month reckoned from June 29, 1992. The authority given to petitioners
was non-exclusive, which meant that private respondents were not precluded from granting the same authority to
other agents with respect to the sale of the same property. In fact, private respondent authorized another agent in the
person of Mr. Bobby Pacana to sell the same property. There was nothing illegal or amiss in this arrangement, per se,
considering the non-exclusivity of petitioners’ authority to sell. The problem arose when it eventually turned out that
these agents were entertaining one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents that Pacana was the one entitled to
the stipulated 3% commission is untenable, considering that it was the petitioners who were responsible for the
introduction of the representatives of the Sisters of Mary to private respondent Eduardo Gullas. Private respondents,
however, maintain that they were not aware that their respective agents were negotiating to sell said property to the
same buyer.
Private respondents failed to prove their contention that Pacana began negotiations with private respondent Norma
Gullas way ahead of petitioners. They failed to present witnesses to substantiate this claim. It is curious that Mrs.
Gullas herself was not presented in court to testify about her dealings with Pacana. Neither was Atty. Nachura who
was supposedly the one actively negotiating on behalf of the Sisters of Mary, ever presented in court.
Page 12 of 88
Private respondents’ contention that Pacana was the one responsible for the sale of the land is also unsubstantiated.
There was nothing on record which established the existence of a previous negotiation among Pacana, Mrs. Gullas
and the Sisters of Mary. The only piece of evidence that the private respondents were able to present is an undated
and unnotarized Special Power of Attorney in favor of Pacana. While the lack of a date and an oath do not necessarily
render said Special Power of Attorney invalid, it should be borne in mind that the contract involves a considerable
amount of money. Hence, it is inconsistent with sound business practice that the authority to sell is contained in an
undated and unnotarized Special Power of Attorney. Petitioners, on the other hand, were given the written authority to
sell by the private respondents.
The trial court’s evaluation of the witnesses is accorded great respect and finality in the absence of any indication that
it overlooked certain facts or circumstances of weight and influence, which if reconsidered, would alter the result of
the case.21
Indeed, it is readily apparent that private respondents are trying to evade payment of the commission which rightfully
belong to petitioners as brokers with respect to the sale. There was no dispute as to the role that petitioners played in
the transaction. At the very least, petitioners set the sale in motion. They were not able to participate in its
consummation only because they were prevented from doing so by the acts of the private respondents. In the case of
Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft (BMW) 22 we ruled that, "An agent
receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by
bringing the buyer and the seller together, even if no sale is eventually made." (Underscoring ours). Clearly, therefore,
petitioners, as brokers, should be entitled to the commission whether or not the sale of the property subject matter of
the contract was concluded through their efforts.
Having ruled that petitioners are entitled to the brokers’ commission, we should now resolve how much commission
are petitioners entitled to?
Following the stipulation in the Special Power of Attorney, petitioners are entitled to 3% commission for the sale of the
land in question. Petitioners maintain that their commission should be based on the price at which the land was
offered for sale, i.e., P530.00 per square meter. However, the actual purchase price for which the land was sold was
only P200.00 per square meter. Therefore, equity considerations dictate that petitioners’ commission must be based
on this price. To rule otherwise would constitute unjust enrichment on the part of petitioners as brokers.
In the matter of attorney’s fees and expenses of litigation, we affirm the amount of P50,000.00 awarded by the trial
court to the petitioners.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29, 2000 decision of the Court of Appeals
is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Cebu City, Branch 22, in Civil Case No.
CEB-12740 ordering private respondents Eduardo Gullas and Norma S. Gullas to pay jointly and severally petitioners
Manuel B. Tan, Gregg Tecson and Alexander Saldaña the sum of Six Hundred Twenty-Four Thousand and Six
Hundred Eighty-Four Pesos (P624,684.00) as broker’s fee with legal interest at the rate of 6% per annum from the
filing of the complaint; and the sum of Fifty Thousand Pesos (P50,000.00) as attorney’s fees and costs of litigation, is
REINSTATED.
SO ORDERED.
G.R. No. 188288 January 16, 2012
SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,
vs.
CONTINENTAL AIRLINES, INC.,
AGENCY - ARTICLES 1868-1879
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision 1 of the Special
Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and Lourdes
Viloria v. Continental Airlines, Inc.," the dispositive portion of which states:
WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding US$800.00 or its
peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997 until fully paid, [₱]100,000.00 as
moral damages, [₱]50,000.00 as exemplary damages, [₱]40,000.00 as attorney’s fees and costs of suit to plaintiffs-
appellees is hereby REVERSED and SET ASIDE.
Defendant-appellant’s counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving due course to
the complaint for sum of money and damages filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria
(Lourdes), collectively called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from the
records, below are the facts giving rise to such complaint.
On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, two
(2) round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines.
Fernando purchased the tickets at US$400.00 each from a travel agency called "Holiday Travel" and was attended to
by a certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after
Mager informed them that there were no available seats at Amtrak, an intercity passenger train service provider in the
United States. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to
San Diego on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997.
Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the
alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per
passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied his
request as the subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-
issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to reserve
two (2) seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he
saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel
on Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she had
misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully booked.
Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are non-
refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and
alleging that Mager had deluded them into purchasing the subject tickets.3
Page 13 of 88
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred
to the Customer Refund Services of Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him that
he may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two (2)
years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used
as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee.5
On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject
tickets replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was
informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He
was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be
covered by the value of his San Diego to Newark round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to
have them replaced. In addition to the dubious circumstances under which the subject tickets were issued, Fernando
claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other airlines
priced at US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March 24,
1998 letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the
money they used in the purchase of the subject tickets with legal interest from July 21, 1997 and to pay
₱1,000,000.00 as moral damages, ₱500,000.00 as exemplary damages and ₱250,000.00 as attorney’s fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets are
non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes’ name for the purchase of a round trip ticket
to Los Angeles since the same is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her
acts; (d) CAI, its employees and agents did not act in bad faith as to entitle Spouses Viloria to moral and exemplary
damages and attorney’s fees. CAI also invoked the following clause printed on the subject tickets:
3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to:
(i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s conditions of carriage and related regulations
which are made part hereof (and are available on application at the offices of carrier), except in transportation
between a place in the United States or Canada and any place outside thereof to which tariffs in force in those
countries apply.8
According to CAI, one of the conditions attached to their contract of carriage is the non-transferability and non-
refundability of the subject tickets.
The RTC’s Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are entitled to a
refund in view of Mager’s misrepresentation in obtaining their consent in the purchase of the subject tickets. 9 The
relevant portion of the April 3, 2006 Decision states:
Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in presenting to plaintiffs
spouses their booking options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendant’s agent misled
him into purchasing Continental Airlines tickets instead on the fraudulent misrepresentation that Amtrak was fully
booked. In fact, defendant Airline did not specifically denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline tickets on Ms.
Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited plaintiff
AGENCY - ARTICLES 1868-1879
Fernando’s need and told him that they must book a flight immediately or risk not being able to travel at all on the
couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for
baiting trusting customers."10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence, bound by her bad
faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether Mager was CAI’s agent
in view of CAI’s implied recognition of her status as such in its March 24, 1998 letter.
The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code provisions on
agency:
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
As its very name implies, a travel agency binds itself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter. This court takes judicial notice of the common services
rendered by travel agencies that represent themselves as such, specifically the reservation and booking of local and
foreign tours as well as the issuance of airline tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997 were no
different from those offered in any other travel agency. Defendant airline impliedly if not expressly acknowledged its
principal-agent relationship with Ms. Mager by its offer in the letter dated March 24, 1998 – an obvious attempt to
assuage plaintiffs spouses’ hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the subject tickets
within two (2) years from their date of issue when it charged Fernando with the amount of US$1,867.40 for a round
trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes’ ticket. Specifically:
Tickets may be reissued for up to two years from the original date of issue. When defendant airline still charged
plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the unused tickets when the
same were presented within two (2) years from date of issue, defendant airline exhibited callous treatment of
passengers.12
The Appellate Court’s Ruling
On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for Mager’s act in
the absence of any proof that a principal-agent relationship existed between CAI and Holiday Travel. According to the
CA, Spouses Viloria, who have the burden of proof to establish the fact of agency, failed to present evidence
demonstrating that Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s claim, the contractual
relationship between Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of Holiday
Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court held the same view.
Page 14 of 88
We do not agree. By the contract of agency, a person binds him/herself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. The elements of agency are: (1)
consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act
in relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. As the basis of agency is representation, there must be, on the part of the
principal, an actual intention to appoint, an intention naturally inferable from the principal’s words or actions. In the
same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent
such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an assumed
agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.
Agency is never presumed, neither is it created by the mere use of the word in a trade or business name. We have
perused the evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-appellees
that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of legal prism, the transaction in
issue was simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental Airlines and then,
through its employees, Mager included, sells it at a premium to clients. 13
The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was clearly printed on
the face of the subject tickets, which constitute their contract with CAI. Therefore, the grant of their prayer for a refund
would violate the proscription against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher amount of
US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no compulsion for CAI to charge the
lower amount of US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter of fixing
the prices for its services is CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating business entities to peg the premium of the
services and items which they provide at a price which they deem fit, no matter how expensive or exhorbitant said
price may seem vis-à-vis those of the competing companies. The Spouses Viloria may not intervene with the business
judgment of Continental Airlines.14
The Petitioners’ Case
In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latter’s reversal of
the RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim that CAI acted in bad
faith when it required them to pay a higher amount for a round trip ticket to Los Angeles considering CAI’s undertaking
to re-issue new tickets to them within the period stated in their March 24, 1998 letter. CAI likewise acted in bad faith
when it disallowed Fernando to use Lourdes’ ticket to purchase a round trip to Los Angeles given that there is nothing
in Lourdes’ ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform its passengers of
the terms and conditions of their contract and passengers cannot be bound by such terms and conditions which they
are not made aware of. Also, the subject contract of carriage is a contract of adhesion; therefore, any ambiguities
should be construed against CAI. Notably, the petitioners are no longer questioning the validity of the subject
contracts and limited its claim for a refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.
The Respondent’s Case
In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its willingness to issue new
tickets to them and to credit the value of the subject tickets against the value of the new ticket Fernando requested.
CAI argued that Spouses Viloria’s sole basis to claim that the price at which CAI was willing to issue the new tickets is
unconscionable is a piece of hearsay evidence – an advertisement appearing on a newspaper stating that airfares
from Manila to Los Angeles or San Francisco cost US$818.00. 15 Also, the advertisement pertains to airfares in
September 2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value of
the subject tickets for the purchase of a new one. 16 CAI likewise argued that it did not undertake to protect Spouses
Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation was to apply the value of
the subject tickets to the purchase of the newly issued tickets.
AGENCY - ARTICLES 1868-1879
With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject tickets and that the
terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity and alleged that its
representative informed Fernando that the subject tickets are non-transferable when he applied for the issuance of a
new ticket. On the other hand, the word "non-refundable" clearly appears on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency relationship
exists between them. As an independent contractor, Holiday Travel was without capacity to bind CAI.
Issues
To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses Viloria have the
right to the reliefs they prayed for, this Court deems it necessary to resolve the following issues:
a. Does a principal-agent relationship exist between CAI and Holiday Travel?
b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of
Holiday Travel’s agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the
representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the
consent of Spouse Viloria in the purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by
Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the
subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes’ ticket and in
charging a higher price for a round trip ticket to Los Angeles?
This Court’s Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
With respect to the first issue, which is a question of fact that would require this Court to review and re-examine the
evidence presented by the parties below, this Court takes exception to the general rule that the CA’s findings of fact
are conclusive upon Us and our jurisdiction is limited to the review of questions of law. It is well-settled to the point of
being axiomatic that this Court is authorized to resolve questions of fact if confronted with contrasting factual findings
of the trial court and appellate court and if the findings of the CA are contradicted by the evidence on record. 17
According to the CA, agency is never presumed and that he who alleges that it exists has the burden of proof.
Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of indubitably
demonstrating the existence of such agency.
We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday Travel is one of its
agents. Furthermore, in erroneously characterizing the contractual relationship between CAI and Holiday Travel as a
contract of sale, the CA failed to apply the fundamental civil law principles governing agency and differentiating it from
sale.
Page 15 of 88
In Rallos v. Felix Go Chan & Sons Realty Corporation, 18 this Court explained the nature of an agency and spelled out
the essential elements thereof:
Out of the above given principles, sprung the creation and acceptance of the relationship of agencywhereby one
party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the
parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.1avvphi1
Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from
the powers granted to him by his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements are
present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel would
enter into contracts of carriage with third persons on CAI’s behalf. The third element is also present as it is undisputed
that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is bound by the
contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering that
CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI
consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and
that Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter
into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters,
where it impliedly recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When
Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that
Holiday Travel is its authorized agent.
Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel the power and
authority to conclude contracts of carriage on its behalf. As clearly extant from the records, CAI recognized the validity
of the contracts of carriage that Holiday Travel entered into with Spouses Viloria and considered itself bound with
Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament to Holiday Travel’s
authority to act as its agent. This Court cannot therefore allow CAI to take an altogether different position and deny
that Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice that may
result from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in recognition of
Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will
befall an innocent party due to its injurious reliance, the failure to apply it in this case would result in gross travesty of
justice.20 Estoppel bars CAI from making such denial.
As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied from the acts of
the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority."
Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar that the CA
had branded the contractual relationship between CAI and Holiday Travel as one of sale. The distinctions between a
sale and an agency are not difficult to discern and this Court, as early as 1970, had already formulated the guidelines
that would aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v. Constantino, 21 this Court
extrapolated that the primordial differentiating consideration between the two (2) contracts is the transfer of ownership
or title over the property subject of the contract. In an agency, the principal retains ownership and control over the
property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of the objectives
for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the
delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may
do with the property as he pleases.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the company's control, the relationship between the company
and the dealer is one of agency, tested under the following criterion:
AGENCY - ARTICLES 1868-1879
"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the
establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or
agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the
attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely
as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency
to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and
has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission
upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on
Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a sale is
certainly confounding, considering that CAI is the one bound by the contracts of carriage embodied by the tickets
being sold by Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who is the party to the
contracts of carriage executed by Holiday Travel with third persons who desire to travel via Continental Airlines, and
this conclusively indicates the existence of a principal-agent relationship. That the principal is bound by all the
obligations contracted by the agent within the scope of the authority granted to him is clearly provided under Article
1910 of the Civil Code and this constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s
employees if it has been established by preponderance of evidence that the principal was also at fault or
negligent or that the principal exercise control and supervision over them.
Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the fault or negligence of
Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23CAI argues that it cannot be held
liable for the actions of the employee of its ticketing agent in the absence of an employer-employee relationship.
An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company is not completely
exonerated from any liability for the tort committed by its agent’s employees. A prior determination of the nature of the
passenger’s cause of action is necessary. If the passenger’s cause of action against the airline company is premised
on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline company’s agent, there must be
an independent showing that the airline company was at fault or negligent or has contributed to the negligence or
tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline company’s
agent has committed a tort is not sufficient to hold the airline company liable. There is no vinculum juris between the
airline company and its agent’s employees and the contractual relationship between the airline company and its agent
does not operate to create a juridical tie between the airline company and its agent’s employees. Article 2180 of the
Civil Code does not make the principal vicariously liable for the tort committed by its agent’s employees and the
principal-agency relationship per se does not make the principal a party to such tort; hence, the need to prove the
principal’s own fault or negligence.
On the other hand, if the passenger’s cause of action for damages against the airline company is based on
contractual breach or culpa contractual, it is not necessary that there be evidence of the airline company’s fault or
negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs. Gillego,24 "in an action
based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at
fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by
the carrier."
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort or
quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon
Spouses Viloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated. Apart from their
claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria
did not present evidence that CAI was a party or had contributed to Mager’s complained act either by instructing or
authorizing Holiday Travel and Mager to issue the said misrepresentation.
Page 16 of 88
It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and conditions of the
subject contracts, which Mager entered into with them on CAI’s behalf, in order to deny Spouses Viloria’s request for
a refund or Fernando’s use of Lourdes’ ticket for the re-issuance of a new one, and simultaneously claim that they are
not bound by Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim for damages and
maintaining the validity of the subject contracts. It may likewise be argued that CAI cannot deny liability as it benefited
from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations as CAI’s agent.
However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the
tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the
one who committed the tort. As this Court explained in Cangco v. Manila Railroad Co.:25
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which
the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public
policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility for
the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who are
in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code
has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral
culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed
to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of one's
agent or servants, or in the control of persons who, by reasons of their status, occupy a position of dependency with
respect to the person made liable for their conduct.26(emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant
evidence. The existence of control or supervision cannot be presumed and CAI is under no obligation to prove its
denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The
defendant is under no obligation to prove the negative averment. This Court said:
"It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff, and that if he
fails satisfactorily to show the facts upon which he bases his claim, the defendant is under no obligation to prove his
exceptions. This [rule] is in harmony with the provisions of Section 297 of the Code of Civil Procedure holding that
each party must prove his own affirmative allegations, etc."29 (citations omitted)
Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees or that CAI was
equally at fault, no liability can be imposed on CAI for Mager’s supposed misrepresentation.
III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not
entitled to a refund. Mager’s statement cannot be considered a causal fraud that would justify the annulment
of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the money they paid
for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of
the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to
restore to each other the things subject matter of the contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject
contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a
refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent.
AGENCY - ARTICLES 1868-1879
Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged
misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency, whether fraud
attended the execution of a contract is factual in nature and this Court, as discussed above, may scrutinize the
records if the findings of the CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the contract in order to secure the consent of the other." 32
Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this
Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed
by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear, and
convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent
person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the
personal conditions of the victim."34
After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been
satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria
failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria
failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the
time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them
otherwise.
This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak had assured
him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando
admitted, it was possible that during the intervening period of three (3) weeks from the time Fernando purchased the
subject tickets to the time he talked to said Amtrak employee, other passengers may have cancelled their bookings
and reservations with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud
cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under
the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have
been fair and regular."35 Spouses Viloria failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts.
Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly ratified when
Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article
1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract."
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
Page 17 of 88
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption
of the contract; or by acceptance and retention of benefits flowing therefrom. 36
Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses Viloria likewise
asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking to replace the subject tickets with
a round trip ticket from Manila to Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual breach.
Resolution, the action referred to in Article 1191, is based on the defendant’s breach of faith, a violation of the
reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court ruled
that a claim for a reimbursement in view of the other party’s failure to comply with his obligations under the contract is
one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent
remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential
elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation
stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the
defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing
the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts,
forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations
under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent
positions.39
V. Contracts cannot be rescinded for a slight or casual breach.
CAI cannot insist on the non-transferability of the subject tickets.
Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: "Do
Spouses Viloria have the right to rescind the contract on the ground of CAI’s supposed breach of its undertaking to
issue new tickets upon surrender of the subject tickets?"
Article 1191, as presently worded, states:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
AGENCY - ARTICLES 1868-1879
According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused to apply the
value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los Angeles and in requiring him to pay an
amount higher than the price fixed by other airline companies.
In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment toward the
purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased prior
to October 30, 1997)."
Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the non-transferability
of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports the position of Spouses
Viloria, that each of them can use the ticket under their name for the purchase of new tickets whether for themselves
or for some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the
purchase of a round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket in
Lourdes’ name as payment.
Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain reading of the
provision printed on the subject tickets stating that "[t]o the extent not in conflict with the foregoing carriage and other
services performed by each carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s conditions
of carriage and related regulations which are made part hereof (and are available on application at the offices of
carrier) x x x." As a common carrier whose business is imbued with public interest, the exercise of extraordinary
diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and conditions
governing their contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of
carriage to impute knowledge on its passengers of and demand compliance with a certain condition or undertaking
that is not clearly stipulated. Since the prohibition on transferability is not written on the face of the subject tickets and
CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment for
Fernando’s purchase of a new ticket.
CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is
that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making the agreement. 40 Whether a breach is
substantial is largely determined by the attendant circumstances.41
While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new ticket
is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be
considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts and
CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses Viloria’s
surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal obligation and this is
to apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and Los
Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be
for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAI’s willingness to
comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its erroneous insistence
that Lourdes’ ticket is non-transferable.
Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that
their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to
insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to
pay the difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to
allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon
their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets
may be used as a form of payment toward the purchase of another Continental ticket" 42 and there is nothing in it
Page 18 of 88
suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the WHEREFORE, premises considered, the instant Petition is DENIED.
surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy
regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and exclusive
SO ORDERED.
prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other
airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude CAI
from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and which G.R. No. 158585 December 13, 2005
does not provide Spouses Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value
of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to pay whatever is not
Amon trading corporation and juliana marketing, Petitioners,
covered by the value of the subject tickets whether or not the subject tickets are transferable or not.1avvphi1
vs.
HON. COURT OF APPEALS and TRI-REALTY DEVELOPMENT AND CONSTRUCTION
There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a higher CORPORATION,Respondents.
rate. The only evidence the petitioners presented to prove that the price of a round trip ticket between Manila and Los
Angeles at that time was only $856.00 is a newspaper advertisement for another airline company, which is
DECISION
inadmissible for being "hearsay evidence, twice removed." Newspaper clippings are hearsay if they were offered for
the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,:44
CHICO-NAZARIO, J.:
[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only inadmissible but
without any probative value at all whether objected to or not, unless offered for a purpose other than proving the truth This is an appeal by certiorari from the Decision1 dated 28 November 2002 of the Court of Appeals in CA-G.R. CV No.
of the matter asserted. In this case, the news article is admissible only as evidence that such publication does exist 60031, reversing the Decision of the Regional Trial Court of Quezon City, Branch 104, and holding petitioners Amon
with the tenor of the news therein stated.45 (citations omitted) Trading Corporation and Juliana Marketing to be solidarily liable with Lines & Spaces Interiors Center (Lines &
Spaces) in refunding private respondent Tri-Realty Development and Construction Corporation (Tri-Realty) the
amount corresponding to the value of undelivered bags of cement.
The records of this case demonstrate that both parties were equally in default; hence, none of them can seek judicial
redress for the cancellation or resolution of the subject contracts and they are therefore bound to their respective
obligations thereunder. As the 1st sentence of Article 1192 provides: The undisputed facts:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall
be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own damages. (emphasis supplied)
Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round trip
ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the subject
tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a destination
chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to pay whatever
amount is not covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his ₱17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island
Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his overdue ₱17,000.00 debt. x x x. 47
Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of a
showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad faith
and fraud and moral damages are generally not recoverable in culpa contractual except when bad faith had been
proven.48 The award of exemplary damages is likewise not warranted. Apart from the requirement that the defendant
acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral damages. 49
Private respondent Tri-Realty is a developer and contractor with projects in Bulacan and Quezon City. Sometime in
February 1992, private respondent had difficulty in purchasing cement needed for its projects. Lines & Spaces,
represented by Eleanor Bahia Sanchez, informed private respondent that it could obtain cement to its satisfaction
from petitioners, Amon Trading Corporation and its sister company, Juliana Marketing. On the strength of such
representation, private respondent proceeded to order from Sanchez Six Thousand Fifty (6,050) bags of cement from
petitioner Amon Trading Corporation, and from Juliana Marketing, Six Thousand (6,000) bags at ₱98.00/bag.
Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in advance the amount of ₱592,900.00 through
Solidbank Manager’s Check No. 0011565 payable to Amon Trading Corporation, and the amount of ₱588,000.00
payable to Juliana Marketing, through Solidbank Manager’s Check No. 0011566. A certain "Weng Chua" signed the
check vouchers for Lines & Spaces while Mrs. Sanchez issued receipts for the two manager’s checks. Private
respondent likewise paid to Lines & Spaces an advance fee for the 12,050 cement bags at the rate of ₱7.00/bag, or a
total of ₱84,350.00, in consideration of the facilitation of the orders and certainty of delivery of the same to the private
respondent. Solidbank Manager’s Check Nos. 0011565 and 0011566 were paid by Sanchez to petitioners.
There were deliveries to private respondent from Amon Trading Corporation and Juliana Marketing of 3,850 bags and
3,000 bags, respectively, during the period from April to June 1992. However, the balance of 2,200 bags from Amon
Trading Corporation and 3,000 bags from Juliana Marketing, or a total of 5,200 bags, was not delivered. Private
respondent, thus, sent petitioners written demands but in reply, petitioners stated that they have already refunded the
amount of undelivered bags of cement to Lines and Spaces per written instructions of Eleanor Sanchez.
Left high and dry, with news reaching it that Eleanor Sanchez had already fled abroad, private respondent filed this
case for sum of money against petitioners and Lines & Spaces.
Petitioners plead in defense lack of right or cause of action, alleging that private respondent had no privity of contract
with them as it was Lines & Spaces/Tri-Realty, through Mrs. Sanchez, that ordered or purchased several bags of

AGENCY - ARTICLES 1868-1879 Page 19 of 88

cement and paid the price thereof without informing them of any special arrangement nor disclosing to them that
Lines & Spaces and respondent corporation are distinct and separate entities. They added that there were purchases
or orders made by Lines & Spaces/Tri-Realty which they were about to deliver, but were cancelled by Mrs. Sanchez
and the consideration of the cancelled purchases or orders was later reimbursed to Lines & Spaces. The refund was
in the form of a check payable to Lines & Spaces.
Lines & Spaces denied in its Answer that it is represented by Eleanor B. Sanchez and pleads in defense lack of cause
of action and in the alternative, it raised the defense that it was only an intermediary between the private respondent
and petitioners.2 Soon after, though, counsel for Lines & Spaces moved to withdraw from the case for the reason that
its client was beyond contact.
On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104, found Lines & Spaces solely liable to
private respondent and absolved petitioners of any liability. The dispositive portion of the trial court’s Decision reads:
Wherefore, judgment is hereby rendered ordering defendant Lines and Spaces Interiors Center as follows: to pay
plaintiff on the complaint the amount of P47,950.00 as refund of the fee for the undelivered 5,200 bags of cement at
the rate of P7.00 per bag; the amount of P509,600.00 for the refund of the price of the 5,200 undelivered bags of
cement at P98.00 per bag; the amount of P2,000,000.00 for compensatory damages; as well as the amount of
P639,387.50 as attorney’s fees; and to pay Amon Trading and Juliana Marketing, Inc. on the crossclaim the sum of
P200,000.00 as attorney’s fees.3
Private Respondent Tri-Realty partially appealed from the trial court’s decision absolving Amon Trading Corporation
and Juliana Marketing of any liability to Tri-Realty. In the presently assailed Decision, the Court of Appeals reversed
the decision of the trial court and held petitioners Amon Trading Corporation and Juliana Marketing to be jointly and
severally liable with Lines & Spaces for the undelivered bags of cement. The Court of Appeals disposed-
WHEREFORE, premises considered, the decision of the court a quo is hereby REVERSED AND SET ASIDE, and
another one is entered ordering the following:
Defendant-appellee Amon Trading Corporation is held liable jointly and severally with defendant-appellee Lines and
Spaces Interiors Center in the amount of P215,600.00 for the refund of the price of 2,200 undelivered bags of cement.
Defendant-appellee Juliana Marketing is held liable jointly and severally with defendant-appellee Lines and Spaces
Interiors Center in the amount of P294,000.00 for the refund of the price of 3,000 undelivered bags of cement.
The defendant-appellee Lines and Spaces Interiors Center is held solely in the amount of P47,950.00 as refund of the
fee for the 5,200 undelivered bags of cement to the plaintiff-appellant Tri-Realty Development and Construction
Corporation.
The awards of compensatory damages and attorney’s fees are DELETED.
The cross claim of defendants-appellees Amon Trading Corporation and Juliana Marketing is DISMISSED for lack of
merit.
No pronouncement as to costs.4
Pained by the ruling, petitioners elevated the case to this Court via the present petition for review to challenge the
Decision and Resolution of the Court of Appeals on the following issues:
I. WHETHER OR NOT THERE WAS A CONTRACT OF AGENCY BETWEEN LINES AND SPACES INTERIOR
CENTER AND RESPONDENT;
AGENCY - ARTICLES 1868-1879
II. WHETHER OR NOT PETITIONERS AND RESPONDENT HAS PRIVITY OF CONTRACT. 5
At the focus of scrutiny is the issue of whether or not the Court of Appeals committed reversible error in ruling that
petitioners are solidarily liable with Lines & Spaces. The key to unlocking this issue is to determine whether or not
Lines & Spaces is the private respondent’s agent and whether or not there is privity of contract between petitioners
and private respondent.
We shall consider these issues concurrently as they are interrelated.
Petitioners, in their brief, zealously make a case that there was no contract of agency between Lines & Spaces and
private respondent.6 Petitioners strongly assert that they did not have a hint that Lines & Spaces and Tri-Realty are
two different and distinct entities inasmuch as Eleanor Sanchez whom they have dealt with just represented herself to
be from Lines & Spaces/Tri-Realty when she placed her order for the delivery of the bags of cement. Hence, no privity
of contract can be said to exist between petitioners and private respondent.7
Private respondent, on the other hand, goes over the top in arguing that contrary to their claim of innocence,
petitioners had knowledge that Lines & Spaces, as represented by Eleanor Sanchez, was a separate and distinct
entity from tri-realty.8 Then, too, private respondent stirs up support for its contention that contrary to petitioners' claim,
there was privity of contract between private respondent and petitioners. 9
Primarily, there was no written contract entered into between petitioners and private respondent for the delivery of the
bags of cement. As gleaned from the records, and as private respondent itself admitted in its Complaint, private
respondent agreed with Eleanor Sanchez of Lines & Spaces for the latter to source the cement needs of the former in
consideration of ₱7.00 per bag of cement. It is worthy to note that the payment in manager’s checks was made to
Eleanor Sanchez of Lines & Spaces and was not directly paid to petitioners. While the manager’s check issued by
respondent company was eventually paid to petitioners for the delivery of the bags of cement, there is obviously
nothing from the face of said manager’s check to hint that private respondent was the one making the payments.
There was likewise no intimation from Sanchez that the purchase order placed by her was for private respondent’s
benefit. The meeting of minds, therefore, was between private respondent and Eleanor Sanchez of Lines & Spaces.
This contract is distinct and separate from the contract of sale between petitioners and Eleanor Sanchez who
represented herself to be from Lines & Spaces/Tri-Realty, which, per her representation, was a single account or
entity.
The records bear out, too, Annex "A" showing a check voucher payable to Amon Trading Corporation for the 6,050
bags of cement received by a certain "Weng Chua" for Mrs. Eleanor Sanchez of Lines & Spaces, and Annex "B"
which is a check voucher bearing the name of Juliana Marketing as payee, but was received again by said "Weng
Chua." Nowhere from the face of the check vouchers is it shown that petitioners or any of their authorized
representatives received the payments from respondent company.
Also on record are the receipts issued by Lines & Spaces, signed by Eleanor Bahia Sanchez, covering the said
manager’s checks. As Engr. Guido Ganhinhin of respondent Tri-Realty testified, it was Lines & Spaces, not
petitioners, which issued to them a receipt for the two (2) manager’s checks. Thus-
Q: And what is your proof that Amon and Juliana were paid of the purchases through manager’s checks?
A: Lines & Spaces who represented Amon Trading and Juliana Marketing issued us receipts for the two (2) manager’s
checks we paid to Amon Trading and Juliana Marketing Corporation.
…
Q: I am showing to you check no. 074 issued by Lines & Spaces Interiors Center, what relation has this check to that
check you mentioned earlier?
Page 20 of 88
A: Official Receipt No. 074 issued by Lines & Spaces Interiors Center was for the P592,900.00 we paid to Amon
Trading Corporation for 6,050 bags of cement.
Q: Now there appears a signature in that receipt above the printed words authorized signature, whose signature is
that?
A: The signature of Mrs. Eleanor Bahia Sanchez, the representative of Lines and Spaces.
Q: Why do you know that that is her signature?
A: She is quite familiar with me and I saw her affix her signature upon issuance of the receipt. 10 (Emphasis supplied.)
Without doubt, no vinculum could be said to exist between petitioners and private respondent.
There is likewise nothing meaty about the assertion of private respondent that inasmuch as the delivery receipts as
well as the purchase order were for the account of Lines & Spaces/Tri-Realty, then petitioners should have been
placed on guard that it was private respondent which is the principal of Sanchez. In China Banking Corp. v. Members
of the Board of Trustees, Home Development Mutual Fund 11 and the later case of Romulo, Mabanta, Buenaventura,
Sayoc and De los Angeles v. Home Development Mutual Fund,12 the term "and/or" was held to mean that effect shall
be given to both the conjunctive "and" and the disjunctive "or"; or that one word or the other may be taken accordingly
as one or the other will best effectuate the intended purpose. It was accordingly ordinarily held that in using the term
"and/or" the word "and" and the word "or" are to be used interchangeably.
By analogy, the words "Lines & Spaces/Tri-Realty" mean that effect shall be given to both Lines & Spaces and Tri-
Realty or that Lines & Spaces and Tri-Realty may be used interchangeably. Hence, petitioners were not remiss when
they believed Eleanor Sanchez’s representation that "Lines & Spaces/Tri-Realty" refers to just one entity. There was,
therefore, no error attributable to petitioners when they refunded the value of the undelivered bags of cement to Lines
& Spaces only.
There is likewise a dearth of evidence to show that the case at bar is an open-and-shut case of agency between
private respondent and Lines & Spaces. Neither Eleanor Sanchez nor Lines & Spaces was an agent for private
respondent, but rather a supplier for the latter’s cement needs. The Civil Code defines a contract of agency as
follows:
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc. v. Court of Appeals,13 the Court decreed
from Article 1868 that the basis of agency is representation.
. . . On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his
words or actions and on the part of the agent, there must be an intention to accept the appointment and act on it, and
in the absence of such intent, there is generally no agency. One factor which most clearly distinguishes agency from
other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come to connote control by the principal. The control factor, more than
any other, has caused the courts to put contracts between principal and agent in a separate category.
Here, the intention of private respondent, as the Executive Officer of respondent corporation testified on, was merely
for Lines & Spaces, through Eleanor Sanchez, to supply them with the needed bags of cement.
Q: Do you know the defendant Lines & Spaces in this case?
AGENCY - ARTICLES 1868-1879
A: Yes, sir.
Q: How come you know this defendant?
A: Lines & Spaces represented by Eleanor Bahia Sanchez offered to supply us cement when there was scarcity of
cement experienced in our projects.14 (Emphasis supplied)
We cannot go along the Court of Appeals’ disquisition that Amon Trading Corporation and Juliana Marketing should
have required a special power of attorney form when they refunded Eleanor B. Sanchez the cost of the undelivered
bags of cement. All the quibbling about whether Lines & Spaces acted as agent of private respondent is inane
because as illustrated earlier, petitioners took orders from Eleanor Sanchez who, after all, was the one who paid them
the manager’s checks for the purchase of cement. Sanchez represented herself to be from Lines & Spaces/Tri-Realty,
purportedly a single entity. Inasmuch as they have never directly dealt with private respondent and there is no paper
trail on record to guide them that the private respondent, in fact, is the beneficiary, petitioners had no reason to doubt
the request of Eleanor Sanchez later on to refund the value of the undelivered bags of cement to Lines & Spaces.
Moreover, the check refund was payable to Lines & Spaces, not to Sanchez, so there was indeed no cause to
suspect the scheme.
The fact that the deliveries were made at the construction sites of private respondent does not by itself raise suspicion
that petitioners were delivering for private respondent. There was no sufficient showing that petitioners knew that the
delivery sites were that of private respondent and for another thing, the deliveries were made by petitioners’ men who
have no business nosing around their client’s affairs.
Parenthetically, Eleanor Sanchez has absconded to the United States of America and the story of what happened to
the check refund may be forever locked with her. Lines & Spaces, in its Answer to the Complaint, washed its hands of
the apparent ruse perpetuated by Sanchez, but argues that if at all, it was merely an intermediary between petitioners
and private respondent. With no other way out, Lines & Spaces was a no-show at the trial proceedings so that
eventually, its counsel had to withdraw his appearance because of his client’s vanishing act. Left with an empty bag,
so to speak, private respondent now puts the blame on petitioners. But this Court finds plausible the stance of
petitioners that they had no inkling of the deception that was forthcoming. Indeed, without any contract or any hard
evidence to show any privity of contract between it and petitioners, private respondent’s claim against petitioners
lacks legal foothold.
Considering the vagaries of the case, private respondent brought the wrong upon itself. As adeptly surmised by the
trial court, between petitioners and private respondent, it is the latter who had made possible the wrong that was
perpetuated by Eleanor Sanchez against it so it must bear its own loss. It is in this sense that we must apply the
equitable maxim that "as between two innocent parties, the one who made it possible for the wrong to be done should
be the one to bear the resulting loss." 15 First, private respondent was the one who had reposed too much trust on
Eleanor Sanchez for the latter to source its cement needs. Second, it failed to employ safety nets to steer clear of the
rip-off. For such huge sums of money involved in this case, it is surprising that a corporation such as private
respondent would pay its construction materials in advance instead of in credit thus opening a window of opportunity
for Eleanor Sanchez or Lines & Spaces to pocket the remaining balance of the amount paid corresponding to the
undelivered materials. Private respondent likewise paid in advance the commission of Eleanor Sanchez for the
materials that have yet to be delivered so it really had no means of control over her. Finally, there is no paper trail
linking private respondent to petitioners thereby leaving the latter clueless that private respondent was their true
client. Private respondent should have, at the very least, required petitioners to sign the check vouchers or to issue
receipts for the advance payments so that it could have a hold on petitioners. In this case, it was the representative of
Lines & Spaces who signed the check vouchers. For its failure to establish any of these deterrent measures, private
respondent incurred the risk of not being able to recoup the value of the materials it had paid good money for.
WHEREFORE, the present petition is hereby GRANTED. Accordingly, the Decision and the Resolution dated 28
November 2002 and 10 June 2003, of the Court of Appeals in CA-G.R CV No. 60031, are
hereby REVERSED and SET ASIDE. The Decision dated 29 January 1998 of the Regional Trial Court of Quezon City,
Branch 104, in Civil Case Q-92-14235 is hereby REINSTATED. No costs.
Page 21 of 88
SO ORDERED. In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines,
including any United States military installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger transportation. The services to be performed
by Orient Air Services shall include:

(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used exclusively for
the transaction of the business of American;

G.R. No. 76931 May 29, 1991 (c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs. (d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents. Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and
G.R. No. 76933 May 29, 1991
(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, In connection with scheduled or non-scheduled air passenger transportation within the United States,
INCORPORATED,respondents. neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to
be performed hereunder for American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air passenger transportation
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc. to be performed within the United States by other scheduled air carriers provided American does not
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc. provide substantially equivalent schedules between the points involved.

xxx xxx xxx

4. Remittances
PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision1 of the Court of Appeals in CA-
G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision2 of the Regional Trial Court of Manila, Branch IV, which dismissed the
complaint and granted therein defendant's counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering passenger
and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives (hereinafter referred
to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby
the former authorized the latter to act as its exclusive general sales agent within the Philippines for the sale of air
passenger transportation. Pertinent provisions of the agreement are reproduced, to wit:
WITNESSETH
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less
commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on
the 15th and last days of each month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or
on exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the
property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to
American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or
its sub-agents as follows:

AGENCY - ARTICLES 1868-1879 Page 22 of 88

 (a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air
Services or its sub-agents over American's services and any connecting through air transportation, when
made on American's ticket stock, equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation between points other
than those described above: 8% or such other rate(s) as may be prescribed by the International
Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding commission of 3%
of the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or
its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement
or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it
ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and
American may, without prejudice to any of its rights under this Agreement, take possession of any ticket
forms, exchange orders, traffic material or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air
Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control
in the event of any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to
transfer to the United States the funds payable by Orient Air Services to American under this Agreement.
Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter,
telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly
remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40, American
Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith the
AGENCY - ARTICLES 1868-1879
Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American
Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with
Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for
the termination of the Agreement as well as therein defendant's previous record of failures "to promptly settle past
outstanding refunds of which there were available funds in the possession of the defendant, . . . to the damage and
prejudice of plaintiff."5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the
complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after application thereof
to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions. Further, the defendant contended that the actions taken by American Air in the course of terminating the
Agreement as well as the termination itself were untenable, Orient Air claiming that American Air's precipitous conduct
had occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in its
favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant
and against plaintiff dismissing the complaint and holding the termination made by the latter as affecting the
GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales agent
for passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is ordered to
pay defendant the balance of the overriding commission on total flown revenue covering the period from
March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing from January 1, 1981
until such reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the counterclaim up to the time of payment.
Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986,
affirmed the findings of the court a quo on their material points but with some modifications with respect to the
monetary awards granted. The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per
month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim
was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
Page 23 of 88
 5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and arguing
for its reversal. The appellate court's decision was also the subject of a Motion for Partial Reconsideration by Orient
Air which prayed for the restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion and with respect to that of
Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's
award of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned.
The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the
payment of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on the date of actual payment.9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in G.R.
No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this Court dated 25 March 1987 both
petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. It is
the stand of American Air that such commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding commission of 3%
of the tariff fees and charges for all sales of transportation over American's services by Orient Air
Services or itssub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to appoint
any sub-agents, it is American Air's contention that Orient Air can claim entitlement to the disputed overriding
commission based only on ticketed sales. This is supposed to be the clear meaning of the underscored portion of the
above provision. Thus, to be entitled to the 3% overriding commission, the sale must be made by Orient Air and the
sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the total
revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are
necessarily by Orient Air."11
AGENCY - ARTICLES 1868-1879
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions.12 The various stipulations in the contract must be read
together to give effect to all.13 After a careful examination of the records, the Court finds merit in the contention of
Orient Air that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to the 3%
overriding commission based on total revenue, or as referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and
marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In return for
such efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales agency commission,
ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air ticket stock; and
second, an overriding commission of 3% of tariff fares and charges for all sales of passenger transportation over
American Air services. It is immediately observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions would accrue for sales of American Air
services made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding commissions
to sales from American Air ticket stock would erase any distinction between the two (2) types of commissions and
would lead to the absurd conclusion that the parties had entered into a contract with meaningless provisions. Such an
interpretation must at all times be avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air was the party
responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the ambiguity and could have avoided it by
the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the obscurity. 14 To put it differently, when several
interpretations of a provision are otherwise equally proper, that interpretation or construction is to be adopted which is
most favorable to the party in whose favor the provision was made and who did not cause the ambiguity. 15 We
therefore agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against
the party who drafted it.16
We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court, on this
issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the
Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is
entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise, therefore, for
the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to an
overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss or in default
of its obligations under the Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly
justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the Agreement
was, therefore, without cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of exemplary
damages and attorney's fees. This Court sees no error in such modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial
court.1âwphi1We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its
general sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement."
Page 24 of 88
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its
personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a 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 . 17 (emphasis supplied) In an agent-principal relationship,
the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only
be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The
Agreement itself between the parties states that "either party may terminate the Agreementwithout cause by giving the
other 30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside the portion of the
ruling of the respondent appellate court reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the respondent
Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against petitioner American Air.
SO ORDERED.
G.R. No. 117356 June 19, 2000
VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court
of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution of
September 30, 1994 modifying said decision. Both decision and resolution amended the judgment dated February 13,
1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC).
In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of
purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR
No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per
sales order VMC Marketing No. 042 dated October 16, 1989." 1 The transaction it covered was a "direct sale." 2The
SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO
(warehouse)."3
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No.
1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated November
AGENCY - ARTICLES 1868-1879
13, 1989 in payment. That same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar
covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority from
STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-
Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags." 4
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The
latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in
payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to
withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar
against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M
had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's
warehouse despite the fact that only 2,000 bags had been withdrawn. 5 CSC thus inquired when it would be allowed to
withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No.
1214M because STM had already dwithdrawn all the sugar covered by the cleared checks. 6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had
been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner
also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No.
1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants
were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the
former could not be served with summons, the case proceeded only against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through
summons.7 CSC, however, did not bother to pursue its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the
latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000
bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as
exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. 8 Since STM had already
drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further
delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts
issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the
sugar to the party specified therein and did not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through
a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC
be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages;
and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it
P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
Page 25 of 88
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows: The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM
involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the
capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against
25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly
defendant Victorias Milling Company:
unwithdrawn.

