agency ch 1 & 2

G.R. No. L-24332 January 31, 1978RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, vs.FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.Seno, Mendoza & Associates for petitioner.Ramon Duterte for private respondent. MUÑOZ PALMA, J.:This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in favor. The administrator of the estate of the went to court to have the sale declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and the complaint.Hence, this Petition for Review on certiorari.The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the named of the vendee.On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the respective administrators of their estates.After trial the court a quo rendered judgment with the following dispositive portion:

A. On Plaintiffs Complaint —(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of Concepcion Rallos in the property in question, — Lot 5983 of the Cadastral Survey of Cebu — is concerned;(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso;(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia

Rallos, covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in determining the legal effect of an act performed after such death?Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder consideration.1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered into in the name of another by one who has no authority or the legal representation or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same Code also provides:

ART. 1403. The following contracts are unenforceable, unless they are justified:(1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, caged 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 agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5

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". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause — death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides:

ART. 1919. Agency is extinguished.xxx xxx xxx3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis supplied)

By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in thejuridical basis of agency which is representation Them being an in. integration of the personality of the principal integration that of the agent it is not possible for the representation to continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between the principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law — the death of the principal effects instantaneous and absolute revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer. red upon an agent is dissolved by the principal's death, and any attempted execution of the power afterward is not binding on the heirs or representatives of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative point in issue in this litigation. It is the contention of respondent corporation which was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable inasmuch as the corporation acted in good faith in buying the property in question.Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor.ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good. faith.

Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled with an interest.Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here means that the third person was not aware of the death of the principal at the time he contracted with said agent. These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable.In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge on the part of the agent of the death of his principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property. The death 6f the principal does not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is no provision in the Code which provides that whatever is done by an agent having knowledge of the death of his principal is void even with respect to third persons who may have contracted with him in good faith and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows a fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial function.5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the principal and accordingly they must suffer the consequences of such omission. 17

To support such argument reference is made to a portion in Manresa's Commentaries which We quote:If the agency has been granted for the purpose of contracting with certain persons, the revocation must be made known to them. But if the agency is general iii nature, without reference to particular person with whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the revocation of the agency publicity known.In case of a general power which does not specify the persons to whom represents' on should be made, it is the general opinion that all acts, executed with third persons who contracted in good faith, Without knowledge of the revocation, are valid. In such case, the principal may exercise his right against the agent, who, knowing of the revocation, continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a

revocation of a power of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will. 19With death, the principal's will ceases or is the of authority is extinguished.The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land, stating that if a person purchases a registered land from one who acquired it in bad faith — even to the extent of foregoing or falsifying the deed of sale in his favor — the registered owner has no recourse against such innocent purchaser for value but only against the forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the defendant- appellee must be overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated. When Fernando de la Canters, a member of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff, searched the registration record, he found them in due form including the power of attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the proper notation of the encumbrance could not have been made, Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered lands placed by the registered owner thereof in the hands of another operates as a representation to a third party that the holder of the transfer is authorized to deal with the land.As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of coincidence bear the loss. (pp. 19-21)

The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with one who admittedly was an agent of his sister and who sold the property of the latter after her death with full knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part provides:

xxx xxx xxxThe production of the owner's duplicate certificate whenever any voluntary instrument is presented for registration shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a memorandum of registration in accordance with such instruments, and the new certificate or memorandum Shall be binding upon the registered owner and upon all persons claiming under him in favor of every purchaser for value and in good faith: Provided however, That in all cases of registration provided by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the principal were held to be "good", "the parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the death of the principal. We quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment after the death of principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to receive them, has been held void when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide the general proposition that by operation of law the death of the principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it intended to say that his principle applies where there was 110 notice of death, or opportunity of twice I must be permitted to dissent from it.... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of the principal, which he did not know, and which by no possibility could he know? It would be unjust to the agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.—

There are several cases which seem to hold that although, as a general principle, death revokes an agency and renders null every act of the agent thereafter performed, yet that where a payment has been made in ignorance of the death, such payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page,17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had received the benefit of the money paid, and therefore the representative of the estate might well have been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his views on the general subject, than as the adjudication of the Court upon the point in question. But accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands alone among common law authorities and is opposed by an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549)

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed without knowledge of the death of the principal and the third person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable requirement that the agent acted without knowledge or notice of the death of the principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal.IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all instances.So Ordered

URBAN BANK, INC, G.R. No. 145817

Petitioner,

- versus -

MAGDALENO M. PEÑA,

Respondent.

x---------------------------------------------x

DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, and ERIC L. LEE,

G. R. No. 145822

Petitioners,

- versus -

MAGDALENO M. PEÑA,

Respondent.

x---------------------------------------------x

MAGDALENO M. PEÑA, G. R. No. 162562

Petitioner,

- versus -

URBAN BANK, INC., TEODORO BORLONGAN, DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, P. SIERVO H. DIZON, ERIC L. LEE, BEN T. LIM, JR., CORAZON BEJASA, and ARTURO MANUEL, JR.,

Respondents.

Present: BRION, J., Acting Chairperson,VILLARAMA,*

MENDOZA,**

SERENO, andPERLAS-BERNABE,*** JJ. Promulgated: October 19, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

SERENO, J.: These consolidated petitions began as a simple case for payment of services rendered and for reimbursement of costs. The case spun a web of suits and counter-suits because of: (1) the size of the award for agent’s fee rendered in favor of Atty. Magdaleno Peña (Peña) – PhP24,000,000 – rendered by the trial court; (2) the controversial execution of the full judgment award of PhP28,500,000 (agent’s fee plus reimbursement for costs and other damages) pending appeal; and (3) the finding of solidary liability against Urban Bank, Inc., and several of its corporate officers and directors together with the concomitant levying and sale in execution of the personal (even conjugal) properties of those officers and directors; and (4) the fact that assets with declared conservative values of at least PhP181 Million which, together with those with undeclared values could reach very much more than such amount,[1] were levied or sold on execution pending appeal to satisfy the PhP28.5 Million award in favor of Atty.

Peña. Incidentally, two supersedeas bonds worth PhP80 Million (2.8 times the amount of the judgment) were filed by Urban Bank and some of its officers and directors to stay the execution pending appeal.

Had the four attendant circumstances not afflicted the original case, it would have been an open-and-shut review where this Court, applying even just the minimum equitable principle against unjust enrichment would have easily affirmed the grant of fair recompense to Atty. Peña for services he rendered for Urban Bank if such had been ordered by the trial court.

That Atty. Peña should be paid something by Urban Bank is not in dispute – the Court of Appeals (CA) and

the Regional Trial Court (RTC) of Bago City, agreed on that. What they disagreed on is the basis and the size of the award. The trial court claims that the basis is an oral contract of agency and the award should be PhP28,5000,000; while, the appellate court said that Atty. Peña can only be paid under the legal principle against unjust enrichment, and the total award in his favor should only amount to PhP3,000,000.

In the eyes of the trial court, the controlling finding is that Atty. Peña should be believed when he testified

that in a telephone conversation, the president of Urban Bank, Teodoro Borlongan, a respondent herein, agreed to pay him for his services 10% of the value of the property then worth PhP240,000,000, or PhP24,000,000. Costs and other awards additionally amount to PhP4,500,000, for a total award of PhP28,500,000 according to the trial court. To the Court of Appeals, such an award has no basis, as in fact, no contract of agency exists between Atty. Peña and Urban Bank. Hence, Atty. Peña should only be recompensed according to the principle of unjust enrichment, and that he should be awarded the amount of PhP3,000,000 only for his services and reimbursements of costs.

The disparity in the size of the award given by the trial court vis-à-vis that of the Court of Appeals (PhP28,500,000 v. PhP3,000,000) must be placed in the context of the service that Atty. Peña proved that he rendered for Urban Bank. As the records bear, Atty. Peña’s services consisted of causing the departure of unauthorized sub-tenants in twenty-three commercial establishments in an entertainment compound along Roxas Boulevard. It involved the filing of ejectment suits against them, Peña’s personal defense in the counter-suits filed against him, his settlement with them to the tune of PhP1,500,000, which he advanced from his own funds, and his retention of security guards and expenditure for other costs amounting to more or less PhP1,500,000. There is no claim by Atty. Peña of any service beyond those. He claims damages from the threats to his life and safety from the angry tenants, as well as a vexatious collection suit he had to face from a creditor-friend from whom he borrowed PhP3,000,000 to finance the expenses for the services he rendered Urban Bank.

At the time the award of PhP28,500,000 by the trial court came out in 1999, the net worth of Urban Bank was PhP2,219,781,104.[2] While the bank would be closed by the Bangko Sentral ng Pilipinas (BSP) a year later for having unilaterally declared a bank holiday contrary to banking rules, there was no reason to believe that at the time such award came out it could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net worth, and a miniscule 0.2% of its total assets of PhP11,933,383,630.[3] In fact, no allegation of impending insolvency or attempt to abscond was ever raised by Atty. Peña and yet, the trial court granted execution pending appeal.

Interestingly, Peña had included as co-defendants with Urban Bank in the RTC case, several officers and

board directors of Urban Bank. Not all board directors were sued, however. With respect to those included in the complaint, other than against Teodoro Borlongan, Corazon Bejasa, and Arturo Manuel, no evidence was ever offered as to their individual actions that gave rise to Atty. Peña’s cause of action – the execution of the agency contract and its breach – and yet, these officers and directors were made solidarily liable by the trial court with Urban Bank for the alleged breach of the alleged corporate contract of agency. Execution pending appeal was also granted against them for this solidary liability resulting in the levy and sale in execution pending appeal of not only corporate properties of Urban Bank but also personal properties of the individual bank officers and directors. It would have been interesting to find out what drove Atty. Peña to sue the bank officers and directors of Urban Bank and why he chose to sue only some, but not all of the board directors of Urban Bank, but there is nothing on the record with which this analysis can be pursued.

Before us are: (a) the Petitions of Urban Bank (G. R. No. 145817) and the De Leon Group (G R. No. 145822) questioning the propriety of the grant of execution pending appeal, and (b) the Petition of Atty. Peña (G. R. No. 162562) assailing the CA’s decision on the substantive merits of the case with respect to his claims of compensation based on an agency agreement.

Ordinarily, the final resolution by the Supreme Court of an appeal from a trial court decision would have automatic, generally-understood consequences on an order issued by the trial court for execution pending appeal. But this is no ordinary case, and the magnitude of the disproportions in this case is too mind-boggling that this Court must exert extra effort to correct whatever injustices have been occasioned in this case. Thus, our dispositions will include detailed instructions for several judicial officials to implement.

At core, these petitions can be resolved if we answer the following questions:

1. What is the legal basis for an award in favor of Peña for the services he rendered to Urban Bank? Should it be a contract of agency the fee for which was orally agreed on as Peña claims? Should it be the application of the Civil Code provisions on unjust enrichment? Or is it to be based on something else or a combination of the legal findings of both the RTC and the CA? How much should the award be?

2. Are the officers and directors of Urban Bank liable in their personal capacities for the amount claimed by Peña?

3. What are the effects of our answers to questions (1) and (2), on the various results of the execution pending appeal that happened here?

Factual Background of the Controversy Urban Bank, Inc. (both petitioner and respondent in these two consolidated cases), [4] was a domestic Philippine corporation, engaged in the business of banking.[5] The eight individual respondents in G. R. No. 162562 were officers and members of Urban Bank’s board of directors, who were sued in their official and personal capacities.[6] On the other hand, Benjamin L. De Leon, Delfin C. Gonzalez, Jr., and Eric L. Lee, (hereinafter the de Leon Group), are the petitioners in G. R. No. 145822 and are three of the same bank officers and directors, who had separately filed the instant Petition before the Court.

Petitioner-respondent Atty. Magdaleno M. Peña (Peña)[7] is a lawyer by profession and was formerly a stockholder, director and corporate secretary of Isabel Sugar Company, Inc. (ISCI).[8]

ISCI owned a parcel of land[9] located in Pasay City (the Pasay property).[10] In 1984, ISCI leased the Pasay

property for a period of 10 years.[11] Without its consent[12] and in violation of the lease contract,[13] the lessee subleased the land to several tenants, who in turn put up 23 establishments, mostly beer houses and night clubs, inside the compound.[14] In 1994, a few months before the lease contract was to expire, ISCI informed the lessee[15] and his tenants[16] that the lease would no longer be renewed and that it intended to take over the Pasay property[17] for the purpose of selling it.[18]

Two weeks before the lease over the Pasay property was to expire, ISCI and Urban Bank executed a

Contract to Sell, whereby the latter would pay ISCI the amount of PhP241,612,000 in installments for the Pasay property.[19] Both parties agreed that the final installment of PhP25,000,000 would be released by the bank upon ISCI’s delivery of full and actual possession of the land, free from any tenants. [20] In the meantime, the amount of the final installment would be held by the bank in escrow. The escrow provision in the Contract to Sell, thus, reads:

“The SELLER (ISCI) agrees that from the proceeds of the purchase prices of the subject

Property (Pasay property), the BUYER (Urban Bank) shall withhold the amount of PHP 25,000,000.00 by way of escrow and shall release this amount to the SELLER only upon its delivery to the BUYER of the full and actual possession and control of the Subject Property, free from tenants, occupants, squatters or other structures or from any liens, encumbrances, easements or any other obstruction or impediment to the free use and occupancy by the buyer of the subject Property or its exercise of the rights to ownership over the subject Property, within a period of sixty (60) days from the date of payment by the BUYER of the purchase price of the subject Property net of the amounts authorized to be deducted or withheld under Item II (a) of this Contract.[21] (Emphasis supplied)

ISCI then instructed Peña, who was its director and corporate secretary, to take over possession of the

Pasay property[22] against the tenants upon the expiration of the lease. ISCI’s president, Mr. Enrique G. Montilla III

(Montilla), faxed a letter to Peña, confirming the latter’s engagement as the corporation’s agent to handle the eviction of the tenants from the Pasay property, to wit:[23]

MEMORANDUMTO: Atty. Magdaleno M. Pena DirectorFROM: Enrique G. Montilla III PresidentDATE: 26 November 1994

You are hereby directed to recover and take possession of the property of the

corporation situated at Roxas Boulevard covered by TCT No. 5382 of the Register of Deeds for Pasay City immediately upon the expiration of the contract of lease over the said property on 29 November 1994. For this purpose you are authorized to engage the services of security guards to protect the property against intruders. You may also engage the services of a lawyer in case there is a need to go to court to protect the said property of the corporation. In addition you may take whatever steps or measures are necessary to ensure our continued possession of the property.

(sgd.) ENRIQUE G. MONTILLA IIIPresident[24]

On 29 November 1994, the day the lease contract was to expire, ISCI and Urban Bank executed a Deed of

Absolute Sale[25] over the Pasay property for the amount agreed upon in the Contract to Sell, but subject to the above escrow provision.[26] The title to the land was eventually transferred to the name of Urban Bank on 05 December 1994.[27]

On 30 November 1994, the lessee duly surrendered possession of the Pasay property to ISCI, [28] but the

unauthorized sub-tenants refused to leave the area.[29]Pursuant to his authority from ISCI, Peña had the gates of the property closed to keep the sub-tenants out.[30] He also posted security guards at the property,[31]services for which he advanced payments.[32] Despite the closure of the gates and the posting of the guards, the sub-tenants would come back in the evening, force open the gates, and proceed to carry on with their businesses. [33] On three separate occasions, the sub-tenants tried to break down the gates of the property, threw stones, and even threatened to return and inflict greater harm on those guarding it.[34]

In the meantime, a certain Marilyn G. Ong, as representative of ISCI, faxed a letter to Urban Bank –

addressed to respondent Corazon Bejasa, who was then the bank’s Senior Vice-President – requesting the issuance of a formal authority for Peña.[35] Two days thereafter, Ms. Ong faxed another letter to the bank, this time addressed to its president, respondent Teodoro Borlongan.[36] She repeated therein the earlier request for authority for Peña, since the tenants were questioning ISCI’s authority to take over the Pasay property.[37]

In response to the letters of Ms. Ong, petitioner-respondent bank, through individual respondents Bejasa

and Arturo E. Manuel – Senior Vice-President and Vice-President, respectively – advised Peña [38] that the bank had noted the engagement of his services by ISCI and stressed that ISCI remained as the lawyer’s principal.[39]

To prevent the sub-tenants from further appropriating the Pasay property,[40] petitioner-respondent Peña, as director and representative of ISCI, filed a complaint for injunction[41] (the First Injunction Complaint) with the RTC-Pasay City.[42] Acting on ISCI’s prayer for preliminary relief, the trial court favorably issued a temporary restraining order (TRO),[43] which was duly implemented.[44] At the time the First Injunction Complaint was filed, a new title to the Pasay property had already been issued in the name of Urban Bank.[45]

On 19 December 1994, when “information reached the judge that the Pasay property had already been

transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a break-open order for the property. According to Peña, it was the first time that he was apprised of the sale of the land by ISCI and of the transfer of its title in favor of the bank.”[46] It is not clear from the records how such information reached the judge or what the break-open order was in response to.