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:
under SLDR No. 1214;

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits,
the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the
acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00, as attorney's "1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
fees, plus the costs.
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar,
"SO ORDERED."9 as attorneys fees;

It made the following observations: "3) Pay the costs of suit.

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of "SO ORDERED."11
the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00
for the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of
Both parties then seasonably filed separate motions for reconsideration.
the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October 27,
1989 issued by St. Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000
bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to In its resolution dated September 30, 1994, the appellate court modified its decision to read:
the account of Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official
receipt no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The
"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:
testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant Victorias
Milling Company showing the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no.
issued to cover the purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with "(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
respect to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared'
appearing under the column of 'status of payment.'
"(2) Pay costs of suit.

"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of
sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only
by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the
testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and
is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the
postdated checks issued by the buyer in payment of the purchased price were dishonored. However, said witness
failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any
bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the
sugar covered by SLDR No. 1214 were dishonored."10
Petitioner appealed the trial court’s decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only
one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could
withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to
STM and since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was already
precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and
independent transactions and that the details of the series of purchases were contained in a single statement with a
consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient
system than issuing separate statements for each purchase.
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit ‘F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be
made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for
which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom
the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its
argument that Exhibit ‘F' which was offered to prove that checks in the total amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586
bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17
October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn only 2,000
bags of sugar from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p.
78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter
to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other
hand, alleged that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar
corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions.

AGENCY - ARTICLES 1868-1879 Page 26 of 88

It did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely
because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar
depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point." 13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing
petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for
and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar
for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No.
1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan &
Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an assignee of
SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be
an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).
"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and
undisputed facts which, had they been considered, would have shown that petitioner was not liable, except
for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable Court.
"3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil
Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those
from two or more distinct contracts between the same parties; and erred in denying petitioner's right to
setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private
respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69
bags, because the law on compensation applies precisely to two or more distinct contracts between the
same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. ‘F’
between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by
silence for almost one year did not render Exh. `F' an account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely,
(a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented STM or private respondent from acquiring title to the
sugar; and the non-availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from
seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor." 14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence,
estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction
under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M
was a conditional sale or a contract to sell and hence freed petitioner from further obligations.
AGENCY - ARTICLES 1868-1879
(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands
doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal.1avvphi1 It is
settled that an issue which was not raised during the trial in the court below could not be raised for the first time on
appeal as to do so would be offensive to the basic rules of fair play, justice, and due process. 15 Nonetheless, the Court
of Appeals opted to address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to
show that the latter was STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress
supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October
16, 1989 in the total quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. 17 On the part of the principal, there must be an
actual intention to appoint18 or an intention naturally inferable from his words or actions;19 and on the part of the agent,
there must be an intention to accept the appointment and act on it, 20 and in the absence of such intent, there is
generally no agency.21 One factor which most clearly distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word
"agency" has come to connote control by the principal. 22 The control factor, more than any other, has caused the
courts to put contracts between principal and agent in a separate category. 23 The Court of Appeals, in finding that
CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no
presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the persons alleging
the agency, to show not only the fact of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51
O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the existence of an agency relation between
plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for
and in our (STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be viewed
in the context of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being
its agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990,
plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM
(Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR
No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-
appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without need of joining
its imputed principal STM as co-plaintiff."24
In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an
agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract is one of
sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language
employed.25 That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish
an agency. Ultimately, what is decisive is the intention of the parties. 26 That no agency was meant to be established by
the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and
endorsed" to it.27 The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale,
and not an agency. Hence, on this score, no error was committed by the respondent appellate court when it held that
CSC was not STM's agent and could independently sue petitioner.
Page 27 of 88
On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are
but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid purchases,
pursuant to Article 1279 of the Civil Code.28 However, the trial court found, and the Court of Appeals concurred, that
the purchase of sugar covered by SLDR No. 1214M was a separate and independent transaction; it was not a serial
part of a single transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without
being rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had
the obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner
and CSC, as assignee of STM, were not mutually creditors and debtors of each other. No reversible error could
thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the
present case.

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

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

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

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

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

SO ORDERED.

AGENCY - ARTICLES 1868-1879 Page 28 of 88

AGENCY - ARTICLES 1868-1879 Page 29 of 88
AGENCY - ARTICLES 1868-1879 Page 30 of 88
AGENCY - ARTICLES 1868-1879 Page 31 of 88
AGENCY - ARTICLES 1868-1879 Page 32 of 88
 Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

G.R. No. 102784 February 28, 1996

ROSA LIM, petitioner,

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

AGENCY - ARTICLES 1868-1879 Page 33 of 88

DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled "People v. Rosa
Lim," promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch 92 of the
Regional Trial Court of Quezon City.1 The Information reads:
That on or about the 8th day of October 1987, in Quezon City, Philippines and within the jurisdiction of this
Honorable Court, the said accused with intent to gain, with unfaithfulness and/or abuse of confidence, did,
then and there, wilfully, unlawfully and feloniously defraud one VICTORIA SUAREZ, in the following
manner, to wit: on the date and place aforementioned said accused got and received in trust from said
complainant one (1) ring 3.35 solo worth P169,000.00, Philippine Currency, with the obligation to sell the
same on commission basis and to turn over the proceeds of the sale to said complainant or to return said
jewelry if unsold, but the said accused once in possession thereof and far from complying with her
obligation despite repeated demands therefor, misapplied, misappropriated and converted the same to her
own personal use and benefit, to the damage and prejudice of the said offended party in the amount
aforementioned and in such other amount as may be awarded under the provisions of the Civil Code.
CONTRARY TO LAW.2
After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as defined and
penalized under Article 315, paragraph 1(b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS
of prision correccional as minimum, to TEN (10) YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the amount of
P169,000 without subsidiary imprisonment in case insolvency; and
4. To pay costs.3
On appeal, the Court of Appeals affirmed the judgment of conviction with the modification that the penalty imposed
shall be six (6) years, eight (8) months and twenty-one (21) days to twenty (20) years in accordance with Article 315,
paragraph 1 of the Revised Penal Code.4
Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but the motion was
denied in a Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the following grounds:
I turn over the proceeds thereof if sold. As a result, private complainant, aside from making verbal demands, wrote a
AGENCY - ARTICLES 1868-1879
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT AND THE
DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED
ERRORS IN PETITIONER'S BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL EVIDENCE RULE
WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER AND
AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED BY THE COUNSEL FOR THE
PETITIONER AS TO THE TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES WHEREIN IT
WAS DISCLOSED THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF JEWELRIES AND
NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH WAS RELIED UPON
BY THE RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN
PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE ENUNCIATED BY THIS
HONORABLE COURT TO THE EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE PROSECUTION MUST OVERTHROW THE
PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE DOUBT. TO MEET
THIS STANDARD, THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE TESTIMONY OF
THE STATE, BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE IS
OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD
ARRIVE AT A CONCLUSION THAT THE CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON
ON TRIAL UNDER SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT EVERY
INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST SURVIVE THE TEST
OF REASON; THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO SWAY JUDGMENT.
(People v. Austria, 195 SCRA 700)5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private respondent Victoria
Suarez the following two pieces of jewelry; one (1) 3.35 carat diamond ring worth P169,000.00 and one (1) bracelet
worth P170,000.00, to be sold on commission basis. The agreement was reflected in a receipt marked as Exhibit
"A"6 for the prosecution. The transaction took place at the Sir Williams Apartelle in Timog Avenue, Quezon City, where
Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the diamond ring or to
demand letter7 to petitioner asking for the return of said ring or the proceeds of the sale thereof. In response,
petitioner, thru counsel, wrote a letter8 to private respondent's counsel alleging that Rosa Lim had returned both ring
Page 34 of 88
and bracelet to Vicky Suarez sometime in September, 1987, for which reason, petitioner had no longer any liability to
Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a complaint for estafa under
Article 315, par l(b) of the Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together with one Aurelia
Nadera, who introduced petitioner to private respondent, and that they were lodged at the Williams Apartelle in Timog,
Quezon City. Petitioner denied that the transaction was for her to sell the two pieces of jewelry on commission basis.
She told Mrs. Suarez that she would consider buying the pieces of jewelry far her own use and that she would inform
the private complainant of such decision before she goes back to Cebu. Thereafter, the petitioner took the pieces of
jewelry and told Mrs. Suarez to prepare the "necessary paper for me to sign because I was not yet prepare (d) to buy
it."9 After the document was prepared, petitioner signed it. To prove that she did not agree to the terms of the receipt
regarding the sale on commission basis, petitioner insists that she signed the aforesaid document on the upper
portion thereof and not at the bottom where a space is provided for the signature of the person(s) receiving the
jewelry. 10
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in order to inform her
that she was no longer interested in the ring and bracelet. Mrs. Suarez replied that she was busy at the time and so,
she instructed the petitioner to give the pieces of jewelry to Aurelia Nadera who would in turn give them back to the
private complainant. The petitioner did as she was told and gave the two pieces of jewelry to Nadera as evidenced by
a handwritten receipt, dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky Suarez a contract
of agency to sell on commission basis as set out in the receipt or a sale on credit; and, second, was the subject
diamond ring returned to Mrs. Suarez through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in trust or on
commission basis from Vicky Suarez. The real agreement between her and the private respondent was a sale on
credit with Mrs. Suarez as the owner-seller and petitioner as the buyer, as indicated by the bet that petitioner did not
sign on the blank space provided for the signature of the person receiving the jewelry but at the upper portion thereof
immediately below the description of the items taken. 12
The contention is far from meritorious.
The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission basis between Vicky
Suarez and Rosa Lim is herein reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap kay
___________ the following jewelries:
ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
l ring 3.35 dolo P 169,000.00
1 bracelet 9;170,000.00
total P 339,000.00
Kabuuan
AGENCY - ARTICLES 1868-1879
in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt na nasa
mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw mula ng
ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned above; if I would be able
to sell, I shall immediately deliver and account the whole proceeds of sale thereof to the owner of
the jewelries at his/her residence; my compensation or commission shall be the over-price on the
value of each jewelry quoted above. I am prohibited to sell any jewelry on credit or by installment;
deposit, give for safekeeping: lend, pledge or give as security or guaranty under any
circumstance or manner, any jewelry to other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong
nakatala sa itaas; kung maipagbili ko naman ay dagli kong isusulit at ibibigay ang buong
pinagbilhan sa may-ari ng mga alahas sa kanyang bahay tahanan; ang aking gantimpala ay ang
mapapahigit na halaga sa nakatakdang halaga sa itaas ng bawat alahas HINDI ko
ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang alin mang alahas, ilalagak,
ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa anong paraan ang alin mang alahas
sa ibang mga tao o tao.
I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito ngayong ika
_____ ng dito sa Maynila.
___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . . .
Rosa Lim's signature indeed appears on the upper portion of the receipt immediately below the description of the
items taken: We find that this fact does not have the effect of altering the terms of the transaction from a contract of
agency to sell on commission basis to a contract of sale. Neither does it indicate absence or vitiation of consent
thereto on the part of Rosa Lim which would make the contract void or voidable. The moment she affixed her
signature thereon, petitioner became bound by all the terms stipulated in the receipt. She, thus, opened herself to all
the legal obligations that may arise from their breach. This is clear from Article 1356 of the New Civil Code which
provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. . . .
However, there are some provisions of the law which require certain formalities for particular contracts. The first is
when the form is required for the validity of the contract; the second is when it is required to make the contract
effective as against third parties such as those mentioned in Articles 1357 and 1358; and the third is when the form is
required for the purpose of proving the existence of the contract, such as those provided in the Statute of Frauds in
article 1403. 13 A contract of agency to sell on commission basis does not belong to any of these three categories,
hence it is valid and enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the law strictly prescribes the location of the signature of
the parties thereto. This is in the case of notarial wills found in Article 805 of the Civil Code, to wit:
Page 35 of 88
 Every will, other than a holographic will, must be subscribed at the end thereof by the testator himself . . . .
The testator or the person requested by him to write his name and the instrumental witnesses of the will,
shall also sign, as aforesaid, each and every page thereof, except the last, on the left margin. . . .
In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on commission
basis, thus making the position of petitioner's signature thereto immaterial.
thereby committing conversion, a clear breach of trust, punishable under Article 315, par. 1(b), Revised
Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we should not interfere with the judgment
of the trial court in determining the credibility of witnesses, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked or the significance of which has been
misinterpreted. The reason is that the trial court is in a better position to determine questions involving credibility
having heard the witnesses and having observed their deportment and manner of testifying during the trial. 18

Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia Nadera, thus
Article 315, par. 1(b) of the Revised Penal Code provides:
relieving her of any liability. Rosa Lim testified to this effect on direct examination by her counsel:

Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
Q: And when she left the jewelries with you, what did you do thereafter?
hereinbelow shall be punished by:
A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed her that I
am no longer interested in the bracelet and ring and that I will just return it.
Q: And what was the reply of Vicky Suarez? xxx xxx xxx
A: She told me that she could not come to the apartelle since she was very busy. So, she asked me if
Aurelia was there and when I informed her that Aurelia was there, she instructed me to give the pieces of
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal
jewelry to Aurelia who in turn will give it back to Vicky.
property received by the offender in trust or on commission, or for administration, or under any other
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
obligation involving the duty to make delivery of or to return the same, even though such obligation be
A: Yes, Your Honor. 14
totally or partially guaranteed by a bond; or by denying having received such money, goods, or other
property.
This was supported by Aurelia Nadera in her direct examination by petitioner's counsel:
xxx xxx xxx
Q: Do you know if Rosa Lim in fact returned the jewelries?
A: She gave the jewelries to me.
The elements of estafa with abuse of confidence under this subdivision are as follows. (1) That money, goods, or
Q: Why did Rosa Lim give the jewelries to you?
other personal property be received by the offender in trust, or on commission, or for administration, or under any
A: Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she was going
other obligation involving the duty to make delivery of, or to return, the same; (2) That there be misappropriation or
home to Cebu and asked if she could give the jewelries to me.
conversion of such money or property by the offender or denial on his part of such receipt; (3) That such
Q: And when did Rosa Lim give to you the jewelries?
misappropriation or conversion or denial is to the prejudice of another; and (4) That there is a demand made by the
A: Before she left for Cebu. 15
offended party to the offender (Note: The 4th element is not necessary when there is evidence of misappropriation of
the goods by the defendant) 19
On rebuttal, these testimonies were belied by Vicky Suarez herself:
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are present in the case at
Q: It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave authorization to bench. First, the receipt marked as Exhibit "A" proves that petitioner Rosa Lim received the pieces of jewelry in trust
Rosa Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit "A" to Aurelia Nadera, what can from Vicky Suarez to be sold on commission basis. Second, petitioner misappropriated or converted the jewelry to her
you say about that? own use; and, third, such misappropriation obviously caused damage and prejudice to the private respondent.

A: That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the amount of WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby AFFIRMED.
P140,000.00, so if I gave it to Nadera, I will be exposing myself to a high risk. 16<
Costs against petitioner.
The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not determined
mathematically by the numerical superiority of the witnesses testifying to a given fact. It depends upon its practical
SO ORDERED.
effect in inducing belief on the part of the judge trying the case. 17 In the case at bench, both the trial court and the
Court of Appeals gave weight to the testimony of Vicky Suarez that she did not authorize Rosa Lim to return the
pieces of jewelry to Nadera. The respondent court, in affirming the trial court, said:

. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It contravenes the G.R. No. L-9608 August 7, 1915
very terms of Exhibit A. The instruction by the complaining witness to appellant to deliver the ring to Aurelia
Nadera is vehemently denied by the complaining witness, who declared that she did not authorize and/or
DIEGO LIÑAN, plaintiff-appellee,
instruct appellant to do so. And thus, by delivering the ring to Aurelia without the express authority and
vs.
consent of the complaining witness, appellant assumed the right to dispose of the jewelry as if it were hers,
MARCOS P. PUNO, ET AL., defendants-appellants.

AGENCY - ARTICLES 1868-1879 Page 36 of 88

Mariano Escueta for appellants.
S. Lopez for appellee.
JOHNSON, J.:
The facts upon which the decision in this case depends are as follows:
(1) The the plaintiff, in the month of May, 1908, and for a long time prior thereto, was the owner of a certain parcel of
land particularly described in paragraph 2 of the complaint.
(2) That on the 16th day of May, 1908, the plaintiff executed the following document, which conferred upon the
defendant Marcos P. Puno the power, duties and obligations therein contained:
I, Diego Liñan, of age, married, a resident of Daet, Province of Ambos Camarines, Philippine Islands, and at
the present time temporarily residing in this city of Tarlac, capital of the Province of Tarlac, P.I., set forth that
I hereby confer sufficient power, such as the law requires, upon Mr. Marcos P. Puno, likewise a resident of
this city of Tarlac, capital of the Province of Tarlac, in order that in my name and representation he may
administer the interest I possess within this municipality of Tarlac, purchase, sell, collect and pay, as well as
sue and be sued before any authority, appear before the courts of justice and administrative officers in any
proceeding or business concerning the good administration and advancement of my said interests, and
may, in necessary cases, appoint attorneys at law or attorneys in fact to represent him.
The meaning, purport, and power conferred by this document constitute the very gist of the present action.
(3) That in June, 1911, the defendant Puno, for the sum of P800, sold and delivered said parcel of land to the other
defendants.
The plaintiff alleges that the said document (Exhibit A) did not confer upon the defendant Puno the power to sell the
land and prayed that the sale be set aside; that the land be returned to him, together with damages.
The defendants at first presented a demurrer to the complaint, which was overruled. To the order overruling the
demurrer the defendants duly excepted. They later answered. In their answer they first denied generally and specially
all of the important facts stated in the complaint. In their special answer or defense they admitted the sale of the land
by Puno to the other defendants and alleged that the same was a valid sale and prayed to be relieved from the liability
under the complaint, with their costs.
Upon the issue thus presented the lower court decided: (1) That the document Exhibit A did not give Puno authority to
sell the land; (2) that the sale was illegal and void; (3) That defendants should return to the land to the plaintiff; and (4)
That the defendants should pay to the plaintiff the sum of P1,000 as damages, P400 of which the defendant Puno
should alone be responsible for, and to pay the costs.
From that decision the defendants appealed to this court and made the following assignments of error:
I. The lower court erred in overruling the demurrer filed by the appellants to the complaints.
II. The lower court erred in holding that the appellant Marcos P. Puno was not authorized to sell the land in
question and that the sale executed by the said Marcos P. Puno to the other appellants, Enrique, Vicente,
Aquilina and Remedios, surnamed Maglanok, is null and void.
III. The lower court erred in ordering the appellee, Diego Liñan, to return to the appellants, Enrique, Vicente,
Aquilina, and Remedios Maglanok the sum of P800, the selling price of the land question.
AGENCY - ARTICLES 1868-1879
III. And, finally, the lower court erred in sentencing the appellants to pay to the appellee the sum of P1,000,
the value of the products collected, and to pay the costs.
IV. And, finally, the lower court erred in sentencing the appellant to pay to the appellee the sum of P1,000,
the value of the products collected, and to pay the costs.
With reference to the first assignment of error, we are of the opinion that the facts stated in the opinion are sufficient to
constitute a cause of action.
With reference to the second assignment of error, the plaintiff alleges that the power of attorney, as contained in
Exhibit A, did not authorize the defendant Puno had full and complete power and authority to do what he did. The
lower court held that Exhibit A only gave Puno power and authority to administer the land; that he was not authorized
to sell it. Omitting the purely explanatory parts of Exhibit A, it reads as follows: "I, Diego Liñan, ... set forth that I ...
confer sufficient power, such as the law requires, upon Mr. Marcos P. Puno ... in order that in my name and
representation he may administer ... purchase, sell, collect and pay ... in any proceeding or business concerning the
good administration and advancement of my said interests, and may, in necessary cases, appoint at law or attorneys
in fact to represent him."
Contracts of agency as well as general powers of attorney must be interpreted in accordance with the language used
by the parties. the real intention of the parties is primarily to be determined from the language used. The intention is to
be gathered from the whole instrument. In case of doubt resort must be had to the situation, surroundings and
relations of the parties. Whenever it is possible, effect is to be given to every word and clause used by the parties. It is
to be presumed that the parties said what they intended to say and that they used each word or clause with some
purpose and that purpose is, if possible, to be ascertained and enforced. The intention of the parties must be
sustained rather than defeated. If the contract be open to two constructions, one of which would uphold while the
other would overthrow it, the former is to be chosen. So, if by one construction the contract would be illegal, and by
another equally permissible construction it would be lawful, the latter must be adopted. The acts of the parties in
carrying out the contract will be presumed to be done in good faith. The acts of the parties will be presumed to have
been done in conformity with and not contrary to the intent of the contract. The meaning of generals words must be
construed with reference to the specific object to be accomplished and limited by the recitals made in reference to
such object.
With these general observations in mind, ,let us examine the terms of the power conferred upon the defendant Puno
(Exhibit A) and ascertain, if possible, what was the real intent of the plaintiff. The lower court held that the "only power
conferred was the power to administer." Reading the contract we find it says that the plaintiff "I confer ... power ...
that ... he may administer ... purchase, sell, collect and pay ... in any proceeding or business concerning the good
administration and advancement of my said interests." The words "administer, purchase, sell," etc., seem to be used
coordinately. Each has equal force with the other. There seems to be no good reason for saying that Puno had
authority to administer and not to sell when "to sell" was as advantageous to the plaintiff in the administration of his
affairs as "to administer." To hold that the power was "to administer" only when the power "to sell" was equally
conferred would be to give to special words of the contract a special and limited meaning to the exclusion of other
general words of equal import.
The record contains no allegation on proof that Puno acted in bad faith or fraudulently in selling the land. It will be
presumed that he acted in good faith and in accordance with his power as he understood it. That his interpretation of
his power, as gathered from the contract (Exhibit A), is tenable cannot, we believe, be successfully denied. In view of
that fact and view of the fact that, so far as the record shows, the other defendants acted in good faith, we are of the
opinion that the contract, liberally construed, as we think it should be, justifies the interpretation given it by Puno. In
reaching this conclusion, we have taken into account the fact that the plaintiff delayed his action to annul said sale
from the month of June, 1911, until the 15th of February, 1913. Neither have we overlooked the fact in the brief of the
appellants that the plaintiff has not returned, nor offered to return, nor indicated a willingness to return, the purchase
price. (Art. 1308 of the Civil Code; Manikis vs. Blas, No. 7585.1).
In view of all the foregoing, we are of the opinion that the lower court committed the error complained of in the second
assignment, and, without discussing the other assignments of error, we are of the opinion, and so hold, that the
Page 37 of 88
judgment of the lower court should be and is hereby revoked and that the appellants should be relieved from all
liability under the complaint. Without any finding as to costs, it is so ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.
G.R. No. L-40242 December 15, 1982
DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE CORDERO, together with his wife, NICETAS
ALTERA, RAMON CONDE, together with his wife, CATALINA T. CONDE, respondents.
MELENCIO-HERRERA, J.:
An appeal by certiorari from the Decision of respondent Court of Appeals 1 (CA-G.R. No. 48133- R) affirming the
judgment of the Court of First Instance of Leyte, Branch IX, Tacloban City (Civil Case No. B-110), which dismissed
petitioner's Complaint for Quieting of Title and ordered her to vacate the property in dispute and deliver its possession
to private respondents Ramon Conde and Catalina Conde.
The established facts, as found by the Court of Appeals, show that on 7 April 1938. Margarita Conde, Bernardo
Conde and the petitioner Dominga Conde, as heirs of Santiago Conde, sold with right of repurchase, within ten (10)
years from said date, a parcel of agricultural land located in Maghubas Burauen Leyte, (Lot 840), with an approximate
area of one (1) hectare, to Casimira Pasagui, married to Pio Altera (hereinafter referred to as the Alteras), for
P165.00. The "Pacto de Retro Sale" further provided:
... (4) if at the end of 10 years the said land is not repurchased, a new agreement shall be made
between the parties and in no case title and ownership shall be vested in the hand of the party of
the SECOND PART (the Alteras).
xxx xxx xxx (Exhibit "B")
On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the Alteras "subject to the right of
redemption by Dominga Conde, within ten (10) years counting from April 7, 1983, after returning the amount of
P165.00 and the amounts paid by the spouses in concept of land tax ... " (Exhibit "1"). Original Certificate of Title No.
N-534 in the name of the spouses Pio Altera and Casimira Pasagui, subject to said right of repurchase, was
transcribed in the "Registration Book" of the Registry of Deeds of Leyte on 14 November 1956 (Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras, signed a document in the
Visayan dialect, the English translation of which reads:
AGENCY - ARTICLES 1868-1879
MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH REPURCHASE WHICH DOCUMENT
GOT LOST
WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents of Burauen Leyte, Philippines, after
having been duly sworn to in accordance with law free from threats and intimidation, do hereby depose and say:
1. That I, PIO ALTERA bought with the right of repurchase two parcels of land from DOMINGA CONDE,
BERNARDO CONDE AND MARGARITA CONDE, all brother and sisters.
2. That these two parcels of land were all inherited by the three.
3. That the document of SALE WITH THE RIGHT OF REPURCHASE got lost in spite of the diligent efforts
to locate the same which was lost during the war.
4. That these two parcels of land which was the subject matter of a Deed of Sale with the Right of
Repurchase consists only of one document which was lost.
5. Because it is about time to repurchase the land, I have allowed the representative of Dominga Conde,
Bernardo Conde and Margarita Conde in the name of EUSEBIO AMARILLE to repurchase the same.
6. Now, this very day November 28, 1945, 1 or We have received together with Paciente Cordero who is my
son-in-law the amount of ONE HUNDRED SIXTY-FIVE PESOS (P165. 00) Philippine Currency of legal
tender which was the consideration in that sale with the right of repurchase with respect to the two parcels
of land.
That we further covenant together with Paciente Cordero who is my son-in-law that from this day the said Dominga
Conde, Bernardo Conde and Margarita Conde will again take possession of the aforementioned parcel of land
because they repurchased the same from me. If and when their possession over the said parcel of land be disturbed
by other persons, I and Paciente Cordero who is my son-in-law will defend in behalf of the herein brother and sisters
mentioned above, because the same was already repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or signature to our respective names below
this document or memorandum this 28th day of November 1945 at Burauen Leyte, Philippines, in the presence of two
witnesses.
PIO ALTERA (Sgd.) PACIENTE CORDERO
WITNESSES:
1. (SGD.) TEODORO C. AGUILLON
To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor Casimira Pasagui, was a signatory to the
deed. Petitioner maintains that because Pio Altera was very ill at the time, Paciente Cordero executed the deed of
resale for and on behalf of his father-in-law. Petitioner further states that she redeemed the property with her own
money as her co-heirs were bereft of funds for the purpose.
The pacto de retro document was eventually found.
Page 38 of 88
On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and Catalina T. Conde, who are also person could have a right to or interest in the property. It behooved Ramon Conde and Catalina Conde to have looked
private respondents herein. Their relationship to petitioner does not appear from the records. Nor has the document of into the right of redemption inscribed on the title, and particularly the matter of possession, which, as also admitted by
sale been exhibited. them at the pre-trial, had been with petitioner since 1945.

Contending that she had validly repurchased the lot in question in 1945, petitioner filed, on 16 January 1969, in the
Court of First Instance of Leyte, Branch IX, Tacloban City, a Complaint (Civil Case No. B-110), against Paciente
Cordero and his wife Nicetas Altera, Ramon Conde and his wife Catalina T. Conde, and Casimira Pasagui Pio Altera
having died in 1966), for quieting of title to real property and declaration of ownership.
Petitioner's evidence is that Paciente Cordero signed the Memorandum of Repurchase in representation of his father-
in-law Pio Altera, who was seriously sick on that occasion, and of his mother-in-law who was in Manila at the time,
and that Cordero received the repurchase price of P65.00.
Private respondents, for their part, adduced evidence that Paciente Cordero signed the document of repurchase
merely to show that he had no objection to the repurchase; and that he did not receive the amount of P165.00 from
petitioner inasmuch as he had no authority from his parents-in-law who were the vendees-a-retro.
After trial, the lower Court rendered its Decision dismissing the Complaint and the counterclaim and ordering
petitioner "to vacate the property in dispute and deliver its peaceful possession to the defendants Ramon Conde and
Catalina T. Conde".
On appeal, the Court of Appeals upheld the findings of the Court a quo that petitioner had failed to validly exercise her
right of repurchase in view of the fact that the Memorandum of Repurchase was signed by Paciente Cordero and not
by Pio Altera, the vendee-a-retro, and that there is nothing in said document to show that Cordero was specifically
authorized to act for and on behalf of the vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case is before us on review.
There is no question that neither of the vendees-a-retro signed the "Memorandum of Repurchase", and that there was
no formal authorization from the vendees for Paciente Cordero to act for and on their behalf.
Private respondent must be held bound by the clear terms of the Memorandum of Repurchase that he had signed
wherein he acknowledged the receipt of P165.00 and assumed the obligation to maintain the repurchasers in
peaceful possession should they be "disturbed by other persons". It was executed in the Visayan dialect which he
understood. He cannot now be allowed to dispute the same. "... If the contract is plain and unequivocal in its terms he
is ordinarily bound thereby. It is the duty of every contracting party to learn and know its contents before he signs and
delivers it." 4
There is nothing in the document of repurchase to show that Paciente Cordero had signed the same merely to
indicate that he had no objection to petitioner's right of repurchase. Besides, he would have had no personality to
object. To uphold his oral testimony on that point, would be a departure from the parol evidence rule 5 and would
defeat the purpose for which the doctrine is intended.
... The purpose of the rule is to give stability to written agreements, and to remove the temptation
and possibility of perjury, which would be afforded if parol evidence was admissible. 6
In sum, although the contending parties were legally wanting in their respective actuations, the repurchase by
petitioner is supported by the admissions at the pre-trial that petitioner has been in possession since the year 1945,
the date of the deed of repurchase, and has been paying land taxes thereon since then. The imperatives of
substantial justice, and the equitable principle of laches brought about by private respondents' inaction and neglect for
24 years, loom in petitioner's favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and petitioner is
hereby declared the owner of the disputed property. If the original of OCT No. N-534 of the Province of Leyte is still
extant at the office of the Register of Deeds, then said official is hereby ordered to cancel the same and, in lieu
thereof, issue a new Transfer Certificate of Title in the name of petitioner, Dominga Conde.
No costs.

Of significance, however, is the fact that from the execution of the repurchase document in 1945, possession, which
SO ORDERED.
heretofore had been with the Alteras, has been in the hands of petitioner as stipulated therein. Land taxes have also
been paid for by petitioner yearly from 1947 to 1969 inclusive (Exhibits "D" to "D-15"; and "E"). If, as opined by both
the Court a quo and the Appellate Court, petitioner had done nothing to formalize her repurchase, by the same token,
neither have the vendees-a-retro done anything to clear their title of the encumbrance therein regarding petitioner's
right to repurchase. No new agreement was entered into by the parties as stipulated in the deed of pacto de retro, if
the vendors a retro failed to exercise their right of redemption after ten years. If, as alleged, petitioner exerted no effort
to procure the signature of Pio Altera after he had recovered from his illness, neither did the Alteras repudiate the
deed that their son-in-law had signed. Thus, an implied agency must be held to have been created from their silence
or lack of action, or their failure to repudiate the agency. 2

Possession of the lot in dispute having been adversely and uninterruptedly with petitioner from 1945 when the
document of repurchase was executed, to 1969, when she instituted this action, or for 24 years, the Alteras must be
G.R. No. 214567
deemed to have incurred in laches. 3 That petitioner merely took advantage of the abandonment of the land by the
Alteras due to the separation of said spouses, and that petitioner's possession was in the concept of a tenant, remain
bare assertions without proof. DRA. MERCEDES OLIVER, Petitioner,
vs.
PHILIPPINE SAVINGS BANK and LILIA CASTRO, Respondents.
Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the disputed property in 1965,
assuming that there was, indeed, such a sale, cannot be said to be purchasers in good faith. OCT No. 534 in the
name of the Alteras specifically contained the condition that it was subject to the right of repurchase within 10 years DECISION
from 1938. Although the ten-year period had lapsed in 1965 and there was no annotation of any repurchase by
petitioner, neither had the title been cleared of that encumbrance. The purchasers were put on notice that some other

AGENCY - ARTICLES 1868-1879 Page 39 of 88

MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the October 25, 2013 Decision 1 and the
September 12, 2014 Resolution 2 of the Court of Appeals (CA) in CA-G.R. CV No. 95656, which reversed the July 22,
2010 Order3 of the Regional Trial Court, Branch 276, Muntinlupa City (RTC) in Civil Case No. 99-278, a case for
injunction and damages.
On July 14, 1999, a final demand letter13 was sent to Oliver by PSBank, requiring her to pay the unpaid loans. Oliver,
however, still refused to pay. Subsequently, Oliver received a notice of sale 14 involving the property in Ayala Alabang,
issued by Notary Public Jose Celestino Torres on September 15, 1999. The said notice informed her of the impending
extra-judicial foreclosure and sale of her house and lot to be held on October 21, 1999.
As a result, Oliver filed the subject complaint against PSBank and Castro.

Petitioner Mercedes Oliver (Oliver) was a depositor of respondent Philippine Savings Bank (PSBank) with account Castro’s Position
number 2812-07991-6. dent Lilia Castro (Castro) was the Assistant Vice President of the Acting
Branch Manager of PSBank San Pedro, Laguna.
In her Answer,15 Castro admitted that she and Oliver agreed that the latter would lend out money to borrowers at 4%
to 5% interest per month provided that the former would screen them. She also acknowledged having been instructed
Oliver’s Position by Oliver to pay the bank P2 million every month to settle the P10 million credit line. Nonetheless, Castro informed
Oliver that the payment thereof was subject to the availability of funds in her account. She disclosed that she made
some alterations and erasures in Oliver’s passbook so as to reconcile the passbook with the computer printout of the
In her Complaint,4 dated October 5, 1999, Oliver alleged that sometime in 1997, she made an initial deposit of P12
bank, but denied any attempt to hide the passbook as she was able to return it sometime in January 1999.
million into her PSBank account. During that time, Castro convinced her to loan out her deposit as interim or bridge
financing for the approved loans of bank borrowers who were waiting for the actual release of their loan proceeds.
Castro also denied the deceit imputed against her. She asserted that their arrangement was not "interim or bridge
financing" inasmuch as the loans were entirely new and distinct from that granted by PSBank. When Oliver’s clients
Under this arrangement, Castro would first show the approved loan documents to Oliver. Thereafter, Castro would
multiplied, Castro advised her to apply for a credit line of P10 million. The said credit line was first approved in
withdraw the amount needed from Oliver’s account. Upon the actual release of the loan by PSBank to the borrower,
December 1997 with a term of one year.16
Castro would then charge the rate of 4% a month from the loan proceeds as interim or bridge financing interest.
Together with the interest income, the principal amount previously withdrawn from Oliver’s bank account would be
deposited back to her account. Meanwhile, Castro would earn a commission of 10% from the interest. Sometime in August 1998, Castro informed Oliver about the impending expiration of her credit line. Subsequently,
Oliver applied for another loan in the amount of P4.5 million as evidenced by a promissory note, 17 dated December
21, 1998. On January 5, 1999, another promissory note 18 was executed by Oliver to cover a loan in the amount of
Their arrangement went on smoothly for months. Due to the frequency of bank transactions, Oliver even entrusted her
P1,396,310.45.
passbook to Castro. Because Oliver earned substantial profit, she was further convinced by Castro to avail of an
additional credit line in the amount of P10 million. The said credit line was secured by a real estate mortgage on her
house and lot in Ayala Alabang covered by Transfer Certificate of Title (TCT) No. 137796.5 Castro asserted that, on December 21, 1998, upon Oliver’s instruction, a total of P7 million was withdrawn from the
latter’s account and was then deposited to the account of one Ben Lim (Lim) on the same date. Lim was a
businessman who borrowed money from Oliver. Castro knew him because he was also a depositor and borrower of
Oliver instructed Castro to pay P2 million monthly to PSBank starting on September 3, 1998 so that her credit line for
PSBank San Pedro Branch.19
P10 million would be fully paid by January 3, 1999.