On the same day that the TRO was recalled, petitioner-respondent Peña immediately contacted ISCI’s president, Mr. Montilla, who in turn confirmed the sale of the Pasay property to Urban Bank.[47] Peña told Mr. Montilla that because of the break-open order of the RTC-Pasay City, he (Peña) would be recalling the security guards he had posted to secure the property. Mr. Montilla, however, asked him to suspend the planned withdrawal of the posted guards, so that ISCI could get in touch with petitioner-respondent bank regarding the matter.[48]

Later that same day, Peña received a telephone call from respondent Bejasa. After Peña informed her of

the situation, she allegedly told him that Urban Bank would be retaining his services in guarding the Pasay property, and that he should continue his efforts in retaining possession thereof. He insisted, however, on talking to the Bank’s president. Respondent Bejasa gave him the contact details of respondent Borlongan, then president of Urban Bank.[49]

The facts regarding the following phone conversation and correspondences are highly-controverted.

Immediately after talking to respondent Bejasa, Peña got in touch with Urban Bank’s president, respondent Borlongan. Peña explained that the policemen in Pasay City were sympathetic to the tenants and were threatening to force their way into the premises. He expressed his concern that violence might erupt between the tenants, the city police, and the security guards posted in the Pasay property. Respondent Borlongan supposedly assured him that the bank was going to retain his services, and that the latter should not give up possession of the subject land. Nevertheless, petitioner-respondent Peña demanded a written letter of authority from the bank. Respondent Borlongan acceded and instructed him to see respondent Bejasa for the letter.[50]

In the same telephone conversation, respondent Borlongan allegedly asked Peña to maintain possession

of the Pasay property and to represent Urban Bank in any legal action that might be instituted relative to the property. Peña supposedly demanded 10% of the market value of the property as compensation and attorney’s fees and reimbursement for all the expenses incurred from the time he took over land until possession was turned over to Urban Bank. Respondent Borlongan purportedly agreed on condition that possession would be turned over to the bank, free of tenants, not later than four months; otherwise, Peña would lose the 10% compensation and attorney’s fees. [51]

Later that afternoon, Peña received the bank’s letter dated 19 December 1994, which was signed by

respondents Bejasa and Manuel, and is quoted below: This is to confirm the engagement of your services as the authorized representative of Urban Bank, specifically to hold and maintain possession of our abovecaptioned property [Pasay property] and to protect the same from former tenants, occupants or any other person who are threatening to return to the said property and/or interfere with your possession of the said property for and in our behalf. You are likewise authorized to represent Urban Bank in any court action that you may institute to carry out the aforementioned duties, and to prevent any intruder, squatter or any other person not otherwise authorized in writing by Urban [B]ank from entering or staying in the premises.[52] (Emphasis supplied) On even date, ISCI sent Urban Bank a letter, which acknowledged ISCI’s engagement of Peña and

commitment to pay for any expenses that may be incurred in the course of his services. ISCI’s letter reads:This has reference to your property located along Roxas Boulevard, Pasay City [Pasay

property] which you purchased from Isabela Sugar Company under a Deed of Absolute Sale executed on December 1, 1994.

In line with our warranties as the Seller of the said property and our undertaking to deliver to you the full and actual possession and control of said property, free from tenants, occupants or squatters and from any obstruction or impediment to the free use and occupancy of the property by Urban Bank, we have engaged the services of Atty. Magdaleno M. Peña to hold and maintain possession of the property and to prevent the former tenants or occupants from entering or returning to the premises. In view of the transfer of the ownership of the property to Urban Bank, it may be necessary for Urban Bank to appoint Atty. Peña likewise as its authorized representative for purposes of holding/maintaining continued possession of the said property and to represent Urban Bank in any court action that may be instituted for the abovementioned purposes.

It is understood that any attorney’s fees, cost of litigation and any other charges or expenses that may be incurred relative to the exercise by Atty. Peña of his abovementioned

duties shall be for the account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be answerable by Isabela Sugar Company.[53] (Emphasis supplied)

The following narration of subsequent proceedings is uncontroverted. Peña then moved for the dismissal of ISCI’s First Injunction Complaint, filed on behalf of ISCI, on the

ground of lack of personality to continue the action, since the Pasay property, subject of the suit, had already been transferred to Urban Bank.[54] The RTC-Pasay City dismissed the complaint and recalled its earlier break-open order.[55]

Thereafter, petitioner-respondent Peña, now in representation of Urban Bank, filed a separate

complaint[56] (the Second Injunction Complaint) with the RTC-Makati City, to enjoin the tenants from entering the Pasay property.[57] Acting on Urban Bank’s preliminary prayer, the RTC-Makati City issued a TRO.[58]

While the Second Injunction Complaint was pending, Peña made efforts to settle the issue of possession of

the Pasay property with the sub-tenants. During the negotiations, he was exposed to several civil and criminal cases they filed in connection with the task he had assumed for Urban Bank, and he received several threats against his life.[59] The sub-tenants eventually agreed to stay off the property for a total consideration of PhP1,500,000.[60] Peña advanced the payment for the full and final settlement of their claims against Urban Bank.[61]

Peña claims to have borrowed PhP3,000,000 from one of his friends in order to maintain possession

thereof on behalf of Urban Bank.[62] According to him, although his creditor-friend granted him several extensions, he failed to pay his loan when it became due, and it later on became the subject of a separate collection suit for payment with interest and attorney’s fees.[63] This collection suit became the basis for Atty. Peña’s request for discretionary execution pending appeal later on.

On 07 February 1995, within the four-month period allegedly agreed upon in the telephone conversation,

Peña formally informed Urban Bank that it could already take possession of the Pasay property.[64] There was however no mention of the compensation due and owed to him for the services he had rendered.

On 31 March 1995, the bank subsequently took actual possession of the property and installed its own

guards at the premises.[65]

Peña thereafter made several attempts to contact respondents Borlongan and Bejasa by telephone, but the

bank officers would not take any of his calls. On 24 January 1996, or nearly a year after he turned over possession of the Pasay property, Peña formally demanded from Urban Bank the payment of the 10% compensation and attorney’s fees allegedly promised to him during his telephone conversation with Borlongan for securing and maintaining peaceful possession of the property.[66]

Proceedings on the Complaint for Compensation

On 28 January 1996, when Urban Bank refused to pay for his services in connection with the Pasay property, Peña filed a complaint[67] for recovery of agent’s compensation and expenses, damages and attorney’s fees in RTC-Bago City in the province of Negros Occidental.[68] Interestingly, Peña sued only six out of the eleven members of the Board of the Directors of Urban Bank.[69] No reason was given why the six directors were selected and the others excluded from Peña’s complaint. In fact, as pointed out, Atty. Peña mistakenly impleaded as a defendant, Ben Y. Lim, Jr., who was never even a member of the Board of Directors of Urban Bank; while, Ben T. Lim, Sr., father and namesake of Ben Y. Lim, Jr., who had been a director of the bank, already passed away in 1997.[70]

In response to the complaint of Atty. Peña, Urban Bank and individual bank officers and directors argued

that it was ISCI, the original owners of the Pasay property, that had engaged the services of Peña in securing the premises; and, consequently, they could not be held liable for the expenses Peña had incurred.[71]

On 28 May 1999, the RTC-Bago City[72] ruled in favor of Peña, after finding that an agency relationship had indeed been created between him and Urban Bank. The eight directors and bank officers were found to be solidarily liable with the bank for the payment of agency’s fees. The trial court thus ordered Urban Bank and all

eight defendant bank directors and officers whom Peña sued to pay the total amount of PhP28,500,000 (excluding costs of suit):

WHEREFORE, premised from the foregoing, judgment is hereby rendered ordering defendants to pay plaintiff jointly and severally the following amounts:

1. P24,000,000 as compensation for plaintiff’s services plus the legal rate of interest from the time of demand until fully paid;

2. P3,000,000 as reimbursement of plaintiff’s expenses;3. P1,000,000 as and for attorney’s fees;4. P500,000 as exemplary damages;5. Costs of suit.SO ORDERED.[73]

Urban Bank and the individual defendant bank directors and officers filed a common Notice of Appeal,[74] which was given due course.[75] In the appeal, they questioned the factual finding that an agency relationship existed between the bank and Peña.[76]

Although they put up a single defense in the proceedings in the lower court, Urban Bank and individual

defendants contracted different counsel and filed separate Briefs on appeal in the appellate court. In its Brief,[77] Urban Bank[78] assigned as errors the trial court’s reliance on the purported oral contract of

agency and Peña’s claims for compensation during the controverted telephone conversation with Borlongan, which were allegedly incredible.

Meanwhile, Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (the De Leon Group),[79] the petitioners in the instant Petition docketed as G. R. No. 145822, argued that, even on the assumption that there had been an agency contract with the bank, the trial court committed reversible error in holding them – as bank directors – solidarily liable with the corporation.[80]

On the other hand, Teodoro Borlongan, Corazon M. Bejasa, Arturo Manuel, Jr., Ben Y. Lim, Jr., and P.

Siervo H. Dizon (the Borlongan Group)[81] reiterated similar arguments as those of the De Leon Group, adding that the claimed compensation of 10% of the purchase price of the Pasay property was not reasonable.[82]

Peña refuted all of their arguments[83] and prayed that the trial court’s Decision be affirmed.[84]

Acting favorably on the appeal, the Court of Appeals[85] annulled the Decision of the RTC-Bago City and ruled that no agency relationship had been created. Nevertheless, it ordered Urban Bank to reimburse Peña for his expenses and to give him reasonable compensation for his efforts in clearing the Pasay property of tenants in the amount of PhP3,000,000, but absolved the bank directors and officers from solidary liability. The dispositive portion of the CA decision reads as follows:

WHEREFORE, in view of the foregoing considerations, the May 28, 2000 Decision [sic] and the October 19, 2000 [sic] Special Order of the RTC of Bago City, Branch 62, [86] are hereby ANNULLED AND SET ASIDE. However, the plaintiff-appellee [Peña] in CA GR CV No. 65756 is awarded the amount of P3 Million as reimbursement for his expenses as well as reasonable compensation for his efforts in clearing Urban Bank’s property of unlawful occupants. The award of exemplary damages, attorney’s fees and costs of suit are deleted, the same not having been sufficiently proven. The petition for Indirect Contempt against all the respondents is DISMISSED for utter lack of merit. [87] (Emphasis supplied)

Peña duly filed a Motion for Reconsideration of the unfavorable CA Decision. [88] The appellate court,

however, denied his motion.[89] The CA Decision and Resolution were appealed by Peña to this Court, through one of the three consolidated Rule 45 Petitions before us (G. R. No. 162562).

Execution Pending Appeal

On 07 June 1999, prior to the filing of the notice of appeal of Urban Bank and individual bank officers,[90] Peña moved for execution pending appeal[91] of the Decision rendered by the RTC-Bago City,[92] which had awarded him a total of PhP28,500,000 in compensation and damages.[93]

In supporting his prayer for discretionary execution, Peña cited the pending separate civil action for collection filed against him by his creditor-friend, who was demanding payment of a PhP3,000,000 loan.[94] According to Peña, he had used the proceeds of the loan for securing the bank’s Pasay property. No other reason for the prayer for execution pending appeal was given by Peña other than this collection suit.[95]

In opposition to the motion, Urban Bank countered that the collection case was not a sufficient reason for

allowing execution pending appeal.[96]

On 29 October 1999, the RTC-Bago City, through Judge Henry J. Trocino,[97] favorably granted Peña’s motion and issued a Special Order authorizing execution pending appeal.[98] In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, issued a Writ of Execution[99] on the same day.[100] The Special Order and Writ of Execution were directed at the properties owned by Urban Bank as well as the properties of the eight individual bank directors and officers.

On 04 November 1999, affected by the trial court’s grant of execution pending appeal, Urban Bank[101] filed a Rule 65 Petition with the CA to enjoin the Special Order and Writ of Execution issued by the trial court with a prayer for a TRO.[102]

On 09 November 1999, the appellate court favorably granted the TRO and preliminarily prohibited the

implementation of the Special Order and Writ of Execution.[103]

On 12 January 2000, the CA eventually granted Urban Bank’s Rule 65 Petition, and the RTC’s Special Order and Writ of Execution, which permitted execution pending appeal, were annulled. The appellate court ruled:[104]

WHEREFORE, the instant petition is GRANTED. The Special Order and writ of execution, both dated October 29, 1999, are ANNULLED and SET ASIDE.

Respondents are directed to desist from further implementing the writ of execution and to lift the garnishment and levy made pursuant thereto. [105]

On 02 February 2000, Peña moved for the reconsideration of the CA’s Decision; [106] while petitioners filed their corresponding Comment/Oppositionthereto.[107]

During the pendency of Peña’s Motion for Reconsideration, Urban Bank declared a bank holiday on 26 April 2000 and was placed under receivership of the Philippine Deposit Insurance Corporation (PDIC).[108]

In its Amended Decision dated 18 August 2000, the CA[109] favorably granted Peña’s Motion for

Reconsideration, and reversed its earlier Decision to allow execution pending appeal.[110] The appellate court found that the bank holiday declared by the BSP after the promulgation of its earlier Decision, PDIC’s receivership of Urban Bank, and the imminent insolvency thereof constituted changes in the bank’s conditions that would justify execution pending appeal.[111]

On 29 August 2000, Urban Bank and its officers moved for the reconsideration of the Amended Decision.

[112] The De Leon Group subsequently filed several Supplemental Motions for Reconsideration. [113] Thereafter, respondents Teodoro Borlongan and Corazon M. Bejasa also filed their separate Supplemental Motion for Reconsideration,[114] as did petitioner Ben T. Lim, Jr.[115]

On 19 October 2000, the Court of Appeals denied the motion for reconsideration for lack of merit and the

other subsequent Supplemental Motions for Reconsideration for being filed out of time. [116] The appellate court also ordered Peña to post an indemnity bond.[117] The Amended Decision and the Resolution were the subjects of several Rule 45 Petitions filed by Urban Bank and individual petitioners (G. R. Nos. 145817, 145818 and 145822).

On the same day the CA denied its Motion for Reconsideration, the De Leon Group immediately moved for

the stay of execution pending appeal upon the filing of a supersedeas bond.[118]

On 31 October 2000, the CA[119] granted the stay of the execution upon the filing by the De Leon Group of a PhP40,000,000 bond in favor of Peña.[120] Peña moved for the reconsideration of the stay order.[121]

In its Resolution dated 08 December 2000,[122] the appellate court denied Peña’s Motion for

Reconsideration and a stay order over the execution pending appeal was issued in favor of the De Leon Group, after they had filed their supersedeas bond.[123] The stay of execution pending appeal, however, excluded Urban Bank.[124]

On 08 December 2000, Peña posted his indemnity bond as required by the CA.[125]

As mentioned earlier, Urban Bank, the De Leon Group, and the Borlongan Group filed around December

2000 separate Rule 45 Petitions in this Court, to assail the unfavorable CA Amended Decision and Resolution that affirmed the execution pending appeal. The details of these Rule 45 Petitions will be discussed in detail later on.