As to the amount of P1,396,310.45, Castro explained that it was a separate and personal loan obtained by her from
Beginning September 1998, Castro stopped rendering an accounting for Oliver. The latter then demanded the return
Oliver. To secure the payment of such obligation, Castro mortgaged a property located in Camella Homes III in
of her passbook. When Castro showed her the passbook sometime in late January or early February 1995, she
Tunasan, Muntinlupa City.
noticed several erasures and superimpositions therein. She became very suspicious of the many erasures pertaining
to the December 1998 entries so she requested a copy of her transaction history register from PSBank.
Castro admitted that on October 19, 1999, she was terminated by PSBank because of certain problems regarding
6 client accommodation and loss of confidence.20
When her transaction history register was shown to her, Oliver was surprised to discover that the amount of
P4,491,250.00 (estimated at P4.5 million) was entered into her account on December 21, 1998. While a total of P7
million was withdrawn from her account on the same day, Oliver asserted that she neither applied for an additional PSBank’s Position
loan of P4.5 million nor authorized the withdrawal of P7 million. She also discovered another loan for P1,396,310.45,
acquired on January 5, 1999 and allegedly issued in connection with the P10 million credit line.
In its defense, PSBank averred that Oliver applied for a credit line of P10 million which was granted by the bank and
which secured by a real estate mortgage. Because Oliver failed to pay the P10 million loan, she obtained another loan
In Oliver’s passbook, 7 there were no entries from December 17, 1998 to December 27, 1998. The transaction history in the amount of P4.5 million, as evidenced by a promissory note. Days later, she again acquired a separate loan
register, however, showed several transactions on these very same dates including the crediting of P4.5 million and amounting to P1,396,310.45 as shown by another promissory note. Both loans were secured by a real estate
the debiting of P7 million on December 21, 1998. Oliver then learned that the additional P4.5 million and mortgage, dated January 8, 1998, and the proceeds thereof were issued as proved by the release tickets, 21 dated
P1,396,310.45 loans were also secured by the real estate mortgage, 8 dated January 8, 1998, covering the same December 21, 1998 and January 5, 1999, respectively.22
property in Ayala Alabang. Oliver received two collection letters, 9 dated May 13, 1999 and June 18, 1999, from
PSBank referring to the non-payment of unpaid loans, to wit: (1) P4,491,250.00 from the additional loan and (2)
The RTC Decision
P1,396,310.45 from the P10 million credit line. 10 In response, Oliver protested that she neither availed of the said
loans nor authorized the withdrawal of P7 million from her account. 11 She also claimed that the P10 million loan from
her credit line was already paid in full.12 In its March 30, 2010 Decision,23 the RTC dismissed the complaint and rendered judgment in favor of PSBank and
Castro. According to the RTC, PSBank and Castro should not be held liable for the loan of P4.5 million and the
withdrawal of the P7 million. Castro was able to submit the Debit Credit Memo 24 and the Savings Account Check

AGENCY - ARTICLES 1868-1879 Page 40 of 88

Deposit Slip25 to prove that there were some previous loan transactions between Oliver and Lim. Considering that
neither PSBank nor Castro obtained the P7 million, there was no obligation on their part to return the amount.
Moreover, the trial court stated that Oliver failed to controvert PSBank’s allegation that she had unpaid loan
obligations. Thus, it concluded that PSBank had the right to foreclose the mortgaged property. The fallo reads:
WHEREFORE, finding lack of merit, the instant case is hereby DISMISSED. Accordingly, the Writ of Preliminary
Injunction is hereby LIFTED and SET ASIDE.
SO ORDERED.26
Oliver seasonably filed her motion for reconsideration. 27 She insisted that the P7 million was unlawfully withdrawn.
She claimed that what happened in this case was a "cash savings withdrawal" and that there should have been a
corresponding withdrawal slip for such transaction. Also, if indeed the P7 million was withdrawn from her account and
was credited to the account of Lim, the deposit slip for his account should have been presented.
The RTC Order
On July 22, 2010, the RTC resolved the motion and issued an order reversing its earlier decision. According to the
RTC, Oliver’s assertion that the withdrawal was made without her consent prevailed in the absence of any proof to the
contrary. The cash savings withdrawal slips should have been offered in evidence by either PSBank or Castro to
settle the issue of whether the amount of P7 million was actually withdrawn by Oliver or by her authorized
representative or agent.
The RTC also rejected the position of PSBank and Castro that the erasures and alterations in Oliver’s passbook were
made simply to reconcile the same with the transaction history register of the bank because even after the alleged
corrections, the said documents still contained different entries. Although Oliver and Lim had previous transactions,
none of them pertained to the P7 million purportedly transferred on December 21, 1998.
With regard to PSBank, the RTC stated that it failed to exercise utmost diligence in safekeeping Oliver’s deposit. Had
it not been for the unauthorized, withdrawal which was attributable to the bank and Castro, the P4.5 million and the
P1,396,310.45 loans would not have remained outstanding, considering that the improperly withdrawn P7 million was
more than sufficient to discharge those liabilities.28 The dispositive portion of the order reads:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The Decision dated March
30, 2010 is hereby reconsidered and set aside. In lieu thereof, a new one is hereby rendered ordering the defendants
Lilia Castro and Philippine Savings Bank to jointly and solidarily pay plaintiff Dra. Mercedes Oliver, the sums of
1. P1,111,850.77 as actual damages;
2. P100,000.00 as moral damages;
3. P100,000.00 as attorney’s fees; and
4. P100,000.00 as exemplary damages
Moreover, the Writ of Preliminary Injunction is hereby made permanent.
29
SO ORDERED.
AGENCY - ARTICLES 1868-1879
Aggrieved, Castro and PSBank appealed before the CA.
The CA Decision
On October 25, 2013, the CA granted the appeal. It reversed the July 22, 2010 of the RTC order and reinstated its
March 30, 2010 decision. The appellate court found no compelling evidence to prove that fraud attended the
processing and release of the P4.5 million loan as well as the withdrawal of P7 million from Oliver’s account. The CA
found that Oliver admitted signing the loan documents, the promissory notes and the release tickets pertaining to the
obligations that she had contracted with PSBank. In addition, the CA stated that Oliver also failed to establish her
assertion that she was manipulated and defrauded into signing the said loan documents.
The CA also found that PSBank exercised extraordinary diligence in handling Oliver’s account, thus, the awards of
damages were deleted. The dispositive portion of the CA decision reads:
WHEREFORE, the Appeal is hereby GRANTED. The Order dated 22 July 2010 of the Regional Trial Court of
Muntinlupa City, Branch 276, is REVERSED and SET ASIDE, and another one entered REINSTATING the Decision
dated March 30, 2010, in Civil Case No. 99-278.
SO ORDERED.30
Oliver filed her motion for reconsideration but the same was denied in the CA Resolution, dated September 12, 2014.
Hence, this petition.
ISSUES
I
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PETITIONER FAILED
TO SHOW COMPELLING EVIDENCE TO PROVE THAT FRAUD ATTENDED THE PROCESSING AND RELEASE
OF THE LOAN OF P4.5 MILLION AS WELL AS THE WITHDRAWAL OF P7 MILLION PESOS FROM HER
ACCOUNT.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THERE WAS NO
EVIDENCE TO PROVE THAT THE SUM OF P7 MILLION WAS DEBITED FROM THE ACCOUNT OF PETITIONER
SANS HER AUTHORIZATION.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE RESPONDENTS
TREATED THE PETITIONER’S ACCOUNT WITH EXTRAORDINARY DILIGENCE.
IV
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO HOLD THAT THE
RESPONDENTS ARE JOINTLY AND SEVERALLY LIABLE TO THE PETITIONER FOR DAMAGES. 31
Page 41 of 88
In her petition for review,32 Oliver insisted that she had no knowledge of any loan released because she never availed
of any new loan from PSBank. Neither the P4.5 million loan nor the cash withdrawal of P7 million was reflected in her
passbook.
Oliver further argued that the burden of proving that the withdrawal was made with her authority would lie on the part
of PSBank and Castro. The cash savings withdrawal slip containing the signature of Oliver should have been
presented in court. While the respondents claimed that the amount withdrawn was lent to Lim, the latter was never
called to the witness stand as PSBank and Castro opted not to present him in court. Castro, aside from her self-
serving testimony, failed to present any concrete proof to show that Oliver indeed lent the withdrawn P7 million cash
to Lim.
Finally, Oliver averred that the erasures and alterations in her passbook undeniably established that Castro
manipulated the same to conceal the loan release and the cash withdrawal from her account.
Accordingly, the laws on agency apply to their relationship. Article 1881 of the New Civil Code provides that the agent
must act within the scope of his authority. He may do such acts as may be conducive to the accomplishment of the
purpose of the agency. Thus, as long as the agent acts within the scope of the authority given by his principal, the
actions of the former shall bind the latter.
Oliver claims that the P4.5 million loan, released on December 21, 1998, and the P1,396,310.45 loan, released on
January 5, 1999, were not acquired with her consent. Castro and PSBank, on the other hand, countered that these
loans were obtained with Oliver’s full consent. The Court finds that the said loans were acquired with Oliver’s
authority. The promissory notes39 and the release tickets40 for the said loans bore her signatures. She failed to prove
that her signatures appearing on the loan documents were forged. Hence, the loan documents were reliable and
these proved that the loans were processed by Castro within the scope of her authority. As the loans were validly
obtained, PSBank correctly stated that Oliver had incurred a debt of P4.5 million and P1,396,310.45, or a total of
P5,888,149.33.

P7 million was
In her Comment,33 Castro countered that the CA had more opportunity and facilities to examine the facts. Hence,
improperly withdrawn;
there was no reason to depart from the rule that the findings of fact of the CA were final and conclusive and could not
agent acted beyond her
be reviewed on appeal. She asserted that there was no proof that the P7 million was withdrawn without Oliver’s
scope of authority
authority. She added that Oliver was an astute businesswoman who knew her clients and bank deposits and who was
knowledgeable of her bank transactions and was aware of her loaned amounts from the bank.
Although it was proven that Oliver authorized the loans, in the aggregate amount of P5,888,149.33, there was nothing
in the records which proved that she also allowed the withdrawal of P7 million from her bank account. Oliver
In its Comment,34 PSBank asserted that the issues and arguments propounded by Oliver had been judiciously passed
vehemently denied that she gave any authority whatsoever to either Castro or PSBank to withdraw the said amount.
upon. On the stated facts alone, the petition, which was akin to a motion for reconsideration, should be denied
In her judicial affidavit before the RTC, Castro initially claimed that Oliver authorized the withdrawal of P7 million from
outright for being pro forma.
her bank account, to wit:

In her Reply,35 Oliver faulted PSBank and Castro for failing to present the cash withdrawal slip which would show her
Q: Do you know when was this 4.5 million pesos loan was credited to plaintiff’s deposit account?
signature to prove that the money was withdrawn with her authority. She also reiterated that Lim should have been
presented as a witness to substantiate their defense that he actually received the amount of P7 million.
A: Based on the Transaction Ledge of PS Bank, the 4.5 million pesos was credit to plaintiff’s deposit account on 21
December 21 1998
The Court’s Ruling

Q: What happened after the 4.5 million pesos loan was credited to plaintiff’s account?
The petition is impressed with merit.

A: Upon plaintiff’s instruction, 7 million was withdrawn from her account including her loaned amount to be
There was an implied agency
deposited at Mr. Ben Lim’s account at PS Bank, San Pedro Branch.41
between Oliver and Castro; the
loans were properly acquired
[Emphasis Supplied]
A contract of agency may be inferred from all the dealings between Oliver and Castro. Agency can be express or
implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing During her cross-examination, however, Castro could no longer remember whether Oliver gave her the authority to
that another person is acting on his behalf without authority. 36 The question of whether an agency has been created is withdraw the P7 million from her account. The transcript of stenographic notes reads:
ordinarily a question which may be established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention.37
Q: You said here, your statement here, "Upon Plaintiff’s instruction". So, my question is, who did the Plaintiff instruct
you, was it you?
In this case, Oliver and Castro had a business agreement wherein Oliver would obtain loans from the bank, through
the help of Castro as its branch manager; and after acquiring the loan proceeds, Castro would lend the acquired
A: I cannot remember, sir.
amount to prospective borrowers who were waiting for the actual release of their loan proceeds. Oliver would gain 4%
to 5% interest per month from the loan proceeds of her borrowers, while Castro would earn a commission of 10%
from the interests. Clearly, an agency was formed because Castro bound herself to render some service in Q: You are not definite? Your statement here it is categorical. It’s on page 9 of 17 in the Judicial Affidavit, the question
representation or on behalf of Oliver, in the furtherance of their business pursuit.38 is "What happened after the 4.5 million Pesos loan was credited to the Plaintiff’s account" And your answer was,
"Upon Plaintiff’s instruction Seven (7) million was withdrawn from her account. My question is, this phrase, upon
plaintiff’s instruction, who did the Plaintiff’s (sic) instruct, was it you?
For months, the agency between Oliver and Castro benefited both parties. Oliver, through Castro’s representations,
was able to obtain loans, relend them to borrowers, and earn interests; while Castro acquired commissions from the
transactions. Oliver even gave Castro her passbook to facilitate the transactions.

AGENCY - ARTICLES 1868-1879 Page 42 of 88

A: I cannot remember, sir because I still have other officers other than me, who were assisting me during that time, so
it could be the instruction even I said upon the instruction of the plaintiff, but I cannot remember if I was the one
who received the instruction from the plaintiff. It could be other officers of mine during that time, sir.
Q: May I remind you, this is Seven (7) million Pesos?
A: Yes, sir.42
[Emphasis Supplied]
Verily, Castro, as agent of Oliver and as branch manager of PS Bank, utterly failed to secure the authorization of
Oliver to withdraw such substantial amount. As a standard banking practice intended precisely to prevent
unauthorized and fraudulent withdrawals, a bank manager must verify with the client-depositor to authenticate and
confirm that he or she has validly authorized such withdrawal. 43
Castro’s lack of authority to withdraw the P7 million on behalf of Oliver became more apparent when she altered the
passbook to hide such transaction. It must be remembered that Oliver entrusted her passbook to Castro. In the
transaction history register for her account, it was clear that there was a series of dealings from December 17, 1998 to
December 23, 1998. When compared with Oliver’s passbook, the latter showed that the next transaction from
December 16, 1998 was on December 28, 1998. It was also obvious to the naked eye that the December 28, 1998
entry in the passbook was altered. As aptly observed by the RTC, nowhere in the testimony of Castro could be
gathered that she made a detailed, plausible and acceptable explanation as to why she had to make numerous
corrections in the entries in the passbook. 44 Even after the corrections allegedly done to reconcile the records, the
passbook and the transaction history register still contained different entries.
Curiously, though she asserts that Oliver obtained a loan of P4.5 million and authorized the withdrawal of P7
million,45 Castro could not explain why these transactions were not reflected in the passbook which was in her
possession. Bearing in mind that the alleged unauthorized withdrawal happened on December 21, 1998, while Castro
was questionably withholding the passbook, the Court is of the impression that she manipulated the entries therein to
conceal the P7 million withdrawal.
Further, Castro claims that Oliver instructed her to withdraw the P7 million from her bank account and to deposit the
same in Lim’s account. Glaringly, Lim was not presented as a witness to substantiate her defense. Even though she
testified that the P7 million transfer from Oliver’s account to Lim’s was duly documented, Castro never presented a
single documentary proof of that specific transaction.
The Court is convinced that Castro went beyond the scope of her authority in withdrawing the P7 million from Oliver’s
bank account. Her flimsy excuse that the said amount was transferred to the account of a certain Lim deserves scant
consideration. Hence, Castro must be held liable for prejudicing Oliver.46
PSBank failed to
exercise the highest
degree of diligence
required of banking
institutions
Aside from Castro, PSBank must also be held liable because it failed to exercise utmost diligence in the improper
withdrawal of the P7 million from Oliver’s bank account.
In the case of banks, the degree of diligence required is more than that of a good father of a family. Considering the
fiduciary nature of their relationship with their depositors, banks are duty bound to treat the accounts of their clients
with the highest degree of care. The point is that as a business affected with public interest and because of the nature
AGENCY - ARTICLES 1868-1879
of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.47
In Simex International v. Court of Appeals,48 the Court held that the depositor expected the bank to treat his account
with the utmost fidelity, whether such account consisted only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident
that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps
even civil and criminal litigation.49
Time and again, the Court has emphasized that the bank is expected to ensure that the depositor’s funds shall only
be given to him or his authorized representative. In Producers Bank of the Phil. v. Court of Appeals, 50 the Court held
that the usual banking procedure was that withdrawals of savings deposits could only be made by persons whose
authorized signatures were in the signature cards on file with the bank. In the said case, the bank therein allowed an
unauthorized person to withdraw from its depositor’s savings account, thus, it failed to exercise the required diligence
of banks and must be held liable.
With respect to withdrawal slips, the Court declared in Philippine National Bank v. Pike 51 that "[o]rdinarily, banks allow
withdrawal by someone who is not the account holder so long as the account holder authorizes his representative to
withdraw and receive from his account by signing on the space provided particularly for such transactions, usually
found at the back of withdrawal slips." There, the bank violated its fiduciary duty because it allowed a withdrawal by a
representative even though the authorization portion of the withdrawal slip was not signed by the depositor.
Finally, in Cagungun v. Planters Development Bank,52 a case very similar to the present one, the depositors therein
entrusted their passbook to the bank employees for some specific transactions. The bank employees went beyond
their authority and were able to withdraw from the depositors’ account without the latter’s consent. The bank was held
liable therein for the acts of its employees because it failed to safeguard the accounts of its depositors.
In the case at bench, it must be determined whether the P7 million was withdrawn from the bank with the authority of
Oliver. As testified to by Castro, every withdrawal from the bank was duly evidenced by a cash withdrawal slip, a copy
of which is given both to the bank and to its client.53 Contrary to the position of the CA and that of the respondents,
Oliver cannot be required to produce the cash withdrawal slip for the said transaction because, precisely, she
consistently denied giving authority to withdraw such amount from her account.
Necessarily, the party that must have access to such crucial document would either be PSBank or Castro. They must
present the said cash withdrawal slip, duly signed by Oliver, to prove that the withdrawal of P7 million was indeed
sanctioned. Unfortunately, both PSBank and Castro failed to present the cash withdrawal slip.
During the trial, the counsel of PSBank conceded that the cash withdrawal slip for the P7 million transaction could not
be located, to quote:
ATTY DEJARESCO: Your Honor, excuse me just a comment for the record we asked for two (2) years, Your Honor to
subpoena this from the bank, the bank never produce (sic) the withdrawal slip two (2) years (sic), Your Honor, this
case was delayed by the previous Court for two (2) years. Your Honor, no withdrawal slip was produced by the bank,
Your Honor. I would just like to place it on record.
COURT: Were there subpoenas issued by the bank, was there an order?
ATTY. DEJARESCO: Yes Your Honor, I think the good counsel was the counsel at that time would you able to confirm
that it took us two (2) years to subpoena and subpoena (sic) this withdrawal slip because there must be an authority
to withdraw, and it there is a signature of the plaintiff, we will admit that.
Page 43 of 88
ATTY. CORPUZ: I remember having manifested that the withdrawal slip cannot be located.
ATTY. DEJARESCO: Let’s put that on record, Your Honor.
ATTY. CORPUS: (sic) I remember having made that manifestation, Your Honor.
COURT: That’s the reason why no document was produced in Court by the PS Bank?
ATTY. CORPUS: (sic) With respect to the withdrawal slip only, Your Honor on December 21.
establish his case by a preponderance of evidence. Once the plaintiff establishes his case, the burden of evidence
shifts to the defendant, who, in turn, bears the burden to establish his defense.56
Here, Oliver alleged that she did not authorize the withdrawal of P7 million from her account. To establish her
allegation, Oliver presented the following: (1) the transaction history register which showed the withdrawal of P7
million from her account on December 21, 1998; (2) the passbook which contained alterations to conceal the
withdrawal on December 21, 1998 while in the possession of Castro; and (3) testimonial evidence that she did not
allow the withdrawal of the said amount. 57 The Court is of the view that Oliver had sufficiently discharged her burden
in proving that P7 million was withdrawn from her account without her authorization. Hence, the burden was shifted to
the respondents to refute the allegation of Oliver.

As discussed above, both Castro and PSBank failed to establish the burden of their defense. They failed to present
ATTY. DEJARESCO: Of that Seven (7) million from the account. proof that Oliver authorized the said transaction. They could have presented either the cash withdrawal slip for the P7
million on December 21, 1999 or Lim’s testimony to prove the transfer of funds to the latter’s account, but they did
COURT: Make that on record. neither. Without an iota of proof to substantiate the validity of the said transaction, the respondents unlawfully
deprived Oliver of her funds.
ATTY. CORPUS: Yes, Your Honor.54
Indeed, the bank should be solidarily liable with its employee for the damages committed to its depositor.58 Under
Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their
[Emphasis Supplied] employees acting within the scope of their assigned tasks.

Castro, as agent of Oliver, could not produce either the said withdrawal slip allegedly authorizing the withdrawal of the Castro, as acting branch manager of PSBank ,was able to facilitate the questionable transaction as she was also
P7 million, her testimony is quoted as follows: entrusted with Oliver’s passbook. In other words, Castro was the representative of PSBank, and, at the same time,
the agent of Oliver, earning commissions from their transactions. Oddly, PSBank, either consciously or through sheer
ATTY. DEJARESCO: negligence, allowed the double dealings of its employee with its client. Such carelessness and lack of protection of
the depositors from its own employees led to the unlawful withdrawal of the P7 million from Oliver’s account. Although
Castro was eventually terminated by PSBank because of certain problems regarding client accommodation and loss
Q: Can you show poof of the withdrawal slip? of confidence, the damage to Oliver had already been done. Thus, both Castro and PSBank must be held solidarily
A: The withdrawal slip. liable.
Q: I’m asking you do you have proof?
A: None, sir.
Q: You cannot produce in Court in support of your Judicial Affidavit? Award of damages;
A: None. invalid foreclosure
Q: And you cannot produce that in Court?
A: As far as the withdrawal slip as for myself, none.55 To recapitulate, the loans of Oliver from PSBank which were secured by real estate mortages amounted to
P5,888,149.33. Finding PSBank and Castro solidarily liable to Oliver in the amount of P7 million because it was
[Emphasis Supplied] improperly withdrawn from her bank account, the Court agrees with the RTC that had it not been for the said
unauthorized withdrawal, Oliver’s debts amounting to P5,888,149.33 would have been satisfied.
From the foregoing, there was a clear showing of PSBank’s failure to exercise the degree of diligence that it ought to
have exercised in dealing with its clients. It could not prove that the withdrawal of P7 million was duly authorized by Consequently, PSBank’s foreclosure of the real estate mortgage covering the two (2) loans in the total amount of
Oliver. As a banking institution, PSBank was expected to ensure that such substantial amount should only be P5,888,149.33 was improper. With PSBank being found liable to Oliver for P7 million, after offsetting her loans would
transacted with the consent and authority of Oliver. PSBank, however, reneged on its fiduciary duty by allowing an have PSBank and Castro still owing her P1,111,850.77, which must be suitably paid in the form of actual damages.
encroachment upon its depositor’s account without the latter’s permission. Hence, PSBank must be held liable for
such improper transaction. The award of moral damages must also be upheld. Specifically, in culpa contractual or breach of contract, like in the
present case, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is found
PSBank and Castro guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. Verily, the
failed to discharge their breach must be wanton, reckless, malicious, or in bad faith, oppressive or abusive.59
burden and must be held
solidarily liable Here, Castro and PSBank were utterly reckless in allowing the withdrawal of a huge amount from Oliver's account
without her consent.1âwphi1 The bank's negligence is a result of lack of due care and caution required of managers
The party who alleges a fact has the burden of proving it. Section 1, Rule 131 of the Rules of Court defines "burden of and employees of a firm engaged in a business so sensitive and demanding. 60 Hence, the award of Pl00,000.00 as
proof" as "the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by moral damages is warranted.
the amount of evidence required by law." In civil cases, the burden of proof rests upon the plaintiff, who is required to

AGENCY - ARTICLES 1868-1879 Page 44 of 88

The award of exemplary damages is also proper due to the failure of Castro and PSBank to prevent the unauthorized
withdrawal from Oliver's account. The law allows the grant of exemplary damages to set an example for public
good.61 The Court, however, finds that the amount of exemplary damages must be decreased to P50,000.00.
Finally; the Court agrees with the RTC that Castro and PSBank should be held solidarily liable for attorney's fees.
Article 2208 of the Civil Code is clear that attorney's fees may be recovered when exemplary damages are awarded
or when the plaintiff, through the defendant's act or omission, has been compelled to litigate with thirds persons. A
decreased amount of P50,000.00 attorney's fees should be sufficient.
WHEREFORE, the petition is GRANTED. The October 25, 2013 Decision and the September 12, 2014 Resolution of
the Court of Appeals in CA-G.R. CV No. 95656 are REVERSED and SET ASIDE. The July 22, 2010 Order of the
Regional Trial Court, Branch 276, Muntinlupa City in Civil Case No. 99-278 is hereby REINSTATED with
the MODIFICATION that the award of exemplary damages and attorney's fees be decreased to P50,000.00 each.
All awards shall earn interests at the rate of six percent (6%) per annum from the finality of this decision.
SO ORDERED.
Art. 1870. Acceptance by the agent may also be express, or implied from his acts which carry out the agency, or from
his silence or inaction according to the circumstances. (n)
Art. 1871. Between persons who are present, the acceptance of the agency may also be implied if the principal
delivers his power of attorney to the agent and the latter receives it without any objection. (n)
Art. 1872. Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the
agent, except:
(1) When the principal transmits his power of attorney to the agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which
he is habitually engaged as an agent, and he did not reply to the letter or telegram. (n)
G.R. No. 163928 January 21, 2015
MANUEL JUSAYAN, ALFREDO JUSAYAN, AND MICHAEL JUSAYAN Petitioners,
vs.
JORGE SOMBILLA, Respondent.
DECISION
BERSAMIN, J.:
The Court resolves whether a lease of agricultural land between the respondent and the predecessor of the
petitioners was a civil law lease or an agricultural lease. The resolution is determinative of whether or not the Regional
Trial Court (RTC) had original exclusive jurisdiction over the action commenced by the predecessor of the petitioners
against the respondent. The Case
AGENCY - ARTICLES 1868-1879
Under review on certiorari is the decision promulgated on October 20, 2003, 1 whereby the Court of Appeals (CA)
reversed the judgment in favor of the petitioners rendered on April 13, 1999 in CAR Case No. 17117 entitled Timoteo
Jusayan, Manuel Jusayan, Alfredo Jusayan and Michael Jusayan v. Jorge Sombillaby the RTC, Branch 30, in Iloilo
City.2
Antecedents
Wilson Jesena (Wilson) owned four parcels of land situated in New Lucena, Iloilo. On June 20, 1970, Wilson entered
into an agreement with respondent Jorge Sombilla (Jorge), 3 wherein Wilson designated Jorge as his agent to
supervise the tilling and farming of his riceland in crop year 1970-1971. On August 20, 1971, before the expiration of
the agreement, Wilson sold the four parcels of land to Timoteo Jusayan (Timoteo). 4 Jorge and Timoteo verbally
agreed that Jorge would retain possession of the parcels of land and would deliver 110 cavans of palay annually to
Timoteo without need for accounting of the cultivation expenses provided that Jorge would pay the irrigation fees.
From 1971 to 1983, Timoteo and Jorge followed the arrangement. In 1975, the parcels of land were transferred in the
names of Timoteo’s sons, namely; Manuel, Alfredo and Michael (petitioners). In 1984, Timoteo sent several letters to
Jorge terminating his administration and demanding the return of the possession of the parcels of land.5
Due to the failure of Jorge to render accounting and to return the possession of the parcels of land despite demands,
Timoteo filed on June 30, 1986 a complaint for recovery of possession and accounting against Jorge in the RTC (CAR
Case No. 17117). Following Timoteo’s death on October 4, 1991, the petitioners substituted him as the plaintiffs.
In his answer,6 Jorge asserted that he enjoyed security of tenure as the agricultural lessee of Timoteo; and that he
could not be dispossessed of his landholding without valid cause.
Ruling of the RTC
In its decision rendered on April 13, 1999, 7 the RTC upheld the contractual relationship of agency between Timoteo
and Jorge; and ordered Jorge to deliver the possession of the parcels of land to the petitioners.
Judgment of the CA
Jorge appealed to the CA.
In the judgment promulgated on October 20, 2003,8 the CA reversed the RTC and dismissed the case, declaring that
the contractual relationship between the parties was one of agricultural tenancy; and that the demand of Timoteo for
the delivery of his share in the harvest and the payment of irrigation fees constituted an agrarian dispute that was
outside the jurisdiction of the RTC, and well within the exclusive jurisdiction of the Department of Agriculture (DAR)
pursuant to Section 3(d) of Republic Act No. 6657 (Comprehensive Agrarian Reform Law of 1988).
Issues
The petitioners now appeal upon the following issues, namely:
a.) Whether or not the relationship between the petitioners and respondent is that of agency or agricultural
leasehold; and
b.) Whether or not RTC, Branch 30, Iloilo City as Regional Trial Court and Court of Agrarian Relations, had
jurisdiction over the herein case.9
Ruling of the Court
Page 45 of 88
The petition for review lacks merit.
To properly resolve whether or not the relationship between Timoteo and Jorge was that of an agency or a tenancy, an
analysis of the concepts of agency and tenancy is in order.
In agency, the agent binds himself to render some service or to do something in representation or on behalf of the
principal, with the consent or authority of the latter. 10 The basis of the civil law relationship of agency is
representation,11 the elements of which are, namely: (a) the relationship is established by the parties’ consent,
express or implied; (b) the object is the execution of a juridical act in relation to a third person; (c) the agent acts as
representative and not for himself; and (d) the agent acts within the scope of his authority. 12 Whether or not an agency
has been created is determined by the fact that one is representing and acting for another. 13 The law does not
presume agency; hence, proving its existence, nature and extent is incumbent upon the person alleging it. 14
The claim of Timoteo that Jorge was his agent contradicted the verbal agreement he had fashioned with Jorge. By
assenting to Jorge’s possession of the land sans accounting of the cultivation expenses and actual produce of the
land provided that Jorge annually delivered to him 110 cavans of palay and paid the irrigation fees belied the very
nature of agency, which was representation. The verbal agreement between Timoteo and Jorge left all matters of
agricultural production to the sole discretion of Jorge and practically divested Timoteo of the right to exercise his
authority over the acts to be performed by Jorge. While inpossession of the land, therefore, Jorge was acting for
himself instead offor Timoteo. Unlike Jorge, Timoteo did not benefit whenever the production increased, and did not
suffer whenever the production decreased. Timoteo’s interest was limited to the delivery of the 110 cavans of palay
annually without any concern about how the cultivation could be improved in order to yield more produce.
On the other hand, to prove the tenancy relationship, Jorge presented handwritten receipts 15 indicating that the sacks
of palay delivered to and received by one Corazon Jusayan represented payment of rental. In this regard, rental was
the legal term for the consideration of the lease. 16 Consequently, the receipts substantially proved that the contractual
relationship between Jorge and Timoteo was a lease.
Yet, the lease of an agricultural land can be either a civil law or an agricultural lease. 1âwphi1 In the civil law lease,
one of the parties binds himself to give to another the enjoyment or use ofa thing for a price certain, and for a period
that may be definite or indefinite.17 In the agricultural lease, also termed as a lease hold tenancy, the physical
possession of the land devoted to agriculture is given by its owner or legal possessor (landholder) to another (tenant)
for the purpose of production through labor of the latter and of the members of his immediate farm household, in
consideration of which the latter agrees to share the harvest with the landholder, or to pay a price certain or
ascertainable, either in produce or in money, or in both. 18 Specifically, in Gabriel v. Pangilinan,19 this Court
differentiated between a leasehold tenancy and a civil law lease in the following manner, namely: (1) the subject
matter of a leasehold tenancy is limited to agricultural land, but that of a civil law lease may be rural or urban property;
(2) as to attention and cultivation, the law requires the leasehold tenant to personally attend to and cultivate the
agricultural land; the civil law lessee need not personally cultivate or work the thing leased; (3) as to purpose, the
landholding in leasehold tenancy is devoted to agriculture; in civil law lease, the purpose may be for any other lawful
pursuits; and(4) as to the law that governs, the civil law lease is governed by the Civil Code, but the leasehold
tenancy is governed by special laws.
The sharing of the harvest in proportion to the respective contributions of the landholder and tenant, otherwise called
share tenancy,20 was abolished on August 8, 1963 under Republic Act No. 3844. To date, the only permissible system
of agricultural tenancy is leasehold tenancy,21 a relationship wherein a fixed consideration is paid instead of
proportionately sharing the harvest as in share tenancy.
In Teodoro v. Macaraeg, 22 this Court has synthesized the elements of agricultural tenancy to wit: (1) the object of the
contract or the relationship is an agricultural land that is leased or rented for the purpose of agricultural production; (2)
the size of the landholding is such that it is susceptible of personal cultivation by a single person with the assistance
of the members of his immediate farm household; (3) the tenant-lessee must actually and personally till, cultivate or
operate the land, solely or with the aid of labor from his immediate farm household; and (4) the landlord-lessor, who is
either the lawful owner or the legal possessor of the land, leases the same to the tenant-lessee for a price certain or
ascertainable either in an amount of money or produce.
AGENCY - ARTICLES 1868-1879
It can be gleaned that in both civil law lease of an agricultural land and agricultural lease, the lessor gives to the
lessee the use and possession of the land for a price certain. Although the purpose of the civil law lease and the
agricultural lease may be agricultural cultivation and production, the distinctive attribute that sets a civil law lease
apart from an agricultural lease is the personal cultivation by the lessee. An agricultural lessee cultivates by himself
and with the aid of those of his immediate farm household. Conversely, even when the lessee is in possession of the
leased agricultural land and paying a consideration for it but is not personally cultivating the land, he or she is a civil
law lessee.
The only issue remaining to be resolved is whether or not Jorge personally cultivated the leased agricultural land.
Cultivation is not limited to the plowing and harrowing of the land, but includes the various phases of farm labor such
as the maintenance, repair and weeding of dikes, paddies and irrigation canals in the landholding. Moreover, it covers
attending to the care of the growing plants, 23 and grown plants like fruit trees that require watering, fertilizing,
uprooting weeds, turning the soil, fumigating to eliminate plant pests 24 and all other activities designed to promote the
growth and care of the plants or trees and husbanding the earth, by general industry, so that it may bring forth more
products or fruits.25 In Tarona v. Court of Appeals,26 this Court ruled that a tenant is not required to be physically
present in the land at all hours of the day and night provided that he lives close enough to the land to be cultivated to
make it physically possible for him to cultivate it with some degree of constancy.
Nor was there any question that the parcels of agricultural land with a total area of 7.9 hectares involved herein were
susceptible of cultivation by a single person with the help of the members of his immediate farm household. As the
Court has already observed, an agricultural land of an area of four hectares, 27 or even of an area as large as 17
hectares,28 could be personally cultivated by a tenant by himself or with help of the members of his farm household.
It is elementary that he who alleges the affirmative of the issue has the burden of proof. 29 Hence, Jorge, as the one
claiming to be an agricultural tenant, had to prove all the requisites of his agricultural tenancy by substantial
evidence.30 In that regard, his knowledge of and familiarity with the landholding, its production and the instances when
the landholding was struck by drought definitely established that he personally cultivated the land. 31 His ability to farm
the seven hectares of land despite his regular employment as an Agricultural Technician at the Municipal Agriculture
Office32 was not physically impossible for him to accomplish considering that his daughter, a member of his immediate
farm household, was cultivating one of the parcels of the land. 33 Indeed, the law did not prohibit him as the agricultural
lessee who generally worked the land himself or with the aid of member of his immediate household from availing
himself occasionally or temporarily of the help of others in specific jobs. 34 In short, the claim of the petitioners that the
employment of Jorge as an Agricultural Technician at the Municipal Agriculture Office disqualified him as a tenant
lacked factual or legal basis.
Section 7 of Republic Act No. 3844 provides that once there is an agricultural tenancy, the agricultural tenant’s right to
security of tenure is recognized and protected. The landowner cannot eject the agricultural tenant from the land
unless authorized by the proper court for causes provided by law. Section 36 of Republic Act No. 3844, as amended
by Republic Act No. 6389, enumerates the several grounds for the valid dispossession of the tenant. 35 It is
underscored, however, that none of such grounds for valid dispossession of landholding was attendant in Jorge’s
case.
Although the CA has correctly categorized Jorge’s case as an agrarian dispute, it ruled that the RTC lacked
jurisdiction over the case based on Section 50 of Republic Act No. 6657, which vested in the Department of Agrarian
Reform (DAR) the "primary jurisdiction to determine and adjudicate agrarian reform matters" and the "exclusive
original jurisdiction over all matters involving the implementation of agrarian reform" except disputes falling under the
exclusive jurisdiction of the Department of Agriculture and the Department of Environment and Natural Resources.
We hold that the CA gravely erred. The rule is settled that the jurisdiction of a court is determined by the statute in
force at the time of the commencement of an action. 36 In 1980, upon the passage of Batas Pambansa Blg. 129
(Judiciary Reorganization Act), the Courts of Agrarian Relations were integrated into the Regional Trial Courts and the
jurisdiction of the Courts of Agrarian Relations was vested in the Regional Trial Courts. 37 It was only on August 29,
1987, when Executive Order No. 229 took effect, that the general jurisdiction of the Regional Trial Courts to try
Page 46 of 88
agrarian reform matters was transferred to the DAR. Therefore, the RTC still had jurisdiction over the dispute at the
time the complaint was filed in the RTC on June 30, 1986.
WHEREFORE, the Court GRANTS the petition for review on certiorari by PARTIALLY AFFIRMING the decision of the
Court of Appeals to the extent that it upheld the tenancy relationship of the parties; DISMISSES the complaint for
recovery of possession and accounting; and ORDERS the petitioners to pay the costs of suit.
The parties are ordered to comply with their undertakings as agricultural lessor and agricultural lessee.
SO ORDERED.
Art. 1873. If a person specially informs another or states by public advertisement that he has given a power of
attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case with respect to the
person who received the special information, and in the latter case with regard to any person.
The power shall continue to be in full force until the notice is rescinded in the same manner in which it was given. (n)
G.R. No. 163553 December 11, 2009
YUN KWAN BYUNG, Petitioner,
vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review 1 assailing the Court of Appeals’ Decision2 dated 27 May
2003 in CA-G.R. CV No. 65699 as well as the Resolution 3 dated 7 May 2004 denying the Motion for Reconsideration.
In the assailed decision, the Court of Appeals (CA) affirmed the Regional Trial Court’s Decision 4dated 6 May 1999.
The Regional Trial Court of Manila, Branch 13 (trial court), dismissed petitioner’s demand against respondent
Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling clubs and
casinos as a means to promote tourism and generate sources of revenue for the government. To achieve these
objectives, PAGCOR is vested with the power to enter into contracts of every kind and for any lawful purpose that
pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign Highroller Marketing Program
(Program). The Program aims to invite patrons from foreign countries to play at the dollar pit of designated PAGCOR-
operated casinos under specified terms and conditions and in accordance with industry practice.5
The Korean-based ABS Corporation was one of the international groups that availed of the Program. In a letter-
agreement dated 25 April 1996 (Junket Agreement), ABS Corporation agreed to bring in foreign players to play at the
AGENCY - ARTICLES 1868-1879
five designated gaming tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino).
The relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket chips. The junket chips will be distinguished
from the chips being used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its players and at the end of the playing period, ABS
Corporation will collect the junket chips from its players and make an accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the winnings of its foreign players and settle the
collectibles from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any damage, claim or liability
which may arise from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled to receive
from ABS Corporation a 12.5% share in the gross winnings of ABS Corporation or 1.5 million US dollars,
whichever is higher, over a playing period of 6 months. PAGCOR has the option to extend the period. 6
Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the Philippines four times
to play for high stakes at the Casino Filipino.7 Petitioner claims that in the course of the games, he was able to
accumulate gambling chips worth US$2.1 million. Petitioner presented as evidence during the trial gambling chips
with a face value of US$1.1 million. Petitioner contends that when he presented the gambling chips for encashment
with PAGCOR’s employees or agents, PAGCOR refused to redeem them.8
Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued at US$2.1 million.
Petitioner claims that he won the gambling chips at the Casino Filipino, playing continuously day and night. Petitioner
alleges that every time he would come to Manila, PAGCOR would extend to him amenities deserving of a high roller. A
PAGCOR official who meets him at the airport would bring him to Casino Filipino, a casino managed and operated by
PAGCOR. The card dealers were all PAGCOR employees, the gambling chips, equipment and furnitures belonged to
PAGCOR, and PAGCOR enforced all the regulations dealing with the operation of foreign exchange gambling pits.
Petitioner states that he was able to redeem his gambling chips with the cashier during his first few winning trips. But
later on, the casino cashier refused to encash his gambling chips so he had no recourse but to deposit his gambling
chips at the Grand Boulevard Hotel’s deposit box, every time he departed from Manila.9
PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket player who
played in the dollar pit exclusively leased by ABS Corporation for its junket players. PAGCOR alleges that it provided
ABS Corporation with distinct junket chips. ABS Corporation distributed these chips to its junket players. At the end of
each playing period, the junket players would surrender the chips to ABS Corporation. Only ABS Corporation would
make an accounting of these chips to PAGCOR’s casino treasury. 10
As additional information for the junket players playing in the gaming room leased to ABS Corporation, PAGCOR
posted a notice written in English and Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is solely
accountable for all PLAYING CHIPS wagered on the tables. Any financial ARRANGEMENT/TRANSACTION between
PLAYERS and ABS shall only be binding upon said PLAYERS and ABS. 11
PAGCOR claims that this notice is a standard precautionary measure 12 to avoid confusion between junket players of
ABS Corporation and PAGCOR’s players.
Page 47 of 88
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCOR’s gaming rules, gambling chips
cannot be brought outside the casino. The gambling chips must be converted to cash at the end of every gaming
period as they are inventoried every shift. Under PAGCOR’s rules, it is impossible for PAGCOR players to accumulate
two million dollars worth of gambling chips and to bring the chips out of the casino premises. 13
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused to encash
the gambling chips, petitioner filed a complaint for a sum of money before the trial court. 14 PAGCOR filed a
counterclaim against petitioner. Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial court’s decision
to the CA. On 27 May 2003, the CA affirmed the appealed decision. On 27 June 2003, petitioner moved for
reconsideration which was denied on 7 May 2004.
Aggrieved by the CA’s decision and resolution, petitioner elevated the case before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCOR’s charter, 15 PAGCOR has no authority to lease any portion of the
gambling tables to a private party like ABS Corporation. Section 13 of Presidential Decree No. 1869 or the PAGCOR’s
charter states:
Sec. 13. Exemptions -
xxx
(4) Utilization of Foreign Currencies – The Corporation shall have the right and authority, solely and exclusively in
connection with the operations of the casino(s), to purchase, receive, exchange and disburse foreign exchange,
subject to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players and
patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central
Bank, to handle, administer and manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated
bank, agent of the Central Bank, where the Corporation shall maintain a dollar account which will be utilized
exclusively for the above purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly issued by
the government or country of their residence will be allowed to play in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the following
foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be used in this
gaming pit;
(f) The disbursement, administration, management and recording of foreign exchange currencies used in
the casino(s) shall be carried out in accordance with existing foreign exchange regulations, and periodical
reports of the transactions in such foreign exchange currencies by the Corporation shall be duly recorded
and reported to the Central Bank thru the designated Agent Bank; and
AGENCY - ARTICLES 1868-1879
(g) The Corporation shall issue the necessary rules and regulations for the guidance and information of
players qualified to participate in the foreign exchange gaming pit, in order to make certain that the terms
and conditions as above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in its gaming tables. When PAGCOR accepted only
a fixed portion of the dollar earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR shared its
franchise with ABS Corporation in violation of the PAGCOR’s charter. Hence, the Junket Agreement is void. Since the
Junket Agreement is not permitted by PAGCOR’s charter, the mutual rights and obligations of the parties to this case
would be resolved based on agency and estoppel.16
The trial court found that the petitioner wanted to redeem gambling chips that were specifically used by ABS
Corporation at its gaming tables. The gambling chips come in distinctive orange or yellow colors with stickers bearing
denominations of 10,000 or 1,000. The 1,000 gambling chips are smaller in size and the words "no cash value"
marked on them. The 10,000 gambling chips do not reflect the "no cash value" sign. The senior treasury head of
PAGCOR testified that these were the gambling chips used by the previous junket operators and PAGCOR merely
continued using them. However, the gambling chips used in the regular casino games were of a different quality. 17
The trial court pointed out that PAGCOR had taken steps to warn players brought in by all junket operators, including
ABS Corporation, that they were playing under special rules. Apart from the different kinds of gambling chips used,
the junket players were confined to certain gaming rooms. In these rooms, notices were posted that gambling chips
could only be encashed there and nowhere else. A photograph of one such notice, printed in Korean and English,
stated that the gaming room was exclusively operated by ABS Corporation and that ABS Corporation was solely
accountable for all the chips wagered on the gaming tables. Although petitioner denied seeing this notice, this
disclaimer has the effect of a negative evidence that can hardly prevail against the positive assertions of PAGCOR
officials whose credibility is also not open to doubt. The trial court concluded that petitioner had been alerted to the
existence of these special gambling rules, and the mere fact that he continued to play under the same restrictions
over a period of several months confirms his acquiescence to them. Otherwise, petitioner could have simply chose to
stop gambling.18
In dismissing petitioner’s complaint, the trial court concluded that petitioner’s demand against PAGCOR for the
redemption of the gambling chips could not stand. The trial court stated that petitioner, a stranger to the agreement
between PAGCOR and ABS Corporation, could not under principles of equity be charged with notice other than of the
apparent authority with which PAGCOR had clothed its employees and agents in dealing with petitioner. Since
petitioner was made aware of the special rules by which he was playing at the Casino Filipino, petitioner could not
now claim that he was not bound by them. The trial court explained that in an unlawful transaction, the courts will
extend equitable relief only to a party who was unaware of all its dimensions and whose ignorance of them exposed
him to the risk of being exploited by the other. Where the parties enter into such a relationship with the opportunity to
know all of its ramifications, as in this case, there is no room for equitable considerations to come to the rescue of any
party. The trial court ruled that it would leave the parties where they are.19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also denies seeing a notice
that certain gaming rooms were exclusively operated by entities under special agreement.20
The CA ruled that the records do not support petitioner’s theory. Petitioner’s own testimony reveals that he enjoyed
special accommodations at the Grand Boulevard Hotel. This similar accommodation was extended to players brought
in by ABS Corporation and other junket operators. Petitioner cannot disassociate himself from ABS Corporation for it
is unlikely that an unknown high roller would be accorded choice accommodations by the hotel unless the
accommodation was facilitated by a junket operator who enjoyed such privilege. 21
Page 48 of 88
The CA added that the testimonies of PAGCOR’s employees affirming that notices were posted in English and Korean 2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency, when
in the gaming areas are credible in the absence of any convincing proof of ill motive. Further, the specified gaming such is not relevant since the instant case involves liability of the presumed principal in implied agency to a
areas used only special chips that could be bought and exchanged at certain cashier booths in that area.22 third party; and

Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement is void, the notice, 3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the
which was issued pursuant to the Junket Agreement, is also void and cannot affect petitioner.23 agent, ABS Corporation.34

The CA reasoned that the trial court never declared the notice valid and neither did it enforce the contents thereof. The Ruling of the Court
The CA emphasized that it was the act of cautioning and alerting the players that was upheld. The trial court ruled that
signs and warnings were in place to inform the public, petitioner included, that special rules applied to certain gaming
The petition lacks merit.
areas even if the very agreement giving rise to these rules is void. 24

Courts will not enforce debts arising from illegal gambling

Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS Corporation. 25

Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised
The CA disagreed with petitioner’s view. A void contract has no force and effect from the very beginning. It produces
Penal Code, as amended. Gambling is an act beyond the pale of good morals, 35 and is thus prohibited and punished
no effect either against or in favor of anyone. Neither can it create, modify or extinguish the juridical relation to which it
to repress an evil that undermines the social, moral, and economic growth of the nation. 36 Presidential Decree No.
refers. Necessarily, the Junket Agreement, being void from the beginning, cannot give rise to an implied agency. The
1602 (PD 1602),37 which modified Articles 195-199 of the Revised Penal Code and repealed inconsistent
CA explained that it cannot see how the principle of implied agency can be applied to this case. Article 1883 26of the
provisions,38 prescribed stiffer penalties on illegal gambling.39
Civil Code applies only to a situation where the agent is authorized by the principal to enter into a particular
transaction, but instead of contracting on behalf of the principal, the agent acts in his own name.27
As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated under
Presidential Decree No. 1869, which gave PAGCOR its franchise to maintain and operate gambling casinos. The
The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR entered into a
issue then turns on whether PAGCOR can validly share its franchise with junket operators to operate gambling
Junket Agreement to lease to ABS Corporation certain gaming areas. It was never PAGCOR’s intention to deal with
casinos in the country. Section 3(h) of PAGCOR’s charter states:
the junket players. Neither did PAGCOR intend ABS Corporation to represent PAGCOR in dealing with the junket
players. Representation is the basis of agency but unfortunately for petitioner none is found in this case. 28
Section 3. Corporate Powers. - The Corporation shall have the following powers and functions, among others:
The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the void Junket
Agreement with ABS Corporation. In Article 1883, the phrase "things belonging to the principal" refers only to those xxx
things or properties subject of a particular transaction authorized by the principal to be entered into by its purported
agent. Necessarily, the gambling chips being mere incidents to the void lease agreement cannot fall under this
h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose pertaining to the
category.29
business of the Corporation, or in any manner incident thereto, as principal, agent or otherwise, with any person, firm,
association, or corporation.
The CA ruled that Article 215230 of the Civil Code is also not applicable. The circumstances relating to negotiorum
gestio are non-existent to warrant an officious manager to take over the management and administration of
xxx
PAGCOR.31

The Junket Agreement would be valid if under Section 3(h) of PAGCOR’s charter, PAGCOR could share its gambling
Fourth, petitioner asks for equitable relief.32
franchise with another entity. In Senator Jaworski v. Phil. Amusement and Gaming Corp., 40 the Court discussed the
extent of the grant of the legislative franchise to PAGCOR on its authority to operate gambling casinos:
The CA explained that although petitioner was never a party to the void Junket Agreement, petitioner cannot deny or
feign blindness to the signs and warnings all around him. The notices, the special gambling chips, and the separate
A legislative franchise is a special privilege granted by the state to corporations. It is a privilege of public concern
gaming areas were more than enough to alert him that he was playing under different terms. Petitioner persisted and
which cannot be exercised at will and pleasure, but should be reserved for public control and administration, either by
continued to play in the casino. Petitioner also enjoyed the perks extended to junket players of ABS Corporation. For
the government directly, or by public agents, under such conditions and regulations as the government may impose
failing to heed these signs and warnings, petitioner can no longer be permitted to claim equitable relief. When parties
on them in the interest of the public. It is Congress that prescribes the conditions on which the grant of the franchise
do not come to court with clean hands, they cannot be allowed to profit from their own wrong doing. 33
may be made. Thus the manner of granting the franchise, to whom it may be granted, the mode of conducting the
business, the charter and the quality of the service to be rendered and the duty of the grantee to the public in
The Issues exercising the franchise are almost always defined in clear and unequivocal language.

Petitioners raise three issues in this petition: After a circumspect consideration of the foregoing discussion and the contending positions of the parties, we hold that
PAGCOR has acted beyond the limits of its authority when it passed on or shared its franchise to SAGE.
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of
implied agency, or agency by estoppel; In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint venture agreement with two
other entities in the operation and management of jai alai games, the Court, in an En Banc Resolution dated 24

AGENCY - ARTICLES 1868-1879 Page 49 of 88

August 2001, partially granted the motions for clarification filed by respondents therein insofar as it prayed that PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment raised in
PAGCOR has a valid franchise, but only by itself (i.e. not in association with any other person or entity), to operate, Senator Jaworski v. Phil. Amusement and Gaming Corp.
maintain and/or manage the game of jai-alai.
Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was entered into
In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the latter the authority to between PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD 1869)
operate and maintain sports betting stations and Internet gaming operations. In essence, the grant of authority gives prohibited PAGCOR from entering into any arrangement with a third party that would allow such party to actively
SAGE the privilege to actively participate, partake and share PAGCOR’s franchise to operate a gambling activity. The participate in the casino operations.
grant of franchise is a special privilege that constitutes a right and a duty to be performed by the grantee. The grantee
must not perform its activities arbitrarily and whimsically but must abide by the limits set by its franchise and strictly
It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them
adhere to its terms and conditionalities. A corporation as a creature of the State is presumed to exist for the common
retroactive effect is expressly declared or is necessarily implied from the language used. 44 RA 9487 does not provide
good. Hence, the special privileges and franchises it receives are subject to the laws of the State and the limitations of
for any retroactivity of its provisions. All laws operate prospectively absent a clear contrary language in the text, 45 and
its charter. There is therefore a reserved right of the State to inquire how these privileges had been employed, and
that in every case of doubt, the doubt will be resolved against the retroactive operation of laws.46
whether they have been abused. (Emphasis supplied)

Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving rise to the
Thus, PAGCOR has the sole and exclusive authority to operate a gambling activity. While PAGCOR is allowed under
claimed liabilities took place. This makes the gambling activity participated in by petitioner illegal. Petitioner cannot
its charter to enter into operator’s or management contracts, PAGCOR is not allowed under the same charter to
sue PAGCOR to redeem the cash value of the gambling chips or recover damages arising from an illegal activity for
relinquish or share its franchise. PAGCOR cannot delegate its power in view of the legal principle of delegata potestas
two reasons. First, petitioner engaged in gambling with ABS Corporation and not with PAGCOR. Second, the court
delegare non potest, inasmuch as there is nothing in the charter to show that it has been expressly authorized to do
cannot assist petitioner in enforcing an illegal act. Moreover, for a court to grant petitioner’s prayer would mean
so.41
enforcing the Junket Agreement, which is void.

Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its foreign
Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party proceeding
currency collection, allowed ABS Corporation to operate gaming tables in the dollar pit. The Junket Agreement is in
against the liability of a presumed principal and claims relief, alternatively, on the basis of implied agency or agency by
direct violation of PAGCOR’s charter and is therefore void.
estoppel.

Since the Junket Agreement violates PAGCOR’s charter, gambling between the junket player and the junket operator
Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his silence or
under such agreement is illegal and may not be enforced by the courts. Article 2014 42 of the Civil Code, which refers
lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without
to illegal gambling, states that no action can be maintained by the winner for the collection of what he has won in a
authority. Implied agency, being an actual agency, is a fact to be proved by deductions or inferences from other
game of chance.
facts.47

Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of Republic Act No.
948743 (RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special agreement with third
parties to share the privileges under its franchise for the operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise granted under Presidential
Decree No. 1869 otherwise known as the PAGCOR Charter, is hereby further amended to read as follows:
xxx
On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may
knowingly permit the agent to hold himself out as having such authority, and the principal becomes estopped to claim
that the agent does not have such authority. Second, the principal may clothe the agent with the indicia of authority as
to lead a reasonably prudent person to believe that the agent actually has such authority. 48 In an agency by estoppel,
there is no agency at all, but the one assuming to act as agent has apparent or ostensible, although not real, authority
to represent another.49
The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person
alleging it.50 Whether or not an agency has been created is a question to be determined by the fact that one
represents and is acting for another. 51

Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel
(2) Section 3(h) is hereby amended to read as follows:

"SEC. 3. Corporate Powers. -
"x x x
"(h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature and for any lawful
purpose which are necessary, appropriate, proper or incidental to any business or purpose of the PAGCOR, including
but not limited to investment agreements, joint venture agreements, management agreements, agency agreements,
whether as principal or as an agent, manpower supply agreements, or any other similar agreements or arrangements
with any person, firm, association or corporation." (Boldfacing supplied)
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that no actual
agency existed between PAGCOR and ABS Corporation, there is still an agency by estoppel based on the acts and
conduct of PAGCOR showing apparent authority in favor of ABS Corporation. Petitioner states that one factor which
distinguishes agency from other legal precepts is control and the following undisputed facts show a relationship of
implied agency:
1. Three floors of the Grand Boulevard Hotel 52 were leased to PAGCOR for conducting gambling
operations;53

AGENCY - ARTICLES 1868-1879 Page 50 of 88

 2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign exchange
gambling, conducted by PAGCOR dealers using PAGCOR facilities, operated by PAGCOR employees and
using PAGCOR chips bearing the PAGCOR logo;54
3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to ABS
Corporation in that part of the casino and at the end of the day, PAGCOR conducted an inventory of the
gambling chips;55
The trial court has declared, and we affirm, that the Junket Agreement is void. A void or inexistent contract is one
which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be
validated either by the passage of time or by ratification.64 Article 1409 of the Civil Code provides that contracts
expressly prohibited or declared void by law, such as gambling contracts, "cannot be ratified." 65
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals’ Decision dated 27 May 2003 as well as the
Resolution dated 7 May 2004 as modified by this Decision.

4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA), the official SO ORDERED.
auditor of PAGCOR;56

5. PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the
gambling pit used by ABS Corporation.57
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void. (n)
Petitioner’s argument is clearly misplaced. The basis for agency is representation, 58 that is, the agent acts for and on
behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they
G.R. No. 122544 January 28, 1999
were personally executed by the principal.59 On the part of the principal, there must be an actual intention to appoint
or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention
to accept the appointment and act on it.60 Absent such mutual intent, there is generally no agency.61 REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs.
There is no implied agency in this case because PAGCOR did not hold out to the public as the principal of ABS
COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.
Corporation. PAGCOR’s actions did not mislead the public into believing that an agency can be implied from the
arrangement with the junket operators, nor did it hold out ABS Corporation with any apparent authority to represent it
in any capacity. The Junket Agreement was merely a contract of lease of facilities and services. G.R. No. 124741 January 28, 1999

The players brought in by ABS Corporation were covered by a different set of rules in acquiring and encashing chips.
The players used a different kind of chip than what was used in the regular gaming areas of PAGCOR, and that such
junket players played specifically only in the third floor area and did not mingle with the regular patrons of PAGCOR.
Furthermore, PAGCOR, in posting notices stating that the players are playing under special rules, exercised the
necessary precaution to warn the gaming public that no agency relationship exists.1avvphi1
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES, INC., respondents.

For the second assigned error, petitioner claims that the intention of the parties cannot apply to him as he is not a
party to the contract.
MARTINEZ, J.:

We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining whether an
Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions of
agency by estoppel existed in this case. An agency by estoppel, which is similar to the doctrine of apparent authority
respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural intricacies
requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated
which finally found its way to this Court.
the action taken in reliance.62

G.R. No. 122544:

There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or
conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant, and such must have produced a change of position to its
detriment.63 Such proof is lacking in this case.
In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS Corporation, and availing
of the privileges extended only to players brought in by ABS Corporation. The facts that he enjoyed special treatment
upon his arrival in Manila and special accommodations in Grand Boulevard Hotel, and that he was playing in special
gaming rooms are all indications that petitioner cannot claim good faith that he believed he was dealing with
PAGCOR. Petitioner cannot be considered as an innocent third party and he cannot claim entitlement to equitable
relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS Corporation.
On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease with
Option to Buy with petitioners1 (lessors) involving a 1,755.80 square meter parcel of land situated at corner MacArthur
Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one (1) year commencing from
May 16, 1974 up to May 15, 1975. During this period, private respondent was granted an option to purchase for the
amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of
P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners
filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then City Court (now
Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court rendered
judgment 2ordering private respondent to vacate the leased premises and to pay the sum of P624,000.00
representing rentals in arrears and/or as damages in the form of reasonable compensation for the use and occupation

AGENCY - ARTICLES 1868-1879 Page 51 of 88

of the premises during the period of illegal detainer from June 1976 to November 1982 at the monthly rental of
P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976, the date of filing of the
complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until private respondent fully
vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the enforcement
of said judgment and dismissal of the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals) rendered a decision 4stating
that:
. . ., the alleged question of whether petitioner was granted an extension of the option to buy the property;
whether such option, if any, extended the lease or whether petitioner actually paid the alleged P300,000.00
to Fidela Dizon, as representative of private respondents in consideration of the option and, whether
petitioner thereafter offered to pay the balance of the supposed purchase price, are all merely incidental
and do not remove the unlawful detainer case from the jurisdiction or respondent court. In consonance with
the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and decided in
the unlawful detainer suit as, to rule otherwise, would be a violation of the principle prohibiting multiplicity of
suits. (Original Records, pp. 38-39).
The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution dated June 19,
1985 and likewise denied private respondent's subsequent motion for reconsideration in a resolution dated
September 9, 1985. 5
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil Case No. Q-
45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the issuance of a
restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to compel the execution of
a deed of sale pursuant to the option to purchase and the receipt of the partial payment, and to fix the period to pay
the balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of preliminary injunction
on the ground that the decision of the then City Court for the ejectment of the private respondent, having been
affirmed by the then Intermediate Appellate Court and the Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102 (Civil Case
No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with injunction and
damages. In its decision 6 dated May 12, 1986, the trial court dismissed the complaint for annulment on the ground
of res judicata, and the writ of preliminary injunction previously issued was dissolved. It also ordered private
respondent to pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion for reconsideration,
the preliminary injunction was reinstated, thereby restraining the execution of the City Court's judgment on the
ejectment case.
The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989, a
decision 7 was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific performance
case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the ejectment case). The
motion for reconsideration of said decision was likewise denied.
On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the City Court of Quezon
City in the ejectment case. It also concluded that there was a perfected contract of sale between the parties on the
leased premises and that pursuant to the option to buy agreement, private respondent had acquired the rights of a
vendee in a contract of sale. It opined that the payment by private respondent of P300,000.00 on June 20, 1975 as
partial payment for the leased property, which petitioners accepted (through Alice A. Dizon) and for which an official
receipt was issued, was the operative act that gave rise to a perfected contract of sale, and that for failure of
petitioners to deny receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went further by stating
that in fact, what was entered into was a "conditional contract of sale" wherein ownership over the leased property
AGENCY - ARTICLES 1868-1879
shall not pass to the private respondent until it has fully paid the purchase price. Since private respondent did not
consign to the court the balance of the purchase price and continued to occupy the subject premises, it had the
obligation to pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price. The dispositive
portion of said decision reads:
WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The appealed decision in Case
No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-appellees are ordered to
execute the deed of absolute sale of the property in question, free from any lien or encumbrance
whatsoever, in favor of the plaintiff-appellant, and to deliver to the latter the said deed of sale, as well as the
owner's duplicate of the certificate of title to said property upon payment of the balance of the purchase
price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June
1976, plus 6% interest per annum, until payment of the balance of the purchase price, as previously agreed
upon by the parties.
SO ORDERED.
Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of
Appeals, 10petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon as agent of
petitioners in receiving private respondent's partial payment amounting to P300,000.00 pursuant to the Contract of
Lease with Option to Buy. Petitioner also assail the propriety of private respondent's exercise of the option when it
tendered the said amount on June 20, 1975 which purportedly resulted in a perfected contract of sale.
G.R. No. 124741:
Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-29155
(ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution of the
judgment 11 dated November 22, 1982 which was granted in a resolution dated June 29, 1992. Private respondent
filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or restraining
order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September 16, 1992 on the
ground that the same was a refiled case previously dismissed for lack of merit. On November 26, 1992, entry of
judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case No. 38-29155
with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the issuance of a third alias
writ of execution. In denying private respondent's motion for reconsideration, it ordered the immediate implementation
of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City, Branch 104 a
petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC. No. 93-18722)
challenging the enforceability and validity of the MTC judgment as well as the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
order12 granting the issuance of a writ of preliminary injunction upon private respondent's' posting of an injunction
bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a
petition 13 for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary injunction with
the Court of Appeals. In its decision, 14 the Court of Appeals dismissed the petition and ruled that:
Page 52 of 88
 The avowed purpose of this petition is to enjoin the public respondent from restraining the ejectment of the
private respondent. To grant the petition would be to allow the ejectment of the private respondent. We
cannot do that now in view of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged
right to eject private respondent has been demonstrated to be without basis in the said civil case. The
petitioners have been shown, after all, to have no right to eject private respondents.
WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.
SO ORDERED. 15
Petitioners' motion for reconsideration was denied in a resolution 16
by the Court of Appeals stating that:
This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-appellant (private
respondent herein) acquired the rights of a vendee in a contract of sale, in effect, recognizing the right of
the private respondent to possess the subject premises. Considering said decision, we should not allow
ejectment; to do so would disturb the status quo of the parties since the petitioners are not in possession of
the subject property. It would be unfair and unjust to deprive the private respondent of its possession of the
subject property after its rights have been established in a subsequent ruling.
WHEREFORE, the motion for reconsideration is DENIED for lack of merit.
SO ORDERED. 17
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the subject premises for non-payment of
rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May
15, 1975) during which the private respondent was given an option to purchase said property at P3,000.00 square
meter. After the expiration thereof, the lease was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private
respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from month
to month in accordance with Article 1687 of the New Civil Code. 18 Where the rentals are paid monthly, the lease, even
if verbal may be deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in
relation to Article 1673 of the Civil Code. 19 In such case, a demand to vacate is not even necessary for judicial action
after the expiration of every month. 20
When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the petitioners had
a cause of action to institute an ejectment suit against the former with the then City Court. In this regard, the City
Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the
Regional Trial Court for specific performance to enforce the option to purchase did not divest the then City Court of its
jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of the City Court was
affirmed by both the Intermediate Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot enforce
its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the option still subsists
at the time private respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce the
option to purchase was filed only on October 7, 1985 or more than ten (10) years after accrual of the cause of action
as provided under Article 1144 of the New Civil Code.21
AGENCY - ARTICLES 1868-1879
In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired
without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there
was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease
which are revived in the implied new lease under Article 1670 of the New Civil Code 22 are only those terms which are
germane to the lessee's right of continued enjoyment of the property leased. 23 Therefore, an implied new lease does
not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased
premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in
the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to
exercise the option to purchase expired with the termination of the original contract of lease for one year. The
rationale of this Court is that:
This is a reasonable construction of the provision, which is based on the presumption that when the lessor
allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the
contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is
customarily paid — in this case up to the end of the month because the rent was paid monthly. Necessarily,
if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other
terms of the contract related to such possession, such as the amount of rental, the date when it must be
paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in
with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment
inherent in a contract of lease. 24
Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent argued
that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the
supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further contended that
petitioners' filing of the ejectment case against it based on the contract of lease with option to buy holds petitioners in
estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial
payment of the purchase price constituted a valid exercise of the option to buy.
Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of contracts." Thus, the elements of a
contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of
these essential elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he
who alleges it must show its existence by competent proof. 25
In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon)
on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant to
the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the leased
premises) on the supposed sale entered into by Alice A. Dizon, as petitioners' alleged agent, and private respondent.
The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon
his peril the authority of the agent. 26 As provided in Article 1868 of the New Civil Code, 27 there was no showing that
petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with regard to her
transaction with private respondent. The most prudent thing private respondent should have done was to ascertain
the extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on
the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent:
Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the
agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his
ignorance of that authority will not be any excuse. Persons dealing with an assumed agency, whether the
assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to establish it.
Page 53 of 88
For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in favor of
petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case would really
attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994 and the
resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995
and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and
SET ASIDE.
Let the records of this case be remanded to the trial court for immediate execution of the judgment dated November
22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII
as affirmed in the decision dated September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals)
and in the resolution dated June 19, 1985 of this Court.
However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received
through Alice A. Dizon on June 20, 1975.1âwphi1.nêt
SO ORDERED.
Art. 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary. (n)
Art. 1876. An agency is either general or special.
The former comprises all the business of the principal. The latter, one or more specific transactions. (1712)
G.R. No. L-67889 October 10, 1985
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO, respondents.
Payawal, Jimenez & Associates for petitioners.
Nelson A. Loyola for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Intermediate Appellate Court affirming in toto the judgment of the
Court of First Instance of Manila, Branch XXI, which ordered the petitioner to pay respondent the thirty percent (30%)
commission on 15,666 pieces of Philippine flags worth P936,960.00, moral damages, attorney's fees and the costs of
the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the then Department of
Education and Culture, hereinafter called Department, to purchase without public bidding, one million pesos worth of
national flags for the use of public schools throughout the country. The respondent was able to expedite the approval
of the purchase by hand-carrying the different indorsements from one office to another, so that by the first week of
AGENCY - ARTICLES 1868-1879
September, 1974, all the legal requirements had been complied with, except the release of the purchase orders.
When Nacianceno was informed by the Chief of the Budget Division of the Department that the purchase orders could
not be released unless a formal offer to deliver the flags in accordance with the required specifications was first
submitted for approval, she contacted the owners of the United Flag Industry on September 17, 1974. The next day,
after the transaction was discussed, the following document (Exhibit A) was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United Flag Industry to deal with any entity
or organization, private or government in connection with the marketing of our products-flags and
all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The next day, on October
17, 1974, the respondent's authority to represent the United Flag Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment of P469,980.00 on October 23, 1974
for the first delivery, tendered the amount of P23,900.00 or five percent (5%) of the amount received, to the
respondent as payment of her commission. The latter allegedly protested. She refused to accept the said amount
insisting on the 30% commission agreed upon. The respondent was prevailed upon to accept the same, however,
because of the assurance of the petitioners that they would pay the commission in full after they delivered the other
half of the order. The respondent states that she later on learned that petitioner Siasat had already received payment
for the second delivery of 7,833 flags. When she confronted the petitioners, they vehemently denied receipt of the
payment, at the same time claiming that the respondent had no participation whatsoever with regard to the second
delivery of flags and that the agency had already been revoked.
The respondent originally filed a complaint with the Complaints and Investigation Office in Malacañang but when
nothing came of the complaint, she filed an action in the Court of First Instance of Manila to recover the following
commissions: 25%, as balance on the first delivery and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the plaintiff the sum of
P281,988.00, minus the sum P23,900.00, with legal interest from the date of this decision, and ordering the
defendants to pay jointly and solidarily the sum of P25,000.00 as moral damages, and P25,000.00 as
attorney's fees, also with legal interest from the date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for reconsideration was
denied, the petitioners went to this Court on a petition for review on August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following arguments: first, the authorization making
the respondent the petitioner's representative merely states that she could deal with any entity in connection with the
marketing of their products for a commission of 30%. There was no specific authorization for the sale of 15,666
Philippine flags to the Department; second, there were two transactions involved evidenced by the separate purchase
orders and separate delivery receipts, Exhibit 6-C for the purchase and deliver on October 16, 1974, and Exhibits 7 to
Page 54 of 88
7-C, for the purchase and delivery on November 6, 1974. The revocation of agency effected by the parties with mutual
consent on October 17, 1974, therefore, forecloses the respondent's claim of 30% commission on the second
transaction; and last, there was no basis for the granting of attorney's fees and moral damages because there was no
showing of bad faith on the part of the petitioner. It was respondent who showed bad faith in denying having received
her commission on the first delivery. The petitioner's counterclaim, therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a motion for reconsideration,
however,this Court give due course to the petition on November 14, 1984.
After a careful review of the records, we are constrained to sustain with some modifications the decision of the
appellate court.
We find respondent's argument regarding respondent's incapacity to represent them in the transaction with the
Department untenable. There are several kinds of agents. To quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal; agent is one authorized to do all acts
for his principal which can lawfully be delegated to an agent. So far as such a condition is possible, such an
agent may be said to have universal authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a business of a certain kind or at a particular
place, or all acts pertaining to a business of a particular class or series. He has usually authority either
expressly conferred in general terms or in effect made general by the usages, customs or nature of the
business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the business of his principal of a particular kind or in
a particular place, would, for this reason, be ordinarily deemed a general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act upon some particular occasion. lie acts
usually in accordance with specific instructions or under limitations necessarily implied from the nature of
the act to be done. (Mec. Sec. 61) (Padilla, Civil Law The Civil Code Annotated, Vol. VI, 1969 Edition, p.
204).
One does not have to undertake a close scrutiny of the document embodying the agreement between the petitioners
and the respondent to deduce that the 'latter was instituted as a general agent. Indeed, it can easily be seen by the
way general words were employed in the agreement that no restrictions were intended as to the manner the agency
was to be carried out or in the place where it was to be executed. The power granted to the respondent was so broad
that it practically covers the negotiations leading to, and the execution of, a contract of sale of petitioners'
merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between the parties was entered into under
fraudulent representation because respondent "would not disclose the agency with which she was supposed to
transact and made the petitioner believe that she would be dealing with The Visayas", and that "the petitioner had
known of the transactions and/or project for the said purchase of the Philippine flags by the Department of Education
and Culture and precisely it was the one being followed up also by the petitioner."
If the circumstances were as claimed by the petitioners, they would have exerted efforts to protect their interests by
limiting the respondent's authority. There was nothing to prevent the petitioners from stating in the contract of agency
that the respondent could represent them only in the Visayas. Or to state that the Department of Education and
Culture and the Department of National Defense, which alone would need a million pesos worth of flags, are outside
the scope of the agency. As the trial court opined, it is incredible that they could be so careless after being in the
business for fifteen years.
AGENCY - ARTICLES 1868-1879
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court states that "when the terms
of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore,
there can be between the parties and their successors-in-interest, no evidence of the terms of the agreement other
than the contents of the writing", except in cases specifically mentioned in the same rule. Petitioners have failed to
show that their agreement falls under any of these exceptions. The respondent was given ample authority to transact
with the Department in behalf of the petitioners. Equally without merit is the petitioners' proposition that the transaction
involved two separate contracts because there were two purchase orders and two deliveries. The petitioners'
evidence is overcome by other pieces of evidence proving that there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget Commission on September 3,
1974 (Exhibit "C") attests to the fact that out of the total budget of the Department for the fiscal year 1975,
"P1,000,000.00 is for the purchase of national flags." This is also reflected in the Financial and Work Plan Request for
Allotment (Exhibit "F") submitted by Secretary Juan Manuel for fiscal year 1975 which however, divided the allocation
and release of the funds into three, corresponding to the second, third, and fourth quarters of the said year. Later
correspondence between the Department and the Budget Commission (Exhibits "D" and "E") show that the first
allotment of P500.000.00 was released during the second quarter. However, due to the necessity of furnishing all of
the public schools in the country with the Philippine flag, Secretary Manuel requested for the immediate release of the
programmed allotments intended for the third and fourth quarters. These circumstances explain why two purchase
orders and two deliveries had to be made on one transaction.
The petitioners' evidence does not necessarily prove that there were two separate transactions. Exhibit "6" is a
general indorsement made by Secretary Manuel for the purchase of the national flags for public schools. It contains
no reference to the number of flags to be ordered or the amount of funds to be released. Exhibit "7" is a letter request
for a "similar authority" to purchase flags from the United Flag Industry. This was, however, written by Dr. Narciso
Albarracin who was appointed Acting Secretary of the Department after Secretary Manuel's tenure, and who may not
have known the real nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a substantial part of the
government's supply procurement process would have been repeated. In this case, what were issued were mere
indorsements for the release of funds and authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners' contention that respondent Nacianceno is not
entitled to the stipulated commission on the second delivery because of the revocation of the agency effected after the
first delivery. The revocation of agency could not prevent the respondent from earning her commission because as the
trial court opined, it came too late, the contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle, this Court held:
We do not mean to question the general doctrine as to the power of a principal to revoke the authority of his
agent at will, in the absence of a contract fixing the duration of the agency (subject, however, to some well
defined exceptions). Our ruling is that at the time fixed by the manager of the plaintiff company for the
termination of the negotiations, the defendant real estate agent had already earned the commissions
agreed upon, and could not be deprived thereof by the arbitrary action of the plaintiff company in declining
to execute the contract of sale for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by cancelling the agency and, thereafter,
dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49 O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to show that the general law of contracts the
equitable principle of estoppel. and the expense of another, uphold payment of compensation for services
rendered.
Page 55 of 88
There is merit, however, in the petitioners' contention that the agent's commission on the first delivery was fully paid. case, the circumstances earlier mentioned taken with the testimony of the PC senior document examiner lead us to
The evidence does not sustain the respondent's claim that the petitioners paid her only 5% and that their right to rule against forgery.
collect another 25% commission on the first delivery must be upheld.
We also rule against the respondent's allegation that the petitioners acted in bad faith when they revoked the agency
When respondent Nacianceno asked the Malacanang Complaints and Investigation Office to help her collect her given to the respondent.
commission, her statement under oath referred exclusively to the 30% commission on the second delivery. The
statement was emphatic that "now" her demand was for the 30% commission on the (second) release of
Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient facts. To support a
P469,980.00. The demand letter of the respondent's lawyer dated November 13, 1984 asked petitioner Siasat only for
judgment for damages, facts which justify the inference of a lack or absence of good faith must be alleged and
the 30% commission due from the second delivery. The fact that the respondent demanded only the commission on
proven. (Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc., Etc., 103 SCRA 436).
the second delivery without reference to the alleged unpaid balance which was only slightly less than the amount
claimed can only mean that the commission on the first delivery was already fully paid, Considering the sizeable sum
involved, such an omission is too glaringly remiss to be regarded as an oversight. There is no evidence on record from which to conclude that the revocation of the agency was deliberately effected by
the petitioners to avoid payment of the respondent's commission. What appears before us is only the petitioner's use
in court of such a factual allegation as a defense against the respondent's claim. This alone does not per se make the
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the handwritten words "Fully
petitioners guilty of bad faith for that defense should have been fully litigated.
Paid", inscribed above it.

Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud or bad faith. (R & B
The respondent contested her signature as a forgery, Handwriting experts from two government agencies testified on
Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA 736).
the matter. The reason given by the trial court in ruling for the respondent is too flimsy to warrant a finding of forgery.

The court stated that in thirteen documents presented as exhibits, the private respondent signed her name as "Tessie
Nacianceno" while in this particular instance, she signed as "T. Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in the manner the
respondent signed her name can not be considered as conclusive proof that the questioned signature is a forgery.
The mere fact that the respondent signed thirteen documents using her full name does not rule out the possibility of
her having signed the notation "Fully Paid", with her initial for the given came and the surname written in full. What
she was signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed authorization letter (Exhibit "5-A"), the
petitioners presented as witness Mr. Francisco Cruz. Jr., a senior document examiner of the Philippine Constabulary
Crime laboratory. In rebuttal, the respondent presented Mr. Arcadio Ramos, a junior document examiner of the
National Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases involving forgery are applicable. Forgery
cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
We therefore, rule that the award of P25,000.00 as moral damages is without basis.
The additional award of P25,000.00 damages by way of attorney's fees, was given by the courts below on the basis of
Article 2208, Paragraph 2, of the Civil Code, which provides: "When the defendant's act or omission has compelled
the plaintiff to litigate with third persons or to incur expenses to protect his interests;" attorney's fees may be awarded
as damages. (Pirovano et al. v. De la Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of attorney's fees. For one thing, the
respondent did not come to court with completely clean hands. For another, the petitioners apparently believed they
could legally revoke the agency in the manner they did and deal directly with education officials handling the purchase
of Philippine flags. They had reason to sincerely believe they did not have to pay a commission for the second
delivery of flags.
We cannot close this case without commenting adversely on the inexplicably strange procurement policies of the
Department of Education and Culture in its purchase of Philippine flags. There is no reason why a shocking 30% of
the taxpayers' money should go to an agent or facilitator who had no flags to sell and whose only work was to secure
and handcarry the indorsements of education and budget officials. There are only a few manufacturers of flags in our
country with the petitioners claiming to have supplied flags for our public schools on earlier occasions. If public
bidding was deemed unnecessary, the Department should have negotiated directly with flag manufacturers.
Considering the sad plight of underpaid and overworked classroom teachers whose pitiful salaries and allowances
cannot sometimes be paid on time, a P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly
unnecessary but a scandalous waste of public funds as well.

xxx xxx xxx

... Where the evidence, as here, gives rise to two probabilities, one consistent with the defendant's
innocence and another indicative of his guilt, that which is favorable to the accused should be considered.
The constitutional presumption of innocence continues until overthrown by proof of guilt beyond reasonable
doubt, which requires moral certainty which convinces and satisfies the reason and conscience of those
who are to act upon it. (People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil. 78).
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners are ordered to pay the
respondent the amount of ONE HUNDRED FOURTY THOUSAND NINE HUNDRED AND NINETY FOUR PESOS
(P140,994.00) as her commission on the second delivery of flags with legal interest from the date of the trial court's
decision. No pronouncement as to costs.
SO ORDERED.