In the meantime, Export and Industry Bank (EIB) submitted its proposal for rehabilitation of Urban Bank to

the BSP, and requested that the troubled bank be removed from receivership of the PDIC. On 12 July 2001, or almost a year after the Court of Appeals amended its decision to allow execution pending appeal, the rehabilitation plan of Urban Bank was approved by the Monetary Board of the BSP.[126] Thus, the Monetary Board subsequently lifted PDIC’s statutory receivership of the bank.[127]

On 14 September 2001, Urban Bank, trying to follow the lead of the De Leon Group, made a similar

request with the Court of Appeals for approval of its own supersedeas bond, [128] for the same amount of PhP40,000,000, and prayed that the execution of the RTC-Bago City’s Decision against it be stayed as well.[129]

Sometime in September and October 2001, Urban Bank began receiving notices of levy and garnishment

over its properties. After it received Notice of the impending public execution sale of its shares in the Tagaytay Highlands International Golf Club,[130] Urban Bank reiterated its request for the approval of the supersedeas bond with the Court of Appeals and the issuance of the corresponding stay order.[131]

The appellate court, however, merely noted Urban Bank’s motion on the ground that there was no showing

whether a petition to the Supreme Court had been filed or given due course or denied.[132]

After the denial by the Court of Appeals of Urban Bank’s motion for approval of its supersedeas bond,

some of the levied properties of Urban Bank and the other bank officers were sold on public auction. The table below lists the properties that appear on record to have been levied and/or sold on execution pending appeal and the approximate value of some of these properties. They do not include properties covered by the Petition docketed as G. R. No. 145818.

TABLE OF LEVIED, GARNISHED AND/OR EXECUTED PROPERTIES PENDING APPEAL

Owner/ Defendant

Property Description

Estimated Value or Price at Public

Auction

Total Amount

Remarks

Urban Bank

Three Club Shares Tagaytay Highlands International Golf Club[133]

As of 06 December 1999, one share was selling at P1.6 Million.[134]

4,800,000

Three Club Shares in Makati Sports, Club, Inc. (MSCI) [Covered by Stock Certificate Nos. A-1893, A-2305 and B-762][135]

As of 06 December 1999, MSCI Club Shares “A” and “B” were selling at PhP650,000 and PhP700,000, respectively.[136]

2,000,000[137] Atty. Peña was one of the winning bidders in the auction sale together with his creditor friend, Roberto Ignacio, and Atty. Ramon Ereñeta.

85 Condominium Units in the Urban Bank Plaza, Makati City[138]

The highest bid price obtained for the condominium units was PhP1M at the time of the execution sale.[139]

85,000,000 Intervenor Unimega purchased the 10 condominium units in the auction sale for P1M each or a total of P10 M.[140]

A 155 sqm. condominium unit, Makati City (CCT No. 57697) [141]

Estimates are based on report of Urban Bank[142]

12,400,000

A 12.5 sqm. condominium parking space (Parking Three, Unit P-46) in Makati City (CCT No. 57698)[143]

500,000

A 64,677 sqm. land in Tagaytay City (TCT No. 20471)[144]

Value based on estimate of Urban Bank[145]

35,572,350

Teodoro Borlongan

One Club Share in Manila Polo Club (No. 3433)[146]

Borlongan’s club share was estimated to be valued at P1,000,000.[147]

1,000,000 Notice of Sale on Execution on Personal Property dated 25 August 2000[148]

One Club Share in Subic Bay Yacht Club[149]

One club share was estimated to be valued at P500,000.[150]

500,000

One Club Share in Baguio Country Club[151]

As of 06 December 1999, one share was selling at P870,000.[152]

870,000

One Club Share in MSCI[153]

As of 06 December 1999, MSCI Club Shares “A” and “B” were selling at PhP650,000 and PhP700,000 respectively.[154]

650,000

Real Property[155] No estimate available on record.

Delfin C. Gonzales, Jr.

One Club Share in Manila Polo Club (No. 3818)[156]

Gonzales’ club share was estimated to be valued at P4,000,000.[157]


One Club Share in Baguio Country Club.[159]


1,077,000

One Club Share in Alabang Country Club (Member No. 550)[161]


2,000,000

30,585 shares of stock in D. C. Gonzales, Jr., Inc.[163]

P20.00 per share[164] 611,700

40 Shares of stock in D. C. Gonzales, Jr., Inc.[165]

P50.00 per share[166] 2,000

Benjamin L. de Leon

One Club Share in Manila Polo Club (with Associate Membership) [No. 0597][167]

De Leon’s Share was estimated at P4 M for the share and P1.05 M for the associate membership.[168]


One Club Share in MSCI (Stock Certificate No. A-175)[170]

De Leon’s share was estimated at P450,000.[171]

450,000

One Club Share in Baguio Country Club (5523)[172]

As of 06 December 1999, one share was selling at least P870,000.[173]

870,000

P. Siervo G. Dizon

No records available as to properties levied, garnished or executed pending appeal.

Eric L. Lee

One Club Share in Manila Polo Club (2038)[174]

Lee’s’ club share was estimated to be valued at P4,000,000.[175]


One Club Share in Manila Golf Club, Inc.[177]

Lee’s club share was estimated to be valued at P15,750,000.[178]

15,750,000

One Club Share in Sta. Elena Golf Club, Inc. (Class “A” Share) [179]

Lee’s club share was estimated to be valued at P2,000,000.[180]

2,000,000

Two Club Shares in Tagaytay Highlands Int’l Golf Club, Inc. [181]

Lee’s club shares were estimated to be valued at P1,000,000.[182]


One Club Share in Subic Yacht Club[184]

Lee’s club share was estimated to be valued at P500,000.[185]

500,000

60,757 Shares of stock in EQL Properties, Inc.[186]

P20.00 per share 1,214,140

40 Shares of stock in EQL Properties, Inc. [187]

P50.00 per share 2,000

Cash garnished from BPI Account[188]

100,000

Ben T. Lim, Jr.

No records available as to properties levied, garnished or executed pending appeal.

Corazon Bejasa

Real Property[189] No estimated value.

Arturo Manuel, Jr.,

Real Property[190] No estimated value.

TOTAL VALUE 181,919,190 The sum of PhP181,919,190 does not include many other properties and it is not difficult to believe that the

total value covered reached more than that.[191] In summary, the estimated values and/or purchase prices at the auction sale of the properties of Urban Bank and its officers amounted to no less than PhP181,919,190already. This amounts to almost six times the value of the award given by the trial court. Otherwise stated, Peña, as judgment creditor, was overly secured by the levied and/or garnished properties for the amount of PhP28,500,000, where the judgment award was still subject of reversal on appeal.

On 22 October 2001, Urban Bank, with respect to its pending Rule 45 Petition in this Court, moved for the

approval of its PhP40,000,000 supersedeas bond[192] and requested that the Court stay the execution pending appeal.[193] Peña opposed the motion on the ground that it had already been rendered moot and academic by the sale of the properties of the bank.[194]

On 23 October 2002, or almost a year after some of the condominium units were sold in a public auction,

EIB, as the successor of Urban Bank, expressed to the sheriff of RTC-Bago City an intent to redeem the said condominium units.[195] Thus, EIB tendered three manager’s checks in the total amount of PhP22,108,800[196]to redeem the properties that were previously under the name of Urban Bank.[197] Although the trial court noted the bank’s Manifestation,[198] the sheriff returned the EIB’s manager’s checks. Thus, on 29 October 2002, EIB, through a motion, was prompted to turn over the checks to the trial court itself.[199]

When Urban Bank supposedly failed to redeem the condominium units according to the sheriff,[200] final

Certificates of Sale were issued in favor of Unimega on 04 November 2002.[201] Upon the latter’s motion, RTC-Bago City, in its Order dated 13 November 2002, ordered the Register of Deeds of Makati to transfer the Condominium Certificates of Title to the name of Unimega.[202] It has not been shown, though, whether this Order was followed.

This Court, acting on Urban Bank’s earlier motion to approve its supersedeas bond, granted the same in its

Resolution dated 19 November 2001.[203] Peña moved for reconsideration of the approval,[204] but his motion was subsequently denied by the Court.[205]

Proceedings in the Supreme Court (G. R. Nos. 145817, 145818 & 145822)

On 21 December 2000, Urban Bank,[206] represented by its receiver, PDIC,[207] filed a Rule 45 Petition with this Court (docketed as G. R. No. 145817) to assail the CA’s Amended Decision and Resolution granting execution pending appeal.[208] In response, Peña moved for the denial of the petition on the grounds of lack merit, violation of the rule against forum shopping, and non-payment of docket fees, among others.[209] In a separate Comment,[210] Peña also argued that the appellate court had committed no error when it considered the bank’s “imminent insolvency” as a good reason for upholding the validity of the execution pending appeal.

On the other hand, the Borlongan Group[211] filed a separate Rule 45 Petition questioning the same

Decision and Resolution, docketed as G. R. No. 145818.[212] This Court initially denied their petition on the ground that it failed to sufficiently show that the CA committed reversible order.[213] The Borlongan Group twice moved for the reconsideration of the denial of their petition; but the Court nonetheless denied both motions for lack of merit.[214] This denial of the petition in G. R. No. 145818 became final and executory, with the issuance of the Entry of Judgment.[215]

Meanwhile, another Rule 45 Petition (G. R. No. 145822)[216] was filed by the De Leon Group, assailing the

same Decisions of the appellate court. The Court also preliminarily denied this petition on the ground that the De Leon Group failed to file the appeal within the reglementary period and to pay certain fees.[217]

Despite the denial of the Rule 45 Petition in G. R. No. 145822 filed by the De Leon Group, the Court

nonetheless ordered that the case be consolidated with Urban Bank’s own Rule 45 Petition in G. R. No. 145817.[218] The Court subsequently gave due course to both of these petitions.[219] In compliance with the Court’s Order,[220] Urban Bank[221] and the De Leon Group[222] filed their respective Memoranda.

As detailed earlier, the Court granted and approved Urban Bank’s supersedeas bond and stayed the

execution pending appeal. Considering the favorable stay of execution pending appeal, EIB, as the new owner and successor of

Urban Bank, immediately wrote to tell[223] the corporate secretary of MSCI not to effect the cancellation or transfer of Urban Bank’s three MSCI stock certificates previously sold in a public auction. [224] In reply, MSCI explained that since there was no injunction or stay order, it had no other option but to comply with the trial court’s Order for the transfer. Eventually, however, it could not effect the transfer of one of the shares to Peña because a club share had already been previously registered in his name, and the club’s bylaws prohibited a natural person from owning more than one share.[225] Meanwhile, one of the winning bidders in the public auction sale of the MSCI shares wrote to the latter to demand that the club share previously owned by Urban Bank be transferred to him.[226]

On 04 February 2002, considering the conflicting claims of Urban Bank (through EIB) and the winning

bidders of the club shares, MSCI filed a Motion for Clarification of the Court’s Resolution staying the execution pending appeal.[227]

In its Motion for Clarification dated 06 August 2002, Urban Bank likewise requested clarification of whether

the stay order suspended, as well, its right to redeem the properties sold at a public auction.[228] The copy of Urban Bank’s motion for clarification intended for Peña was mistakenly sent to the wrong counsel.

In its Resolution dated 13 November 2002, the Court explained that its earlier stay order prohibited the

MSCI from transferring the shares, and that the one-year period for redemption of the bank’s properties was likewise suspended:

WHEREFORE, the Court hereby RESOLVES to clarify that as a consequence of its approval of the supersedeas bond, the running of the one-year period for petitioner Urban Bank to redeem the properties sold at the public auctions held on October 4, 11 and 25, 2001 as well as the consolidation of the titles in favor of the buyers, is SUSPENDED OR STAYED. MSCI is also prohibited from transferring petitioner Urban Bank’s MSCI club shares to the winning bidders in the execution sale held on October 11, 2001.[229] (Emphasis supplied)

On 09 December 2002, Peña moved that the Court’s Resolution be recalled, because he was not given an

opportunity to be heard on Urban Bank’s Motion for Clarification, which was sent to a different counsel.[230] Interposing its objection, the bank argued that the error in mistakenly sending the Motion for clarification to a different counsel was by sheer inadvertence,[231] but Peña was nonetheless aware of the motion, and that the Court’s clarification did not create or diminish his rights in any case.[232]

The Motion for Clarification filed by Urban Bank, the Court’s Resolution dated 13 November 2002 and

Peña’s Omnibus Motion praying for the recall of the said Resolution became the subject of an administrative case (Administrative Case No. 6332), which was treated as a separate matter and later on de-consolidated with the instant Petitions.[233] The Court had even called for an executive session[234] in which Peña, among others, appeared and was questioned by the then members of the Court’s First Division, namely retired Chief Justice Hilario Davide, Justices Jose Vitug, Antonio Carpio and Adolfo Azcuna. Although the Petitions had earlier been assigned to Justice Carpio, he has since taken no part in the proceedings of this case and this resulted in the re-raffling of the Petitions. The transfer and unloading of the case by the subsequently assigned Justices as well as Peña’s numerous motions for inhibition and/or re-raffle has likewise cause considerable delay in the disposition of the instant Petitions and the Administrative Case.

Unimega, which was the winning bidder of some of the publicly executed condominium units of Urban

Bank, moved to intervene in the case and to have the Court’s same Resolution suspending the one-year period of redemption of the properties be reconsidered.[235] Unimega claimed that ownership of the bank’s titles to the 10 condominium units had already been transferred to the former at the time the Court issued the Resolution; and, thus, there was no more execution to be suspended or stayed. Only Urban Bank [236] opposed the motion[237]of intervenor Unimega on the ground that the latter was not a buyer in good faith, and that the purchase price was grossly disproportional to the fair market value of the condominium units.[238]

The Court eventually granted the Motion to Intervene considering that the intervenor’s title to the

condominium units purchased at the public auction would be affected, favorably or otherwise, by the judgment of the Court in this case. However, it held in abeyance the resolution of intervenor’s Motion for Reconsideration, which might preempt the decision with respect to the propriety of execution pending appeal. [239] Thereafter, the bank

adopted its earlier Opposition to the intervention as its answer to Unimega’s petition-in-intervention. [240] Also in answer thereto, the De Leon Group adopted its earlier Manifestation and Comment.[241]

Intervenor Unimega then requested that a writ of possession be issued in its favor covering the 10

condominium units sold during the public auction.[242] The Court required the parties to file their comments on the request.[243] The Lim[244] and Borlongan Groups[245] manifested separately that they would not be affected by a resolution of the request of intervenor Unimega, since the latter was not among the contending parties to the incident. Peña similarly interposed no objection to the issuance of the writ of possession.[246] In contrast, Urban Bank opposed the application of Unimega on the ground that the latter was not entitled to possession of the levied properties, because the rules of extrajudicial foreclosure were not applicable to execution sales under Rule 39, and that intervenor was also not a buyer in good faith.[247] In a similar vein, the De Leon Group opposed the application for a writ of possession, and further argued that the Court had already suspended the running of the one-year period of redemption in the execution sale.[248] Accordingly, intervenor Unimega countered that the right of redemption of the levied properties had already expired without having been exercised by the judgment debtor.[249]

In summary, the Court shall resolve the substantial issues in the following: (a) the Petition of Peña (G. R.

No. 162562) assailing the CA’s decision on the substantive merits of the case with respect to his claims of compensation based on an agency agreement; and (b) the Petitions of Urban Bank (G. R. No. 145817) and the De Leon Group (G R. No. 145822) questioning the propriety of the grant of execution pending appeal.

OUR RULINGI

Peña is entitled to payment for compensation for services rendered as agent of Urban Bank, but on the basis of the principles of unjust enrichment and quantum meruit, and not on the purported oral contract.

The Court finds that Peña should be paid for services rendered under the agency relationship that existed between him and Urban Bank based on the civil law principle against unjust enrichment, but the amount of payment he is entitled to should be made, again, under the principle against unjust enrichment and on the basis ofquantum meruit.