We ruled in another case that where the supposed expert's testimony would constitute the sole ground for conviction
and there is equally convincing expert testimony to the contrary, the constitutional presumption of innocence must
prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan and People of the Philippines, 134 SCRA 105). In the present

AGENCY - ARTICLES 1868-1879 Page 56 of 88


Art. 1877. An agency couched in general terms comprises only acts of administration, even if the principal should
state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even
though the agency should authorize a general and unlimited management. (n)
G.R. No. 214057
FLORENTINA BAUTISTASPILLE represented by her Attorney-in-fact, Manuel B. Flores, Jr., Petitioner
vs.
NICORP MANAGEMENT ND DEVELOPMENT CORPORATION, BENJAMIN G. BAUTISTA and INTERNATIONAL
EXCHANGE BANK, Respondents
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the March 19, 2014
Decision1 and the August 18, 2014 Resolution 2 of the Court of Appeals (CA) in CA-G.R. CV No. 97682, which
reversed and set aside the May 24, 2010 Decision 3 of the Regional Trial Court, Branch 90, Dasmarifias, Cavite (RTC),
in Civil Case No. 0321-04, declaring a contract to sell null and void.
The Facts:
Petitioner Florentina Bautista-Spille (petitioner) is the registered owner of a parcel of land covered by Transfer
Certificate of Title (TCT) No. T-197, located in Imus City, Cavite, with an area of more or less 33,052 square meters
(subject property).
On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a document denominated as General Power
of Attomey4 in favor of her brother, respondent Benjamin Bautista (Benjamin), authorizing the latter to administer all
her businesses and properties in the Philippines. The said document was notarized before the Consulate General of
the Philippines, New York, United States of America.
On August 13, 2004, Benjamin and NICORP Management and Development Corporation (NJCORP) entered into a
contract to sell5 which pertained to the parcel of land covered by TCT No. T-197 for the agreed amount of
P15,000,000.00. In the said contract, NICORP agreed to give a down payment equivalent to 20% of the purchase
price and pay the remaining balance in eight (8) months. It was also agreed that upon receipt of the down payment,
the TCT of the subject property would be deposited with the International Exchange Bank (IE Bank) and placed in
escrow. It would only be released upon full payment of the agreed amount. Furthermore, Benjamin was required to
AGENCY - ARTICLES 1868-1879
submit a special power of attorney (SPA) covering the sale transaction, otherwise, the payment of the balance would
be suspended and a penalty of P150,000.00 every month would be imposed.
Pursuant thereto, an Escrow Agreement,6 dated October 13, 2004, was executed designating IE Bank as the Escrow
Agent, obliging the latter to hold and take custody of TCT No. T-197, and to release the said title to NICORP upon full
payment of the subject property.
On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00, representing the down payment of
the subject property.7 Thereafter, the TCT was deposited with IE Bank and placed in escrow.
When petitioner discovered the sale, her lawyer immediately sent demand letters 8 to NICORP and Benjamin, both
dated October 27, 2004, and to IE Bank, dated October 28, 2004, informing them that she was opposing the sale of
the subject property and that Benjamin was not clothed with authority to enter into a contract to sell and demanding
the return of the owner's copy of the certificate of title to her true and lawful attorney-in-fact, Manuel B. Flores, Jr.
(Flores). NICORP, Benjamin and IE Bank, however, failed and refused to return the title of the subject property.
Consequently, petitioner filed a complaint 9 before the RTC against Benjamin, NICORP and IE Bank for declaration of
nullity of the contract to sell, injunction, recovery of possession and damages with prayer for the issuance of a
temporary restraining order and/or preliminary injunction because NICORP was starting the development of the
subject property into a residential subdivision and was planning to sell the lots to prospective buyers. Petitioner
denied receiving the down payment for the subject property.
The RTC granted the writ of preliminary injunction in its Order, 10 dated January 24, 2005, enjoining NICORP and all
persons acting on its behalf from making or introducing improvements, subdividing and selling any subdivided lot of
the subject property.
In its Answer,11 NICORP asked for the dismissal of the case for lack of a cause of action and averred that Benjamin
was empowered to enter into a contract to sell by virtue of the general power of attorney; that the said authority was
valid and subsisting as there was no specific instrument that specifically revoked his authority; that assuming Bautista
exceeded his authority when he executed the contract to sell, the agreement was still valid and enforceable as the
agency was already "coupled with interest" because of the partial payment in the amount of P3,000,000.00; and that
the contract could not just be revoked without NICORP being reimbursed of its down payment and the costs for the
initial development it had incurred in developing the subject property into a residential subdivision.
For its part, IE Bank denied any liability and alleged that petitioner had no cause of action against it. IE Bank asserted
that, at the time of its constitution as an escrow agent, Benjamin possessed the necessary authority from petitioner;
that because the contract to sell remained valid, it was duty-
bound to observe its duties and obligations under the Escrow Agreement; and that in the absence of any order from
the court, it was proper for the bank not to comply with petitioner's demand for the surrender of the certificate of title. 12
Benjamin, on the other hand, did not file any responsive pleading. Hence, he was declared in default in the RTC
Order,13 dated August 25, 2005.
On May 24, 2010, the RTC rendered its judgment, declaring the contract to sell null and void. 14 It explained that the
general power of authority only pertained to acts of administration over petitioner's businesses and properties in the
Philippines and did not include authority to sell the subject property. It pointed out that NICORP was well aware of
Benjamin's lack of authority to sell the subject property as gleaned from the contract to sell which required the latter to
procure the SPA from petitioner and even imposed a penalty of P150,000.00 per month if he would be delayed in
securing the SPA. The dispositive portion of the RTC decision reads:
Page 57 of 88
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants,
declaring the Contract to Sell, dated October 13, 2004 between the defendant Bautista and NICORP to be null and
void, and the writ of preliminary injunction is now made permanent, and further ordering the defendants NICORP and
International Exchange Bank as follows -
(a)To return to the plaintiff the peaceful possession of the subject property covered by Transfer Certificate of Title No.
T-197 of the Register of Deeds of the Province of Cavite;
(b)To return to the plaintiff the Original Owner's Duplicate of Title No. T-197 of the Register of Deeds of the Province of
Cavite;
(c)To pay to the plaintiff the amount of Php250,000.000 by way of attorney's fees; and Costs
(d)The of suit.
SO ORDERED.15
Aggrieved, NICORP appealed before the CA.
In the assailed decision, the CA reversed the RTC decision, explaining that the general power of attorney executed by
petitioner in favor of Benjamin authorized the latter not only to perform acts of administration over her properties but
also to perform acts of dominion which included, among others, the power to dispose the subject property.
Petitioner filed a motion for reconsideration, but it was denied in the assailed CA Resolution, dated August 18, 2014.
Hence, this petition anchored on the following
GROUNDS
A. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN HOLDING THAT THE GENERAL
POWER OF ATTORNEY EXECUTED BY PETITIONER AUTHORIZED BENJAMIN BAUTISTA TO ENTER INTO
THE CONTRACT TO SELL WITH RESPONDENT; IN CONTRAVENTION OF THE ESTABLISHED
PRONOUNCEMENT OF THE SUPREME COURT IN THE CASE OF LILLIAN N. MERCADO ET AL. ·vs. ALLIED
BANKING CORPORATION (G.R. NO. 171460, 24 JULY 2007.
B. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN APPLYING THE CASE OF ESTATE
OF LINO OLAGUER VS. ONGJOCO (G.R. NO. 173312, 26 AUGUST 2008) TO THE INSTANT CASE
CONSIDERING THAT THE ESTABLISHED FACTS HEREIN ARE NOT IN ALL FOURS WITH THE FACTS
SURROUNDING THE DECISION IN THE OLAGUER VS. ONGJOCO CASE.
C. THE HONORABLE COURT OF APPEALS ERRED IN DISREGARDING (I) RESPONDENT'S JUDICIAL
ADMISSION AS TO BENJAMIN BAUTISTA'S LACK OF AUTHORITY TO ENTER INTO A CONTRACT TO SELL
THE SUBJECT PROPERTY, AND (II) RESPONDENT'S KNOWLEDGE OF THE INSUFFICIENCY OF THE
GENERAL POWER OF ATTORNEY, INDICATING BAD FAITH OF THE RESPONDENT.
D.THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT ERRED IN
DECLARING THE CONTRACT TO SELL NULL AND VOID. 16
Petitioner argues that the general power of attorney did not clothe Benjamin with the authority to enter into a contract
to sell the subject property.1âwphi1 She contends that the general power of attorney pertained to the power to buy,
AGENCY - ARTICLES 1868-1879
sell, negotiate and contract over the business and personal property but did not specifically authorize the sale of the
subject property.
Petitioner asserts that the CA erred when it disregarded the stipulation made by NICORP during the pre-trial
proceedings as stated in the pre-trial order that Benjamin "acted beyond the scope of his authority when he failed to
inform plaintiff personally as to his dealing or negotiation with NICORP and when he signed the Contract to Sell
xxx."17 According to petitioner, such an admission was an indication that NICORP did not consider the general power
of authority as an SPA which would have authorized Benjamin to enter into the contract to sell.
NICORP counters that the general power of attorney sufficiently conferred authority on Benjamin to enter into the
contract to sell. It asserts that the written authority, while denominated as a general power of attorney, expressly
authorized him to sell the subject property. NICORP insists that it was a buyer in good faith and was never negligent
in ascertaining the extent of his authority to sell the property. It explains that though the general power of attorney
sufficiently clothed Bautista with authority to sell the subject property, it nonetheless required him to submit the SPA in
order to comply with the requirements of the Register of Deeds and the Bureau of Internal Revenue.
The issue for resolution is whether or not Benjamin was authorized to sell the subject property.
The Court's Ruling
The Court finds the petition meritorious.
In petitions for review on certiorari under Rule 45 of the Rules of Civil Procedure, only questions of law may be raised
by the parties and passed upon by this Court. It is not a function of this Court to analyze and weigh the evidence
presented by the parties all over again. 18 This rule, however, has several well-recognized exceptions, such as when
the factual findings of the CA and the trial court are conflicting or contradictory.19
The well-established rule is when a sale of a parcel of land or any interest therein is through an agent, the authority of
the latter shall be in writing, otherwise the sale shall be void. Articles 1874 and 1878 of the Civil Code explicitly
provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following cases:
(1)x xx
(5)To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
x x x . [Emphasis Supplied]
From the foregoing, it is clear that an SPA in the conveyance of real rights over immovable property is
necessary.20In Cosmic Lumber Corporation v. Court of Appeals,21 the Court enunciated,
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. 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. A
special power of attorney is necessary to enter into any contract by which the ownership of an immovable is
Page 58 of 88
transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by
law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a
sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon
an
agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable
language.1âwphi1 When there is any reasonable doubt that the language so used conveys such power, no
such construction shall be given the document."22
[Emphases Supplied]
flaws in the title of the transferor, or in his capacity to transfer the land. 29 In ascertaining good faith, or the lack of it,
which is a question of intention, courts are necessarily controlled by the evidence as to the conduct and outward acts
by which alone the inward motive may, with safety, be determined. Good faith, or want of it, is not a visible, tangible
fact that can be seen or touched, but rather a state or condition of mind which can only be judged by actual or fancied
token or signs.30
Here, the Court agrees with the RTC that NICORP was fully aware that Benjamin was not properly authorized to enter
into any transaction regarding the sale of petitioner's property. In fact, in the contract to sell, NICORP required
Benjamin to secure the SPA from petitioner within ninety (90) days from the execution of the contract and even
imposed a substantial amount of penalty in the amount of P150,000.00 a month in case of non- compliance plus
suspension of payment of the balance of the contract price.

To reiterate, such authority must be conferred in writing and must express the powers of the agent in clear and
Petitioner's explanation that it obliged Benjamin to secure the SPA in order to comply with the requirements of the
unmistakable language in order for the principal to confer the right upon an agent to sell the real property. 23 It is a
Register of Deeds and the Bureau of Internal Revenue is bereft of merit. NICORP is a real estate company which is
general rule that a power of attorney must be strictly construed, and courts will not infer or presume broad powers
familiar with the intricacies of the realty business. Moreover, there was no evidence that petitioner ratified Benjamin's
from deeds which do not sufficiently include property or subject under which the agent is to deal. 24 Thus, when the
act of selling the subject property. On the contrary, immediately after the execution of the contract to sell, petitioner
authority is couched in general terms, without mentioning any specific power to sell or mortgage or to do other specific
wrote NICORP, IE Bank and Benjamin to inform them of her opposition to the sale of the subject property and of his
acts of strict dominion, then only acts of administration are deemed conferred. 25
lack of authority to sell it and demand the return of the certificate of title. Clearly, NICORP was negligent in its dealings
with Bautista.
In the case at bench, the only evidence adduced by NICORP to prove Benjamin's authority to sell petitioner's property
was the document denominated as General Power of Attorney, dated June 20, 1996. The pertinent portions of the
In sum, the Court agrees with the findings and conclusion of the RTC. The consent of petitioner in the contract to sell
said document reads:
was not obtained, hence, not enforceable. Furthermore, because NICORP is considered a builder in bad faith, it has
no right to be refunded the value of whatever improvements it introduced on the subject property.31
KNOW ALL MEN BY THESE PRESENTS:
WHEREFORE, the petition is GRANTED. The March 19, 2014 Decision and the August 18, 2014 Resolution of the
THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD E. SPILLE and residents of x x x do Court of Appeals in CA-G.R. CV No. 97682 are REVERSED and SET ASIDE. The May 24, 2010 Decision of the
hereby appoint, name and constitute BENJAMIN G. BAUTISTA resident(s) of x x x to be my/our truelawfuland Regional Trial Court, Branch 90, Dasmarifias, Cavite, is REINSTATED.
attorney(s), to administer and conduct all my/our affairs and for that purpose in my/our name(s) and on my/our behalf,
to do and execute any or all of the following acts, deeds and things to wit:
SO ORDERED.

1.To exercise administration, general control and supervision over my/our business and property in the Philippines,
and to act as my/our general representative(s) and agent(s) with full authority to buy, sell, negotiate and contract for
me/us and my/our behalf;

2. To ask, demand, sue for, recover and receive all sums of money, debts, dues, goods, wares, merchandise, chattels,
effects and thing of whatsoever nature or description, which now or hereafter shall be or become due, owing, payable
or belonging to me/us in or by any right, title, ways or means howsoever, and upon receipt thereof or any part thereof,
to make, sign, execute and deliver such receipts, releases or other discharges ;

xxx26

Doubtless, there was no perfected contract to sell between petitioner and NICORP. Nowhere in the General Power of
G.R. No. L-22450 December 3, 1924
Attorney was Benjamin granted, expressly or impliedly, any power to sell the subject property or a portion thereof. The
authority expressed in the General Power of Attorney was couched in very broad terms covering petitioner's
businesses and properties. Time and again, this Court has stressed that the power of administration does not include YU CHUCK, MACK YUENG, and DING MOON, plaintiffs-appellees,
acts of disposition, which are acts of strict ownership. As such, an authority to dispose cannot proceed from an vs.
authority to administer, and vice versa, for the two powers may only be exercised by an agent by following the "KONG LI PO," defendant-appellant.
provisions on agency of the Civil Code.27
J. W. Ferrier for appellant.
In the same vein, NICORP cannot be considered a purchaser in good faith. The well-settled rule is that a person G. E. Campbell for appellees.
dealing with an assumed agent is bound to ascertain not only the fact of agency but also the nature and extent of the
agent's authority.28 The law requireshighera degree of prudence from one who buys from a person who is not the
OSTRAND, J.:
registered owner. He is expected to examine all factual circumstances necessary for him to determine if there are any

AGENCY - ARTICLES 1868-1879 Page 59 of 88

The defendant is a domestic corporation organized in accordance with the laws of the Philippine Islands and engaged
in the publication of a Chinese newspaper styled Kong Li Po. Its articles of incorporation and by-laws are in the usual
form and provide for a board of directors and for other officers among them a president whose duty it is to "sign all
contracts and other instruments of writing." No special provision is made for a business or general manager.
Some time during the year 1919 one C. C. Chen or T. C. Chen was appointed general business manager of the
newspaper. During the month of December of that year he entered into an agreement with the plaintiffs by which the
latter bound themselves to do the necessary printing for the newspaper for the sum of P580 per month as alleged in
the complaint. Under this agreement the plaintiffs worked for the defendant from January 1, 1920, until January 31,
1921, when they were discharged by the new manager, Tan Tian Hong, who had been appointed in the meantime, C.
C. Chen having left for China. The letter of dismissal stated no special reasons for the discharge of the plaintiffs.
The plaintiffs thereupon brought the present action alleging, among other things, in the complaint that their contract of
employment was for a term of three years from the first day of January, 1920; that in the case of their discharge by the
defendant without just cause before the expiration of the term of the contract, they were to receive full pay for the
remaining portion of the term; that they had been so discharged without just cause and therefore asked judgment for
damages in the sum of P20,880.
In its amended answer the defendant denies generally and specifically the allegations of the complaint and sets up
five special defenses and counterclaims. The first of these is to the effect that C. C. Chen, the person whose name
appears to have been signed to the contract of employment was not authorized by the defendant to execute such a
contract in its behalf. The second special defense and counterclaim is to the effect that during the month of January,
1921, the plaintiffs purposely delayed the issuance of defendant's newspaper on three separate and distinct
occasions causing damage and injury to the defendant in the amount of P300. Under the third special defense and
counterclaim it is alleged that the plaintiffs failed, neglected, and refused to prepare extra pages for the January 1,
1921, issue of the defendant's newspaper and thus compelled the defendant to secure the preparation of said extra
pages by other persons at a cost of P110. In the fourth special defense and counterclaim the defendant alleged that
the plaintiffs neglected and failed to correct errors in advertisements appearing in defendant's newspaper, although
their attention was specifically called to such errors and they were requested to make the corrections, as a result of
which certain advertisers withdrew their patronage from the paper and refused to pay for the advertisements, thus
causing a loss to the defendant of P160.50. For its fifth special defense and counterclaim the defendant alleged that
the plaintiffs neglected and refused to do certain job printing such neglect and refusal causing injury and damage to
the defendant in the sum of P150.
At the trial of the case the plaintiffs presented in evidence Exhibit A which purports to be a contract between Chen and
the plaintiffs and which provides that in the event the plaintiffs should be discharged without cause before the
expirations of the term of three years from January 1, 1920, they would be given full pay for the unexpired portion of
the term "even if the said paper has to fall into bankruptcy." The contract is signed by the plaintiffs and also bears the
signature "C. C. Chen, manager of Kong Li Po." The authenticity of the latter signature is questioned by the
defendant, but the court below found that the evidence upon this point preponderate in favor of the plaintiffs and there
appears to be no sufficient reason to disturb this finding.
The trial court further found that the contract had been impliedly ratified by the defendant and rendered judgment in
favor of the plaintiffs for the sum of P13,340, with interest from the date of the filing of the complaint and the costs.
From this judgment the defendant appeals to this court and makes eighteen assignments of error. The fourth and
seventeenth assignments relate to defendant's special defense and counterclaims; the sum and substance of the
other assignments is that the contract on which the action is based was not signed by C. C. Chen; that, in any event,
C. C. Chen had no power or authority to bind the defendant corporation by such contract; and that there was no
ratification of the contract by the corporation.
Before entering upon a discussion of the questions raised by the assignments of error, we may draw attention to a
matter which as not been mentioned either by counsel or by the court below, but which, to prevent misunderstanding,
should be briefly explained: It is averred in the complaint that it is accompanied by a copy of the contract between the
parties (Exhibit A) which copy, by the terms of the complaint, is made a part thereof. The copy is not set forth in the bill
of exceptions and aside from said avernment, there is no indication that the copy actually accompanied the complaint,
AGENCY - ARTICLES 1868-1879
but an examination of the record of the case in the Court of First Instance shows that a translation of the contract was
attached to the complaint and served upon the defendant. As this translation may be considered a copy and as the
defendant failed to deny its authenticity under oath, it will perhaps be said that under section 103 of the Code of Civil
Procedure the omission to so deny it constitutes an admission of the genuineness and due execution of the document
as well as of the agent's authority to bind the defendant. (Merchant vs.International Banking Corporation, 6 Phil., 314.)
In ordinary circumstances that would be true. But this case appears to have been tried upon the theory that the rule
did not apply; at least, it was wholly overlooked or disregarded by both parties. The plaintiffs at the beginning of the
trial presented a number of witnesses to prove the due execution of the document as well as the agent's authority; no
objections were made to the defendant's evidence in refutation and no exceptions taken ; and the matter is not
mentioned in the decision of the trial court.
The object of the rule is "to relieve a party of the trouble and expense of proving in the first instance an alleged fact,
the existence or nonexistence of which is necessarily within the knowledge of the adverse party, and of the necessity
(to his opponent's case) of establishing which such adverse party is notified by his opponent's pleading." (Nery Lim-
Chingco vs. Terariray, 5 Phil., at p. 124.)lawphi1.net
The plaintiff may, of course, waive the rule and that is what he must be considered to have done in the present case
by introducing evidence as to the execution of the document and failing to object to the defendant's evidence in
refutation; all this evidence is now competent and the case must be decided thereupon. Moreover, the question as to
the applicability of the rule is not even suggested in the briefs and is not properly this court. In these circumstances it
would, indeed, be grossly unfair to the defendant if this court should take up the question on its own motion and make
it decisive of the case, and such is not the law. Nothing of what has here been said is in conflict with former decisions
of this court; it will be found upon examination that in all cases where the applicability of the rule has been sustained
the party invoking it has relied on it in the court below and conducted his case accordingly.
The principal question presented by the assignments of error is whether Chen had the power to bind the corporation
by a contract of the character indicated. It is conceded that he had no express authority to do so, but the evidence is
conclusive that he, at the time the contract was entered into, was in effect the general business manager of the
newspaper Kong Li Po and that he, as such, had charge of the printing of the paper, and the plaintiff maintain that he,
as such general business manager, had implied authority to employ them on the terms stated and that the defendant
corporation is bound by his action. The general rule is that the power to bind a corporation by contract lies with its
board of directors or trustees, but this power may either expressly or impliedly be delegated to other officers or agents
of the corporation, and it is well settled that except where the authority of employing servants and agent is expressly
vested in the board of directors or trustees, an officer or agent who has general control and management of the
corporation's business, or a specific part thereof, may bind the corporation by the employment of such agent and
employees as are usual and necessary in the conduct of such business. But the contracts of employment must be
reasonable. (14a C. J., 431.)
In regard to the length of the term of employment, Corpus Juris says:
In the absence of express limitations, a manager has authority to hire an employee for such a period as is
customary or proper under the circumstances, such as for a year, for the season, or for two season. But
unless he is either expressly authorized, or held out as having such authority, he cannot make a contract of
employment for a long future period, such as for three years, although the contract is not rendered invalid
by the mere fact that the employment extends beyond the term of the manager's own employment. . . .
(14a C. J., 431.)
From what has been said, there can be no doubt that Chen, as general manager of the Kong Li Po, had implied
authority to bind the defendant corporation by a reasonable and usual contract of employment with the plaintiffs, but
we do not think that the contract here in question can be so considered. Not only is the term of employment unusually
long, but the conditions are otherwise so onerous to the defendant that the possibility of the corporation being thrown
into insolvency thereby is expressly contemplated in the same contract. This fact in itself was, in our opinion, sufficient
to put the plaintiffs upon inquiry as to the extent of the business manager's authority; they had not the rights to
Page 60 of 88
presume that he or any other single officer or employee of the corporation had implied authority to enter into a
contract of employment which might bring about its ruin.
Neither do we think that the contention that the corporation impliedly ratified the contract is supported by the
evidence. The contention is based principally on the fact that Te Kim Hua, the president of the corporation for the year
1920, admitted on the witness stand that he saw the plaintiffs work as printers in the office of the newspaper. He
denied, however, any knowledge of the existence of the contract and asserted that it was never presented neither to
him nor to the board of directors. Before a contract can be ratified knowledge of its existence must, of course, be
brought home to the parties who have authority to ratify it or circumstances must be shown from which such
knowledge may be presumed. No such knowledge or circumstances have been shown here. That the president of the
corporation saw the plaintiffs working in its office is of little significance; there were other printers working there at that
time and as the president had nothing to do with their employment, it was hardly to be expected that be would inquire
into the terms of their contracts. Moreover, a ratification by him would have been of no avail; in order to validate a
contract, a ratification by the board of directors was necessary. The fact that the president was required by the by-
laws to sign the documents evidencing contracts of the corporation, does not mean that he had power to make the
contracts.
In his decision his Honor, the learned judge of the court below appears to have placed some weight on a notice
inserted in the January 14th issue of the Kong Li Po by T. C. Chen and which, in translation, reads as follows:
To Whom It May Concern: Announcement is hereby given that thereafter all contracts, agreements and
receipts are considered to be null and void unless duly signed by T. C. Chen, General Manager of this
paper.
(Sgd.) CHEN YOU
General Manager of this paper
(The evidence shows that Chen You Man and T. C. Chen is one and the same person.)
His Honor evidently overestimated the importance of this notice. It was published nearly a month after the contract in
question is alleged to have been entered into and can therefore not have been one of the circumstances which led the
plaintiffs to think that Chen had authority to make the contract. It may further be observed that the notice confers no
special powers, but is, in effect, only an assertion by Chen that he would recognize no contracts, agreements, and
receipts not duty signed by him. It may be presumed that the contracts, agreements, and receipts were such as were
ordinarily made in the course of the business of managing the newspaper. There is no evidence to show that the
notice was ever brought to the attention of the officers of the defendant corporation.
The defendant's counterclaims have not been sufficiently established by the evidence.
The judgment appealed from is reversed and the defendant corporation is absolved from the complaint. No costs will
be allowed. So ordered.
Johns, Avanceña and Romualdez, JJ., concur.
AGENCY - ARTICLES 1868-1879
G.R. No. 165803 September 1, 2010
SPOUSES REX AND CONCEPCION AGGABAO, Petitioners,
vs.
DIONISIO Z. PARULAN, JR. and MA. ELENA PARULAN, Respondents.
DECISION
BERSAMIN, J.:
On July 26, 2000, the Regional Trial Court (RTC), Branch 136, in Makati City annulled the deed of absolute sale
executed in favor of the petitioners covering two parcels of registered land the respondents owned for want of the
written consent of respondent husband Dionisio Parulan, Jr. On July 2, 2004, in C.A.-G.R. CV No. 69044, 1 the Court
of Appeals (CA) affirmed the RTC decision.
Hence, the petitioners appeal by petition for review on certiorari, seeking to reverse the decision of the CA. They
present as the main issue whether the sale of conjugal property made by respondent wife by presenting a special
power of attorney to sell (SPA) purportedly executed by respondent husband in her favor was validly made to the
vendees, who allegedly acted in good faith and paid the full purchase price, despite the showing by the husband that
his signature on the SPA had been forged and that the SPA had been executed during his absence from the country.
MAN
We resolve the main issue against the vendees and sustain the CA’s finding that the vendees were not buyers in good
faith, because they did not exercise the necessary prudence to inquire into the wife’s authority to sell. We hold that the
sale of conjugal property without the consent of the husband was not merely voidable but void; hence, it could not be
ratified.
Antecedents
Involved in this action are two parcels of land and their improvements (property) located at No. 49 Miguel Cuaderno
Street, Executive Village, BF Homes, Parañaque City and registered under Transfer Certificate of Title (TCT) No.
633762 and TCT No. 633773 in the name of respondents Spouses Maria Elena A. Parulan (Ma. Elena) and Dionisio Z.
Parulan, Jr. (Dionisio), who have been estranged from one another.
In January 1991, real estate broker Marta K. Atanacio (Atanacio) offered the property to the petitioners, who initially
did not show interest due to the rundown condition of the improvements. But Atanacio’s persistence prevailed upon
them, so that on February 2, 1991, they and Atanacio met with Ma. Elena at the site of the property. During their
meeting, Ma. Elena showed to them the following documents, namely: (a) the owner’s original copy of TCT No.
63376; (b) a certified true copy of TCT No. 63377; (c) three tax declarations; and (d) a copy of the special power of
attorney (SPA) dated January 7, 1991 executed by Dionisio authorizing Ma. Elena to sell the property. 4 Before the
meeting ended, they paid ₱20,000.00 as earnest money, for which Ma. Elena executed a handwritten Receipt of
Earnest Money, whereby the parties stipulated that: (a) they would pay an additional payment of ₱130,000.00 on
February 4, 1991; (b) they would pay the balance of the bank loan of the respondents amounting to ₱650,000.00 on
or before February 15, 1991; and (c) they would make the final payment of ₱700,000.00 once Ma. Elena turned over
the property on March 31, 1991.5
On February 4, 1991, the petitioners went to the Office of the Register of Deeds and the Assessor’s Office of
Parañaque City to verify the TCTs shown by Ma. Elena in the company of Atanacio and her husband (also a licensed
broker).6 There, they discovered that the lot under TCT No. 63376 had been encumbered to Banco Filipino in 1983 or
1984, but that the encumbrance had already been cancelled due to the full payment of the obligation. 7They noticed
that the Banco Filipino loan had been effected through an SPA executed by Dionisio in favor of Ma. Elena. 8 They
Page 61 of 88
found on TCT No. 63377 the annotation of an existing mortgage in favor of the Los Baños Rural Bank, also effected
through an SPA executed by Dionisio in favor of Ma. Elena, coupled with a copy of a court order authorizing Ma.
Elena to mortgage the lot to secure a loan of ₱500,000.00.9
The petitioners and Atanacio next inquired about the mortgage and the court order annotated on TCT No. 63377 at
the Los Baños Rural Bank. There, they met with Atty. Noel Zarate, the bank’s legal counsel, who related that the bank
had asked for the court order because the lot involved was conjugal property. 10
Following their verification, the petitioners delivered ₱130,000.00 as additional down payment on February 4, 1991;
and ₱650,000.00 to the Los Baños Rural Bank on February 12, 1991, which then released the owner’s duplicate copy
of TCT No. 63377 to them.11
On March 18, 1991, the petitioners delivered the final amount of ₱700,000.00 to Ma. Elena, who executed a deed of
absolute sale in their favor. However, Ma. Elena did not turn over the owner’s duplicate copy of TCT No. 63376,
claiming that said copy was in the possession of a relative who was then in Hongkong. 12 She assured them that the
owner’s duplicate copy of TCT No. 63376 would be turned over after a week.
On March 19, 1991, TCT No. 63377 was cancelled and a new one was issued in the name of the petitioners.
Ma. Elena did not turn over the duplicate owner’s copy of TCT No. 63376 as promised. In due time, the petitioners
learned that the duplicate owner’s copy of TCT No. 63376 had been all along in the custody of Atty. Jeremy Z.
Parulan, who appeared to hold an SPA executed by his brother Dionisio authorizing him to sell both lots. 13
At Atanacio’s instance, the petitioners met on March 25, 1991 with Atty. Parulan at the Manila Peninsula. 14 For that
meeting, they were accompanied by one Atty. Olandesca. 15 They recalled that Atty. Parulan "smugly demanded
₱800,000.00" in exchange for the duplicate owner’s copy of TCT No. 63376, because Atty. Parulan represented the
current value of the property to be ₱1.5 million. As a counter-offer, however, they tendered ₱250,000.00, which Atty.
Parulan declined,16 giving them only until April 5, 1991 to decide.
Hearing nothing more from the petitioners, Atty. Parulan decided to call them on April 5, 1991, but they informed him
that they had already fully paid to Ma. Elena.17
Thus, on April 15, 1991, Dionisio, through Atty. Parulan, commenced an action (Civil Case No. 91-
1005 entitledDionisio Z. Parulan, Jr., represented by Jeremy Z. Parulan, as attorney in fact, v. Ma. Elena Parulan,
Sps. Rex and Coney Aggabao), praying for the declaration of the nullity of the deed of absolute sale executed by Ma.
Elena, and the cancellation of the title issued to the petitioners by virtue thereof.
In turn, the petitioners filed on July 12, 1991 their own action for specific performance with damages against the
respondents.
Both cases were consolidated for trial and judgment in the RTC. 18
Ruling of the RTC
After trial, the RTC rendered judgment, as follows:
WHEREFORE, and in consideration of the foregoing, judgment is hereby rendered in favor of plaintiff Dionisio A.
Parulan, Jr. and against defendants Ma. Elena Parulan and the Sps. Rex and Concepcion Aggabao, without prejudice
to any action that may be filed by the Sps. Aggabao against co-defendant Ma. Elena Parulan for the amounts they
paid her for the purchase of the subject lots, as follows:
AGENCY - ARTICLES 1868-1879
1. The Deed of Absolute Sale dated March 18, 1991 covering the sale of the lot located at No. 49 M.
Cuaderno St., Executive Village, BF Homes, Parañaque, Metro Manila, and covered by TCT Nos. 63376
and 63377 is declared null and void.
2. Defendant Mrs. Elena Parulan is directed to pay litigation expenses amounting to ₱50,000.00 and the
costs of the suit.
SO ORDERED.19
The RTC declared that the SPA in the hands of Ma. Elena was a forgery, based on its finding that Dionisio had been
out of the country at the time of the execution of the SPA; 20 that NBI Sr. Document Examiner Rhoda B. Flores had
certified that the signature appearing on the SPA purporting to be that of Dionisio and the set of standard sample
signatures of Dionisio had not been written by one and the same person; 21 and that Record Officer III Eliseo O.
Terenco and Clerk of Court Jesus P. Maningas of the Manila RTC had issued a certification to the effect that Atty.
Alfred Datingaling, the Notary Public who had notarized the SPA, had not been included in the list of Notaries Public in
Manila for the year 1990-1991.22
The RTC rejected the petitioners’ defense of being buyers in good faith because of their failure to exercise ordinary
prudence, including demanding from Ma. Elena a court order authorizing her to sell the properties similar to the order
that the Los Baños Rural Bank had required before accepting the mortgage of the property. 23 It observed that they had
appeared to be in a hurry to consummate the transaction despite Atanacio’s advice that they first consult a lawyer
before buying the property; that with ordinary prudence, they should first have obtained the owner’s duplicate copies
of the TCTs before paying the full amount of the consideration; and that the sale was void pursuant to Article 124 of
the Family Code.24
Ruling of the CA
As stated, the CA affirmed the RTC, opining that Article 124 of the Family Code applied because Dionisio had not
consented to the sale of the conjugal property by Ma. Elena; and that the RTC correctly found the SPA to be a forgery.
The CA denied the petitioners’ motion for reconsideration.25
Issues
The petitioners now make two arguments: (1) they were buyers in good faith; and (2) the CA erred in affirming the
RTC’s finding that the sale between Mrs. Elena and the petitioners had been a nullity under Article 124 of the Family
Code.
The petitioners impute error to the CA for not applying the "ordinary prudent man’s standard" in determining their
status as buyers in good faith. They contend that the more appropriate law to apply was Article 173 of the Civil Code,
not Article 124 of the Family Code; and that even if the SPA held by Ma. Elena was a forgery, the ruling in Veloso v.
Court of Appeals26 warranted a judgment in their favor.
Restated, the issues for consideration and resolution are as follows:
1) Which between Article 173 of the Civil Code and Article 124 of the Family Code should apply to the sale
of the conjugal property executed without the consent of Dionisio?
2) Might the petitioners be considered in good faith at the time of their purchase of the property?
Page 62 of 88
 3) Might the ruling in Veloso v. Court of Appeals be applied in favor of the petitioners despite the finding of
forgery of the SPA?
Ruling
The petition has no merit. We sustain the CA.
1.
Article 124, Family Code, applies to sale of conjugal
properties made after the effectivity of the Family Code
The petitioners submit that Article 173 of the Civil Code, not Article 124 of the Family Code, governed the property
relations of the respondents because they had been married prior to the effectivity of the Family Code; and that the
second paragraph of Article 124 of the Family Code should not apply because the other spouse held the
administration over the conjugal property. They argue that notwithstanding his absence from the country Dionisio still
held the administration of the conjugal property by virtue of his execution of the SPA in favor of his brother; and that
even assuming that Article 124 of the Family Code properly applied, Dionisio ratified the sale through Atty. Parulan’s
counter-offer during the March 25, 1991 meeting.
We do not subscribe to the petitioners’ submissions.
To start with, Article 254 27 the Family Code has expressly repealed several titles under the Civil Code, among them
the entire Title VI in which the provisions on the property relations between husband and wife, Article 173 included,
are found.
Secondly, the sale was made on March 18, 1991, or after August 3, 1988, the effectivity of the Family Code. The
proper law to apply is, therefore, Article 124 of the Family Code, for it is settled that any alienation or encumbrance of
conjugal property made during the effectivity of the Family Code is governed by Article 124 of the Family Code. 28
Article 124 of the Family Code provides:
Article 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses
jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five years from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers of administration. These powers do not
include disposition or encumbrance without authority of the court or the written consent of the other
spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and
may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before
the offer is withdrawn by either or both offerors.
Thirdly, according to Article 25629 of the Family Code, the provisions of the Family Code may apply retroactively
provided no vested rights are impaired. In Tumlos v. Fernandez,30 the Court rejected the petitioner’s argument that the
Family Code did not apply because the acquisition of the contested property had occurred prior to the effectivity of the
Family Code, and pointed out that Article 256 provided that the Family Code could apply retroactively if the application
would not prejudice vested or acquired rights existing before the effectivity of the Family Code. Herein, however, the
petitioners did not show any vested right in the property acquired prior to August 3, 1988 that exempted their situation
from the retroactive application of the Family Code.
AGENCY - ARTICLES 1868-1879
Fourthly, the petitioners failed to substantiate their contention that Dionisio, while holding the administration over the
property, had delegated to his brother, Atty. Parulan, the administration of the property, considering that they did not
present in court the SPA granting to Atty. Parulan the authority for the administration.
Nonetheless, we stress that the power of administration does not include acts of disposition or encumbrance, which
are acts of strict ownership. As such, an authority to dispose cannot proceed from an authority to administer, and vice
versa, for the two powers may only be exercised by an t by following the provisions on agency of the Civil Code
(from Article 1876 to Article 1878). Specifically, the apparent authority of Atty. Parulan, being a special agency, was
limited to the sale of the property in question, and did not include or extend to the power to administer the property. 31
Lastly, the petitioners’ insistence that Atty. Parulan’s making of a counter-offer during the March 25, 1991 meeting
ratified the sale merits no consideration. Under Article 124 of the Family Code, the transaction executed sans the
written consent of Dionisio or the proper court order was void; hence, ratification did not occur, for a void contract
could not be ratified.32
On the other hand, we agree with Dionisio that the void sale was a continuing offer from the petitioners and Ma. Elena
that Dionisio had the option of accepting or rejecting before the offer was withdrawn by either or both Ma. Elena and
the petitioners. The last sentence of the second paragraph of Article 124 of the Family Code makes this clear, stating
that in the absence of the other spouse’s consent, the transaction should be construed as a continuing offer on the
part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or upon authorization by the court before the offer is withdrawn by either or both offerors.
2.
Due diligence required in verifying not only vendor’s title,
but also agent’s authority to sell the property
A purchaser in good faith is one who buys the property of another, without notice that some other person has a right
to, or interest in, such property, and pays the full and fair price for it at the time of such purchase or before he has
notice of the claim or interest of some other persons in the property. He buys the property with the belief that the
person from whom he receives the thing was the owner and could convey title to the property. He cannot close his
eyes to facts that should put a reasonable man on his guard and still claim he acted in good faith. 33 The status of a
buyer in good faith is never presumed but must be proven by the person invoking it.34
Here, the petitioners disagree with the CA for not applying the "ordinary prudent man’s standard" in determining their
status as buyers in good faith. They insist that they exercised due diligence by verifying the status of the TCTs, as well
as by inquiring about the details surrounding the mortgage extended by the Los Baños Rural Bank. They lament the
holding of the CA that they should have been put on their guard when they learned that the Los Baños Rural Bank
had first required a court order before granting the loan to the respondents secured by their mortgage of the property.
The petitioners miss the whole point.
Article 124 of the Family Code categorically requires the consent of both spouses before the conjugal property may
be disposed of by sale, mortgage, or other modes of disposition. In Bautista v. Silva,35 the Court erected a standard to
determine the good faith of the buyers dealing with
a seller who had title to and possession of the land but whose capacity to sell was restricted, in that the consent of the
other spouse was required before the conveyance, declaring that in order to prove good faith in such a situation, the
buyers must show that they inquired not only into the title of the seller but also into the seller’s capacity to sell. 36Thus,
the buyers of conjugal property must observe two kinds of requisite diligence, namely: (a) the diligence in verifying the
validity of the title covering the property; and (b) the diligence in inquiring into the authority of the transacting spouse
to sell conjugal property in behalf of the other spouse.
Page 63 of 88
It is true that a buyer of registered land needs only to show that he has relied on the face of the certificate of title to
the property, for he is not required to explore beyond what the certificate indicates on its face. 37 In this respect, the
petitioners sufficiently proved that they had checked on the authenticity of TCT No. 63376 and TCT No. 63377 with
the Office of the Register of Deeds in Pasay City as the custodian of the land records; and that they had also gone to
the Los Baños Rural Bank to inquire about the mortgage annotated on TCT No. 63377. Thereby, the petitioners
observed the requisite diligence in examining the validity of the TCTs concerned.
Yet, it ought to be plain enough to the petitioners that the issue was whether or not they had diligently inquired into the
authority of Ma. Elena to convey the property, not whether or not the TCT had been valid and authentic, as to which
there was no doubt. Thus, we cannot side with them.
Firstly, the petitioners knew fully well that the law demanded the written consent of Dionisio to the sale, but yet they
did not present evidence to show that they had made inquiries into the circumstances behind the execution of the SPA
purportedly executed by Dionisio in favor of Ma. Elena. Had they made the appropriate inquiries, and not simply
accepted the SPA for what it represented on its face, they would have uncovered soon enough that the respondents
had been estranged from each other and were under de facto separation, and that they probably held conflicting
interests that would negate the existence of an agency between them. To lift this doubt, they must, of necessity,
further inquire into the SPA of Ma. Elena. The omission to inquire indicated their not being buyers in good faith, for, as
fittingly observed in Domingo v. Reed:381avvphi1
What was required of them by the appellate court, which we affirm, was merely to investigate – as any prudent
vendee should – the authority of Lolita to sell the property and to bind the partnership. They had knowledge of facts
that should have led them to inquire and to investigate, in order to acquaint themselves with possible defects in her
title. The law requires them to act with the diligence of a prudent person; in this case, their only prudent course of
action was to investigate whether respondent had indeed given his consent to the sale and authorized his wife to sell
the property.39
Indeed, an unquestioning reliance by the petitioners on Ma. Elena’s SPA without first taking precautions to verify its
authenticity was not a prudent buyer’s move. 40 They should have done everything within their means and power to
ascertain whether the SPA had been genuine and authentic. If they did not investigate on the relations of the
respondents vis-à-vis each other, they could have done other things towards the same end, like attempting to locate
the notary public who had notarized the SPA, or checked with the RTC in Manila to confirm the authority of Notary
Public Atty. Datingaling. It turned out that Atty. Datingaling was not authorized to act as a Notary Public for Manila
during the period 1990-1991, which was a fact that they could easily discover with a modicum of zeal.
Secondly, the final payment of ₱700,000.00 even without the owner’s duplicate copy of the TCT No. 63376 being
handed to them by Ma. Elena indicated a revealing lack of precaution on the part of the petitioners. It is true that she
promised to produce and deliver the owner’s copy within a week because her relative having custody of it had gone to
Hongkong, but their passivity in such an essential matter was puzzling light of their earlier alacrity in immediately and
diligently validating the TCTs to the extent of inquiring at the Los Baños Rural Bank about the annotated mortgage.
Yet, they could have rightly withheld the final payment of the balance. That they did not do so reflected their lack of
due care in dealing with Ma. Elena.
Lastly, another reason rendered the petitioners’ good faith incredible. They did not take immediate action against Ma.
Elena upon discovering that the owner’s original copy of TCT No. 63376 was in the possession of Atty. Parulan,
contrary to Elena’s representation. Human experience would have impelled them to exert every effort to proceed
against Ma. Elena, including demanding the return of the substantial amounts paid to her. But they seemed not to
mind her inability to produce the TCT, and, instead, they contented themselves with meeting with Atty. Parulan to
negotiate for the possible turnover of the TCT to them.
3.
Veloso v. Court of Appeals cannot help petitioners
AGENCY - ARTICLES 1868-1879
The petitioners contend that the forgery of the SPA notwithstanding, the CA could still have decided in their favor
conformably with Veloso v. Court of Appeals,41 a case where the petitioner husband claimed that his signature and
that of the notary public who had notarized the SPA the petitioner supposedly executed to authorize his wife to sell the
property had been forged. In denying relief, the Court upheld the right of the vendee as an innocent purchaser for
value.
Veloso is inapplicable, however, because the contested property therein was exclusively owned by the petitioner and
did not belong to the conjugal regime. Veloso being upon conjugal property, Article 124 of the Family Code did not
apply.
In contrast, the property involved herein pertained to the conjugal regime, and, consequently, the lack of the written
consent of the husband rendered the sale void pursuant to Article 124 of the Family Code. Moreover, evenassuming
that the property involved in Veloso was conjugal, its sale was made on November 2, 1987, or prior to the effectivity of
the Family Code; hence, the sale was still properly covered by Article 173 of the Civil Code, which provides that a sale
effected without the consent of one of the spouses is only voidable, not void. However, the sale herein was made
already during the effectivity of the Family Code, rendering the application of Article 124 of the Family Code clear and
indubitable.
The fault of the petitioner in Veloso was that he did not adduce sufficient evidence to prove that his signature and that
of the notary public on the SPA had been forged. The Court pointed out that his mere allegation that the signatures
had been forged could not be sustained without clear and convincing proof to substantiate the allegation. Herein,
however, both the RTC and the CA found from the testimonies and evidence presented by Dionisio that his signature
had been definitely forged, as borne out by the entries in his passport showing that he was out of the country at the
time of the execution of the questioned SPA; and that the alleged notary public, Atty. Datingaling, had no authority to
act as a Notary Public for Manila during the period of 1990-1991.
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision dated July 2, 2004 rendered by
the Court of Appeals in C.A.-G.R. CV No. 69044 entitled "Dionisio Z. Parulan, Jr. vs. Ma. Elena Parulan and Sps. Rex
and Concepcion Aggabao" and "Sps. Rex and Concepcion Aggabao vs. Dionisio Z. Parulan, Jr. and Ma. Elena
Parulan."
Costs of suit to be paid by the petitioners.
SO ORDERED.
G.R. No. 129919 February 6, 2002
DOMINION INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.
Page 64 of 88
DECISION hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 o’clock in the
morning.
PARDO, J.:
"The plaintiff and his counsel are notified of this order in open court.
The Case
"SO ORDERED.
1 2 3
This is an appeal via certiorari from the decision of the Court of Appeals affirming the decision of the Regional Trial
Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to "Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on
pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra in July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an
the payment of the claims of Dominion’s clients. order dated July 17, 1992.

The Facts "On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’ It alleged therein that the
failure of counsel to attend the pre-trial conference was ‘due to an unavoidable circumstance’ and that counsel had
sent his representative on that date to inform the trial court of his inability to appear. The Motion was vehemently
The facts, as found by the Court of Appeals, are as follows:
opposed by plaintiff.

"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against
"On August 25, 1992 the trial court denied defendant’s motion for reasons, among others, that it was neither verified
defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he
nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious
claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendant’s
defense.
clients.

"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel
"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing
revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit
premiums that plaintiff allegedly failed to remit.
of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the
said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion.
"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the
case, was its Regional Manager for Central Luzon area.
"On November 18, 1992, the court a quo rendered judgment as follows:

"In due time, third-party defendant Austria filed his answer.

"WHEREFORE, premises considered, judgment is hereby rendered ordering:

"Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29,
"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the
1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6,
total amount advanced by plaintiff in the payment of the claims of defendant’s clients;
1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October
18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party
defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties. "2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;

"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite "3. The dismissal of the counter-claim of the defendant and the third-party complaint;
due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a
handwritten note sent to him by defendant’s counsel which instructed him to request for postponement. Plaintiff’s
"4. The defendant to pay the costs of suit."4
counsel objected to the desired postponement and moved to have defendant declared as in default. This was granted
by the trial court in the following order:
On December 14, 1992, Dominion appealed the decision to the Court of Appeals.5
"ORDER
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court. 6 On September 3, 1996,
Dominion filed with the Court of Appeals a motion for reconsideration. 7 On July 16, 1997, the Court of Appeals denied
"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared.
the motion.8
When shown a note dated May 21, 1992 addressed to a certain Roy who was requested to ask for postponement,
Atty. Maglalang vigorously objected to any postponement on the ground that the note is but a mere scrap of paper
and moved that the defendant corporation be declared as in default for its failure to appear in court despite due Hence, this appeal.9
notice.
The Issues
"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering that the pre-trial conference has
been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is

AGENCY - ARTICLES 1868-1879 Page 65 of 88

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) "(1) To make such payments as are not usually considered as acts of administration;
whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling
the claims of several insured.
"x x x xxx xxx

The Court's Ruling

"(15) Any other act of strict dominion."

The petition is without merit.

By the contract of agency, a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter. 10 The basis for agency is representation.11 On the part of
the principal, there must be an actual intention to appoint 12 or an intention naturally inferrable from his words or
actions;13 and on the part of the agent, there must be an intention to accept the appointment and act on it, 14 and in the
absence of such intent, there is generally no agency.15
The payment of claims is not an act of administration. The settlement of claims is not included among the acts
enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated therein. A
special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of Management Agreement 23dated
February 18, 1987 which enumerates the scope of respondent Guevarra’s duties and responsibilities as agency
manager for San Fernando, Pampanga, as follows:

A perusal of the Special Power of Attorney 16 would show that petitioner (represented by third-party defendant Austria)
"x x x xxx xxx
and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word "special" in the title of
the document, the contents reveal that what was constituted was actually a general agency. The terms of the
agreement read: "1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00
with prior approval of the Regional Office.
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., 17 a corporation duly organized and existing under
and by virtue of the laws of the Republic of the Philippines, xxx represented by the undersigned as Regional Manager, "2. Full authority is given you on TPPI claims settlement.
xxx do hereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the following acts and things:
"xxx xxx x x x "24

"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually
In settling the claims mentioned above, respondent Guevarra’s authority is further limited by the written standard
pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with
authority to pay,25 which states that the payment shall come from respondent Guevarra’s revolving fund or collection.
the right, upon our prior written consent, to appoint agents and sub-agents.
The authority to pay is worded as follows:

"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on
"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________
our behalf.
(P ) representing the payment on the _________________ claim of assured _______________ under Policy No.
______ in that accident of ___________ at ____________.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give
effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE
"It is further expected, release papers will be signed and authorized by the concerned and attached to the
COMPANY, INC.,18 may hereafter become due, owing payable or transferable to said Corporation by reason
corresponding claim folder after effecting payment of the claim.
of or in connection with the above-mentioned appointment.

"(sgd.) FERNANDO C. AUSTRIA

"4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL
Regional Manager"26
ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said
Corporation."19 [Emphasis supplied]
[Emphasis supplied]
The agency comprises all the business of the principal,20 but, couched in general terms, it is limited only to acts of
administration.21 The instruction of petitioner as the principal could not be any clearer.1âwphi1 Respondent Guevarra was authorized
to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession.
A general power permits the agent to do all acts for which the law does not require a special power. 22 Thus, the acts
enumerated in or similar to those enumerated in the Special Power of Attorney do not require a special power of Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the
attorney. settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord
with Article 1918, Civil Code, which states that:
Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion
that applies to this case provides that: "The principal is not liable for the expenses incurred by the agent in the following cases:

"Article 1878. Special powers of attorney are necessary in the following cases:

AGENCY - ARTICLES 1868-1879 Page 66 of 88

 "(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail (3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive
himself of the benefits derived from the contract; objections to the venue of an action or to abandon a prescription already acquired;

"xxx xxx xxx" (4) To waive any obligation gratuitously;

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover (5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or
may still be justified under the general law on obligations and contracts. for a valuable consideration;

Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the
debtor."
(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the
agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which
are under administration;

In this case, when the risk insured against occurred, petitioner’s liability as insurer arose. 1âwphi1 This obligation was (8) To lease any real property to another person for more than one year;
extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation
Receipts from the insured who were paid.
(9) To bind the principal to render some service without compensation;

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for
(10) To bind the principal in a contract of partnership;
reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner.

(11) To obligate the principal as a guarantor or surety;

The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the
Release of Claim Loss and Subrogation Receipts 27 which were attached to the original complaint as Annexes C-2, D-
1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95. (12) To create or convey real rights over immovable property;

However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as (13) To accept or repudiate an inheritance;
reflected in the statement of account dated July 11, 1990 would be deducted from the above amount.
(14) To ratify or recognize obligations contracted before the agency;
The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84.
Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent
(15) Any other act of strict dominion. (n)
Guevarra.

The Fallo

G.R. No. 187769 June 4, 2014

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of Appeals 28 and that of
the Regional Trial Court, Branch 44, San Fernando, Pampanga, 29 in that petitioner is ordered to pay respondent
Guevarra the amount of P112,672.11 representing the total amount advanced by the latter in the payment of the ALVIN PATRIMONIO, Petitioner,
claims of petitioner’s clients. vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
No costs in this instance.
DECISION
SO ORDERED.
BRION, J.:
Art. 1878. Special powers of attorney are necessary in the following cases:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the decision 2 dated
September 24, 2008 and the resolution 3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 82301.
(1) To make such payments as are not usually considered as acts of administration;
The appellate court affirmed the decision of the Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the
complaint for declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering him to pay respondent
(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted; Octavio Marasigan III (Marasigan) the sum of ₱200,000.00.

AGENCY - ARTICLES 1868-1879 Page 67 of 88

The Factual Background The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due course.
He contended that when Marasigan received the check, he knew that the same was without a date, and hence,
incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez with his check being used
The facts of the case, as shown by the records, are briefly summarized below.
only as a security.

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name of
The Ruling of the CA
Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows related to basketball.
Petitioner was already then a decorated professional basketball player while Gutierrez was a well-known sports
columnist. On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings. After careful
analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he did not receive the
check in good faith.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam Dunk.
Although signed, these checks had no payee’s name, date or amount. The blank checks were entrusted to Gutierrez
with the specific instruction not to fill them out without previous notification to and approval by the petitioner. According The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the petitioner’s
to petitioner, the arrangement was made so that he could verify the validity of the payment and make the proper authority. It held that the loan may not be nullified since it is grounded on an obligation arising from law and ruled that
arrangements to fund the account. the petitioner is still liable to pay Marasigan the sum of ₱200,000.00.

In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the petitioner’s
former teammate), to secure a loan in the amount of ₱200,000.00 on the excuse that the petitioner needed the money
for the construction of his house. In addition to the payment of the principal, Gutierrez assured Marasigan that he
would be paid an interest of 5% per month from March to May 1994.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present petition
for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition

After much contemplation and taking into account his relationship with the petitioner and Gutierrez, Marasigan
acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only",
and the amount of "₱200,000.00". The upper right portion of the check corresponding to the date was also filled out
with the words "May 23, 1994" but the petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." It was
later revealed that petitioner’s account with the bank had been closed since May 28, 1993.
The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the
borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a special power
of attorney is necessary for an individual to make a loan or borrow money in behalf of another; (3) the loan transaction
was between Gutierrez and Marasigan, with his check being used only as a security; (4) the check had not been
completely and strictly filled out in accordance with his authority since the condition that the subject check can only be
used provided there is prior approval from him, was not complied with; (5) even if the check was strictly filled up as
instructed by the petitioner, Marasigan is still not entitled to claim the check’s value as he was not a holder in due
course; and (6) by reason of the bad faith in the dealings between the respondents, he is entitled to claim for
damages.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the petitioner The Issues
asking for the payment of ₱200,000.00, but his demands likewise went unheeded. Consequently, he filed a criminal
case for violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.
Reduced to its basics, the case presents to us the following issues:

On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for Declaration of
1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent Marasigan to
Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely denied
petitioner, through respondent Gutierrez, may be nullified for being void;
authorizing the loan or the check’s negotiation, and asserted that he was not privy to the parties’ loan agreement.

2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan;
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez was
declared in default.
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority
given by the petitioner; and
The Ruling of the RTC

4. Whether Marasigan is a holder in due course.

The RTC ruled on February 3,2003 in favor of Marasigan. 4 It found that the petitioner, in issuing the pre-signed blank
checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to
negotiate or issue the check without his approval. While under Section 14 of the Negotiable Instruments Law The Court’s Ruling
Gutierrez had the prima facie authority to complete the checks by filling up the blanks therein, the RTC ruled that he
deliberately violated petitioner’s specific instructions and took advantage of the trust reposed in him by the latter.
The petition is impressed with merit.

Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the petitioner’s
We note at the outset that the issues raised in this petition are essentially factual in nature. The main point of inquiry
complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the face value of the check
of whether the contract of loan may be nullified, hinges on the very existence of the contract of loan – a question that,
with a right to claim reimbursement from Gutierrez.

AGENCY - ARTICLES 1868-1879 Page 68 of 88

as presented, is essentially, one of fact. Whether the petitioner authorized the borrowing; whether Gutierrez
completely filled out the subject check strictly under the petitioner’s authority; and whether Marasigan is a holder in
due course are also questions of fact, that, as a general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review under Rule
45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One notable exception is
when the findings off act of both the trial court and the CA are conflicting, making their review necessary. 5 In the
present case, the tribunals below arrived at two conflicting factual findings, albeit with the same conclusion, i.e.,
dismissal of the complaint for nullity of the loan. Accordingly, we will examine the parties’ evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of money. He
points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority when the loan is
contracted through an agent. The petitioner contends that absent such authority in writing, he should not be held liable
for the face value of the check because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a 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."
Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral. 6 However, it must be written when the law requires a specific
form, for example, in a sale of a piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent can loan or
borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which
are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such authority may be
either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al., 7 that the requirement under Article
1878 of the Civil Code refers to the nature of the authorization and not to its form. Be that as it may, the authority must
be duly established by competent and convincing evidence other than the self serving assertion of the party claiming
that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority in Rule 138
of the Rules of Court refer to the nature of the authorization and not its form. The requirements are met if there is a
clear mandate from the principal specifically authorizing the performance of the act. As early as 1906, this Court in
Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or written, the one vital thing
being that it shall be express. And more recently, We stated that, if the special authority is not written, then it must be
duly established by evidence:
AGENCY - ARTICLES 1868-1879
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while the
same does not state that the special authority be in writing the Court has every reason to expect that, if not in writing,
the same be duly established by evidence other than the self-serving assertion of counsel himself that such authority
was verbally given him.(Home Insurance Company vs. United States lines Company, et al., 21 SCRA 863; 866:
Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner.1âwphi1Records do not show that the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone for that matter),
whether verbally or in writing, to borrow money in his behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to borrow using
your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them to Gutierrez
suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the petitioner. As held
in Yasuma v. Heirs of De Villa, 9 involving a loan contracted by de Villa secured by real estate mortgages in the name
of East Cordillera Mining Corporation, in the absence of an SPA conferring authority on de Villa, there is no basis to
hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of the corporation need a
special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever
presented. x x x There was no showing that respondent corporation ever authorized de Villa to obtain the loans on its
behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable since
there was no authority, express, implied or apparent, given to de Villa to borrow money from petitioner. Neither was
there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). (citations
omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Page 69 of 88
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a
loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent or of
his wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked as Exhibit
"A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for
and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.
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. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf of the petitioner, the
loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is not bound by the parties’
loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient because the
authority to enter into a loan can never be presumed. The contract of agency and the special fiduciary relationship
inherent in this contract must exist as a matter of fact. The person alleging it has the burden of proof to show, not only
the fact of agency, but also its nature and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City
cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the complainant
Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as holder, i.e., as
"payee" or "indorsee." And there appears to beno contract of agency between Yambao and Andan so as to bind the
latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before the investigating fiscal that
Yambao is but her "messenger" or "part-time employee." There was no special fiduciary relationship that permeated
their dealings. For a contract of agency to exist, the consent of both parties is essential, the principal consents that the
other party, the agent, shall act on his behalf, and the agent consents so to act. It must exist as a fact. The law makes
no presumption thereof. The person alleging it has the burden of proof to show, not only the fact of its existence, but
also its nature and extent. This is more imperative when it is considered that the transaction dealt with involves
checks, which are not legal tender, and the creditor may validly refuse the same as payment of obligation.(at p. 630).
(emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA in favor
of the latter and without verifying from the petitioner whether he had authorized the borrowing of money or release of
the check. He was thus bound by the risk accompanying his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any other contract, is
subject to the rules governing the requisites and validity of contracts in general. 13 Article 1318 of the Civil
Code14enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
AGENCY - ARTICLES 1868-1879
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of consent. We
agree with the petitioner. As we explained above, Gutierrez did not have the petitioner’s written/verbal authority to
enter into a contract of loan. While there may be a meeting of the minds between Gutierrez and Marasigan, such
agreement cannot bind the petitioner whose consent was not obtained and who was not privy to the loan agreement.
Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of Marasigan.
This act, however, does not constitute sufficient authority to borrow money in his behalf and neither should it be
construed as petitioner’s grant of consent to the parties’ loan agreement. Without any evidence to prove Gutierrez’
authority, the petitioner’s signature in the check cannot be taken, even remotely, as sufficient authorization, much less,
consent to the contract of loan. Without the consent given by one party in a purported contract, such contract could
not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable under the
check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable Instruments Law
(NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a
blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such
instrument when completed may be enforced against any person who became a party thereto prior to its completion,
it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his
hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a
reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer delivers a pre-
signed blank paper to another person for the purpose of converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together with the fact that the instrument is wanting
in a material particular, the law presumes agency to fill up the blanks.16
In order however that one who is not a holder in due course can enforce the instrument against a party prior to the
instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a reasonable time. If it was proven that the instrument had not been
filled up strictly in accordance with the authority given and within a reasonable time, the maker can set this up as a
personal defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of authority.17
In the present case, the petitioner contends that there is no legal basis to hold him liable both under the contract and
loan and under the check because: first, the subject check was not completely filled out strictly under the authority he
has given and second, Marasigan was not a holder in due course.
Page 70 of 88
Marasigan is Not a Holder in Due Course fuming mad. Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi
na niya na kailangan I-settle na niya yung utang ni Nap, dahil…
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
xxxx
Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng tumalbog…
(He told me that we have to fix it up before it…) mauwi pa kung saan…
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact; xxxx
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in
Q: What was your reply, if any?
the title of the person negotiating it.(emphasis supplied)
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for Q: What was his answer?
value." It also provides in Section 52(d) that in order that one may be a holder in due course, it is necessary that at the A: It was Alvin’s check.
time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person Q: What was your reply, if any?
negotiating it. A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to appear…
xxxx
Q: What was his reply?
Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July 27,
against a prior holder of the instrument.18 It means that he does not have any knowledge of fact which would render it
2000; pp.65-71; emphasis supplied)21
dishonest for him to take a negotiable paper. The absence of the defense, when the instrument was taken, is the
essential element of good faith.19
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his inaction and failure
As held in De Ocampo v. Gatchalian:20
to verify, despite knowledge of that the petitioner was not a party to the loan, may be construed as gross negligence
amounting to bad faith.
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to
bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred from
the defendant's assignor, it being sufficient to show that the defendant had notice that there was something wrong
recovery. The NIL does not provide that a holder who is not a holder in due course may not in any case recover on the
about his assignor's acquisition of title, although he did not have notice of the particular wrong that was committed.
instrument.22 The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable.23 Among such defenses is the filling up blank not within the authority.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is
not necessary that he should know the particulars or even the nature of the fraud, since all that is required is
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the authority he
knowledge of such facts that his action in taking the note amounted bad faith.
gave. He points to his instruction not to use the check without his prior approval and argues that the check was filled
up in violation of said instruction.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial sense. The
manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves to dispose
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
of their plunder. It was a case of "no questions asked." Although gross negligence does not of itself constitute bad
faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty upon the defendants to
make further inquiries and they had no right to shut their eyes deliberately to obvious facts. (emphasis supplied). Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks and use the
check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business provided that he
could only use them upon his approval. His instruction could not be any clearer as Gutierrez’ authority was limited to
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of loan, and
the use of the checks for the operation of their business, and on the condition that the petitioner’s prior approval be
correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. The following
first secured.
exchange is significant on this point:

WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there were several
visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me up again and he was
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie authority does not
extend to its use (i.e., subsequent transfer or negotiation)once the check is completed. In other words, only the
authority to complete the check is presumed. Further, the law used the term "prima facie" to underscore the fact that
the authority which the law accords to a holder is a presumption juris tantumonly; hence, subject to subject to contrary
proof. Thus, evidence that there was no authority or that the authority granted has been exceeded may be presented
by the maker in order to avoid liability under the instrument.

AGENCY - ARTICLES 1868-1879 Page 71 of 88

In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to fill up
the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor approved the filling up
of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority when
he used the check to pay the loan he supposedly contracted for the construction of petitioner's house. This is a clear
violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense that
the blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no right to
enforce payment against the petitioner and the latter cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin Patrimonio's
petition for review on certiorari. The appealed Decision dated September 24, 2008 and the Resolution dated April 30,
2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs against the respondents.
SO ORDERED.
G.R. No. L-38816 November 3, 1933
INSULAR DRUG CO., INC., plaintiff-appellee,
vs.
THE PHILIPPINE NATIONAL BANK, ET AL., defendants.
THE PHILIPPINE NATIONAL BANK, appellant.
Camus and Delgado for appellant.
Franco and Reinoso for appellee.
MALCOLM, J.:
This is an appeal taken by Philippine National Bank from a judgment of the Court of First Instance of Manila requiring
bank to pay to the Insular Drug Co., Inc., the sum of P18,285.92 with legal interest and costs.
The record consists of the testimony of Alfred Von Arend, President and Manager of the Insular Drug Co., Inc., and of
exhibits obtained from the Philippine National Bank showing transactions of U.E. Foerster with the bank. The
Philippine National Bank was content to submit the case without presenting evidence in its behalf. The meagre record
and the statement of facts agreed upon by the attorneys for the contending parties disclose the following facts:
AGENCY - ARTICLES 1868-1879
The Insular Drug Co., Inc., is a Philippine corporation with offices in the City of Manila. U.E. Foerster was formerly a
salesman of drug company for the Islands of Panay and Negros. Foerster also acted as a collector for the company.
He was instructed to take the checks which came to his hands for the drug company to the Iloilo branch of the
Chartered Bank of India, Australia and China and deposit the amounts to the credit of the drug company. Instead,
Foerster deposited checks, including those of Juan Llorente, Dolores Salcedo, Estanislao Salcedo, and a fourth party,
with the Iloilo branch of the Philippine National Bank. The checks were in that bank placed in the personal account of
Foerster. Some of the checks were drawn against the Bank of Philippine National Bank. After the indorsement on the
checks was written "Received payment prior indorsement guaranteed by Philippine National bank, Iloilo Branch, Angel
Padilla, Manager." The indorsement on the checks took various forms, some being "Insular Drug Company, Inc., By:
(Sgd.) U. Foerster, Agent. (Sgd.) U. Foerster" other being "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster,
Agent (Sgd.) Carmen E. de Foerster"; others "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Carmen E. de
Froster"; others "(Sgd.) Carmen E. de Foerster, (Sgd.) Carmen E. de Foerster"; one (Sgd.) U. Foerster. (Sgd.) U.
Foerster"; others; "Insular Drug Co., Inc., Carmen E. de Foerster, By: (Sgd.) V. Bacaldo," etc. In this connection it
should be explained that Carmen E. de Foerster was his stenographer. As a consequence of the indorsements on
checks the amounts therein stated were subsequently withdrawn by U. E., Foerster and Carmen E. de Foerster.
Eventually the Manila office of the drug company investigated the transactions of Foerster. Upon the discovery of
anomalies, Foerster committed suicide. But there is no evidence showing that the bank knew that Foerster was
misappropriating the funds of his principal. The Insular Drug Company claims that it never received the face value of
132 checks here in the question covering a total of P18,285.92.lawphil.net
There is no Philippine authority which directly fits the proven facts. The case of Fulton Iron Works Co., vs. China
Banking Corporation ([1930], 55 Phil., 208), mentioned by both parties rest on a different states of facts. However,
there are elementary principles governing the relationship between a bank and its customers which are controlling.
In first place, the bank argues that the drug company was never defrauded at all. While the evidence on the extent of
the loss suffered by the drug company is not nearly as clear as it should be, it is a sufficient answer to state that no
such special defense was relied upon by the bank in the trial court. The drug company saw fit to stand on the
proposition that checks drawn in its favor were improperly and illegally cashed by the bank for Foerster and placed in
his personal account, thus making it possible for Foerster to defraud the drug company, and the bank did not try to go
back of this proposition.
The next point relied upon by the bank, to the effect that Foerster had implied authority to indorse all checks made out
in the name of the Insular Drug Co., Inc., has even less force. Not only did the bank permit Foerster to indorse checks
and then place them to his personal account, but it went farther and permitted Foerster's wife and clerk to indorse the
checks. The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred.
A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse
checks received in payment. Any person taking checks made payable to a corporation, which can act only by agent
does so at his peril, and must same by the consequences if the agent who indorses the same is without authority.
(Arcade Realty Co. vs. Bank of Commerce [1919], 180 Cal., 318; Standard Steam Specialty Co., vs. Corn Exchange
Bank [1917], 220 N.Y., 278; People vs. Bank of North America [1879], 75 N.Y., 547; Graham vs. United States
Savings Institution [1870], 46 Mo., 186.) Further speaking to the errors specified by the bank, it is sufficient to state
that no trust fund was involved; that the fact that bank acted in good faith does not relieve it from responsibility; that
no proof was adduced, admitting that Foerster had right to indorse the checks, indicative of right of his wife and clerk
to do the same , and that the checks drawn on the Bank of the Philippine Islands can not be differentiated from those
drawn on the Philippine National Bank because of the indorsement by the latter.
In brief, this is a case where 132 checks made out in the name of the Insular Drug Co., Inc., were brought to the
branch office of the Philippine National Bank in Iloilo by Foerster, a salesman of the drug company, Foerster's wife,
and Foerster's clerk. The bank could tell by the checks themselves that the money belonged to the Insular Drug Co.,
Inc., and not to Foerster or his wife or his clerk. When the bank credited those checks to the personal account of
Foerster and permitted Foerster and his wife to make withdrawals without there being made authority from the drug
company to do so, the bank made itself responsible to the drug company for the amounts represented by the checks.
The bank could relieve itself from responsibility by pleading and proving that after the money was withdrawn from the
bank it passed to the drug company which thus suffered no loss, but the bank has not done so. Much more could be
Page 72 of 88
said about this case, but it suffices to state in conclusion that bank will have to stand the loss occasioned by the
negligence of its agents.
Overruling the errors assigned, judgment of the trial court will be affirmed, the costs of this instance to be paid by
appellant.
G.R. No. 150350 August 22, 2006
KOJI YASUMA, Petitioner,
vs.
HEIRS OF CECILIO S. DE VILLA and EAST CORDILLERA MINING CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated October 18, 2001 in CA-
G.R. CV No. 61755.
The antecedent facts follow.
On September 15, 1988, October 21, 1988 and December 5, 1988, Cecilio S. de Villa obtained loans from petitioner
Koji Yasuma in the amounts of P1,100,000, P100,000 and P100,000, respectively, for the total amount of P1.3 million.
These loans were evidenced by three promissory notes signed by de Villa as borrower. The last promissory note in
the amount of P1,300,000 cancelled the first two notes.
The loans were initially secured by three separate real estate mortgages on a parcel of land with Transfer Certificate
of Title No. 176575 in the name of respondent East Cordillera Mining Corporation. The deeds of mortgage were
executed on the dates the loans were obtained, signed by de Villa as president of respondent corporation. The third
real estate mortgage later cancelled the first two.3
For failure of de Villa to pay, petitioner filed a collection suit in the Regional Trial Court of Makati City, Branch 148
(RTC-Br. 148) against de Villa and respondent corporation. 4 The RTC-Br. 148 declared de Villa and respondent
corporation in default and resolved the case in favor of petitioner. On appeal, however, the judgment of RTC-Br. 148
was annulled on the ground of improper service of summons.5 Thus, the case was remanded for retrial.
During the pendency of the case in the RTC-Br. 148, de Villa died. Petitioner consequently amended the complaint
and impleaded the heirs of de Villa as defendants.6
After the case was re-heard, the RTC of Makati City, Branch 139 (RTC-Br. 139) rendered judgment on November 13,
1998 in favor of petitioner and against respondent corporation. It ordered respondent corporation to pay
petitioner P1.3 million plus legal interest, attorney’s fees, liquidated damages and costs of suit. The complaint was
dismissed against respondent heirs.7
On appeal, the CA reversed and set aside the decision of RTC-Br. 139. It held that the loan was personal to de Villa
and that the mortgage was null and void for lack of authority from the corporation.
Petitioner is now before this Court with the following assignment of errors:
AGENCY - ARTICLES 1868-1879
1. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT
DECLARED THAT THE CORPORATION DID NOT RATIFY THE ACT OF ITS PRESIDENT IN OBTAINING LOANS
FROM PETITIONER DESPITE ITS ADMISSION THAT IT RECEIVED THE MONEY OF THE PETITIONER.
2. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT
TOTALLY DISREGARDED THE ADMITTED FACTS AND ISSUES AGREED UPON BY THE PARTIES AND
APPROVED BY THE TRIAL COURT DURING THE PRE-TRIAL.
3. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT
SET ASIDE THE REAL ESTATE MORTGAGE AND THE AWARD OF ATTORNEY’S FEES, 10% LIQUIDATED
DAMAGES AND THE COSTS OF SUIT.
4. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT
SET ASIDE THE AWARD OF INTEREST BY WAY OF DAMAGES IN FAVOR OF PETITIONER. 8
The issues to be resolved are the following:
1) whether the loans were personal liabilities of de Villa or debts of respondent corporation and
2) whether the mortgage on respondent corporation’s property was null and void for having been executed without its
authority.
We begin with a brief study of some well-settled legal doctrines relevant to the disposition of this case.
Personal or Corporate Liability?
A corporation is a juridical person, separate and distinct from its stockholders. Being a juridical entity, a corporation
may act through its board of directors, as provided in Section 23 of the Corporation Code of the Philippines: 9
Sec. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees …
xxx xxx xxx
The corporation can also act through its corporate officers who may be authorized either expressly by the by-laws or
board resolutions or impliedly such as by general practice or policy or as are implied from express powers. 10 The
general principles of agency govern the relation between the corporation and its officers or agents. 11 When authorized,
their acts can bind the corporation. Conversely, when unauthorized, their acts cannot bind it.
However, the corporation may ratify the unauthorized act of its corporate officer. 12 Ratification means that the principal
voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf. It is this voluntary
choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized and becomes the
authorized act of the party so making the ratification. 13 The substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. 14 Ratification can be made either expressly or impliedly. Implied
ratification may take various forms — like silence or acquiescence, acts showing approval or adoption of the act, or
acceptance and retention of benefits flowing therefrom.15
The power to borrow money is one of those cases where corporate officers as agents of the corporation need a
special power of attorney. 16 In the case at bar, no special power of attorney conferring authority on de Villa was ever
presented. The promissory notes evidencing the loans were signed by de Villa (who was the president of respondent
Page 73 of 88
corporation) as borrower without indicating in what capacity he was signing them. In fact, there was no mention at all
of respondent corporation. On their face, they appeared to be personal loans of de Villa.
Petitioner, however, contends that respondent corporation’s admission that it received the total amount of P1.3 million
was effectively a ratification of the act of its former president. 17 It appears that, in the pre-trial order dated March 4,
1997 issued by RTC-Br. 139, respondent corporation indeed admitted the following:
xxx xxx xxx
The fact that the corporation admitted receiving the proceeds of the loan did not amount to ratification of the loan. It
accepted the amount from de Villa, its president at that time, in good faith. Good faith is always presumed. 24Petitioner
did not show that the corporation acted in bad faith.
It follows that respondent corporation was not liable for the subsequent loss of the money which it accepted as an
investment. It could not be faulted for not knowing that it was the proceeds of a loan obtained by de Villa. It was under
no obligation to check the source of the investments which went into its coffers. As long as the investment was used
for legitimate corporate purposes, the investor bore the risk of loss.

Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable since
3. Defendants ADMIT that the total amount of P1.3 Million subject matter of the Promissory Notes was
there was no authority, express, implied or apparent, given to de Villa to borrow money from petitioner. Neither was
RECEIVED by the Defendant-Corporation;18 (emphasis supplied)
there any subsequent ratification of his act.

xxx xxx xxx

Was the Mortgage Valid or Void?

In its answer, respondent corporation stated:

Petitioner insists that the mortgage executed by de Villa, as president of the corporation, was ratified by the latter
since the mortgage was an accessory contract of the loan.25 We disagree.
7. The sum of money which [petitioner] sought to recover form herein [respondents] is not really a loan but his
investment to the mining project of [respondent] corporation which unfortunately did not succeed due to the delays
A special power of attorney is necessary to create or convey real rights over immovable property. 26 Furthermore, the
caused by typhoons and bad rainy season in the Benguet mountains causing landslides in the mining and milling site
special power of attorney must appear in a public document.27 In the absence of a special power of attorney in favor of
during the latter part of 1988, and the killer earthquake of 1990 which destroyed the mining area. As investment to a
de Villa as president of the corporation, no valid mortgage could have been executed by him. 28 Since the mortgage
losing business venture, he is not entitled to claim payment neither could he treat it as a loan.19
was void, it could not be ratified.

The CA held that this admission was not tantamount to ratification because what respondent corporation admitted
Petitioner cannot blame anyone but himself. He did not check if the person he was dealing with had the authority to
was that the money was in fact received as an investment. It concluded that:
mortgage the property being offered as collateral.