In a contract of agency, agents bind themselves to render some service or to do something in

representation or on behalf of the principal, with the consent or authority of the latter. [250] The basis of the civil law relationship of agency is representation, [251] the elements of which include the following: (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) agents act as representatives and not for themselves; and (d) agents act within the scope of their authority.[252]

Whether or not an agency has been created is determined by the fact that one is representing and acting

for another.[253] The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it.[254]

With respect to the status of Atty. Peña’s relationship with Urban Bank, the trial and the appellate courts

made conflicting findings that shall be reconciled by the Court. On one end, the appellate court made a definitive ruling that no agency relationship existed at all between Peña and the bank, despite the services performed by Peña with respect to the Pasay property purchased by the bank. Although the Court of Appeals ruled against an award of agent’s compensation, it still saw fit to award Peña with Ph3,000,000 for expenses incurred for his efforts in clearing the Pasay property of tenants.[255] On the other extreme, the trial court heavily relied on the sole telephone conversation between Peña and Urban Bank’s President to establish that the principal-agent relationship created between them included an agreement to pay Peña the huge amount of PhP24,000,000. In its defense, Urban Bank insisted that Peña was never an agent of the bank, but an agent of ISCI, since the latter, as seller of the Pasay property committed to transferring it free from tenants. Meanwhile, Peña argues on the basis of his successful and peaceful ejectment of the sub-tenants, who previously occupied the Pasay property.

Based on the evidence on records and the proceedings below, the Court concludes that Urban

Bank constituted Atty. Peña as its agent to secure possession of the Pasay property. This conclusion, however, is not determinative of the basis of the amount of payment that must be made to him by the bank. The context in which the agency was created lays the basis for the amount of compensation Atty. Peña is entitled to.

The transactional history and context of the sale between ISCI and Urban Bank of the Pasay property, and Atty. Peña’s participation in the transfer of possession thereof to Urban Bank provide crucial linkages that establish the nature of the relationship between the lawyer and the landowner-bank.

The evidence reveals that at the time that the Contract to Sell was executed on 15 November 1994, and

even when the Deed of Absolute Sale was executed two weeks later on 29 November 1994, as far as Urban Bank was concerned, Peña was nowhere in the picture. All discussions and correspondences were between the President and Corporate Secretary of Urban Bank, on one hand, and the President of ISCI, on the other. The title to the Pasay property was transferred to Urban Bank on 5 December 1994. Interestingly, Peña testifies that it was only on 19 December 1994 that he learned that the land had already been sold by ISCI to Urban Bank, notwithstanding the fact that Peña was a director of ISCI. Peña was not asked to render any service for Urban Bank, neither did he perform any service for Urban Bank at that point.

ISCI undertook in the Contract to Sell, to physically deliver the property to Urban Bank, within 60 days from 29 November 1994,[256] under conditions of “full and actual possession and control ..., free from tenants, occupants, squatters or other structures or from any liens, encumbrances, easements or any other obstruction or impediment to the free use and occupancy by the buyer of the subject Property or its exercise of the rights to ownership over the subject Property....”[257] To guarantee this undertaking, ISCI agreed to the escrow provision where PhP25,000,000 (which is a little over 10% of the value of the Pasay property) would be withheld by Urban Bank from the total contract price until there is full compliance with this undertaking.

Apparently to ensure that ISCI is able to deliver the property physically clean to Urban Bank, it was ISCI’s

president, Enrique Montilla who directed on 26 November 1994 one of its directors, Peña, to immediately recover and take possession of the property upon expiration of the contract of lease on 29 November 1994. [258] Peña thus first came into the picture as a director of ISCI who was constituted as its agent to recover the Pasay property against the lessee as well as the sub-tenants who were occupying the property in violation of the lease agreement.[259] He was able to obtain possession of the property from the lessee on the following day, but the unauthorized sub-tenants refused to vacate the property.

It was only on 7 December 1994, that Urban Bank was informed of the services that Peña was rendering

for ISCI. The faxed letter from ISCI’s Marilyn Ong reads:

Atty. Magdaleno M. Peña, who has been assigned by Isabela Sugar Company, Inc., to take charge of inspecting the tenants would like to request an authority similar to this from the Bank, as new owners. Can you please issue something like this today as he needs this.[260]

Two days later, on 9 December 1994, ISCI sent Urban Bank another letter that reads:

Dear Mr. Borlongan, I would like to request for an authorization from Urban Bank as per attached immediately – as the tenants are questioning the authority of the people there who are helping us to take over possession of the property. (Emphasis supplied)[261]

It is clear from the above that ISCI was asking Urban Bank for help to comply with ISCI’s own contractual

obligation with the bank under the terms of the sale of the Pasay property. Urban Bank could have ignored the request, since it was exclusively the obligation of ISCI, as the seller, to deliver a clean property to Urban Bank without any help from the latter.

A full-bodied and confident interpretation of the contracts between ISCI and Urban Bank should have led

the latter to inform the unauthorized sub-tenants that under its obligation as seller to Urban Bank, it was under duty and had continuing authority to recover clean possession of the property, despite the transfer of title. Yet, what unauthorized sub-tenant, especially in the kind of operations being conducted within the Pasay property, would care to listen or even understand such argument?

Urban Bank thus chose to cooperate with ISCI without realizing the kind of trouble that it would reap in the

process. In an apparent attempt to allow the efforts of ISCI to secure the property to succeed, it recognized Peña’s role in helping ISCI, but stopped short of granting him authority to act on its behalf. In response to the two written requests of ISCI, Urban Bank sent this letter to Peña on 15 December 1994:

This is to advise you that we have noted the engagement of your services by Isabela Sugar Company to recover possession of the Roxas Boulevard property formerly covered by TCT No. 5382, effective November 29, 1994. It is understood that your services have been contracted by and your principal remains to be the Isabela Sugar Company, which as seller of

the property and under the terms of our Contract to Sell dated November 29, 1994, has committed to deliver the full and actual possession of the said property to the buyer, Urban Bank, within the stipulated period. [262] (Emphasis supplied)

Up to this point, it is unmistakable that Urban Bank was staying clear from making any contractual

commitment to Peña and conveyed its sense that whatever responsibilities arose in retaining Peña were to be shouldered by ISCI.

According to the RTC-Bago City, in the reversed Decision, Atty. Peña only knew of the sale between ISCI

and Urban Bank at the time the RTC-Pasay City recalled the TRO and issued a break-open order:

“… when information reached the (Pasay City) judge that the Pasay property had already been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a break-open order for the property. According to Peña, it was the first time that he was apprised of the sale of the land by ISCI and of the transfer of its title in favor of the bank.”[263]

There is something contradictory between some of the trial court’s factual findings and Peña’s claim that it

was only on 19 December 1994 that he first learned of the sale of the property to Urban Bank. It is difficult to believe Peña on this point considering: (1) that he was a board director of ISCI and a sale of this significant and valuable property of ISCI requires the approval of the board of directors of ISCI; and (2) that ISCI twice requested Urban Bank for authority to be issued in his favor (07 and 9 December 1994), 12 and 10 days before 19 December 1994, since it would be contrary to human experience for Peña not to have been informed by an officer of ISCI beforehand that a request for authority for him was being sent to Urban Bank.

The sequence of fast-moving developments, edged with a sense of panic, with respect to the decision of

the RTC-Pasay City to recall the temporary restraining order and issue a break-open order on 19 December 1994 in the First Injunction Complaint, is highly enlightening to this Court.

First, Peña allegedly called up the president of ISCI, Montilla, who, according to Peña, confirmed to him

that the Pasay property had indeed been sold to Urban Bank. Second, Peña allegedly told Montilla that he (Peña) would be withdrawing his guards from the property

because of the break-open order from the RTC-Pasay City. Third, Montilla requested Peña to suspend the withdrawal of the guards while ISCI gets in touch with Urban

Bank. Fourth, apparently in view of Montilla’s efforts, Bejasa, an officer of Urban Bank called Peña and according

to the latter, told him that Urban Bank would continue retaining his services and for him to please continue with his effort to secure the property.

Fifth, this statement of Bejasa was not enough for Peña and he insisted that he be enabled to talk with no

less than the President of Urban Bank, Borlongan. At this point, Bejasa gave him the phone number of Borlongan. Sixth, immediately after the conversation with Bejasa, Peña calls Borlongan and tells Borlongan that

violence might erupt in the property because the Pasay City policemen, who were sympathetic to the tenants, were threatening to force their way through the property.

At this point, if indeed this conversation took place, which Borlongan contests, what would have been the

response of Borlongan? Any prudent president of a bank, which has just purchased a PhP240,000,000 property plagued by unauthorized and unruly sub-tenants of the previous owner, would have sought to continue the possession of ISCI, thru Peña, and he would have agreed to the reasonable requests of Peña. Borlongan could also have said that the problem of having the sub-tenants ejected is completely ISCI’s and ISCI should resolve the matter on its own that without bothering the bank, with all its other problems. But the specter of violence, especially as night was approaching in a newly-bought property of Urban Bank, was not something that any publicly-listed bank would want publicized. To the extent that the violence could be prevented by the president of Urban Bank, it is expected that he would opt to have it prevented.

But could such response embrace the following legal consequences as Peña claims to have arisen from

the telephone conversation with Borlongan: (1) A contract of agency was created between Peña and Urban Bank

whereby Borlongan agreed to retain the services of Peña directly; (2) This contract of agency was to be embodied in a written letter of authority from Urban Bank; and (3) The agency fee of Peña was to be 10% of the market value as “attorney’s fees and compensation” and reimbursement of all expenses of Peña from the time he took over the land until possession is turned over to Urban Bank.

This Court concludes that the legal consequences described in statements (1) and (2) above indeed took

place and that the facts support them. However, the evidence does not support Peña’s claim that Urban Bank agreed to “attorney’s fees and compensation” of 10% of the market value of the property.

Urban Bank’s letter dated 19 December 1994 confirmed in no uncertain terms Peña’s designation as its authorized representative to secure and maintain possession of the Pasay property against the tenants. Under the terms of the letter, petitioner-respondent bank confirmed his engagement (a) “to hold and maintain possession” of the Pasay property; (b) “to protect the same from former tenants, occupants or any other person who are threatening to return to the said property and/or interfere with your possession of the said property for and in our behalf”; and (c) to represent the bank in any instituted court action intended to prevent any intruder from entering or staying in the premises.[264]

These three express directives of petitioner-respondent bank’s letter admits of no other construction than

that a specific and special authority was given to Peña to act on behalf of the bank with respect to the latter’s claims of ownership over the property against the tenants. Having stipulated on the due execution and genuineness of the letter during pretrial,[265] the bank is bound by the terms thereof and is subject to the necessary consequences of Peña’s reliance thereon. No amount of denial can overcome the presumption that we give this letter – that it means what it says.

In any case, the subsequent actions of Urban Bank resulted in the ratification of Peña’s authority as an

agent acting on its behalf with respect to the Pasay property. By ratification, even an unauthorized act of an agent becomes an authorized act of the principal.[266]

Both sides readily admit that it was Peña who was responsible for clearing the property of the tenants and

other occupants, and who turned over possession of the Pasay property to petitioner-respondent bank. [267] When the latter received full and actual possession of the property from him, it did not protest or refute his authority as an agent to do so. Neither did Urban Bank contest Peña’s occupation of the premises, or his installation of security guards at the site, starting from the expiry of the lease until the property was turned over to the bank, by which time it had already been vested with ownership thereof. Furthermore, when Peña filed the Second Injunction Complaint in the RTC-Makati City under the name of petitioner-respondent bank, the latter did not interpose any objection or move to dismiss the complaint on the basis of his lack of authority to represent its interest as the owner of the property. When he successfully negotiated with the tenants regarding their departure from its Pasay property, still no protest was heard from it. After possession was turned over to the bank, the tenants accepted PhP1,500,000 from Peña, in “full and final settlement” of their claims against Urban Bank, and not against ISCI.[268]

In all these instances, petitioner-respondent bank did not repudiate the actions of Peña, even if it was fully

aware of his representations to third parties on its behalf as owner of the Pasay property. Its tacit acquiescence to his dealings with respect to the Pasay property and the tenants spoke of its intent to ratify his actions, as if these were its own. Even assuming arguendo that it issued no written authority, and that the oral contract was not substantially established, the bank duly ratified his acts as its agent by its acquiescence and acceptance of the benefits, namely, the peaceful turnover of possession of the property free from sub-tenants.

Even if, however, Peña was constituted as the agent of Urban Bank, it does not necessarily preclude that a

third party would be liable for the payment of the agency fee of Peña. Nor does it preclude the legal fact that Peña while an agent of Urban Bank, was also an agent of ISCI, and that his agency from the latter never terminated. This is because the authority given to Peña by both ISCI and Urban Bank was common – to secure the clean possession of the property so that it may be turned over to Urban Bank. This is an ordinary legal phenomenon – that an agent would be an agent for the purpose of pursuing a shared goal so that the common objective of a transferor and a new transferee would be met.

Indeed, the Civil Code expressly acknowledged instances when two or more principals have granted a power of attorney to an agent for a common transaction.[269] The agency relationship between an agent and two principals may even be considered extinguished if the object or the purpose of the agency is accomplished.[270] In this case, Peña’s services as an agent of both ISCI and Urban Bank were engaged for one shared purpose or transaction, which was to deliver the property free from unauthorized sub-tenants to the new owner – a task that Peña was able to achieve and is entitled to receive payment for.

That the agency between ISCI and Peña continued, that ISCI is to shoulder the agency fee and reimbursement for costs of Peña, and that Urban Bank never agreed to pay him a 10% agency fee is established and supported by the following:

First, the initial agency relationship between ISCI and Peña persisted. No proof was ever offered that the

letter of 26 November 1994 of Mr. Montilla of ISCI to Peña, for the latter “to immediately recover and take possession of the property upon expiration of the contract of lease on 29 November 1994” was terminated. It is axiomatic that the appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice thereof was given to the former agent.[271] If it is true that the agency relationship was to be borne by Urban Bank alone, Peña should have demonstrated that his previous agency relationship with ISCI is incompatible with his new relationship with Urban Bank, and was thus terminated.

Second, instead, what is on the record is that ISCI confirmed the continuation of this agency between Peña and itself and committed to pay for the services of Peña, in its letter to Urban Bank dated 19 December 1994 which reads:

In line with our warranties as the Seller of the said property and our undertaking to deliver

to you the full and actual possession and control of said property, free from tenants, occupants or squatters and from any obstruction or impediment to the free use and occupancy of the property by Urban Bank, we have engaged the services of Atty. Magdaleno M. Peña to hold and maintain possession of the property and to prevent the former tenants or occupants from entering or returning to the premises. In view of the transfer of the ownership of the property to Urban Bank, it may be necessary for Urban Bank to appoint Atty. Peña likewise as its authorized representative for purposes of holding/maintaining continued possession of the said property and to represent Urban Bank in any court action that may be instituted for the abovementioned purposes.

It is understood that any attorney’s fees, cost of litigation and any other charges or expenses that may be incurred relative to the exercise by Atty. Peña of his abovementioned duties shall be for the account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be answerable by Isabela Sugar Company.[272] (Emphasis supplied)

Third, Peña has never shown any written confirmation of his 10% agency fee, whether in a note, letter,

memorandum or board resolution of Urban Bank. An agency fee amounting to PhP24,000,000 is not a trifling amount, and corporations do not grant their presidents unilateral authority to bind the corporation to such an amount, especially not a banking corporation which is closely supervised by the BSP for being a business seriously imbued with public interest. There is nothing on record except the self-serving testimony of Peña that Borlongan agreed to pay him this amount in the controverted telephone conversation.

Fourth, while ordinarily, uncontradicted testimony will be accorded its full weight, we cannot grant full

probative value to the testimony of Peña for the following reasons: (a) Peña is not a credible witness for testifying that he only learned of the sale of the property of 19 December 1994 when the acts of ISCI, of Urban Bank and his own up to that point all indicated that he must have known about the sale to Urban Bank; and (b) it is incredible that Urban Bank will agree to add another PhP24,000,000 to the cost of the property by agreeing to the agency fee demanded by Peña. No prudent and reasonable person would agree to expose his corporation to a new liability of PhP24,000,000 even if, in this case, a refusal would lead to the Pasay City policemen and unauthorized sub-tenants entering the guarded property and would possibly erupt in violence.

Peña’s account of an oral agreement with Urban Bank for the payment of PhP24,000,000 is just too much

for any court to believe. Whatever may be the agreement between Peña and ISCI for compensation is not before this Court. This is not to say, however, that Urban Bank has no liability to Peña. It has. Payment to him is required because the Civil Code demands that no one should be unjustly enriched at the expense of another. This payment is to be measured by the standards ofquantum meruit.

Amount of Compensation

Agency is presumed to be for compensation. But because in this case we find no evidence that Urban Bank agreed to pay Peña a specific amount or percentage of amount for his services, we turn to the principle against unjust enrichment and on the basis of quantum meruit.

Since there was no written agreement with respect to the compensation due and owed to Atty. Peña under the letter dated 19 December 1994, the Court will resort to determining the amount based on the well-established rules on quantum meruit.

Agency is presumed to be for compensation.[273] Unless the contrary intent is shown, a person who acts as

an agent does so with the expectation of payment according to the agreement and to the services rendered or results effected.[274] We find that the agency of Peña comprised of services ordinarily performed by a lawyer who is tasked with the job of ensuring clean possession by the owner of a property. We thus measure what he is entitled to for the legal services rendered.

A stipulation on a lawyer’s compensation in a written contract for professional services ordinarily controls

the amount of fees that the contracting lawyer may be allowed to collect, unless the court finds the amount to be unconscionable.[275] In the absence of a written contract for professional services, the attorney’s fees are fixed on the basis of quantum meruit,[276] i.e., the reasonable worth of the attorney’s services.[277] When an agent performs services for a principal at the latter’s request, the law will normally imply a promise on the part of the principal to pay for the reasonable worth of those services.[278] The intent of a principal to compensate the agent for services performed on behalf of the former will be inferred from the principal’s request for the agents.[279]

In this instance, no extra-ordinary skills employing advanced legal training nor sophisticated legal

maneuvering were required to be employed in ejecting 23 sub-tenants who have no lease contract with the property owner, and whose only authority to enter the premises was unlawfully given by a former tenant whose own tenancy has clearly expired. The 23 sub-tenants operated beer houses and nightclubs, ordinary retail establishments for which no sophisticated structure prevented easy entry. After Peña succeeded in locking the gate of the compound, the sub-tenants would open the padlock and resume their businesses at night. Indeed, it appears that only security guards, chains and padlocks were needed to keep them out. It was only the alleged connivance of Pasay City policemen that Peña’s ability to retain the possession was rendered insecure. And how much did it take Peña to enter into a settlement agreement with them and make all these problems go away? By Peña’s own account, PhP1,500,000 only. That means that each tenant received an average of PhP65,217.40 only. Surely, the legal services of Peña cannot be much more than what the sub-tenants were willing to settle for in the first place. We therefore award him the equivalent amount of PhP1,500,000 for the legal and other related services he rendered to eject the illegally staying tenants of Urban Bank’s property.

The Court of Appeals correctly reversed the trial court and found it to have acted with grave abuse of

discretion in granting astounding monetary awards amounting to a total of PhP28,500,000 without any basis.[280] For the lower court to have latched on to the self-serving claims of a telephone agreement as sufficient support for extending a multi-million peso award is highly irregular. Absent any clear basis for the amount of the lawyer’s compensation, the trial court should have instinctively resorted to quantum meruit, instead of insisting on a figure with circumstantial and spurious justification.

We cannot also agree with the Decision penned by Judge Edgardo L. Catilo characterizing Pena’s 10% fee

as believable because it is nearly congruent to the PhP25 Million retention money held in escrow for ISCI until a clean physical and legal turn-over of the property is effected:

We now come to the reasonableness of the compensation prayed for by the plaintiff which is 10% of the current market value which defendants claim to be preposterous and glaringly excessive. Plaintiff [Peña] testified that defendant Borlongan agreed to such an amount and this has not been denied by Ted Borlongan. The term “current market value of the property” is hereby interpreted by the court to mean the current market value of the property at the time the contract was entered into. To interpret it in accordance with the submission of the plaintiff that it is the current market value of the property at the time payment is made would be preposterous. The only evidence on record where the court can determine the market value of the property at the time the contract of agency was entered into between plaintiff and defendant is the consideration stated in the sales agreement between Isabela Sugar Company, Inc. and Urban bank which is P241,612,000.00. Ten percent of this amount is a reasonable compensation of the services rendered by the plaintiff considering the “no cure, no pay” arrangement between the parties and the risks which plaintiff had to undertake.[281]

In the first place, the Decision of Judge Catilo makes Peña’s demand of an agency fee of PhP24 Million, an

additional burden on Urban Bank. The Decision does not make the retention money responsible for the same, or acquit Urban Bank of any liability to ISCI if it pays the PhP24 Million directly to Pena instead of ISCI. In the second

place, the amount of money that is retained by transferees of property transactions while the transferor is undertaking acts to ensure a clean and peaceful transfer to the transferee does not normally approximate a one-to-one relationship to the services of ejecting unwanted occupants. They may be inclusive of other costs, and not only legal costs, with enough allowances for contingencies, and may take into consideration other liabilities as well. The amount can even be entirely arbitrary, and may have been caused by the practice followed by Urban Bank as advised by its officers and lawyers or by industry practice in cases where an expensive property has some tenancy problems. In other words, Judge Catilo’s statement is a non sequitur, is contrary to normal human experience, and sounds like an argument being made to fit Peña’s demand for a shocking pay-out.

In any case, 10% of the purchase price of the Pasay property – a staggering PhP24,161,200 – is an unconscionable amount, which we find reason to reduce. Neither will the Court accede to the settlement offer of Peña to Urban Bank of at least PhP38,000,000 for alleged legal expenses incurred during the course of the proceedings,[282] an amount that he has not substantiated at any time.

Lawyering is not a business; it is a profession in which duty to public service, not money, is the primary consideration.[283] The principle of quantum meruitapplies if lawyers are employed without a price agreed upon for their services, in which case they would be entitled to receive what they merit for their services, or as much as they have earned.[284] In fixing a reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit, one may consider factors such as the time spent and extent of services rendered; novelty and difficulty of the questions involved; importance of the subject matter; skill demanded; probability of losing other employment as a result of acceptance of the proffered case; customary charges for similar services; amount involved in the controversy and the resulting benefits for the client; certainty of compensation; character of employment; and professional standing of the lawyer.[285]

Hence, the Court affirms the appellate court’s award of PhP3,000,000 to Peña, for expenses incurred

corresponding to the performance of his services. An additional award of PhP1,500,000 is granted to him for the services he performed as a lawyer in securing the rights of Urban Bank as owner of the Pasay property.

IIThe corporate officers and directors of Urban Bank are not solidarily or personally liable with their properties for the corporate liability of Urban Bank to Atty. Peña.

The obligation to pay Peña’s compensation, however, falls solely on Urban Bank. Absent any proof that individual petitioners as bank officers acted in bad faith or with gross negligence or assented to a patently unlawful act, they cannot be held solidarily liable together with the corporation for services performed by the latter’s agent to secure possession of the Pasay property. Thus, the trial court had indeed committed grave abuse of discretion when it issued a ruling against the eight individual defendant bank directors and officers and its Decision should be absolutely reversed and set aside.

A corporation, as a juridical entity, may act only through its directors, officers and employees.[286] Obligations incurred as a result of the acts of the directors and officers as corporate agents are not their personal liabilities but those of the corporation they represent.[287] To hold a director or an officer personally liable for corporate obligations, two requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.[288] “To hold a director, a trustee or an officer personally liable for the debts of the corporation and, thus, pierce the veil of corporate fiction, bad faith or gross negligence by the director, trustee or officer in directing the corporate affairs must be established clearly and convincingly.”[289]

Peña failed to allege and convincingly show that individual defendant bank directors and officers assented

to patently unlawful acts of the bank, or that they were guilty of gross negligence or bad faith. Contrary to his claim, the Complaint[290] in the lower court never alleged that individual defendants acquiesced to an unlawful act or were grossly negligent or acted in bad faith.[291] Neither is there any specific allegation of gross negligence or action in bad faith that is attributable to the individual defendants in performance of their official duties.

In any event, Peña did not adduce any proof that the eight individual defendants performed unlawful acts or

were grossly negligent or in bad faith. Aside from the general allegation that they were corporate officers or members of the board of directors of Urban Bank, no specific acts were alleged and proved to warrant a finding of solidary liability. At most, petitioners Borlongan, Bejasa and Manuel were identified as those who had processed the agency agreement with Peña through their telephone conversations with him and/or written authorization letter.

Aside from Borlongan, Bejasa and Manuel, Atty. Peña in the complaint pointed to no specific act or circumstance to justify the inclusion of Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, and Ben T. Lim, Jr., except for the fact that they were members of the Board of Directors of Urban Bank at that time. That the five other members of the Board of Directors were excluded from Peña’s complaint highlights the peculiarity of their inclusion. What is more, the complaint mistakenly included Ben Y. Lim, Jr., who had not even been a member of the Board of Directors of Urban Bank. In any case, his father and namesake, Ben T. Lim, Sr., who had been a director of the bank at that time, had already passed away in 1997.

In ruling for the solidary liability of the other bank directors, the decision of the trial court hinged solely on

the purported admission of Arturo Manuel, Jr., that the transactions with Atty. Peña were approved by the Board of Directors:

In this case, plaintiff testified as to the personal participation of defendants Ted Borlongan and Corazon Bejasa in the subject transaction. On the other hand, with respect to the other defendants, it was the defendants themselves, through witness Arturo Manuel, Jr., who admitted that all the transactions involved in this case were approved by the board of directors . Thus, the court has sufficient basis to hold the directors jointly and severally liable with defendant Urban Bank, Inc.[292] (Emphasis supplied)

The Decision of the RTC-Bago City must be utterly rejected on this point because its conclusion of any

cause of action, much less actual legal liability on the part of Urban Bank’s corporate officers and directors are shorn of any factual finding. That they assented to the transactions of the bank with respect to Atty. Peña’s services without any showing that these corporate actions were patently unlawful or that the officers were guilty of gross negligence or bad faith is insufficient to hold them solidarily liable with Urban Bank. It seems absurd that the trial court will hold the impleaded selected members of the Board of Directors only, but not the others who also purportedly approved the transactions. Neither is the reason behind the finding of “solidariness” with Urban Bank in such liability explained at all. It is void for completely being devoid of facts and the law on which the finding of liability is based.

The Court of Appeals correctly rejected the claim of personal liability against the individual petitioners when

it held as follows:The plaintiff-appellee’s complaint before the court a quo does not point to any particular act

of either one or all of the defendants-appellants that will subject them to personal liability. His complaint merely asserts that defendant Borlongan and Atty. Bejasa acted for and in behalf of Urban Bank in securing his services in protecting the bank’s newly acquired property. Hence, We cannot allow the same.[293]

Peña had argued that individual defendant bank directors and officers should be held personally and

solidarily liable with petitioner-respondent bank, since they failed to argue for limited corporate liability. [294] The trial court subscribed to his reasoning and held that the failure to resort to the said defense constituted a waiver on the part of individual defendants.[295] The Court is not persuaded.

As the complainant on the trial court level, Peña carried the burden of proving that the eight individual

defendants performed specific acts that would make them personally liable for the obligations of the corporation. This he failed to do. He cannot capitalize on their alleged failure to offer a defense, when he had not discharged his responsibility of establishing their personal liabilities in the first place. This Court cannot sustain the individual liabilities of the bank officers when Peña, at the onset, has not persuasively demonstrated their assent to patently unlawful acts of the bank, or that they were guilty of gross negligence or bad faith, regardless of the weaknesses of the defenses raised. This is too basic a requirement that this Court must demand sufficient proof before we can disregard the separate legal personality of the corporation from its offices.

Hence, only Urban Bank, not individual defendants, is liable to pay Peña’s compensation for services he

rendered in securing possession of the Pasay property. Its liability in this case is, however, without prejudice to its possible claim against ISCI for reimbursement under their separate agreements.

IIIConsidering the absolute nullification of the trial court’s Decision, the proceedings arising from the execution pending appeal based on the said Decision is likewise completely vacated.

Since the trial court’s main Decision awarding PhP28,500,000 in favor of Peña has been nullified above,

the execution pending appeal attendant thereto, as a result, no longer has any leg to stand on and is thus completely vacated.

To recall, prior to the filing of Urban Bank of its notice of appeal in the main case, [296] Peña moved on 07

June 1999 for execution pending appeal[297] of the Decision,[298] which had awarded him a total of PhP28,500,000 in compensation and damages.[299] In supporting his prayer for discretionary execution, Peña cited no other reason than the pending separate civil action for collection filed against him by a creditor, who was demanding payment of a PhP3,000,000 loan.[300]According to him, he had used the proceeds of the loan for securing the bank’s Pasay property.[301] In opposition to the motion, Urban Bank countered that the collection case was not a sufficient reason for allowing execution pending appeal.[302]

Favorably acting on Peña’s motion, the RTC-Bago City, through Judge Henry J. Trocino,[303] issued a Special Order authorizing execution pending appeal on the basis of Peña’s indebtedness to his creditor-friend.[304] In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officiosheriff, expeditiously issued a Writ of Execution on the same day.[305] The trial court’s Special Order and Writ of Execution were the subjects of a Rule 65 Petition filed by Urban Bank with the CA.[306]

Both the Special Order and Writ of Execution are nullified for two reasons:

(1) Since the Decision of the RTC-Bago City is completely vacated, all its issuances pursuant to the Decision, including the Special Order and the Writ of Execution are likewise vacated; and

(2) The Special Order authorizing execution pending appeal based on the collection suit filed against Atty. Peña had no basis under the Rules of Court, and the same infirmity thus afflicts the Writ of Execution issued pursuant thereto.

Since the Decision of the RTC-Bago City is vacated, all orders and writs pursuant thereto are likewise vacated.

Considering that the Special Order and Writ of Execution was a result of the trial court’s earlier award of PhP28,500,000, the nullification or complete reversal of the said award necessarily translates to the vacation as well of the processes arising therefrom, including all the proceedings for the execution pending appeal.

Considering the unconscionable award given by the trial court and the unjustified imposition of solidary

liability against the eight bank officers, the Court is vacating the Decision of the RTC-Bago City Decision. The trial court erroneously made solidarily liable Urban Bank’s directors and officers without even any allegations, much less proof, of any acts of bad faith, negligence or malice in the performance of their duties. In addition, the trial court mistakenly anchored its astounding award of damages amounting PhP28,500,000 on the basis of the mere account of Atty. Peña of a telephone conversation, without even considering the surrounding circumstances and the sheer disproportion to the legal services rendered to the bank.

A void judgment never acquires finality.[307] In contemplation of law, that void decision is deemed non-

existent.[308] Quod nullum est, nullum producit effectum.[309] Hence, the validity of the execution pending appeal will ultimately hinge on the court’s findings with respect to the decision in which the execution is based.

Although discretionary execution can proceed independently while the appeal on the merits is pending, the

outcome of the main case will greatly impact the execution pending appeal, especially in instances where as in this case, there is a complete reversal of the trial court’s decision. Thus, if the decision on the merits is completely nullified, then the concomitant execution pending appeal is likewise without any effect. In fact, the Rules of Court expressly provide for the possibility of reversal, complete or partial, of a final judgment which has been executed on appeal.[310] Precisely, the execution pending appeal does not bar the continuance of the appeal on the merits, for the Rules of Court explicitly provide for restitution according to equity and justice in case the executed judgment is reversed on appeal.[311]

Considering that the Decision of the RTC-Bago City has been completely vacated and declared null and void, it produces no effect whatsoever. Thus, the Special Order and its concomitant Writ of Execution pending appeal is likewise annulled and is also without effect. Consequently, all levies, garnishment and sales executed pending appeal are declared null and void, with the concomitant duty of restitution under the Rules of Court, as will be discussed later on.