… even if the [respondent corporation] received the money, it cannot be held responsible for not knowing the
Given that the loan and mortgage were not binding on respondent corporation, the latter cannot be held liable for
preceding transaction between the [p]resident and the [petitioner] as in fact there was a misrepresentation made to
interest, attorney’s fees and liquidated damages arising from the loan.
the [respondent corporation], to the effect that the money was an investment and not a loan. The alleged investment
is actually a personal loan of Cecilio de Villa.20
Personal Liability of De Villa
Petitioner’s contention has no merit. There was no showing that respondent corporation ever authorized de Villa to
obtain the loans on its behalf. The notes did not show that de Villa acted on behalf of the corporation. Actually, the The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). Petitioner
corporation would not have figured in the transaction at all had it not been for its admission that it received the amount vigorously sought to make respondent corporation liable but exerted no effort at all to argue for the liability of
of P1.3 million. As could be gleaned from the promissory notes, it was a stranger to the transaction. respondent heirs. The trial court correctly dismissed the case against the latter. Petitioner’s remedy now is to file a
money claim in the settlement proceedings of de Villa’s estate, if not too late, as indicated in
Thus, we conclude that petitioner himself did not consider the corporation to be his debtor for if he really knew that de
Villa was obtaining the loan on behalf of the corporation, then why did he allow the notes to reflect only the personal Rule 8629 of the Rules of Court.
liability of de Villa?21 Even the demand letters of petitioner were personally addressed to de Villa and not to
respondent corporation.22 Undoubtedly, petitioner dealt with de Villa purely in his personal capacity.
WHEREFORE, the petition is hereby DENIED. The October 18, 2001 decision of the Court of Appeals in CA-G.R. CV
No. 61755 is AFFIRMED.
Respondent corporation could not have ratified the act of de Villa because there was no proof that it knew that he took
out a loan on its behalf. As stated earlier, ratification is a voluntary choice that is knowingly made. The corporation
Costs against petitioner.
could not have ratified an act it had no knowledge of:

SO ORDERED.
xxx xxx xxx

Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances
relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed
or unknown, there can be no valid ratification …. 23 G.R. No. L-24543 July 12, 1926

AGENCY - ARTICLES 1868-1879 Page 74 of 88

ROSA VILLA MONNA, plaintiff-appellee,
vs.
GUILLERMO GARCIA BOSQUE, ET AL., defendants.
GUILLERMO GARCIA BOSQUE, F. H. GOULETTE, and R. G. FRANCE, appellants.
Eiguren and Razon for the appellant Garcia Bosque.
Benj. S. Ohnick for the appellants France and Goulette.
Fisher, DeWitt, Perkins and Brady and John R. McFie, jr., for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of Manila by Rosa Villa y Monna, widow of Enrique Bota, for
the purpose of recovering from the defendants, Guillermo Garcia Bosque and Jose Romar Ruiz, as principals, and
from the defendants R. G. France and F. H. Goulette, as solidary sureties for said principals, the sum of P20,509.71,
with interest, as a balance alleged to be due to the plaintiff upon the purchase price of a printing establishment and
bookstore located at 89 Escolta, Manila, which had been sold to Bosque and Ruiz by the plaintiff, acting through her
attorney in fact, one Manuel Pirretas y Monros. The defendant Ruiz put in no appearance, and after publication
judgment by default was entered against him. The other defendants answered with a general denial and various
special defenses. Upon hearing the cause the trial judge gave judgment in favor of the plaintiff, requiring all of the
defendants, jointly and severally, to pay to the plaintiff the sum of P19,230.01, as capital, with stipulated interest at the
rate of 7 per centum per annum, plus the further sum of P1,279.70 as interest already accrued and unpaid upon the
date of the institution of the action, with interest upon the latter amount at the rate of 6 per centum per annum. From
this judgment Guillermo Garcia Bosque, as principal, and R. G. France and F.H. Goulette, as sureties. appealed.
It appears that prior to September 17, 1919, the plaintiff, Rosa Villa y Monna, viuda de E. Bota, was the owner of a
printing establishment and bookstore located at 89 Escolta, Manila, and known as La Flor de Cataluna, Viuda de E.
Bota, with the machinery, motors, bindery, type material furniture, and stock appurtenant thereto. Upon the date
stated, the plaintiff, then and now a resident of Barcelona, Spain, acting through Manuel Pirretas, as attorney in fact,
sold the establishment above-mentioned to the defendants Guillermo Garcia Bosque and Jose Pomar Ruiz, residents
of the City of Manila, for the stipulated sum of P55,000, payable as follows: Fifteen thousand pesos (P15,000) on
November 1, next ensuing upon the execution of the contract, being the date when the purchasers were to take
possession; ten thousand pesos (P10,000) at one year from the same date; fifteen thousand pesos (P15,000) at two
years; and the remaining fifteen thousand pesos (P15,000) at the end of three years. By the contract of sale the
deferred installments bear interest at the rate of 7 per centum per annum. In the same document the defendants
France and Goulette obligated themselves as solidary sureties with the principals Bosque and Ruiz, to answer for any
balance, including interest, which should remain due and unpaid after the dates stipulated for payment of said
installments, expressly renouncing the benefit of exhaustion of the property of the principals. The first installment of
P15,000 was paid conformably to agreement.
In the year 1920, Manuel Pirretas y Monros, the attorney in fact of the plaintiff, absented himself from the Philippine
Islands on a prolonged visit to Spain; and in contemplation of his departure he executed a document, dated January
22, 1920, purporting to be a partial substitution of agency, whereby he transferred to "the mercantile entity Figueras
Hermanos, or the person, or persons, having legal representation of the same," the powers that had been previously
conferred on Pirretas by the plaintiff "in order that," so the document runs, "they may be able to effect the collection of
such sums of money as may be due to the plaintiff by reason of the sale of the bookstore and printing establishment
already mentioned, issuing for such purpose the receipts, vouchers, letters of payment, and other necessary
documents for whatever they shall have received and collected of the character indicated."
When the time came for the payment of the second installment and accrued interest due at the time, the purchasers
were unable to comply with their obligation, and after certain negotiations between said purchasers and one Alfredo
Rocha, representative of Figueras Hermanos, acting as attorney in fact for the plaintiff, an agreement was reached,
whereby Figueras Hermanos accepted the payment of P5,800 on November 10, 1920, and received for the balance
five promissory notes payable, respectively, on December 1, 1920, January 1, 1921, February 1, 1921, March 1,
1921, and April 1, 1921. The first three of these notes were in the amount of P1,000 each, and the last two for P2,000
each, making a total of P7,000. It was furthermore agreed that the debtors should pay 9 per centum per annum on
AGENCY - ARTICLES 1868-1879
said deferred installments, instead of the 7 per centum mentioned in the contract of sale. These notes were not paid
promptly at maturity but the balance due upon them was finally paid in full by Bosque on December 24, 1921.
About this time the owners of the business La Flor de Cataluña, appear to have converted it into a limited partnership
under the style of Guillermo Garcia Bosque, S. en C.;" and presently a corporation was formed to take over the
business under the name "Bota Printing Company, Inc." By a document executed on April 21, 1922, the partnership
appears to have conveyed all its assets to this corporation for the purported consideration of P15,000, Meanwhile the
seven notes representing the unpaid balance of the second installment and interest were failing due without being
paid. Induced by this dilatoriness on the part the debtor and supposedly animated by a desire to get the matter into
better shape, M. T. Figueras entered into the agreement attached as Exhibit 1 to the answer of Bosque. In this
document it is recited that Guillermo Garcia Bosque. S. en C., is indebted to Rosa Villa, viuda de E. Bota, in the
amount of P32,000 for which R. G. France and F. H. Goulette are bound as joint and several sureties, and that the
partnership mentioned had transferred all its assets to the Bota Printing Company, Inc., of which one George Andrews
was a principal stockholder. It is then stipulated that France and Goulette shall be relieved from all liability on their
contract as sureties and that in lieu thereof the creditor, Doña Rosa Villa y Monna, accepts the Bota Printing
Company, Inc., as debtor to the extent of P20,000, which indebtedness was expressly assumed by it, and George
Andrews as debtor to the extent of P12,000, which he undertook to pay at the rate of P200 per month thereafter. To
this contract the name of the partnership Guillermo Garcia Bosque, S. en C., was affixed by Guillermo Garcia Bosque
while the name of the Bota Printing Company, Inc., was signed by G. Andrews, the latter also signing in his individual
capacity. The name of the plaintiff was affixed by M.T. Figueras in the following style: "p.p. Rosa Villa, viuda de E.
Bota, M. T. Figueras, party of the second part."
No question is made as to the authenticity of this document or as to the intention of Figueras to release the sureties;
and the latter rely upon the discharge as complete defense to the action. The defendant Bosque also relies upon the
same agreement as constituting a novation such as to relieve him from personal liability. All of the defendants
furthermore maintain that even supposing that M. T. Figueras authority to novate the original contract and discharge
the sureties therefrom, nevertheless the plaintiff has ratified the agreement by accepting part payment of the amount
due thereunder with full knowledge of its terms. In her amended complaint the plaintiff asserts that Figueras had no
authority to execute the contract containing the release (Exhibit 1) and that the same had never been ratified by her.
The question thus raised as to whether the plaintiff is bound by Exhibit 1 constitutes the main controversy in the case,
since if this point should be determined in the affirmative the plaintiff obviously has no right of action against any of the
defendants. We accordingly address ourselves to this point first.
The partial substitution of agency (Exhibit B to amended complaint) purports to confer on Figueras Hermanos or the
person or persons exercising legal representation of the same all of the powers that had been conferred on Pirretas
by the plaintiff in the original power of attorney. This original power of attorney is not before us, but assuming, as is
stated in Exhibit B, that this document contained a general power to Pirretas to sell the business known as La Flor de
Cataluña upon conditions to be fixed by him and power to collect money due to the plaintiff upon any account, with a
further power of substitution, yet it is obvious upon the face of the act of substitution (Exhibit B) that the sole purpose
was to authorize Figueras Hermanos to collect the balance due to the plaintiff upon the price of La Flor de Cataluña,
the sale of which had already been affected by Pirretas. The words of Exhibit B on this point are quite explicit ("to the
end that the said lady may be able to collect the balance of the selling price of the Printing Establishment and
Bookstore above-mentioned, which has been sold to Messrs. Bosque and Pomar"). There is nothing here that can be
construed to authorize Figueras Hermanos to discharge any of the debtors without payment or to novate the contract
by which their obligation was created. On the contrary the terms of the substitution shows the limited extent of the
power. A further noteworthy feature of the contract Exhibit 1 has reference to the personality of the purported attorney
in fact and the manner in which the contract was signed. Under the Exhibit B the substituted authority should be
exercised by the mercantile entity Figueras Hermanos or the person duly authorized to represent the same. In the
actual execution of Exhibit 1, M. T. Figueras intervenes as purpoted attorney in fact without anything whatever to show
that he is in fact the legal representative of Figueras Hermanos or that he is there acting in such capacity. The act of
substitution conferred no authority whatever on M. T. Figueras as an individual. In view of these defects in the granting
and exercise of the substituted power, we agree with the trial judge that the Exhibit 1 is not binding on the plaintiff.
Figueras had no authority to execute the contract of release and novation in the manner attempted; and apart from
this it is shown that in releasing the sureties Figueras acted contrary to instructions. For instance, in a letter from
Figueras in Manila, dated March 4, 1922, to Pirretas, then in Barcelona, the former stated that he was attempting to
Page 75 of 88
settle the affair to the best advantage and expected to put through an arrangement whereby Doña Rosa would
receive P20,000 in cash, the balance to be paid in installments, "with the guaranty of France and Goulette." In his
reply of April 29 to this letter, Pirretas expresses the conformity of Doña Rosa in any adjustment of the claim that
Figueras should see fit to make, based upon payment of P20,000 in cash, the balance in installments, payable in the
shortest practicable periods, it being understood, however, that the guaranty of Messrs. France and Goulette should
remain intact. Again, on May 9, Pirretas repeats his assurance that the plaintiff would be willing to accept P20,000
down with the balance in interest-bearing installments "with the guaranty of France and Goulette." From this it is
obvious that Figueras had no actual authority whatever to release the sureties or to make a novation of the contract
without their additional guaranty.
But it is asserted that the plaintiff ratified the contract (Exhibit 1) by accepting and retaining the sum of P14,000 which,
it is asserted, was paid by the Bota Printing Co., Inc., under that contract. In this connection it should be noted that
when the firm of Guillermo Garcia Bosque, S. en C., conveyed all it assets on April 21, 1922 to the newly formed
corporation, Bota Printing Co., Inc., the latter obligated itself to pay al the debts of the partnership, including the sum
of P32,000 due to the plaintiff. On April 23, thereafter, Bosque, acting for the Bota Printing Co., Inc., paid to Figueras
the sum of P8,000 upon the third installment due to the plaintiff under the original contract of sale, and the same was
credited by Figueras accordingly. On May 16 a further sum of P5,000 was similarly paid and credited; and on May 25,
a further sum of P200 was likewise paid, making P14,000 in all. Now, it will be remembered that in the contract
(Exhibit 1), executed on May 17, 1922, the Bota Printing Co., Inc., undertook to pay the sum of P20,00; and the
parties to the agreement considered that the sum of P13,800 then already paid by the Bota Printing Co., Inc., should
be treated as a partial satisfaction of the larger sum of P20,000 which the Bota Printing Co., Inc., had obligated itself
to pay. In the light of these facts the proposition of the defendants to the effect that the plaintiff has ratified Exhibit 1 by
retaining the sum of P14,000, paid by the Bota Printing Co., Inc., as above stated, is untenable. By the assumption of
the debts of its predecessor the Bota Printing Co., Inc., had become a primary debtor to the plaintiff; and she therefore
had a right to accept the payments made by the latter and to apply the same to the satisfaction of the third installment
of the original indebtedness. Nearly all of this money was so paid prior to the execution of Exhibit 1 and although the
sum of P200 was paid a few days later, we are of the opinion that the plaintiff was entitled to accept and retain the
whole, applying it in the manner above stated. In other words the plaintiff may lawfully retain that money
notwithstanding her refusal to be bound by Exhibit 1.
A contention submitted exclusively in behalf of France and Goulette, the appellant sureties, is that they were
discharged by the agreement between the principal debtor and Figueras Hermanos, as attorney in fact for the plaintiff,
whereby the period for the payment of the second installment was extended, without the assent of the sureties, and
new promissory notes for unpaid balance were executed in the manner already mentioned in this opinion. The
execution of these new promissory notes undoubtedly constituted and extension of time as to the obligation included
therein, such as would release a surety, even though of the solidary type, under article 1851 of the Civil Code.
Nevertheless it is to be borne in mind that said extension and novation related only to the second installment of the
original obligation and interest accrued up to that time. Furthermore, the total amount of these notes was afterwards
paid in full, and they are not now the subject of controversy. It results that the extension thus effected could not
discharge the sureties from their liability as to other installments upon which alone they have been sued in this action.
The rule that an extension of time granted to the debtor by the creditor, without the consent of the sureties,
extinguishes the latter's liability is common both to Spanish jurisprudence and the common law; and it is well settled in
English and American jurisprudence that where a surety is liable for different payments, such as installments of rent,
or upon a series of promissory notes, an extension of time as to one or more will not affect the liability of the surety for
the others. (32 Cyc., 196; Hopkirk vs. McConico, 1 Brock., 220; 12 Fed. Cas., No. 6696; Coe vs. Cassidy, 72 N. Y.,
133; Cohn vs. Spitzer, 129 N. Y. Supp., 104; Shephard Land Co. vs. Banigan, 36 R. I., 1; I. J. Cooper Rubber Co. vs.
Johnson, 133 Tenn., 562; Bleeker vs. Johnson, 190, N. W. 1010.) The contention of the sureties on this point is
therefore untenable.
There is one stipulation in the contract (Exhibit A) which, at first suggests a doubt as to propriety of applying the
doctrine above stated to the case before us. We refer to cause (f) which declares that the non-fulfillment on the part of
the debtors of the stipulation with respect to the payment of any installment of the indebtedness, with interest, will give
to the creditor the right to treat and declare all of said installments as immediately due. If the stipulation had been to
the effect that the failure to pay any installment when due would ipso facto cause to other installments to fall due at
once, it might be plausibly contended that after default of the payment of one installment the act of the creditor in
extending the time as to such installment would interfere with the right of the surety to exercise his legal rights against
the debtor, and that the surety would in such case be discharged by the extension of time, in conformity with articles
AGENCY - ARTICLES 1868-1879
1851 and 1852 of the Civil Code. But it will be noted that in the contract now under consideration the stipulation is not
that the maturity of the later installments shall be ipso facto accelerated by default in the payment of a prior
installment, but only that it shall give the creditor a right to treat the subsequent installments as due, and in this case it
does not appear that the creditor has exercised this election. On the contrary, this action was not instituted until after
all of the installments had fallen due in conformity with the original contract. It results that the stipulation contained in
paragraph (f) does not affect the application of the doctrine above enunciated to the case before us.
Finally, it is contended by the appellant sureties that they were discharged by a fraud practiced upon them by the
plaintiff in failing to require the debtor to execute a mortgage upon the printing establishment to secure the debt which
is the subject of this suit. In this connection t is insisted that at the time France and Goulette entered into the contract
of suretyship, it was represented to them that they would be protected by the execution of a mortgage upon the
printing establishment by the purchasers Bosque and Pomar. No such mortgage was in fact executed and in the end
another creditor appears to have obtained a mortgage upon the plant which is admitted to be superior to the claim of
the plaintiff. The failure of the creditor to require a mortgage is alleged to operate as a discharge of the sureties. With
this insistence we are unable to agree, for the reason that the proof does not show, in our opinion, that the creditor, on
her attorney in fact, was a party to any such agreement. On the other hand it is to be collected from the evidence that
the suggestion that a mortgage would be executed on the plant to secure the purchase price and that this mortgage
would operate for the protection of the sureties came from the principal and not from any representative of the plaintiff.
As a result of our examination of the case we find no error in the record prejudicial to any of the appellants, and the
judgment appealed from will be affirmed, So ordered, with costs against the appellants.
Avanceña, C. J., Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
G.R. No. 148775 January 13, 2004
SHOPPER’S PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner,
vs.
EFREN P. ROQUE, respondent.
DECISION
VITUG, J.:
On 23 December 1993, petitioner Shopper’s Paradise Realty & Development Corporation, represented by its
president, Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque, now deceased, over a
parcel of land, with an area of two thousand and thirty six (2,036) square meters, situated at Plaza Novaliches,
Quezon City, covered by Transfer of Certificate of Title (TCT) No. 30591 of the Register of Deeds of Quezon City in
the name of Dr. Roque. Petitioner issued to Dr. Roque a check for P250,000.00 by way of "reservation payment."
Simultaneously, petitioner and Dr. Roque likewise entered into a memorandum of agreement for the construction,
development and operation of a commercial building complex on the property. Conformably with the agreement,
petitioner issued a check for another P250,000.00 "downpayment" to Dr. Roque.
The contract of lease and the memorandum of agreement, both notarized, were to be annotated on TCT No. 30591
within sixty (60) days from 23 December 1993 or until 23 February 1994. The annotations, however, were never made
because of the untimely demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994 constrained
petitioner to deal with respondent Efren P. Roque, one of the surviving children of the late Dr. Roque, but the
negotiations broke down due to some disagreements. In a letter, dated 3 November 1994, respondent advised
petitioner "to desist from any attempt to enforce the aforementioned contract of lease and memorandum of
agreement". On 15 February 1995, respondent filed a case for annulment of the contract of lease and the
memorandum of agreement, with a prayer for the issuance of a preliminary injunction, before Branch 222 of the
Page 76 of 88
Regional Trial Court of Quezon City. Efren P. Roque alleged that he had long been the absolute owner of the subject
property by virtue of a deed of donation inter vivos executed in his favor by his parents, Dr. Felipe Roque and Elisa
Roque, on 26 December 1978, and that the late Dr. Felipe Roque had no authority to enter into the assailed
agreements with petitioner. The donation was made in a public instrument duly acknowledged by the donor-spouses
before a notary public and duly accepted on the same day by respondent before the notary public in the same
instrument of donation. The title to the property, however, remained in the name of Dr. Felipe C. Roque, and it was
only transferred to and in the name of respondent sixteen years later, or on 11 May 1994, under TCT No. 109754 of
the Register of Deeds of Quezon City. Respondent, while he resided in the United States of America, delegated to his
father the mere administration of the property. Respondent came to know of the assailed contracts with petitioner only
after retiring to the Philippines upon the death of his father.
On 9 August 1996, the trial court dismissed the complaint of respondent; it explained:
"Ordinarily, a deed of donation need not be registered in order to be valid between the parties. Registration,
however, is important in binding third persons. Thus, when Felipe Roque entered into a leased contract with
defendant corporation, plaintiff Efren Roque (could) no longer assert the unregistered deed of donation and
say that his father, Felipe, was no longer the owner of the subject property at the time the lease on the
subject property was agreed upon.
"The registration of the Deed of Donation after the execution of the lease contract did not affect the latter
unless he had knowledge thereof at the time of the registration which plaintiff had not been able to
establish. Plaintiff knew very well of the existence of the lease. He, in fact, met with the officers of the
defendant corporation at least once before he caused the registration of the deed of donation in his favor
and although the lease itself was not registered, it remains valid considering that no third person is involved.
Plaintiff cannot be the third person because he is the successor-in-interest of his father, Felipe Roque, the
lessor, and it is a rule that contracts take effect not only between the parties themselves but also between
their assigns and heirs (Article 1311, Civil Code) and therefore, the lease contract together with the
memorandum of agreement would be conclusive on plaintiff Efren Roque. He is bound by the contract even
if he did not participate therein. Moreover, the agreements have been perfected and partially executed by
the receipt of his father of the downpayment and deposit totaling to P500,000.00."1
The Trial court ordered respondent to surrender TCT No. 109754 to the Register of Deeds of Quezon City for the
annotation of the questioned Contract of Lease and Memorandum of Agreement.
On appeal, the Court of Appeals reversed the decision of the trial court and held to be invalid the Contract of Lease
and Memorandum of Agreement. While it shared the view expressed by the trial court that a deed of donation would
have to be registered in order to bind third persons, the appellate court, however, concluded that petitioner was not a
lessee in good faith having had prior knowledge of the donation in favor of respondent, and that such actual
knowledge had the effect of registration insofar as petitioner was concerned. The appellate court based its findings
largely on the testimony of Veredigno Atienza during cross-examination, viz;
"Q. Aside from these two lots, the first in the name of Ruben Roque and the second, the subject of the
construction involved in this case, you said there is another lot which was part of development project?
"A. Yes, this was the main concept of Dr. Roque so that the adjoining properties of his two sons, Ruben and
Cesar, will comprise one whole. The other whole property belongs to Cesar.
"Q. You were informed by Dr. Roque that this property was given to his three (3) sons; one to Ruben
Roque, the other to Efren, and the other to Cesar Roque?
"A. Yes.
"Q. You did the inquiry from him, how was this property given to them?
"A. By inheritance.
"Q. Inheritance in the form of donation?
"A. I mean inheritance.
"Q. What I am only asking you is, were you told by Dr. Felipe C. Roque at the time of your transaction with
him that all these three properties were given to his children by way of donation?
AGENCY - ARTICLES 1868-1879
"A. What Architect Biglang-awa told us in his exact word: "Yang mga yan pupunta sa mga anak. Yong kay
Ruben pupunta kay Ruben. Yong kay Efren palibhasa nasa America sya, nasa pangalan pa ni Dr. Felipe C.
Roque."
"x x x xxx xxx
"Q. When was the information supplied to you by Biglang-awa? Before the execution of the Contract of
Lease and Memorandum of Agreement?
"A. Yes.
"Q. That being the case, at the time of the execution of the agreement or soon before, did you have such
information confirmed by Dr. Felipe C. Roque himself?
"A. Biglang-awa did it for us.
"Q. But you yourself did not?
"A. No, because I was doing certain things. We were a team and so Biglang-awa did it for us.
"Q. So in effect, any information gathered by Biglang-awa was of the same effect as if received by you
because you were members of the same team?
"A. Yes."2
In the instant petition for review, petitioner seeks a reversal of the decision of the Court of Appeals and the
reinstatement of the ruling of the Regional Trial Court; it argues that the presumption of good faith it so enjoys as a
party dealing in registered land has not been overturned by the aforequoted testimonial evidence, and that, in any
event, respondent is barred by laches and estoppel from denying the contracts.
The existence, albeit unregistered, of the donation in favor of respondent is undisputed. The trial court and the
appellate court have not erred in holding that the non-registration of a deed of donation does not affect its validity. As
being itself a mode of acquiring ownership, donation results in an effective transfer of title over the property from the
donor to the donee.3 In donations of immovable property, the law requires for its validity that it should be contained in
a public document, specifying therein the property donated and the value of the charges which the donee must
satisfy.4 The Civil Code provides, however, that "titles of ownership, or other rights over immovable property, which are
not duly inscribed or annotated in the Registry of Property (now Registry of Land Titles and Deeds) shall not prejudice
third persons."5 It is enough, between the parties to a donation of an immovable property, that the donation be made
in a public document but, in order to bind third persons, the donation must be registered in the registry of Property
(Registry of Land Titles and Deeds).6 Consistently, Section 50 of Act No. 496 (Land Registration Act), as so amended
by Section 51 of P.D. No. 1529 (Property Registration Decree), states:
"SECTION 51. Conveyance and other dealings by registered owner.- An owner of registered land may
convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may
use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no
deed, mortgage, lease, or other voluntary instrument, except a will purporting to convey or affect registered
land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the
parties and as evidence of authority to the Register of Deeds to make registration.
"The act of registration shall be the operative act to convey or affect the land insofar as third persons are
concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of
Deeds for the province or city where the land lies." (emphasis supplied)
A person dealing with registered land may thus safely rely on the correctness of the certificate of title issued therefore,
and he is not required to go beyond the certificate to determine the condition of the property 7 but, where such party
has knowledge of a prior existing interest which is unregistered at the time he acquired a right thereto, his knowledge
of that prior unregistered interest would have the effect of registration as regards to him.8
The appellate court was not without substantial basis when it found petitioner to have had knowledge of the donation
at the time it entered into the two agreements with Dr. Roque. During their negotiation, petitioner, through its
representatives, was apprised of the fact that the subject property actually belonged to respondent.
It was not shown that Dr. Felipe C. Roque had been an authorized agent of respondent.
Page 77 of 88
In a contract of agency, the agent acts in representation or in behalf of another with the consent of the latter. 9 Article
1878 of the Civil Code expresses that a special power of attorney is necessary to lease any real property to another
person for more than one year. The lease of real property for more than one year is considered not merely an act of
administration but an act of strict dominion or of ownership. A special power of attorney is thus necessary for its
execution through an agent.1awphil.ne+
The Court cannot accept petitioner’s argument that respondent is guilty of laches. Laches, in its real sense, is the
failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it.10
Respondent learned of the contracts only in February 1994 after the death of his father, and in the same year, during
November, he assailed the validity of the agreements. Hardly, could respondent then be said to have neglected to
assert his case for unreasonable length of time.
Neither is respondent estopped from repudiating the contracts. The essential elements of estoppel in pais, in relation
to the party sought to be estopped, are: 1) a clear conduct amounting to false representation or concealment of
material facts or, at least, calculated to convey the impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; 2) an intent or, at least, an expectation, that this conduct shall
influence, or be acted upon by, the other party; and 3) the knowledge, actual or constructive, by him of the real
facts.11 With respect to the party claiming the estoppel, the conditions he must satisfy are: 1) lack of knowledge or of
the means of knowledge of the truth as to the facts in question; 2) reliance, in good faith, upon the conduct or
statements of the party to be estopped; and 3) action or inaction based thereon of such character as to change his
position or status calculated to cause him injury or prejudice. 12 It has not been shown that respondent intended to
conceal the actual facts concerning the property; more importantly, petitioner has been shown not to be totally
unaware of the real ownership of the subject property.
Altogether, there is no cogent reason to reverse the Court of Appeals in its assailed decision.
WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals declaring the contract of lease and
memorandum of agreement entered into between Dr. Felipe C. Roque and Shopper’s Paradise Realty &
Development Corporation not to be binding on respondent is AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-30181 July 12, 1929
THE DIRECTOR OF PUBLIC WORKS, plaintiff-appellee,
vs.
SING JUCO, ET AL., defendants.
SING JUCO, SING BENGCO and PHILIPPINE NATIONAL BANK, appellants.
Roman J. Lacson for appellant National Bank.
Soriano and Nepomuceno for appellants Sing Juco and Sing Bengco.
Attorney-General Jaranilla for appellee.
STREET, J.:
From Torrens certificate of title No. 1359 relating to land in the municipality of Iloilo, it appears that on September 28,
1920, the title of the property described therein was owned, in undivided shares, by Mariano de la Rama, Gonzalo
AGENCY - ARTICLES 1868-1879
Mariano Tanboontien, Sing Juco and Sing Bengco. The interest vested by said certificate in Mariano de la Rama was
subsequently transferred to sale to Enrique Enchaus. It further appears that on November 23, 1020, the owners of the
property covered by the said certificate conveyed it by way of a mortgage to the Philippine National Bank for the
purpose of securing a credit in current account in a mount not in excess of P170,000, with interest at a rate of 12
percent per annum. The indebtedness covered by this mortgage has not been satisfied, and upon the date of the
decision of the court below it amounted to the sum of P170,000, plus interest at 12 percent per annum from
November 24, 1920.
The land above referred to contains an area of nearly 16 hectares, or to be exact, 158,589.44 square meters
according to the certificate. It is located on "Point Llorente" at the mouth of Iloilo river, near the City of Iloilo, and it is of
so low a level that, prior to the improvement to which reference is to be made, it was subject to frequent flooding. In
1921, the Government of the Philippine Islands was planning extensive harbor improvements in this vicinity, requiring
extensive dredging by the Bureau of Public Works in the mouth of said river. The conduct of these dredging
operations made it necessary for the Director of Public Works to find a place of deposit for the dirt and mud taken
from the place, or places, dredged. As the land already referred to was low and easily accessible to the spot where
dredging was to be conducted, it was obviously for the interest of the Government and the said owners of the land
that the material taken out by the dredges should be deposited on the said property. Accordingly, after preliminary
negotiations to this effect have been conducted, a contract was made between the Director of Public Works,
representing the Government of the Philippine Islands, and the four owners, M. de la Rama, Sing Juco, G. M.
Tanboontien, and Seng Bengco, of which, as modified by some respects by subsequent agreement, the following
features are noteworthy.
(1) The Bureau of Public Works agreed to deposit the material to be dredged by it from the Iloilo River, in connection
with the contempted improvement, upon the lot of the land, already described as covered by certificate No. 1359, at a
price to be determined at the actual cost of the filling, with certain surcharges to be determined by the Director of
Public Works. It was contemplated in the original draft of the contract that the Bureau would be able to furnish some
250,000 cubic meters of dredged material for filling in the land, was limited to the material which should be dredged
from the river as a result of the proposed improvement. To this stipulation the four owners of the property assented on
March 14, 1921.
(2) With respect to the compensation it was agreed that the amount due should be determined by the Director of
Public Works, under certain conditions mentioned in the contract, of an amount of not less that 20 nor more than 75
centavos per cubic meter. It was further agreed that, when the work should be finished, the cost thereof should be
paid by the owners in 5 annual installments and that for failure to pay such installment the whole of the amount
thereafter to accrue should become at once due. This contract was noted in the Torrens certificate of title on January
8, 1924.
In connection with the making of the contract abovementioned, the, Director of Public Works required a bond to be
supplied by the owners in the penal amount of P150,000, approximately twice the estimated cost of the filling,
conditioned for the payment of the amount due from the owners. This bond was executed contemporaneously with the
main contract; and in connection therewith it should be noted that one of the names appearing upon said contract was
that of "Casa Viuda de Tan Toco," purporting to be signed by M. de la Rama.
The dredging operation were conducted by the Bureau of Public Works in substantial accomplice, we find, with the
terms of said agreement; and after the account with the owners were liquidated and the amount due from them
determined, demand was made upon them for the payment of the first installment. No such payment was, however,
made as a consequence this action was instituted by the Director of Public Works on October 14, 1926, for the
purpose of recovering the amount due to the Government under the contract from the original owners of the property
from the sureties whose names were signed to the contract of suretyship, and to enforce the obligation as a real lien
upon the property. In said action the Philippine National Bank was made a party defendant, as having an interest
under its prior mortgage upon the property, while Enrique Enchaus was made defendant as successor in interest of M.
de la Rama, and Tan Ong Sze widow of Tan Toco, was also made defendant by reason of her supposed liability
derived from the act of De la Rama in signing the firm "Casa Viuda de Tan Toco" as a surety on bond. It was
noteworthy that in the complaint it was asked that, in the enforcement of the government's lien, the property should be
sold "subject to the first mortgage in favor of the Philippine National Bank."
Page 78 of 88
To this complaint different defenses were set up, as follows: On behalf of the owners of the property, it was contended to the natural process of drying, the Bureau of Public Works further deposited 53,000 cubic meters on the same land.
that the government has not complied with that contract, in that dredged material deposited on the land had not been In this connection, the district engineer testified that the filling which has been charged to the owners at P70,938
sufficient in quantity to raise the level of the land above high water, and that, as a consequence, the land had not been actually cost the Government the amount of P88,297.85. The charge made for the work was evidently computed on a
much benefited. It is therefore asserted that the owners of the property are not obligated to pay the filling operation. very moderate basis; and the owners of the property have no just ground of complaint whatever.
These defendants sought to recover further damages by way of cross-complaint for the same supposed breach of
contract on the part of the Government. On the part of Viuda de Tan Toco the defense was interposed that the name
The contention of Tan Ong Sze, widow of Tan Toco, to the effect that she was not, and is not, bound by the contract of
"Casa Viuda de Tan Toco" signed to the contract of suretyship by Mariano de la Rama was signed without authority;
suretyship, is our pinion, well-founded. It will be remembered that said contract purports to have been signed by
while on the part of the Philippine National Bank was asserted that the mortgage credit pertaining to the bank is
Mariano de la Rama, acting for this defendant under the power of attorney. But the Government has exhibited no
superior to the Governments lien for improvement, and by way of counterclaim the bank asked that its mortgage be
power of attorney which would authorize the creation, by the attorney-in-fact, of an obligation in the nature of
foreclosed for the amount of its mortgage credit, and that the four mortgagors, Sing Juco, Sing Bengco, M. de la
suretyship binding upon this principal.
Rama and G.M. Tanboontien, be required to pay the amount due to the bank, and that in case of their failure to do so
the mortgaged property should be sold and the proceeds paid preferentially to the bank upon its mortgage.
It is true that the Government introduced in evidence 2 documents exhibiting powers of attorney, conferred by these
documents (Exhibit K, identical with Exhibit 5) Mariano de la Rama was given the power which reads as follows:
Upon hearing the cause the trial court, ignoring that part of the original complaint wherein the Government seeks to
enforce its lien in subordination to its first mortgage, made pronouncements:
. . . and also for me and in my name to sign, seal and execute, and as my act and deed deliver, any lease
or any other deed for the conveying any real or personal property or the other matter or thing wherein I am
(1) Declaring Sing Juco, Sing Bengco, M. de la Rama and G. M. Tanboontien indebted to the Government
or may be personally interested or concerned. And I do hereby further authorize and empower my said
in the amount of P70, 938, with interest from the date of the filing of the complaint, and requiring them to
attorney to substitute and point any other attorney or attorneys under him for the purposes aforesaid, and
pay the said sum to the plaintiff;
the same again and pleasure to revoke; and generally for me and in my name to do, perform, and execute
all and any other lawful and reasonable acts and things whatsoever as fully and effectually as I, the said
(2) Declaring, in effect, that the lien of the Government for the filing improvement was superior to the Tan Ong Sze might or could do if personally present.
mortgage of the Philippine National Bank; and finally
In another document, (Exhibits L and M), executed in favor of the same Mariano de la Rama by his uncle Tan Lien Co,
(3) Declaring the defendant Tan Ong Sze, Viuda de Tan Toco, personally liable upon the contract of attorney-in-fact of Tan Ong Sze, with power of substitution, there appears the following:
suretyship, in case the four principal obligors should not satisfy their indebtedness to the Government, or if
the land should not sell enough to satisfy the same.
. . . and also for her and for her name to sign, seal and execute, and as her act and deed deliver, any lease,
release, bargain, sale, assignment, conveyance or assurance, any other deed for the conveying any real or
From this judgment various parties defendant appealed as follows: All of the defendants, except the Philippine personal property or other matter or thing wherein she or may be personally interested or concerned.
National Bank, appealed from so much of the decision as held that the defendant owners and signatories to the
contract of suretyship has not been released by non-performance of the contract on the part of the Bureau of Public
Neither of these powers officially confers upon Mariano de la Rama the power to bind a principal by a contract of
Works, and from the refusal of the court to give to the defendant owners damages for breach of contract on the part of
suretyship. The clauses noted relate more specifically to the execution of contracts relating to property; and the more
the Government. On the part of Tan Ong Sze, Viuda de Tan Toco, error is assigned to the action of the court in holding
general words at the close of the quoted clauses should be interpreted, under the general rule ejusdem generis, as
said defendant liable upon the contract of suretyship. Finally, the Philippine National Bank appealed from so much of
referring to the contracts of like character. Power to execute a contract so exceptional a nature as a contract of
the decision as gave the lien of the Government for improvement priority over the mortgagee executed in favor of the
suretyship or guaranty cannot be inferred from the general words contained in these powers.
bank.

Dealing with these contentions in the order indicated, we find the contention of the appellants (except the Philippine
National Bank), to the effect that the Director of Public Works has failed to comply with the obligations imposed upon
the government by the contract, is wholly untenable. By said contract, the Government was not obligated to raise the
land on which the dredged material was deposited to any specified level. The Government only obligated itself upon
said land the material should be dredged from the mouth of the Iloilo River in the course of the improvement
undertaken by the Government in and near that place. Under the original contract as originally drafted, the
Government agreed to furnish 250,000 cubic meters, more or less, of dredged material; but on Mar. 14, 1921, the
owners of the property indicated their acceptance of a modification of the contract effected by the Director of Public
Works and the Secretary of Commerce and Communications, in which it was made clear that the material to be
supplied would be such only as should be dredged from the river as a result of the proposed improvement. In the
endorsement of the Director of Public Works, thus accepted by the owners, it was made clear that the Bureau of
Public Works did not undertake to furnish material to complete the filling of the land to any specified level. Proof
submitted on the part of the owners tends to show that parts of the filled land are still subject to inundation in rainy
weather; and it is contended, that the owners have, for this reason, been able to sell in lots the property to individual
occupants. the sum of P15,000, which is claimed upon this account, as damages by the owners, is the amount of
interest alleged to have been accrued upon their investment, owing to their inability to place the land advantageously
upon the market. The claim is, as already suggested, untenable. There has been no breach on the part of the
Government in fulfilling the contract. In fact it appears that the Government deposited in the period covered by the
contract 236,460 cubic meters, and after the amount thus deposited had been reduced by 21,840 cubic meters, owing
In article 1827 of the Civil Code it is declared that guaranty shall not be presumed; it must be expressed and cannot
be extended beyond its specified limits. By analogy a power of attorney to execute a contract of guaranty should not
be inferred from vague or general words, especially when such words have their origin and explanation in particular
powers of a wholly different nature. It results that the trial court was in error in giving personal judgment against Tan
Ong Sze upon the bond upon which she was sued in this case.
We now proceed to consider the last important disputed question involved in this case, which is, whether the
indebtedness owing to the Government under the contract for filling the parcel of land already mentioned is entitled to
preference over the mortgage credit due to the Philippine National Bank, as the trial judge held, or whether on the
contrary, the latter claim is entitled to priority over the claim of the Government Upon entering into the discussion of
the feature of the case it is well to recall the fact that the bank's mortgage was registered in the office of the Register
of Deeds of the province of Iloilo on November 26, 1920, while the filing contract was registered on January 8, 1924,
that is to say, there is a priority of more than three years, in point of time, in the inscription of the mortgage credit
under the filling contract was made an express lien upon the property which was the subject of improvement.
In the brief submitted in behalf of the bank it appears to be assumed that the Government credit under the filling
contract is a true refectionary credit (credito refacionario) under subsection 2 of Article 1923 of the Civil Code. It may
be observed, however, that in a precise and technical sense, this credit is not exactly of the nature of the refectionary
credit as known to the civil law. In the civil law the refectionary credit is primarily an indebtedness incurred in the

AGENCY - ARTICLES 1868-1879 Page 79 of 88

repair or reconstruction of something previously made, such repair or reconstruction being made necessary by the
deterioration or destruction as it formerly existed. The conception does not ordinarily include an entirely new work,
though Spanish jurisprudence appears to have sanctioned this broader conception in certain cases as may be
gathered from the decision in the Enciclopedia Juridica Espanola (vol. 26, pp. 888-890) s. v. Refaccionario. The
question whether the credit we are considering falls precisely under the conception of the refectionary credit in the
civil law is in this case academic rather than practical, for the reason that by the express terms of the filling contract
the credit was constituted a lien upon the improved property. But assuming, as might be tenable in the state of
jurisprudence, that said credit is a refectionary credit enjoying preference under subsection 3 or article 1923 of the
Civil code , then the mortgage credit must be given priority under subsection 2 of the article 1927 of the same code,
for the reason that the mortgage was registered first.
Possibly the simpler view of the situation is to consider the Government's right under the stipulation expressly making
the credit a lien upon the property, for it was certainly lawful for the parties to the filling contract to declare the credit a
lien upon the property to be improved — to the extent hereinafter define — whether the credit precisely fulfills the
conception of refectionary credit or not. In this aspect we have before us a competition between the real lien created
by the filling contract of the later registration. The true solution to the problem is, in our opinion, not open to doubt; and
again the result is that priority must be conceded to the mortgage. The mortgage was created by the lawful owners at
a time when no other competing interest existed in the property. The lien of the mortgage therefore attached to the
fee, or unlimited interest of the owners in the property. On the other hand, the lien created by the filling contract was
created after the mortgage had been made and registered, and therefore, after the owners of the property had parted
with the interest created by the mortgage. The Government's lien owes its origin to the contract, and derives its
efficacy from the volition of the contracting parties. But no party can by contract create a right in another intrinsically
greater than that which he himself possess. The owners, at the time this contract was made, were owners of the
equity of redemption only and not of the entire interest in the property, and the lien created by the contract could only
operate upon the equity of redemption.
In this connection, we observed that, as the new material was deposited from the Government dredges upon the
property in question, it became an integral part of the soil and an irremovable fixture; and the deposit having been
made under contract between the Government and the owners of the equity of redemption, without the concurrence
of the mortgage creditor in said contract the latter could not be prejudiced thereby. The trial court, in declaring that the
Government's lien should have preference over the mortgage, seems to have proceeded upon the idea that, at the
time the mortgage was created, the new soil had yet been deposited under the filling contract and that as a
consequence the mortgage lien should not been considered as attaching to the value added by deposit of the
additional material. This proposition, however, overlooks the fact that the deposited material became an irremovable
fixture, by the act and intention of the parties to the filling contract, and the lien of the mortgage undoubtedly attached
to the increment thus spread over and affixed to the mortgaged land. If the idea which prevailed in the trial court
should be accepted as law upon this point, the result would be that a mortgage creditor could, by the act of strangers,
be entirely proved out of his property by making of improvements to which he has not assented. This cannot be
accepted as good law.
We may add that the case cannot, on this point, be resolved favorably to the contention of the Director of Public
Works, upon the authority of Unson vs. Urquijo, Zuluoaga and Escubi (50 Phil., 160), for the reason that upon the
deposit of the dredged material on the land such material lost its identity. In the case cited the machinery in respect to
which the vendor's preference was upheld by this court retained its separate existence and remained perfectly
capable of identification at all times.
From what it has been said it results that the appealed judgment must be affirmed, and the same is hereby affirmed,
in dismissing, in effect, the cross-complaint filed by some of the defendants against the plaintiff, the Director of Public
Works. Such judgment is further affirmed in its findings, which are not dispute, with respect to the amount of the
Government's claim under the filling contract and the amount of mortgage credit of the bank, as it is also affirmed in
respect to the joint and several judgment entered in favor of the plaintiff against Sing Juco, Sing Bengco, Tanboontien
and Mariano de la Rama Tanbunco (alias Mariano de la Rama) for the amount due to the Government
Said judgment, however, must be reversed and the same is being reversed in so far as it holds that Tan Ong Sze,
Viuda de Tan Toco, is liable upon the contract of suretyship, and she is hereby absolved from the complaint. The
judgment must also be reversed in so far as it declares that the Government's lien under the filling contract is entitled
AGENCY - ARTICLES 1868-1879
to priority over the bank's mortgage. On the contrary it is hereby declared that the bank's credit is entitled to priority
out of the proceeds of the foreclosure sale, the residue, if any, to be applied to the Government's lien created by the
filling contract and otherwise in accordance with law. For further proceedings in conformity with this opinion, the cause
is hereby remanded to the cause of origin, without pronouncements as to costs. So ordered.
G.R. No. 105562 September 27, 1993
LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG and
LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY, LIMITED, respondents.
Mariano V. Ampil, Jr. for petitioners.
Ramon S. Caguiao for private respondent.
DAVIDE, JR., J.:
This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of Appeals in CA-
G.R. SP No. 229501 and its Resolution denying the petitioners' motion for reconsideration. 2 The challenged decision
modified the decision of the Insurance Commission in IC Case
No. RD-058. 3
The petitioners were the complainants in IC Case No. RD-058, an administrative complaint against private respondent
Insular Life Assurance Company, Ltd. (hereinafter Insular Life), which was filed with the Insurance Commission on 20
September 1989. 4 They prayed therein that after due proceedings, Insular Life "be ordered to pay the claimants their
insurance claims" and that "proper sanctions/penalties be imposed on" it "for its deliberate, feckless violation of its
contractual obligations to the complainants, and of the Insurance Code." 5 Insular Life's motion to dismiss the
complaint on the ground that "the claims of complainants are all respectively beyond the jurisdiction of the Insurance
Commission as provided in Section 416 of the Insurance Code,"6 having been denied in the Order of 14 November
1989, 7 it filed its answer on 5 December 1989. 8 Thereafter, hearings were conducted on various dates.
On 20 June 1990, the Commission rendered its decision 9 in favor of the complainants, the dispositive portion of which
reads as follows:
WHEREFORE, this Commission merely orders the respondent company to:
a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a copy of this Decision until
actual payment thereof;
b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00 and P40,000.00,
respectively;
c) Notify henceforth it should notify individual beneficiaries designated under any Group Policy, in the event
of the death of insured(s), where the corresponding claims are filed by the Policyholder;
d) Show cause within ten days why its other responsible officers who have handled this case should not be
subjected to disciplinary and other administrative sanctions for deliberately releasing to Capt. Nuval the
Page 80 of 88
 check intended for spouses ALARCON, in the absence of any Special Power of Attorney for that matter, It found the following facts to have been duly established:
and for negligence with respect to the release of the other five checks.
It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for brevity), a crewing/manning
SO ORDERED. 10 outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide life insurance coverage
to its sea-based employees enrolled under the plan. On 17 February 1986, during the effectivity of the
In holding for the petitioners, the Insurance Commission made the following findings and conclusions:
policy, six covered employees of the PMSI perished at sea when their vessel, M/V Nemos, a Greek cargo
vessel, sunk somewhere in El Jadida, Morocco. They were survived by complainants-appellees, the
After taking into consideration the evidences [sic], testimonial and documentary for the complainants and beneficiaries under the policy.
the respondent, the Commission finds that; First: The respondent erred in appreciating that the powers of
attorney executed by five (5) of the several beneficiaries convey absolute authority to Capt. Nuval, to
Following the tragic demise of their loved ones, complainants-appellees sought to claim death benefits due
demand, receive, receipt and take delivery of insurance proceeds from respondent Insular Life. A cursory
them and, for this purpose, they approached the President and General Manager of PMSI, Capt. Roberto
reading of the questioned powers of authority would disclosed [sic] that they do not contain in unequivocal
Nuval. The latter evinced willingness to assist complainants-appellees to recover Overseas Workers
and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent company insurance
Welfare Administration (OWWA) benefits from the POEA and to work for the increase of their PANDIMAN
proceeds arising from the death of the seaman-insured. On the contrary, the said powers of attorney are
and other benefits arising from the deaths of their husbands/sons. They were thus made to execute, with
couched in terms which could easily arouse suspicion of an ordinary
the exception of the spouses Alarcon, special powers of attorney authorizing Capt. Nuval to, among others,
man. . . .
"follow up, ask, demand, collect and receive" for their benefit indemnities of sums of money due them
relative to the sinking of M/V Nemos. By virtue of these written powers of attorney, complainants-appellees
Second: The testimony of the complainants' rebuttal witness, were able to receive their respective death benefits. Unknown to them, however, the PMSI, in its capacity
Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her husband, executed a as employer and policyholder of the life insurance of its deceased workers, filed with respondent-appellant
special power of attorney in favor of Captain Rosendo Nuval, authorizing him to claim, receive, receipt and formal claims for and in behalf of the beneficiaries, through its President, Capt. Nuval. Among the
take delivery of any insurance proceeds from Insular Life arising out of the death of their insured/seaman documents submitted by the latter for the processing of the claims were five special powers of attorney
son, is not convincingly refuted. executed by complainants-appellees. On the basis of these and other documents duly submitted,
respondent-appellant drew against its account with the Bank of the Philippine Islands on 27 May 1986 six
(6) checks, four for P200,00.00 each, one for P50,000.00 and another for P40,00.00, payable to the order
Third: Respondent Insular Life did not observe Section 180 of the Insurance Code, when it issued or of complainants-appellees. These checks were released to the treasurer of PMSI upon instructions of
released two checks in the amount of P150,000.00 for the three minor children (P50,000.00 each) of Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager for Group
complainant, Dina Ayo and another check of P40,000.00 for minor beneficiary Marissa Lontok, daughter of Administration Department of respondent-appellant. Capt. Nuval, upon receipt of these checks from the
another complainant Lucia Lontok, there being no showing of any court authorization presented or the treasurer, who happened to be his son-in-law, endorsed and deposited them in his account with the
requisite bond posted. Commercial Bank of Manila, now Boston Bank.