In any case, the trial court’s grant of execution pending appeal lacks sufficient basis under the law and jurisprudence.

We rule that the pendency of a collection suit by a third party creditor which credit was obtained by the winning judgment creditor in another case, is not a sufficiently good reason to allow execution pending appeal as the Rules of Court provide. Execution pending appeal is an extraordinary remedy allowed only when there are reasons to believe that the judgment debtor will not be able to satisfy the judgment debt if the appeals process will still have to be awaited. It requires proof of circumstances such as insolvency or attempts to escape, abscond or evade a just debt.

In Florendo v. Paramount Insurance, Corp.,[312] the Court explained that the execution pending appeal is an

exception to the general rule that execution issues as a matter of right, when a judgment has become final and executory:

As such exception, the court’s discretion in allowing it must be strictly construed and

firmly grounded on the existence of good reasons. “Good reasons,” it has been held, consist of compelling circumstances that justify immediate execution lest the judgment becomes illusory. The circumstances must be superior, outweighing the injury or damages that might result should the losing party secure a reversal of the judgment. Lesser reasons would make of execution pending appeal, instead of an instrument of solicitude and justice, a tool of oppression and inequity. (Emphasis supplied) Indeed, the presence or the absence of good reasons remains the yardstick in allowing the remedy of

execution pending appeal, which should consist of exceptional circumstances of such urgency as to outweigh the injury or damage that the losing party may suffer, should the appealed judgment be reversed later. [313]Thus, the Court held that even the financial distress of the prevailing company is not sufficient reason to call for execution pending appeal:

In addressing this issue, the Court must stress that the execution of a judgment before its

finality must be founded upon good reasons. The yardstick remains the presence or the absence of good reasons consisting of exceptional circumstances of such urgency as to outweigh the injury or damage that the losing party may suffer, should the appealed judgment be reversed later. Good reason imports a superior circumstance that will outweigh injury or damage to the adverse party. In the case at bar, petitioner failed to show “paramount and compelling reasons of urgency and justice.” Petitioner cites as good reason merely the fact that “it is a small-time building contractor that could ill-afford the protracted delay in the reimbursement of the advances it made for the aforesaid increased costs of . . . construction of the [respondent's] buildings.”

Petitioner's allegedly precarious financial condition, however, is not by itself a jurisprudentially compelling circumstance warranting immediate execution. The financial distress of a juridical entity is not comparable to a case involving a natural person — such as a very old and sickly one without any means of livelihood, an heir seeking an order for support and monthly allowance for subsistence, or one who dies.

Indeed, the alleged financial distress of a corporation does not outweigh the long standing general policy of enforcing only final and executory judgments. Certainly, a juridical entity like petitioner corporation has, other than extraordinary execution, alternative remedies like loans, advances, internal cash generation and the like to address its precarious financial condition. (Emphasis supplied) In Philippine Bank of Communications v. Court of Appeals,[314] the Court denied execution pending appeal

to a juridical entity which allegedly was in financial distress and was facing civil and criminal suits with respect to the collection of a sum of money. It ruled that the financial distress of the prevailing party in a final judgment which was still pending appeal may not be likened to the situation of a natural person who is ill, of advanced age or dying as to justify execution pending appeal:

It is significant to stress that private respondent Falcon is a juridical entity and not a natural person. Even assuming that it was indeed in financial distress and on the verge of facing civil or even criminal suits, the immediate execution of a judgment in its favor pending appeal cannot be justified as Falcon’s situation may not be likened to a case of a natural person who may be ill or may be of advanced age. Even the danger of extinction of the corporation will not per se justify a discretionary execution unless there are showings of other good reasons, such as for instance, impending insolvency of the adverse party or the appeal being patently dilatory. But even as to the latter reason, it was noted in Aquino vs. Santiago (161 SCRA 570 [1988]), that it is not for the trial judge to determine the merit of a decision he rendered as this is the role of the appellate court. Hence, it is not within competence of the trial court, in resolving a motion for execution pending appeal, to rule that the appeal is patently dilatory and rely on the same as its basis for finding good reason to grant the motion. Only an appellate court can appreciate the dilatory intent of an appeal as an additional good reason in upholding an order for execution pending appeal which may have been issued by the trial court for other good reasons, or in cases where the motion for execution pending appeal is filed with the appellate court in accordance with Section 2, paragraph (a), Rule 39 of the 1997 Rules of Court.

What is worse, only one case was actually filed against Falcon and this is the complaint for collection filed by Solidbank. The other cases are “impending”, so it is said. Other than said Solidbank case, Falcon’s survival as a body corporate cannot be threatened by anticipated litigation. This notwithstanding, and even assuming that there was a serious threat to Falcon’s continued corporate existence, we hold that it is not tantamount nor even similar to an impending death of a natural person. The material existence of a juridical person is not on the same plane as that of human life. The survival of a juridical personality is clearly outweighed by the long standing general policy of enforcing only final and executory judgments. (Emphasis supplied)

In this case, the trial court supported its discretionary grant of execution based on the alleged collection suit

filed against Peña by his creditor friend for PhP3,000,000:

It has been established that the plaintiff secured the loan for the purpose of using the money to comply with the mandate of defendant bank to hold and maintain possession of the parcel of land in Pasay City and to prevent intruders and former tenants from occupying the said property. The purpose of the loan was very specific and the same was made known to defendant bank through defendant Teodoro Borlongan. The loan was not secured for some other purpose. Truth to tell, the plaintiff accomplished his mission in clearing the property of tenants, intruders and squatters, long before the deadline given him by the defendant bank. The plaintiff was assured by no less than the President of defendant bank of the availability of funds for his compensation and reimbursement of his expenses. Had he been paid by defendant bank soon after he had fulfilled his obligation, he could have settled his loan obligation with his creditor.

Defendants were benefitted by the services rendered by the plaintiff. While plaintiff has complied with the undertaking, the defendants, however, failed to perform their obligation to the plaintiff.

The plaintiff stands to suffer greatly if the collection case against him is not addressed. Firstly, as shown in Exhibit “C”, plaintiff’s total obligation with Roberto Ignacio as of May 1999 is PhP24,192,000.00. This amount, if left unpaid, will continue to increase due to interest charges being imposed by the creditor to the prejudice of plaintiff. Secondly, a preliminary attachment has already been issued and this would restrict the plaintiff from freely exercising his rights over his property during the pendency of the case.

In their opposition, defendants claim that plaintiff’s indebtedness is a ruse, however, defendants failed to adduce evidence to support its claim.

The court finds that the pendency of the case for collection of money against plaintiff is a good reason for immediate execution. [315]

The mere fact that Atty. Peña was already subjected to a collection suit for payment of the loan proceeds

he used to perform his services for Urban Bank is not an acceptable reason to order the execution pending appeal against the bank. Financial distress arising from a lone collection suit and not due to the advanced age of the party is not an urgent or compelling reason that would justify the immediate levy on the properties of Urban Bank pending appeal. That Peña would made liable in the collection suit filed by his creditor-friend would not reasonably result in rendering illusory the final judgment in the instant action for agent’s compensation.

Peña’s purported difficulty in paying the loan proceeds used to perform his services does not outweigh the injury or damages that might result should Urban Bank obtain a reversal of the judgment, as it did in this case. Urban Bank even asserts that the collection suit filed against Peña was a mere ruse to provide justification for the execution pending appeal, no matter how flimsy.[316] As quoted above, the trial court noted Atty. Peña’s total obligation to his creditor-friend as of May 1999 was already the incredible amount of PhP24,192,000.00, even when the Complaint dated 03 April 1999 itself, which spawned the collection suit included only a prayer for payment of PhP3,500,000 with attorney’s fees of PhP100,000.[317] It seems absurd that Atty. Peña would agree to obtaining a loan from his own friend, when the Promissory Notes provided for a penalty of 5% interest per month or 60% per annum for delay in the payment.[318] It sounds more like a creative justification of the immediate execution of the PhP28.5 Million judgment notwithstanding the appeal.

In fact, the Court of Appeals noted Atty. Peña’s admission of sufficient properties to answer for any liability arising from the collection suit arising from his creditor-friend. In initially denying the execution pending appeal, the appellate court held that:

On the other hand, private respondent’s claim that the only way he could pay his indebtedness to Roberto Ignacio is through the money that he expects to receive from petitioners in payment of his services is belied by his testimony at the hearing conducted by the trial court on the motion for execution pending appeal wherein petitioners were able to secure an admission from him that he has some assets which could be attached by Roberto Ignacio and that he would probably have other assets left even after the attachment.[319]

Hence, to rule that a pending collection suit against Atty. Peña, which has not been shown to result in his

insolvency, would be to encourage judgment creditors to indirectly and indiscriminately instigate collection suits or cite pending actions, related or not, as a “good reason” to routinely avail of the remedy of discretionary execution.[320] As an exception to the general rule on execution after final and executory judgment, the reasons offered by Atty. Peña to justify execution pending appeal must be strictly construed.

Neither will the Court accept the trial court’s unfounded assumption that Urban Bank’s appeal was merely

dilatory, as in fact, the PhP28,500,000 award given by the trial court was overturned by the appellate court and eventually by this Court.

Moreover, at the time the Special Order of Judge Henry Trociño of the RTC-Bago City came out in 1999,

Urban Bank had assets worth more than PhP11 Billion and had a net worth of more than PhP2 Billion. There was no reason then to believe that Urban Bank could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net worth, and 1/5 of 1% of its total assets of PhP11,933,383,630.[321] Urban Bank was even given a Solvency, Liquidity and Management Rating of 82.89 over 100 by no less than the BSP[322] and reportedly had liquid assets amounting to PhP2,036,878.[323] In fact, no allegation of impending insolvency or attempt to abscond was ever raised by Atty. Peña and yet, the trial court granted execution pending appeal.

Since the original order granting execution pending appeal was completely void for containing no justifiable reason, it follows that any affirmance of the same by the Court of Appeals is likewise void.

The Decision of the Court of Appeals in the case docketed as CA-G.R. SP No. 55667, finding a new reason

for granting execution pending appeal, i.e., the receivership of Urban Bank, is likewise erroneous, notwithstanding this Court’s ruling in Lee v. Trocino.[324] In accordance with the subsequent Resolution of the Court in abovementioned case of Lee v. Trocino,[325] we directly resolve the issue of the insufficiency of the reasons that led to the grant of execution pending appeal.

In cases where the two or more defendants are made subsidiarily or solidarily liable by the final judgment of

the trial court, discretionary execution can be allowed if all the defendants have been found to be insolvent. Considering that only Urban Bank, and not the other eight individual defendants, was later on considered by the Court of Appeals to have been “in danger of insolvency,” is not sufficient reason to allow execution pending appeal, since the liability for the award to Peña was made (albeit, mistakenly) solidarily liable together with the bank officers.

In Flexo Manufacturing Corp. v. Columbus Food, Inc., and Pacific Meat Company, Inc.,[326] both Columbus

Food, Inc., (Columbus Food) and Pacific Meat Company, Inc., (Pacific Meat) were found by the trial court therein to be solidarily liable to Flexo Manufacturing, Inc., (Flexo Manufacturing) for the principal obligation of PhP2,957,270.00. The lower court also granted execution pending appeal on the basis of the insolvency of Columbus Food, even if Pacific Meat was not found to be insolvent. Affirming the reversal ordered by the Court

of Appeals, this Court ruled that since there was another party who was solidarily liable to pay for the judgment debt, aside from the insolvent Columbus Food, there was no good reason to allow the execution pending appeal:

Regarding the state of insolvency of Columbus, the case of Philippine National Bank v. Puno, held:

“While this Court in several cases has held that insolvency of the judgment debtor or imminent danger thereof is a good reason for discretionary execution, otherwise to await a final and executory judgment may not only diminish but may nullify all chances for recovery on execution from said judgment debtor, We are constrained to rule otherwise in this particular case. In the aforecited cases, there was either only one defeated party or judgment debtor who was, however, insolvent or there were several such parties but all were insolvent, hence the aforesaid rationale for discretionary execution was present. In the case at bar, it is undisputed that, assuming MMIC is insolvent, its co-defendant PNB is not. It cannot, therefore, be plausibly assumed that the judgment might become illusory; if MMIC cannot satisfy the judgment, PNB will answer for it. It will be observed that, under the dispositive portion of the judgment hereinbefore quoted, the liability of PNB is either subsidiary or solidary. Thus, when there are two or more defendants and one is not insolvent, the

insolvency of a co-defendant is not a good reason to justify execution pending appeal if their liability under the judgment is either subsidiary or solidary. In this case, Pacific was adjudged to be solidarily liable with Columbus. Therefore, the latter is not the only party that may be answerable to Flexo. Its insolvency does not amount to a good reason to grant execution pending appeal. (Emphasis supplied)

Similarly, the trial court in this case found Urban Bank and all eight individual bank officers solidarily liable

to Atty. Peña for the payment of the PhP28,500,000 award. Hence, had the judgment been upheld on appeal, Atty. Peña could have demanded payment from any of the nine defendants. Thus, it was a mistake for the Court of Appeals to have affirmed execution pending appeal based solely on the receivership of Urban Bank, when there were eight other individual defendants, who were solidarily liable but were not shown to have been insolvent. Since Urban Bank’s co-defendants were not found to have been insolvent, there was no good reason for the Court of Appeals to immediately order execution pending appeal, since Atty. Peña’s award could have been satisfied by the eight other defendants, especially when the de Leon Group filed its supersedeas bond.

It seems incongruous for Atty. Peña to be accorded the benefit of erroneously impleading several bank directors, who had no direct hand in the transaction, but at the same time, concentrating solely on Urban Bank’s inability to pay to justify execution pending appeal, regardless of the financial capacity of its other co-defendants. Worse, he capitalized on the insolvency and/or receivership of Urban Bank to levy or garnish properties of the eight other individual defendants, who were never shown to have been incapable of paying the judgment debt in the first place. The disposition on the execution pending appeal may have been different had Atty. Peña filed suit against Urban Bank alone minus the bank officers and the same bank was found solely liable for the award and later on declared under receivership.

In addition, a judgment creditor of a bank, which has been ordered by the BSP to be subject of

receivership, has to fall in line like every other creditor of the bank and file its claim under the proper procedures for banks that have been taken over by the PDIC. Under Section 30 of Republic Act No. 7653, otherwise known as the New Central Bank Act, which prevailed at that time, once a bank is under receivership, the receiver shall immediately gather and take charge of all the assets and liabilities of the bank and administer the same for the benefit of its creditors and all of the bank’s assets shall be considered as under custodial legis and exempt from any order of garnishment, levy, attachment or execution.[327] In the Minute Resolution of the Monetary Board of the BSP, Urban Bank was not only prevented from doing business in the Philippines but its asset and affairs were placed under receivership as provided for under the same law.[328] In fact, even Peña himself assured the PDIC, as receiver of Urban Bank, that he would not schedule or undertake execution sales of the bank’s assets for as long as the bank remains in receivership.[329]Until the approval of the rehabilitation or the initiation of the liquidation proceedings, all creditors of the bank under receivership shall stand on equal footing with respect to demanding satisfaction of their debts, and cannot be extended preferred status by an execution pending appeal with respect to the bank’s assets:

… [t]o execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other creditors. After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the depositors and creditors. After its insolvency, one creditor cannot obtain an advantage or preference over another by an attachment, execution or otherwise. Until there is an

approved rehabilitation or the initiation of the liquidation proceedings, creditors of the bank stand on equal footing with respect to demanding satisfaction of their debts, and cannot be afforded special treatment by an execution pending appeal with respect to the bank’s assets.[330] (Emphasis supplied)

Moreover, assuming that the CA was correct in finding a reason to justify the execution pending appeal

because of the supervening event of Urban Bank’s closure, the assumption by the EIB of the liabilities of Urban Bank meant that any execution pending appeal can be granted only if EIB itself is shown to be unable to satisfy Peña’s judgment award of PhP28,500,000. That is not at all the case. In just one particular sale on execution herein, EIB offered to answer in cash for a substantial part of Peña’s claims, as evidenced by EIB’s capacity and willingness to redeem the executed properties (condominium units sold to intervenor Unimega) by tendering manager’s checks for more than PhP22 Million[331] which is already 77.57% of Peña’s total award from the trial court.[332] The fact that EIB’s offer to take over Urban Bank means it was able to satisfy the BSP’s concern that all legitimate liabilities of Urban Bank be duly discharged.