Section 180 is quotes [sic] partly as follows: On 3 July 1989, after complainants-appellees learned that they were entitled, as beneficiaries, to life
insurance benefits under a group policy with respondent-appellant, they sought to recover these benefits
. . . In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the from Insular Life but the latter denied their claim on the ground that the liability to complainants-appellees
mother of any minor, who is an insured or a beneficiary under a contract of life, health or accident was already extinguished upon delivery to and receipt by PMSI of the six (6) checks issued in their names.14
insurance, may exercise, in behalf of said minor, any right, under the policy, without necessity of
court authority or the giving of a bond where the interest of the minor in the particular act involved On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over the case on the
does not exceed twenty thousand pesos . . . . 11 ground that although some of the claims exceed P100,000.00, the petitioners had asked for administrative sanctions
against Insular Life which are within the Commission's jurisdiction to grant; hence, "there was merely a misjoinder of
Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP No. 22950. The causes of action . . . and, like misjoinder of parties, it is not a ground for the dismissal of the action as it does not
appeal urged the appellate court to reverse the decision because the Insurance Commission (a) had no jurisdiction affect the other reliefs prayed for." 15 It also rejected Insular Life's claim that the Alarcons had submitted a special
over the case considering that the claims exceeded P100,000.00, power of attorney which they (Insular Life) later misplaced.
(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to convey absolute
authority to Capt. Nuval to demand, receive and take delivery of the insurance proceeds pertaining to the petitioners, On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied upon by Insular
(c) erred in not giving credit to the version of Insular Life that the power of attorney supposed to have been executed Life were sufficient to authorize Capt. Nuval to receive the proceeds of the insurance pertaining to the beneficiaries. It
in favor of the Alarcons was missing, and stated:
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code for having released to
the surviving mothers the insurance proceeds pertaining to the beneficiaries who were still minors despite the failure
of the former to obtain a court authorization or to post a bond. When the officers of respondent-appellant read these written powers, they must have assumed Capt. Nuval
indeed had authority to collect the insurance proceeds in behalf of the beneficiaries who duly affixed their
12 signatures therein. The written power is specific enough to define the authority of the agent to collect any
On 10 October 1991, the public respondent rendered a decision, the decretal portion of which reads: sum of money pertaining to the sinking of the fatal vessel. Respondent-appellant interpreted this power to
include the collection of insurance proceeds in behalf of the beneficiaries concerned. We believe this is a
WHEREFORE, the decision appealed from is modified by eliminating therefrom the award to Dina reasonable interpretation even by an officer of respondent-appellant unschooled in the law. Had respondent
Ayo and Lucia Lontok in the amounts of P50,000.00 and P40,000.00, respectively. 13 appellant, consulted its legal department it would not have received a contrary view. There is nothing in the
law which mandates a specific or special power of attorney to be executed to collect insurance proceeds.

AGENCY - ARTICLES 1868-1879 Page 81 of 88

 Such authority is not included in the enumeration of Art. 1878 of the New Civil Code. Neither do we [t]here is nothing in the law which mandates a specific or special power of attorney to be
perceive collection of insurance claims as an act of strict dominion as to require a special power of attorney. executed to collect insurance proceeds. Such authority is not included in the enumeration of art.
Moreover, respondent-appellant had no reason to doubt Capt. Nuval. Not only was he armed with a 1878 of the New Civil Code. Neither do we perceive collection of insurance claims as an act of
seemingly genuine authorization, he also appeared to be the proper person to deal with respondent- strict dominion as to require a special power of attorney.
appellant being the President and General Manager of the PMSI, the policyholder with whom respondent-
appellant always dealt. The fact that there was a verbal agreement between complainants-appellees and
If this be so, then they could not have been meant to be a general power of attorney since Exhibits "1" to "5"
Capt. Nuval limiting the authority of the latter to claiming specified death benefits cannot prejudice the
are special powers of attorney. The execution by the principals of special powers of attorney, which clearly
insurance company which relied on the terms of the powers of attorney which on their face do not disclose
appeared to be in prepared forms and only had to be filled up with their names, residences, dates of
such limitation. Under the circumstances, it appearing that complainants-appellees have failed to point to a
execution, dates of acknowledgment and others, excludes any intent to grant a general power of attorney or
positive provision of law or stipulation in the policy requiring a specific power of attorney to be presented,
to constitute a universal agency. Being special powers of attorney, they must be strictly construed.
respondents-appellant's reliance on the written powers was in order and it cannot be penalized for such an
act. 16
Certainly, it would be highly imprudent to read into the special powers of attorney in question the power to collect and
receive the insurance proceeds due the petitioners from Group Policy No. G-004694. Insular Life knew that a power
Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the requirement in Section
of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was a deviation from its practice with
180 of the Insurance Code which provides in part that:
respect to group policies. Such practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of
the Group Administrative Department, thus:
In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the
mother, of any minor, who is an insured or a beneficiary under a contract of life, health or accident
ATTY. CAGUIOA:
insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of
court authority or the giving of a bond, where the interest of the minor in the particular act
involved does not exceed twenty thousand pesos. Such a right, may include, but shall not be Can you explain to us why in this case, the claim was filed by a certain Capt. Noval [sic]?
limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy,
and giving the minor's consent to any transaction on the policy.
WITNESS:
17
has been amended by the Family Code which grants the father and mother joint legal guardianship over
a The practice of our company in claim pertaining to group insurance, the policyholder is the one
the property of their unemancipated common child without the necessity of a court appointment; however,
who files the claim for the beneficiaries of the deceased. At that time, Capt. Noval [sic] is the
when the market value of the property or the annual income of the child exceeds P50,000.00, the parent
President and General Manager of Prime Marine.
concerned shall be required to put up a bond in such amount as the court may determine.

q What is the reason why policyholders are the ones who file the claim and not the designated
Hence, this petition for review on certiorari which we gave due course after the private respondent had filed the
beneficiaries of the employees of the policyholders?
required comment thereon and the petitioners their reply to the comment.

a Yes because group insurance is normally taken by the employer as an employee-benefit

We rule for the petitioners.
program and as such, the benefit should be awarded by the policyholder to make it appear that
the benefit really is given by the employer. 20
We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were executed by petitioners
Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro, respectively, on 14 May 1986 18and
On cross-examination, Urbano further elaborated that even payments, among other things, are coursed through the
uniformly granted to Capt. Rosendo Nuval the following powers:
policyholder:

To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of money due
q What is the corporate concept of group insurance insofar as Insular Life is concerned?
me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida, Casablanca, Morocco on the
evening of February 17, 1986; and
WITNESS:
To sign receipts, documents, pertinent waivers of indemnities or other writings of whatsoever
nature with any and all third persons, concerns and entities, upon terms and conditions a Group insurance is a contract where a group of individuals are covered under one master
acceptable to my said attorney. contract. The individual underwriting characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The contract is between the
policyholder and the insurance company. In our case, it is Prime Marine and Insular Life. We do
We agree with the Insurance Commission that the special powers of attorney "do not contain in unequivocal and clear
not have contractual obligations with the individual employees; it is between Prime Marine and
terms authority to Capt. Nuval to obtain, receive, receipt from respondent company insurance proceeds arising from
Insular Life.
the death of the seaman-insured. On the contrary, the said powers of attorney are couched in terms which could
easily arouse suspicion of an ordinary man." 19 The holding of the public respondent to the contrary is principally
premised on its opinion that: q And so it is part of that concept that all inquiries, follow-up, payment of claims, premium billings,
etc. should always be coursed thru the policyholder?

AGENCY - ARTICLES 1868-1879 Page 82 of 88

 21
a Yes that is our practice. a Yes, Sir.

q And when you say claim payments should always be coursed thru the policyholder, do you
require a power of attorney to be presented by the policyholder or not?
a Not necessarily.
q In other words, under a group insurance policy like the one in this case, Insular Life could pay
the claims to the policyholder himself even without the presentation of any power of attorney from
the designated beneficiaries?
This practice is usual in the group insurance business and is consistent with the jurisprudence thereon in the State of
California — from whose laws our Insurance Code has been mainly patterned — which holds that the employer-
policyholder is the agent of the insurer.
Group insurance is a comparatively new form of insurance. In the United States, the first modern group insurance
policies appear to have been issued in 1911 by the Equitable Life Assurance Society. 22 Group insurance is essentially
a single insurance contract that provides coverage for many individuals. In its original and most common form, group
insurance provides life or health insurance coverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the
xxx xxx xxx
insurer to a representative of the group or to an administrator of the insurance program, such as an employer. 23 The
employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise
WITNESS: falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer
to the employees. 24 Most policies, such as the one in this case, require an employee to pay a portion of the premium,
which the employer deducts from wages while the remainder is paid by the employer. This is known as a contributory
a No. Sir. plan as compared to a non-contributory plan where the premiums are solely paid by the employer.

ATTY. AMPIL: Although the employer may be the titular or named insured, the insurance is actually related to the life and health of
the employee. Indeed, the employee is in the position of a real party to the master policy, and even in a non-
q Why? Is this case, the present case different from the cases which you answered that no power of contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the
attorney is necessary in claims payments? services of the employee. 25 Put differently, the labor of the employees is the true source of the benefits, which are a
form of additional compensation to them.
WITNESS:
It has been stated that every problem concerning group insurance presented to a court should be approached with
the purpose of giving to it every legitimate opportunity of becoming a social agency of real consequence considering
a We did not pay Prime Marine; we paid the beneficiaries. that the primary aim is to provide the employer with a means of procuring insurance protection for his employees and
their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees, enables
q Will you now tell the Honorable Commission why you did not pay Prime Marine and instead paid the the employees to carry a larger amount of insurance than they could otherwise, and helps to attract and hold a
beneficiaries, the designated beneficiaries? permanent class of employees. 26

xxx xxx xxx In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court explicitly ruled that in group
insurance policies, the employer is the agent of the insurer. Thus:
ATTY. AMPIL:
We are convinced that the employer is the agent of the insurer in performing the duties of
administering group insurance policies. It cannot be said that the employer acts entirely for its
I will rephrase the question. own benefit or for the benefit of its employees in undertaking administrative functions. While a
reduced premium may result if the employer relieves the insurer of these tasks, and this, of
q Will you tell the Commission what circumstances led you to pay the designated beneficiaries, the course, is advantageous to both the employer and the employees, the insurer also enjoys
complainants in this case, instead of the policyholder when as you answered a while ago, it is your practice significant advantages from the arrangement. The reduction in the premium which results from
in group insurance that claims payments, etc., are coursed thru the policyholder? employer-administration permits the insurer to realize a larger volume of sales, and at the same
time the insurer's own administrative costs are markedly reduced.
WITNESS:
xxx xxx xxx
a It is coursed but, it is not paid to the policyholder.
The most persuasive rationale for adopting the view that the employer acts as the agent of the
insurer, however, is that the employee has no knowledge of or control over the employer's actions
q And so in this case, you gave the checks to the policyholder only coursing them thru said policyholder? in handling the policy or its administration. An agency relationship is based upon consent by one
person that another shall act in his behalf and be subject to his control. It is clear from the
a That is right, Sir. evidence regarding procedural techniques here that the insurer-employer relationship meets this
agency test with regard to the administration of the policy, whereas that between the employer
and its employees fails to reflect true agency. The insurer directs the performance of the
q Not directly to the designated beneficiaries?

AGENCY - ARTICLES 1868-1879 Page 83 of 88

 employer's administrative acts, and if these duties are not undertaken properly the insurer is in a
position to exercise more constricted control over the employer's conduct.
In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it was held that:
It is clear from the said Article that regardless of the value of the unemancipated common child's property, the father
and mother ipso jure become the legal guardian of the child's property. However, if the market value of the property or
the annual income of the child exceeds P50,000.00, a bond has to be posted by the parents concerned to guarantee
the performance of the obligations of a general guardian.

It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of the "market value of
[t]he employer owes to the employee the duty of good faith and due care in attending to the
the property or the annual income of the child," which means, therefore, the aggregate of the child's property or
policy, and that the employer should make clear to the employee anything required of him to keep
annual income; if this exceeds P50,000.00, a bond is required. There is no evidence that the share of each of the
the policy in effect, and the time that the obligations are due. In its position as administrator of the
minors in the proceeds of the group policy in question is the minor's only property. Without such evidence, it would not
policy, we feel also that the employer should be considered as the agent of the insurer, and any
be safe to conclude that, indeed, that is his only property.
omission of duty to the employee in its administration should be attributable to the insurer.

WHEREFORE, the instant petition is GRANTED. The Decision of

The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual Life Insurance
10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No. 22950 are SET
Co. 29 and Metropolitan Life Insurance Co. vs. State Board of Equalization.30
ASIDE and the Decision of the Insurance Commission in IC Case No. RD-058 is REINSTATED.

In the light of the above disquisitions and after an examination of the facts of this case, we hold that PMSI, through its
Costs against the private respondent.
President and General Manager, Capt. Nuval, acted as the agent of Insular Life. The latter is thus bound by the
misconduct of its agent.
SO ORDERED.
Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners. Unfortunately, through
its official, Mr. Urbano, it acted imprudently and negligently in the premises by relying without question on the special
power of attorney. In Strong vs. Repide, 31 this Court ruled that it is among the established principles in the civil law of
Europe as well as the common law of American that third persons deal with agents at their peril and are bound to
inquire as to the extent of the power of the agent with whom they contract. And in Harry E. Keller Electric
Co. vs. Rodriguez, 32 this Court, quoting Mechem on Agency, 33 stated that:

The person dealing with an agent must also act with ordinary prudence and reasonable diligence.
Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot
claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if
the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority
which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an
ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real state of
the case, but should either refuse to deal with the agent at all, or should ascertain from the principal the true
condition of affairs. (emphasis supplied)

Even granting for the sake of argument that the special powers of attorney were in due form, Insular Life was grossly
negligent in delivering the checks, drawn in favor of the petitioners, to a party who is not the agent mentioned in the
special power of attorney. Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include
the power to sell. (n)

Nor can we agree with the opinion of the public respondent that since the shares of the minors in the insurance
proceeds are less than P50,000.00, then under Article 225 of the Family Code their mothers could receive such G.R. No. 167812 December 19, 2006
shares without need of either court appointments as guardian or the posting of a bond. It is of the view that said Article
had repealed the third paragraph of Section 180 of the Insurance Code. 34 The pertinent portion of Article 225 of the JESUS M. GOZUN, petitioner,
Family Code reads as follows: vs.
JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO MERCADO, respondent.
Art. 225. The father and the mother shall jointly exercise legal guardianship over the property of
their unemancipated common child without the necessity of a court appointment. In case of DECISION
disagreement, the father's decision shall prevail, unless there is judicial order to the contrary.
CARPIO MORALES, J.:
Where the market value of the property or the annual income of the child exceeds P50,000, the
parent concerned shall be required to furnish a bond in such amount as the court may determine,
but not less than ten per centum (10%) of the value of the property or annual income, to On challenge via petition for review on certiorari is the Court of Appeals’ Decision of December 8, 2004 and
guarantee the performance of the obligations prescribed for general guardians. Resolution of April 14, 2005 in CA-G.R. CV No. 76309 1 reversing the trial court’s decision 2 against Jose Teofilo T.

AGENCY - ARTICLES 1868-1879 Page 84 of 88

Mercado a.k.a. Don Pepito Mercado (respondent) and accordingly dismissing the complaint of Jesus M. Gozun
(petitioner).
In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondent’s request,
petitioner, owner of JMG Publishing House, a printing shop located in San Fernando, Pampanga, submitted to
respondent draft samples and price quotation of campaign materials.
By petitioner’s claim, respondent’s wife had told him that respondent already approved his price quotation and that he
could start printing the campaign materials, hence, he did print campaign materials like posters bearing respondent’s
photograph,3 leaflets containing the slate of party candidates,4 sample ballots,5 poll watcher identification cards,6 and
stickers.
Given the urgency and limited time to do the job order, petitioner availed of the services and facilities of Metro Angeles
Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun and mother Epifania Macalino
Gozun, respectively.7
Petitioner delivered the campaign materials to respondent’s headquarters along Gapan-Olongapo Road in San
Fernando, Pampanga.8
Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian) obtained from petitioner "cash
advance" of P253,000 allegedly for the allowances of poll watchers who were attending a seminar and for other
related expenses. Lilian acknowledged on petitioner’s 1995 diary9 receipt of the amount.10
Petitioner later sent respondent a Statement of Account 11 in the total amount of P2,177,906 itemized as
follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing
Press; and P253,000, the "cash advance" obtained by Lilian.
On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who issued a receipt12 therefor.
Despite repeated demands and respondent’s promise to pay, respondent failed to settle the balance of his account to
petitioner.
Petitioner and respondent being compadres, they having been principal sponsors at the weddings of their respective
daughters, waited for more than three (3) years for respondent to honor his promise but to no avail, compelling
petitioner to endorse the matter to his counsel who sent respondent a demand letter. 13 Respondent, however, failed to
heed the demand.14
Petitioner thus filed with the Regional Trial Court of Angeles City on November 25, 1998 a complaint 15 against
respondent to collect the remaining amount of P1,177,906 plus "inflationary adjustment" and attorney’s fees.
In his Answer with Compulsory Counterclaim, 16 respondent denied having transacted with petitioner or entering into
any contract for the printing of campaign materials. He alleged that the various campaign materials delivered to him
were represented as donations from his family, friends and political supporters. He added that all contracts involving
his personal expenses were coursed through and signed by him to ensure compliance with pertinent election laws.
On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from him a cash advance of P253,000,
respondent denied having given her authority to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his Answer, claimed that petitioner was his over-all
coordinator in charge of the conduct of seminars for volunteers and the monitoring of other matters bearing on his
AGENCY - ARTICLES 1868-1879
candidacy; and that while his campaign manager, Juanito "Johnny" Cabalu (Cabalu), who was authorized to approve
details with regard to printing materials, presented him some campaign materials, those were partly donated. 17
When confronted with the official receipt issued to his wife acknowledging her payment to JMG Publishing House of
the amount of P1,000,000, respondent claimed that it was his first time to see the receipt, albeit he belatedly came to
know from his wife and Cabalu that the P1,000,000 represented "compensation [to petitioner] who helped a lot in the
campaign as a gesture of goodwill."18
Acknowledging that petitioner is engaged in the printing business, respondent explained that he sometimes discussed
with petitioner strategies relating to his candidacy, he (petitioner) having actively volunteered to help in his campaign;
that his wife was not authorized to enter into a contract with petitioner regarding campaign materials as she knew her
limitations; that he no longer questioned the P1,000,000 his wife gave petitioner as he thought that it was just proper
to compensate him for a job well done; and that he came to know about petitioner’s claim against him only after
receiving a copy of the complaint, which surprised him because he knew fully well that the campaign materials were
donations.19
Upon questioning by the trial court, respondent could not, however, confirm if it was his understanding that the
campaign materials delivered by petitioner were donations from third parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is donated, it must be so
stated on its face, acknowledged that nothing of that sort was written on all the materials made by petitioner. 21
As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive portion of which reads:
WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of evidence, the Court
hereby renders a decision in favor of the plaintiff ordering the defendant as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the filing of this complaint
until fully paid;
2. To pay the sum of P50,000.00 as attorney’s fees and the costs of suit.
SO ORDERED.22
Also as earlier adverted to, the Court of Appeals reversed the trial court’s decision and dismissed the complaint for
lack of cause of action.
In reversing the trial court’s decision, the Court of Appeals held that other than petitioner’s testimony, there was no
evidence to support his claim that Lilian was authorized by respondent to borrow money on his behalf. It noted that
the acknowledgment receipt23 signed by Lilian did not specify in what capacity she received the money. Thus, applying
Article 131724 of the Civil Code, it held that petitioner’s claim for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House – P640,310, Metro Angeles Printing – P837,696, and St.
Joseph Printing Press – P446,900, the appellate court, noting that since the owners of the last two printing presses
were not impleaded as parties to the case and it was not shown that petitioner was authorized to prosecute the same
in their behalf, held that petitioner could not collect the amounts due them.
Finally, the appellate court, noting that respondent’s wife had paid P1,000,000 to petitioner, the latter’s claim
of P640,310 (after excluding the P253,000) had already been settled.
Hence, the present petition, faulting the appellate court to have erred:
Page 85 of 88
 1. . . . when it dismissed the complaint on the ground that there is no evidence, other than petitioner’s own
testimony, to prove that Lilian R. Soriano was authorized by the respondent to receive the cash advance
from the petitioner in the amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro Angeles Press and St.
Joseph Printing Press on the ground that the complaint was not brought by the real party in interest.
x x x x25
By the contract of agency a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter. 26 Contracts entered into in the name of another person by
one who has been given no authority or legal representation or who has acted beyond his powers are classified as
unauthorized contracts and are declared unenforceable, unless they are ratified.27
Generally, the agency may be oral, unless the law requires a specific form. 28 However, a special power of attorney is
necessary for an agent to, as in this case, borrow money, unless it be urgent and indispensable for the preservation of
the things which are under administration.29 Since nothing in this case involves the preservation of things under
administration, a determination of whether Soriano had the special authority to borrow money on behalf of respondent
is in order.
Lim Pin v. Liao Tian, et al. 30 held that the requirement of a special power of attorney refers to the nature of the
authorization and not to its form.
. . . The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that
such a mandate may be either oral or written. The one thing vital being that it shall be express. And more
recently, We stated that, if the special authority is not written, then it must be duly established by evidence:
"…the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while
the same does not state that the special authority be in writing the Court has every reason to expect that, if
not in writing, the same be duly established by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him."31 (Emphasis and underscoring supplied)
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a
loan from him, viz:
Q : Another caption appearing on Exhibit "A" is cash advance, it states given on 3-31-95 received by Mrs.
Lilian Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00, will you kindly tell the Court and
explain what does that caption means?
A : It is the amount representing the money borrowed from me by the defendant when one morning
they came very early and talked to me and told me that they were not able to go to the bank to get
money for the allowances of Poll Watchers who were having a seminar at the headquarters plus other
election related expenses during that day, sir.
Q : Considering that this is a substantial amount which according to you was taken by Lilian Soriano, did
you happen to make her acknowledge the amount at that time?
A : Yes, sir.32 (Emphasis supplied)
AGENCY - ARTICLES 1868-1879
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent or of
his wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked as Exhibit
"A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado."
Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that he had authorized Lilian
to obtain the loan, hence, following Macke v. Camps34 which holds that one who clothes another with apparent
authority as his agent, and holds him out to the public as such, respondent cannot be permitted to deny the
authority.
Petitioner’s submission does not persuade. As the appellate court observed:
. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support his claim
unfortunately only indicates the Two Hundred Fifty Three Thousand Pesos (P253,0000.00) was received by
one Lilian R. Soriano on 31 March 1995, but without specifying for what reason the said amount was
delivered and in what capacity did Lilian R. Soriano received [sic] the money. The note reads:
"3-31-95
261,120 ADVANCE MONEY FOR TRAINEE –
RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO HUNDRED FIFTY THREE
THOUSAND PESOS
(SIGNED)
LILIAN R. SORIANO
3-31-95"
Nowhere in the note can it be inferred that defendant-appellant was connected with the said transaction.
Under Article 1317 of the New Civil Code, a person cannot be bound by contracts he did not authorize to be
entered into his behalf.35 (Underscoring supplied)
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for
and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.
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. x x x36 (Emphasis and underscoring supplied)
On the amount due him and the other two printing presses, petitioner explains that he was the one who personally
and directly contracted with respondent and he merely sub-contracted the two printing establishments in order to
deliver on time the campaign materials ordered by respondent.
Respondent counters that the claim of sub-contracting is a change in petitioner’s theory of the case which is not
allowed on appeal.
In Oco v. Limbaring,37 this Court ruled:
The parties to a contract are the real parties in interest in an action upon it, as consistently held by the
Court. Only the contracting parties are bound by the stipulations in the contract; they are the ones who
would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit it
was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract performed
by the contracting parties would incidentally inure to one's benefit.38 (Underscoring supplied)
Page 86 of 88
In light thereof, petitioner is the real party in interest in this case. The trial court’s findings on the matter were affirmed
by the appellate court.39 It erred, however, in not declaring petitioner as a real party in interest insofar as recovery of
the cost of campaign materials made by petitioner’s mother and sister are concerned, upon the wrong notion that they
should have been, but were not, impleaded as plaintiffs.
In sum, respondent has the obligation to pay the total cost of printing his campaign materials delivered by petitioner in
the total of P1,924,906, less the partial payment of P1,000,000, or P924,906.
WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the Resolution dated April 14,
2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.
The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is REINSTATED mutatis
mutandis, in light of the foregoing discussions. The trial court’s decision is modified in that the amount payable by
respondent to petitioner is reduced to P924,906.
SO ORDERED.
G.R. No. L-24765 August 29, 1969
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA, all surnamed STA. MARIA,defendants-
appellants.
Tomas Besa and Jose B. Galang for plaintiff-appellee.
G.P. Nuguid, Jr. for defendants-appellants.
TEEHANKEE, J.:
In this appeal certified to this Court by the Court of Appeals as involving purely legal issues, we hold that a special
power of attorney to mortgage real estate is limited to such authority to mortgage and does not bind the grantor
personally to other obligations contracted by the grantee, in the absence of any ratification or other similar act that
would estop the grantor from questioning or disowning such other obligations contracted by the grantee.
Plaintiff bank filed this action on February 10, 1961 against defendant Maximo Sta. Maria and his six brothers and
sisters, defendants-appellants, Valeriana, Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta. Maria,
and the Associated Insurance & Surety Co., Inc. as surety, for the collection of certain amounts representing unpaid
balances on two agricultural sugar crop loans due allegedly from defendants. 1
The said sugar crop loans were obtained by defendant Maximo Sta. Maria from plaintiff bank under a special power of
attorney, executed in his favor by his six brothers and sisters, defendants-appellants herein, to mortgage a 16-odd
hectare parcel of land, jointly owned by all of them, the pertinent portion of which reads as follows:
That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA all surnamed STA.
MARIA, sole heirs of our deceased parents CANDIDO STA. MARIA and FRANCISCA DE LOS REYES, all
of legal age, Filipinos, and residents of Dinalupihan, Bataan, do hereby name, constitute and appoint Dr.
MAXIMO STA. MARIA, of legal age, married, and residing at Dinalupihan, Bataan to be our true and lawful
attorney of and in our place, name and stead to mortgage, or convey as security to any bank, company or
AGENCY - ARTICLES 1868-1879
to any natural or juridical person, our undivided shares over a certain parcel of land together the
improvements thereon which parcel of land is more particularly described as follows, to wit:
"Situated in the Barrio of Pinulot, Municipality of Dinalupihan, Bataan, containing an area of
16.7249 hectares and bounded as follows to wit: North by property of Alejandro Benito; on the
Northeast, by public land and property of Tomas Tulop; on the southeast, by property of Ramindo
Agustin; on the southwest, by properties of Jose V. Reyes and Emilio Reyes; and on the
northwest, by excluded portion claimed by Emilio Reyes."
of which parcel of land aforementioned we are together with our said attorney who is our brother, the
owners in equal undivided shares as evidenced by Transfer Certificate of Title No. T-2785 of the Registry of
Deeds of Bataan dated Feb. 26th 1951. (Exh. E)2
In addition, Valeriana Sta. Maria alone also executed in favor of her brother, Maximo, a special power of attorney to
borrow money and mortgage any real estate owned by her, granting him the following authority:
For me and in my name to borrow money and make, execute, sign and deliver mortgages of real estate
now owned by me standing in my name and to make, execute, sign and deliver any and all promissory
notes necessary in the premises. (Exh. E-I)3
By virtue of the two above powers, Maximo Sta. Maria applied for two separate crop loans, for the 1952-1953 and
1953-1954 crop years, with plaintiff bank, one in the amount of P15,000.00, of which only the sum of P13,216.11 was
actually extended by plaintiff, and the other in the amount of P23,000.00, of which only the sum of P12,427.57 was
actually extended by plaintiff. As security for the two loans, Maximo Sta. Maria executed in his own name in favor of
plaintiff bank two chattel mortgages on the standing crops, guaranteed by surety bonds for the full authorized amounts
of the loans executed by the Associated Insurance & Surety Co., Inc. as surety with Maximo Sta. Maria as principal.
The records of the crop loan application further disclose that among the securities given by Maximo for the loans were
a "2nd mortgage on 25.3023 Has. of sugarland, including sugar quota rights therein" including, the parcel of land
jointly owned by Maximo and his six brothers and sisters herein for the 1952-1953 crop loan, with the notation that the
bank already held a first mortgage on the same properties for the 1951-1952 crop loan of Maximo, 4 and a 3rd
mortgage on the same properties for the 1953-1954 crop loan. 5
The trial court rendered judgment in favor of plaintiff and against defendants thus:1äwphï1.ñët
WHEREFORE premises considered, judgment is hereby rendered condemning the defendant Maximo R.
Sta. Maria and his co-defendants Valeriana, Quintin, Rosario, Emeteria, Teofilo, and Leonila all surnamed
Sta. Maria and the Associated Insurance and Surety Company, Inc., jointly and severally, to pay the plaintiff,
the Philippine National Bank, Del Carmen Branch, as follows:
1. On the first cause of action, the sum of P8,500.72 with a daily interest of P0.83 on P6,100.00 at 6% per
annum beginning August 21, 1963 until fully paid;
2. On the second cause of action, the sum of P14,299.79 with a daily interest of P1.53 on P9,346.44 at 6%
per annum until fully paid; and
3. On both causes of action the further sum equivalent to 10% of the total amount due as attorney's fee as
of the date of the execution of this decision, and the costs.6
Defendant Maximo Sta. Maria and his surety, defendant Associated Insurance & Surety Co., Inc. who did not resist
the action, did not appeal the judgment. This appeals been taken by his six brothers and sisters, defendants-
appellants who reiterate in their brief their main contention in their answer to the complaint that under this special
power of attorney, Exh. E, they had not given their brother, Maximo, the authority to borrow money but only to
Page 87 of 88
mortgage the real estate jointly owned by them; and that if they are liable at all, their liability should not go beyond the
value of the property which they had authorized to be given as security for the loans obtained by Maximo. In their
answer, defendants-appellants had further contended that they did not benefit whatsoever from the loans, and that the
plaintiff bank's only recourse against them is to foreclose on the property which they had authorized Maximo to
mortgage.
We find the appeal of defendants-appellants, except for defendant Valeriana Sta. Maria who had executed another
special power of attorney, Exh. E-1, expressly authorizing Maximo to borrow money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against defendants-appellants (except Valeriana), so as
to hold them liable for the unpaid balances of the loans obtained by Maximo under the chattel mortgages
executed by him in his own name alone. In the early case of Bank of P.I. vs. De Coster, this Court, in
holding that the broad power of attorney given by the wife to the husband to look after and protect the wife's
interests and to transact her business did not authorize him to make her liable as a surety for the payment
of the pre-existing debt of a third person, cited the fundamental construction rule that "where in an
instrument powers and duties are specified and defined, that all of such powers and duties are limited
andconfined to those which are specified and defined, and all other powers and duties are excluded." 7 This
is but in accord with the disinclination of courts to enlarge an authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as being usual or reasonably
necessary and proper for the performance of such express powers. Even before the filing of the present
action, this Court in the similar case of De Villa vs. Fabricante 8 had already ruled that where the power of
attorney given to the husband by the wife was limited to a grant of authority to mortgage a parcel of land
titled in the wife's name, the wife may not be held liable for the payment of the mortgage debt contracted by
the husband, as the authority to mortgage does not carry with it the authority to contract obligation. This
Court thus held in the said case:
that the bank was not satisfied with the authority to mortgage alone. For otherwise, such authority to borrow
would have been deemed unnecessary and a surplusage. And having failed to require that Maximo submit
a similar authority to borrow, from the other defendants-appellants, plaintiff, which apparently was satisfied
with the surety bond for repayment put up by Maximo, cannot now seek to hold said defendants-appellants
similarly liable for the unpaid loans. Plaintiff's argument that "a mortgage is simply an accessory contract,
and that to effect the mortgage, a loan has to be secured" 10 falls, far short of the mark. Maximo had indeed,
secured the loan on his own account and the defendants-appellants had authorized him to mortgage their
respective undivided shares of the real property jointly owned by them as security for the loan. But that was
the extent of their authority land consequent liability, to have the real property answer for the loan in case of
non-payment. It is not unusual in family and business circles that one would allow his property or an
undivided share in real estate to be mortgaged by another as security, either as an accommodation or for
valuable consideration, but the grant of such authority does not extend to assuming personal liability, much
less solidary liability, for any loan secured by the grantee in the absence of express authority so given by
the grantor.
4. The outcome might be different if there had been an express ratification of the loans by defendants-
appellants or if it had been shown that they had been benefited by the crop loans so as to put them in
estoppel. But the burden of establishing such ratification or estoppel falls squarely upon plaintiff bank. It has
not only failed to discharge this burden, but the record stands undisputed that defendant-appellant Quintin
Sta. Maria testified that he and his co-defendants executed the authority to mortgage "to accommodate
(my) brother Dr. Maximo Sta. Maria ... and because he is my brother, I signed it to accommodate him as
security for whatever he may apply as loan. Only for that land, we gave him as, security" and that "we
brothers did not receive any centavo as benefit." 11 The record further shows plaintiff bank itself admitted
during the trial that defendants-appellants "did not profit from the loan" and that they "did not receive any
money (the loan proceeds) from (Maximo)." 12 No estoppel, therefore, can be claimed by plaintiff as against
defendants-appellants.

Appellant claims that the trial court erred in holding that only Cesario A. Fabricante is liable to pay
5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to plaintiff. As already stated above,
the mortgage debt and not his wife who is exempt from liability. The trial court said: " Only the
Valeriana stands liable not merely on the mortgage of her share in the property, but also for the loans which
defendant Cesario A. Fabricante is liable for the payment of this amount because it does not
Maximo had obtained from plaintiff bank, since she had expressly granted Maximo the authority to incur
appear that the other defendant Maria G. de Fabricante had authorized Cesario A. Fabricante to
such loans. (Exh. E-1.) Although the question has not been raised in appellants' brief, we hold that
contract the debt also in her name. The power of attorney was not presented and it is to be
Valeriana's liability for the loans secured by Maximo is not joint and several or solidary as adjudged by the
presumed that the power (of attorney) was limited to a grant of authority to Cesario A. Fabricante
trial court, but only joint, pursuant to the provisions of Article 1207 of the Civil Code that "the concurrence ...
to mortgage the parcel of land covered by Transfer Certificate of Title in the name of Maria G. de
of two or more debtors in one and the same obligation does not imply that ... each one of the (debtors) is
Fabricante.
bound to render entire compliance with the prestation. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity." It should be noted
We went over the contents of the deed of mortgage executed by Cesario Fabricante in favor of that in the additional special power of attorney, Exh. E-1, executed by Valeriana, she did not grant Maximo
Appellant on April 18, 1944, and there is really nothing therein from which we may infer that the authority to bind her solidarity with him on any loans he might secure thereunder.
Cesario was authorized by his wife to construct the obligation in her name. The deed shows that
the authority was limited to the execution of the mortgage insofar as the property of the wife is
6. Finally, as to the 10% award of attorney's fees, this Court believes that considering the resources of
concerned. There is a difference between authority to mortgage and authority to contract
plaintiff bank and the fact that the principal debtor, Maximo Sta. Maria, had not contested the suit, an award
obligation. Since the power of attorney was not presented as evidence, the trial court was correct
of five (5%) per cent of the balance due on the principal, exclusive of interests, i.e., a balance of P6,100.00
in presuming that the power was merely limited to a grant of authority to mortgage unless the
on the first cause of action and a balance of P9,346.44 on the second cause of action, per the bank's
contrary is shown.9
statements of August 20, 1963, (Exhs. Q-1 and BB-1, respectively) should be sufficient.

2. The authority granted by defendants-appellants (except Valeriana) unto their brother, Maximo, was
WHEREFORE, the judgment of the trial court against defendants-appellants Emeteria, Teofilo, Quintin, Rosario and
merely to mortgage the property jointly owned by them. They did not grant Maximo any authority to contract
Leonila, all surnamed Sta. Maria is hereby reversed and set aside, with costs in both instances against plaintiff. The
for any loans in their names and behalf. Maximo alone, with Valeriana who authorized him to borrow money,
judgment against defendant-appellant Valeriana Sta. Maria is modified in that her liability is held to be joint and not
must answer for said loans and the other defendants-appellants' only liability is that the real estate
solidary, and the award of attorney's fees is reduced as set forth in the preceding paragraph, without costs in this
authorized by them to be mortgaged would be subject to foreclosure and sale to respond for the obligations
instance.
contracted by Maximo. But they cannot be held personally liable for the payment of such obligations, as
erroneously held by the trial court.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Barredo, JJ., concur.
1äwphï1.ñët Reyes, J.B.L., J., is on official leave.
3. The fact that Maximo presented to the plaintiff bank Valeriana's additional special power of attorney
expressly authorizing him to borrow money, Exh. E-1, aside from the authority to mortgage executed by
Valeriana together with the other defendants-appellants also in Maximo's favor, lends support to our view

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