As an exception to the general rule that only final judgments may be executed, [333] the grant of execution

pending appeal must perforce be based on “good reasons.” These reasons must consist of compelling or superior circumstances demanding urgency which will outweigh the injury or damages suffered, should the losing party secure a reversal of the judgment or final order.[334] The circumstances that would reasonably justify superior urgency, demanding interim execution of Peña’s claims for compensation and/or damages, have already been settled by the financial capacity of the eight other co-defendants, the approval of the supersedeas bonds, the subsequent takeover by EIB, and the successor bank’s stable financial condition, [335] which can answer for the judgment debt. Thus, Peña’s interest as a judgment creditor is already well-protected.

While there is a general rule that a final and executory judgment in the main case will render moot and

academic a petition questioning the exercise of the trial court’s discretion in allowing execution pending appeal, we find it necessary to rule categorically on this question because of the magnitude of the aberrations that attended the execution pending appeal in the Decision of the RTC-Bago City.Irregularities in the Levy and Sale on Execution Pending Appeal

Assuming that the Special Order granting execution pending appeal were valid, issues have been raised on alleged irregularities that mar the levy and sale on execution of the properties of Urban Bank and its officers and directors. Many of the facts have not been sufficiently litigated before the trial and appellate courts for us to fully rule on the issue, nevertheless, from what is on record, the following are the observations of this Court:

First, contrary to the general rules on execution, no opportunity was given to Urban Bank or the other co-

defendants to pay the judgment debt in cash or certified check.[336] Before proceeding on the levying and garnishing personal and real properties, demand must be made by the sheriff against the judgment debtors, Urban Bank and the eight other individual bank officers, for the immediate payment of the award subject of the execution pending appeal. It has not been shown whether Urban Bank and its officers and directors were afforded such an opportunity. Instead of garnishing personal properties of the bank, the sheriff inexplicably proceeded to levy substantial real properties of the bank and its officers at the onset.

Second, assuming that Urban Bank and its officers did not possess sufficient cash or funds to pay for the

judgment debt pending appeal, they should have been given the option to choose which of their properties to be garnished and/or levied. In this case, Urban Bank exercised its option by presenting to the sheriff various parcels of land, whose values amount to more than PhP76,882,925 and were sufficient to satisfy the judgment debt.[337] Among those presented by the bank, only the property located in Tagaytay was levied upon by the sheriff.[338] No sufficient reason was raised why the bank’s chosen properties were rejected or inadequate for purposes of securing the judgment debt pending appeal. Worse, the Sheriff proceeded with garnishing and levying on as many properties of Urban Bank and its officers, in disregard of their right to choose under the rules.

Third, the public auction sales conducted in the execution pending appeal sold more properties of Urban

Bank and the directors than what was sufficient to satisfy the debt. Indeed, the conservative value of the properties levied herein by the sheriff amounting to more than PhP181,919,190, consisting of prime condominium units in the heart of the Makati Business district, a lot in Tagaytay City, shares in exclusive clubs, and shares of stock, among others, was more than sufficient to answer for the PhP28,500,000 judgment debt six times over. Rather than stop when the properties sold had approximated the monetary award, the execution sale pending appeal continued and

unduly benefitted Atty. Peña, who, as judgment creditor and, at times, the winning bidder, purchased most of the properties sold.

Fourth, it was supremely disconcerting how Urban Bank, through its successor EIB, was unduly deprived of

the opportunity to redeem the properties, even after presenting manager’s checks[339] equal to the purchase price of the condominium units sold at the execution sale. No reason was offered by the trial court[340] or the sheriff[341] for rejecting the redemption price tendered by EIB in order to recover the properties executed and sold in public auction pending appeal.

Finally, the Court cannot turn a blind eye to the fact that there was already a sufficient supersedeas bond

given to answer for whatever monetary award will be given in the end. To recall, the De Leon Group had already tendered a supersedeas bond of PhP40,000,000 in the Court of Appeals to prevent execution pending appeal over their properties. In fact, even Urban Bank tendered a separate supersedeas bond of equal amount with this Court, for a total of PhP80,000,000 to secure any judgment to be awarded to Atty. Peña. That execution sales over the properties of judgment debtors proceeded despite the three-fold value of securities compared to the amount of the award indicates bad faith, if not malice, with respect to the conduct of the execution pending appeal.

Inasmuch as the RTC Decision has already been vacated and an independent finding has been made by this Court of the complete nullity of the order granting execution pending appeal, it follows that all acts pursuant to such order and its writ are also void. It does not follow however, that the Court’s Decision in Co v. Sillador,[342] is nullified, inasmuch as an equally-important legal doctrine – the immutability of Supreme Court final decisions – is also to be considered. In any case, the factual circumstances and the ruling on that case were limited to the actions of Sheriff Allan Sillador with respect to properties levied under the same Special Order and Writ of Execution, which were subject of third party claims made by the spouses of Teodoro Borlongan, Corazon Bejasa and Arturo Manuel, Jr.[343] It does not encompass other specific events and acts committed in the course of the execution pending appeal that may warrant administrative or disciplinary actions. Having said that, this Court leaves it to the parties to explore avenues for redress in such a situation.

The observation on the irregularities above-enumerated are made for the purpose of correcting the injustice that has been committed herein, by allowing the Court to pursue the question of who was responsible for such gross violation of the rules on execution, and for the Court to find measures to improve the safeguards against abuse of court processes. It is for this reason that the Office of the Court Administrator will be given a special task by the Court on this matter. Judge Henry Trocino of RTC-Bago City, who issued the Special Order and had supervisory authority over the proceedings of the execution pending appeal, would have been included under such administrative investigation by the Office of the Court Administrator, were it not for his retirement from the judicial service.

The Court’s Suspension Order of Execution Pending Appeal Acting on Atty. Peña’s Omnibus Motion dated 09 December 2002 [344] and Unimega’s Motion for Reconsideration dated 10 December 2002[345] with respect to the Court’s Order dated 13 November 2002[346] that clarified the earlier stay order against the execution pending appeal, [347] the Court hereby denies both motions. The Court is fully correct in suspending the period for the running of the redemption period of the properties of Urban Bank and its officers and directors that were levied and subject of execution sale to satisfy the judgment debt in favor of Atty. Peña, the Court having conclusively determined that the supersedeas bond filed was sufficient and considering the subsequent finding that the said execution pending appeal lacks any sufficient ground for the grant thereof. As to the theory of Atty. Peña that the actuations of Justice Carpio, the then ponente of this case, in drafting the questioned Order should positively impact his motion for reconsideration of the same, the Court finds this argument utterly devoid of merit. In the first place, that questioned Order was not the decision of only a single member of the Court, Justice Carpio, but of the entire division to which he belonged, then composed of retired Chief Justice Hilario Davide, Justices Jose Vitug, Consuelo Ynares-Santiago and Adolfo Azcuna. This Order was affirmed by the same Division as its duly-promulgated order. In relation to this, the affirmation by the Division of this Order demonstrates that there is no truth to Atty. Peña’s claim that Justice Carpio fabricated the Order. In the second place, Atty. Peña’s claim of undue interest against Justice Carpio specifically with respect to the latter having the instant case transferred to his new Division, is based on ignorance of the system of assignment

of cases in the Supreme Court. When a reorganization of the Court takes place in the form of a change in the composition of Divisions, due to the retirement or loss of a member, the Justices do not thereby lose their case assignments but bring the latter with them to their new Divisions. [348] The cases are then transferred to the Justices’ new Divisions, by way of the corresponding request from each justice. Each justice is in fact, required to make this request, otherwise the rollo of the cases of which he is Member-in-Charge will be retained by a Division in which he is no longer a member. Indeed, Atty. Peña’s imagination has gotten the better of him. Thirdly, his insinuation (which he denies) that Justice Carpio may have been bribed because the latter has a new Mercedes Benz[349] is highly offensive and has no place where his points should have been confined to legal reasons and arguments. Incidentally, Atty. Peña has voiced the fear in the Letter of Complaint filed in the Court’s Committee on Ethics and Ethical Standards,[350] which he brought against the ponente of this Decision, that she will suppress material information regarding the issuance of the Order suspending the redemption period because of her close relationship to Justice Carpio. Contrary to this fear, this Decision is frontally disposing of this claim by stating that there is no basis to believe that the questioned Order was anything than the joint decision of the five members of the then First Division, and that his arguments in his motion to reconsider does not persuade this Court to vary in any form the questioned order. Moreover, our disposition of this case renders moot his motion to reconsider the order.

It must be emphasized that the prolonged resolution of the procedural issue in the Petitions in G. R. Nos. 145817 and 145822 on the execution pending appeal is due in no small part to the delays arising from Peña’s peculiar penchant for filing successive motions for inhibition and re-raffle. [351] The Court cannot sanction Peña’s repeated requests for voluntary inhibition of members of the Court based on the sole ground of his own self-serving allegations of lack of faith and trust, and would like to reiterate, at this point, the policy of the Court not to tolerate acts of litigants who, for just about any conceivable reason, seek to disqualify a judge (or justice) for their own purpose, under a plea of bias, hostility, prejudice or prejudgment.[352] The Court cannot allow the unnecessary and successive requests for inhibition, lest it opens the floodgates to forum-shopping where litigants look for a judge more friendly and sympathetic to their cause than previous ones.[353]

Restitution of the Bank’s Executed Properties

The Court is still confronted with the supervening acts related to the execution pending appeal and the reversal of the award of damages, which affect the rights of the parties as well as of the intervenors to the case, specifically, intervenor Unimega. In completely resolving the differing claims and performing its educational function, the Court shall briefly encapsulate and restate the operational rules governing execution pending appeal when there has been a reversal of the trial court’s Decision on the award of damages in order to guide the parties as well as the bench and bar in general. The necessity of making these detailed instructions is prompted by the most natural question an ordinary person with a sense of justice will ask after reading the facts: How can an obligation to pay for the services of a lawyer so that 23 unwanted tenants leave a corporation's property lead to the loss or the impairment of use of more than PhP181 Million worth of properties of that corporation and of its officers and directors? Obviously, this Court must undertake corrective actions swiftly.

The rule is that, where the executed judgment is reversed totally or partially, or annulled – on appeal or

otherwise – the trial court may, on motion, issue such orders of restitution or reparation of damages as equity and justice may warrant under the circumstances.[354] The Rules of Court precisely provides for restitution according to equity, in case the executed judgment is reversed on appeal.[355] “In an execution pending appeal, funds are advanced by the losing party to the prevailing party with the implied obligation of the latter to repay the former, in case the appellate court cancels or reduces the monetary award.”[356]

In disposing of the main case subject of these Petitions, the Court totally reversed the staggering amount of

damages given by the trial court, and limited on aquantum meruit basis the agent’s compensation to PhP4,500,000 only. However, properties of Urban Bank and individual petitioners have been garnished and levied upon in the amount of supposedly more than PhP85,399,350.[357]

Applying the foregoing rules, petitioner-respondent bank is entitled to complete and full restitution of its

levied properties, subject to the payment of the PhP4,500,000. Meanwhile, petitioners bank officers, all of whom have not been found individually or solidarily liable, are entitled to full restitution of all their properties levied upon and garnished, since they have been exonerated from corporate liability with respect to the bank’s agency relationship with Peña.

Considering the monetary award to Peña and the levy on and execution of some of its properties pending appeal, Urban Bank, now EIB, may satisfy the judgment in the main case and at the same time fully recover all the properties executed owing to the complete reversal of the trial court’s awarded damages. It must immediately and fully pay the judgment debt before the entire lot of levied properties, subject of the execution pending appeal, is restored to it.[358]

Due to the complete reversal of the trial court’s award for damages, which was the basis of the Special

Order and Writ of Execution allowing execution pending appeal, intervenor Unimega and other bidders who participated in the public auction sales are liable to completely restore to petitioner-respondent bank all of the properties sold and purchased therein. Although execution pending appeal is sanctioned under the rules and jurisprudence, when the executed decision is reversed, the premature execution is considered to have lost its legal bases. The situation necessarily requires equitable restitution to the party prejudiced thereby. [359] As a matter of principle, courts are authorized at any time to order the return of property erroneously ordered to be delivered to one party, if the order is found to have been issued without jurisdiction.[360]

As a purchaser of properties under an execution sale, with an appeal on the main case still pending,

intervenor Unimega knew or was bound to know that its title to the properties, purchased in the premature public auction sale, was contingent on the outcome of the appeal and could possibly be reversed. Until the judgment on the main case on which the execution pending appeal hinges is rendered final and executory in favor of the prevailing judgment creditor, it is incumbent on the purchasers in the execution sale to preserve the levied properties. They shall be personally liable for their failure to do so, especially if the judgment is reversed, as in this case.[361] In fact, if specific restitution becomes impracticable – such as when the properties pass on to innocent third parties – the losing party in the execution even becomes liable for the full value of the property at the time of its seizure, with interest. The Court has ruled:

When a judgment is executed pending appeal and subsequently overturned in the

appellate court, the party who moved for immediate execution should, upon return of the case to the lower court, be required to make specific restitution of such property of the prevailing party as he or any person acting in his behalf may have acquired at the execution sale. If specific restitution becomes impracticable, the losing party in the execution becomes liable for the full value of the property at the time of its seizure, with interest.

While the trial court may have acted judiciously under the premises, its action resulted in grave injustice to the private respondents. It cannot be gainsaid that it is incumbent upon the plaintiffs in execution (Arandas) to return whatever they got by means of the judgment prior to its reversal. And if perchance some of the properties might have passed on to innocent third parties as happened in the case at bar, the Arandas are duty bound nonetheless to return the corresponding value of said properties as mandated by the Rules. (Emphasis supplied)[362]

In this case, the rights of intervenor Unimega to the 10 condominium units bought during the public auction

sale under the Special Order are rendered nugatory by the reversal of the award of unconscionable damages by the trial court. It cannot claim to be an innocent third-party purchaser of the levied condominium units, since the execution sale was precisely made pending appeal. It cannot simply assume that whatever inaction or delay was incurred in the process of the appeal of the main Decision would automatically render the remedy dilatory in character.[363] Whatever rights were acquired by intervenor Unimega from the execution sale under the trial court’s Special Orders are conditional on the final outcome of the appeal in the main case. Unlike in auction sales arising from final and executory judgments, both the judgment creditor and the third parties who participate in auction sales pending appeal are deemed to knowingly assume and voluntarily accept the risks of a possible reversal of the decision in the main case by the appellate court.

Therefore, intervenor Unimega is required to restore the condominium units to Urban Bank. Although the

intervenor has caused the annotation of the sale and levied on the titles to those units, the titles have remained under the name of the bank, owing to the supersedeas bond it had filed and the Court’s own orders that timely suspended the transfer of the titles and further execution pending appeal.

The obligation to restore the properties to petitioner-respondent bank is, however, without prejudice to the

concurrent right of intervenor Unimega to the return of the PhP10,000,000 the latter paid for the condominium units, which Peña received as judgment creditor in satisfaction of the trial court’s earlier Decision. [364]Consequently, intervenor’s earlier request for the issuance of a writ of possession[365] over those units no longer has any leg to stand on. Not being entitled to a writ of possession under the present circumstances, Unimega’s ex parte petition is consequently denied.

Upon the reversal of the main Decision, the levied properties itself, subject of execution pending appeal

must be returned to the judgment debtor, if those properties are still in the possession of the judgment creditor, plus compensation to the former for the deprivation and the use thereof.[366] The obligation to return the property itself is likewise imposed on a third-party purchaser, like intervenor Unimega, in cases wherein it directly participated in the public auction sale, and thetitle to the executed property has not yet been transferred. The third-party purchaser shall, however, be entitled to reimbursement from the judgment creditor, with interest.

Considering the foregoing points, the Court adopts with modification the rules of restitution expounded by

retired Justice Florenz D. Regalado in his seminal work on civil procedure,[367] which the appellate court itself cited earlier.[368] In cases in which restitution of the prematurely executed property is no longer possible, compensation shall be made in favor of the judgment debtor in the following manner:

a. If the purchaser at the public auction is the judgment creditor, he must pay the full value of the property at the time of its seizure, with interest.b. If the purchaser at the public auction is a third party, and title to the property has already been validly and timely transferred to the name of that party, the judgment creditor must pay the amount realized from the sheriff’s sale of that property, with interest.c. If the judgment award is reduced on appeal, the judgment creditor must return to the judgment debtor only the excess received over and above that to which the former is entitled under the final judgment, with interest.

In summary, Urban Bank is entitled to complete restoration and return of the properties levied on execution

considering the absolute reversal of the award of damages, upon the payment of the judgment debt herein amounting to PhP4,500,000, with interest as indicated in the dispositive portion. With respect to individual petitioners, they are entitled to the absolute restitution of their executed properties, except when restitution has become impossible, in which case Peña shall be liable for the full value of the property at the time of its seizure, with interest. Whether Urban Bank and the bank officers and directors are entitled to any claim for damages against Peña and his indemnity bond is best ventilated before the trial court, as prescribed under the procedural rules on execution pending appeal.

WHEREFORE, the Court DENIES Atty. Magdaleno Peña’s Petition for Review dated 23 April 2004 (G. R.

No. 162562) and AFFIRMS WITH MODIFICATION the Court of Appeals’ Decision dated 06 November 2003 having correctly found that the Regional Trial Court of Bago City gravely abused its discretion in awarding unconscionable damages against Urban Bank, Inc., and its officers. The Decision of the Regional Trial Court of Bago City dated 28 May 1999 is hence VACATED.

Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Peña the amount of PhP3,000,000 as

reimbursement for his expenses and an additional PhP1,500,000 as compensation for his services, with interest at 6% per annum from 28 May 1999, without prejudice to the right of Urban Bank to invoke payment of this sum under a right of set-off against the amount of PhP25,000,000 that has been placed in escrow for the benefit of Isabela Sugar Company, Inc. The Complaint against the eight other individual petitioners, namely Teodoro Borlongan (+), Delfin C. Gonzales, Jr., Benjamin L. de Leon, P. Siervo G. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., is hereby DISMISSED.

The Petitions for Review on Certiorari filed by petitioners Urban Bank (G. R. No. 145817) and Benjamin

L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (G. R. No. 145822) are hereby GRANTED under the following conditions:

a. Urban Bank, Teodoro Borlongan, Delfin C. Gonzalez, Jr., Benjamin L. de

Leon, P. Siervo H. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., (respondent bank officers) shall be restored to full ownership and possession of all properties executed pending appeal;

b. If the property levied or garnished has been sold on execution pending appeal and Atty. Magdaleno Peña is the winning bidder or purchaser, he must fully restore the property to Urban Bank or respondent bank officers, and if actual restitution of the property is impossible, then he shall pay the full value of the property at the time of its seizure, with interest;

c. If the property levied or garnished has been sold to a third party purchaser at the public auction, and title to the property has not been validly and timely transferred to the name of the third party, the ownership and possession of the property shall be returned to Urban

Bank or respondent bank officers, subject to the third party’s right to claim restitution for the purchase price paid at the execution sale against the judgment creditor;

d. If the purchaser at the public auction is a third party, and title to the property has already been validly and timely transferred to the name of that party, Atty. Peña must pay Urban Bank or respondent bank officers the amount realized from the sheriff’s sale of that property, with interest from the time the property was seized.

The Omnibus Motion dated 09 December 2002 filed by Atty. Peña and Motion for Reconsideration dated 10

December 2002 filed by Unimega with respect to the Court’s Order dated 13 November 2002 is hereby DENIED. The Office of the Court Administrator is ordered to conduct an investigation into the possible administrative

liabilities of Atty. Josephine Mutia-Hagad, the then RTC-Bago City’s Clerk of Court, and Allan D. Sillador, the then Deputy Sheriff of Bago City, for the irregularities attending the execution pending appeal in this case, including all judicial officers or sheriffs in the various places in which execution was implemented, and to submit a report thereon within 120 days from receipt of this Decision.

The Office of the Court Administrator is also directed to make recommendations for the prevention of abuses of judicial processes in relation to executions, especially those pending appeal, whether thru administrative circulars from this Court or thru a revision of the Rules of Court, within 30 days from submission of the report on administrative liabilities adverted to above. Let a copy of the Court’s Decision in this case be sent to the Office of the Court Administrator. The Presiding Judge of RTC Bago City shall make a full report on all incidents related to the execution in this case, including all returns on the writ of execution herein.

Because so much suspicious circumstances have attended the execution in this case by the Regional Trial Court of Bago City, the proceedings with respect to any restitution due and owing under the circumstances shall be transferred to the Regional Trial Court in the National Capital Region, Makati City, a court with venue to hear cases involving Urban Bank/Export and Industry Bank whose headquarters is located in Makati City. The Executive Judge of the Regional Trial Court of Makati City is ordered to include the execution of the Decision and the proceedings for the restitution of the case in the next available raffle.

The Regional Trial Court of Makati City, to which the case shall be raffled, is hereby designated as the

court that will fully implement the restorative directives of this Decision with respect to the execution of the final judgment, return of properties wrongfully executed, or the payment of the value of properties that can no longer be restored, in accordance with Section 5, Rule 39 of the Rules of Court. The parties are directed to address the implementation of this part of the Decision to the sala to which the case will be raffled.

No pronouncement as to costs. SO ORDERED.

LOADMASTERS CUSTOMS SERVICES, INC.,

Petitioner,

- versus -

GLODEL BROKERAGE CORPORATION andR&B INSURANCE CORPORATION,

Respondents.

G.R. No. 179446 Present: CARPIO, J., Chairperson,NACHURA,PERALTA,ABAD, andMENDOZA, JJ. Promulgated: January 10, 2011

X -------------------------------------------------------------------------------------- X

D E C I S I O N

MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the August 24, 2007 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 82822, entitled “R&B Insurance Corporation v. Glodel Brokerage Corporation and Loadmasters Customs Services, Inc.,” which held petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel) in the amount of P1,896,789.62 representing the insurance indemnity which R&B Insurance Corporation (R&B Insurance) paid to the insured-consignee, Columbia Wire and Cable Corporation (Columbia). THE FACTS: On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks. On August 28, 2001, the cargoes were shipped on board the vessel “Richard Rey” from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbia’s warehouses/plants in Bulacan andValenzuela City.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed drivers

and accompanied by its employed truck helpers. Six (6) truckloads of copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly delivered in Columbia’s warehouses there. Of the six (6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo. Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for insurance indemnity in the amount of P1,903,335.39. After the requisite investigation and adjustment, R&B Insurance paid Columbia the amount of P1,896,789.62 as insurance indemnity.

R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of

the amount it had paid to Columbia for the loss of the subject cargo. It claimed that it had been subrogated “to the right of the consignee to recover from the party/parties who may be held legally liable for the loss.”[2]

On November 19, 2003, the RTC rendered a decision[3] holding Glodel liable for damages for the loss of the subject cargo and dismissing Loadmasters’ counterclaim for damages and attorney’s fees against R&B Insurance. The dispositive portion of the decision reads:

WHEREFORE, all premises considered, the plaintiff having established by preponderance of evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby rendered ordering the latter:

1. To pay plaintiff R&B Insurance Corporation the sum of P1,896,789.62 as

actual and compensatory damages, with interest from the date of complaint until fully paid;

2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of

the principal amount recovered as and for attorney’s fees plusP1,500.00 per appearance in Court;

3. To pay plaintiff R&B Insurance Corporation the sum of P22,427.18 as litigation

expenses. WHEREAS, the defendant Loadmasters Customs Services, Inc.’s counterclaim for

damages and attorney’s fees against plaintiff are hereby dismissed. With costs against defendant Glodel Brokerage Corporation.SO ORDERED.[4]

Both R&B Insurance and Glodel appealed the RTC decision to the CA.

On August 24, 2007, the CA rendered the assailed decision which reads in part:

Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to appellant R&B Insurance Corporation as insurance indemnity must likewise be the amount it shall be paid by appellee Loadmasters.

WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the

appellee Loadmasters is likewise held liable to appellant Glodel in the amount of P1,896,789.62 representing the insurance indemnity appellant Glodel has been held liable to appellant R&B Insurance Corporation.

Appellant Glodel’s appeal to absolve it from any liability is herein DISMISSED. SO ORDERED.[5]

Hence, Loadmasters filed the present petition for review on certiorari before this Court presenting the

following

ISSUES

1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the fact that the latter respondent Glodel did not file a cross-claim against it (Loadmasters)? 2. Under the set of facts established and undisputed in the case, can petitioner Loadmasters be legally considered as an Agent of respondent Glodel?[6]

To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it cannot be

considered an agent of Glodel because it never represented the latter in its dealings with the consignee. At any rate, it further contends that Glodel has no recourse against it for its (Glodel’s) failure to file a cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure. Glodel, in its Comment,[7] counters that Loadmasters is liable to it under its cross-claim because the latter was grossly negligent in the transportation of the subject cargo. With respect to Loadmasters’ claim that it is already estopped from filing a cross-claim, Glodel insists that it can still do so even for the first time on appeal because there is no rule that provides otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of Charter wherein the transporter (Loadmasters) is only hired for the specific job of delivering the merchandise. Thus, the diligence required in this case is merely ordinary diligence or that of a good father of the family, not the extraordinary diligence required of common carriers. R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim against Loadmasters because it was not prevented from presenting evidence to prove its position even without amending its Answer. As to the relationship between Loadmasters and Glodel, it contends that a contract of agency existed between the two corporations.[8]

Subrogation is the substitution of one person in the place of another with reference to a lawful claim or

right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.[9] Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid the consignee under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:

ART. 2207. If the plaintiff’s property has been insured, and he has received indemnity from

the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrong-doer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek

reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort. The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the amount of the indemnity it paid Columbia. At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public.

Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the business of transporting goods by land, through its trucking service. It is a common carrier as distinguished from a private carrier wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.[10] The distinction is significant in the sense that “the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers.”[11]

In the present case, there is no indication that the undertaking in the contract between Loadmasters and Glodel was private in character. There is no showing that Loadmasters solely and exclusively rendered services to Glodel.

In fact, Loadmasters admitted that it is a common carrier.[12]

In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its Memorandum,[13] it states that it “is a corporation duly organized and existing under the laws of the Republic of the Philippines and is engaged in the business of customs brokering.” It cannot be considered otherwise because as held by this Court in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc.,[14] a customs broker is also regarded as a common carrier, the transportation of goods being an integral part of its business.

Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and

for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case, as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual prudence and circumspection observe for securing and preserving their own property or rights.[15] This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. [16] Thus, in case of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently. [17] This presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of extraordinary diligence lasts from the time the goods are unconditionally placed in the possession of, and received by, the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them.[18]

Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally

liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code, “the responsibility of two or more persons who are liable for a quasi-delict is solidary.”

Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the

consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on quasi-delicts which expressly provide:

ART. 2176. Whoever by act or omission causes damage to another, there being fault or

negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v. Phoenix

Assurance Company of New York,/McGee & Co., Inc.[19] where this Court held that a tort may arise despite the absence of a contractual relationship, to wit:

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal, from which the present case has arisen, states a cause of action. The present action is based on quasi-delict, arising from the negligent and careless loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action in light of the Court’s consistent ruling that the act that breaks the contract may be also a tort. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. In the present case,Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the defendant should be sufficient to establish a cause of action arising from quasi-delict. [Emphases supplied]

In connection therewith, Article 2180 provides: ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own

acts or omissions, but also for those of persons for whom one is responsible.

x x x x

Employers shall be liable for the damages caused by their employees and household

helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees

(truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters should be made answerable for the damages caused by its employees who acted within the scope of their assigned task of delivering the goods safely to the warehouse.

Whenever an employee’s negligence causes damage or injury to another, there instantly arises a

presumption juris tantum that the employer failed to exercisediligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees.[20] To avoid liability for a quasi-delict committed by its employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee.[21] In this regard, Loadmasters failed.

Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that Loadmasters would fully comply with the undertaking to safely transport the subject cargo to the designated destination. It should have been more prudent in entrusting the goods to Loadmasters by taking precautionary measures, such as providing escorts to accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with Loadmasters. Its defense of force majeure is unavailing.

At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and

Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code provides: “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.” The elements of a 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.[22]

Accordingly, there can be no contract of agency between the parties. Loadmasters never represented

Glodel. Neither was it ever authorized to make such representation. It is a settled rule that the basis for agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. 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. [23] Such mutual intent is not obtaining in this case.

What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer is liable

for the total damage suffered by R&B Insurance. Where there are several causes for the resulting damages, a party is not relieved from liability, even partially. It is sufficient that the negligence of a party is an efficient cause without which the damage would not have resulted. It is no defense to one of the concurrent tortfeasors that the damage would not have resulted from his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern Shipping v. Court of Appeals,[24]

X x x. Where several causes producing an injury are concurrent and each is an efficient

cause without which the injury would not have happened, the injury may be attributed to all or any of the causes and recovery may be had against any or all of the responsible persons although under the circumstances of the case, it may appear that one of them was more culpable, and that the duty owed by them to the injured person was not the same. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury.

There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable for the total damage. Where the concurrent or successive negligent acts or omissions of two or more persons, although acting independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible to determine in what proportion

each contributed to the injury and either of them is responsible for the whole injury. Where their concurring negligence resulted in injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194 of the Civil Code. [Emphasis supplied]

The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having failed to file a

cross-claim against the latter. Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract of service as

the latter is primarily liable for the loss of the subject cargo. In this case, however, it cannot succeed in seeking judicial sanction against Loadmasters because the records disclose that it did not properly interpose a cross-claim against the latter. Glodel did not even pray that Loadmasters be liable for any and all claims that it may be adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not set up shall be barred.[25] Thus, a cross-claim cannot be set up for the first time on appeal.

For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on equitable grounds. “Equity, which has been aptly described as ‘a justice outside legality,’ is applied only in the absence of, and never against, statutory law or judicial rules of procedure.”[26] The Court cannot be a lawyer and take the cudgels for a party who has been at fault or negligent.

WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court of

Appeals is MODIFIED to read as follows:

WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc. and respondent Glodel Brokerage Corporation jointly and severally liable to respondent R&B Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire & Cable Corporation and ordering both parties to pay, jointly and severally, R&B Insurance Corporation a] the amount of P1,896,789.62 representing the insurance indemnity; b] the amount equivalent to ten (10%) percent thereof for attorney’s fees; and c] the amount of P22,427.18 for litigation expenses.

The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against

petitioner Loadmasters Customs Services, Inc. is DENIED.

SO ORDERED.

[G.R. No. 130148. December 15, 1997]JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ, ERNESTO M. LUZ and

NARCISO DEGANOS, respondents.D E C I S I O N

REGALADO, J.:In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No. 49175

affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private respondent Narciso Deganos liable to petitioners for actual damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of the Court of Appeals which denied their motion for reconsideration of its challenged decision.

Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On several occasions during the period from April 27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother of Brigida D. Luz, received several pieces of gold and jewelry from petitioners amounting to P382,816.00. [1] These items and their prices were indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were received for Brigida D. Luz. [2]

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return any unsold item to petitioners. By January 1990, the total of his unpaid account to petitioners, including interest, reached the sum of P725,463.98. [3] Petitioners eventually filed a complaint in the barangay court against Deganos to recover said amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness for Deganos and ultimately, she and her husband, together with Deganos, signed a compromise agreement with petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on installment basis, the balance of his account plus interest thereon. However, he failed to comply with his aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum of money and damages, with an application for preliminary attachment.[4] Ernesto Luz was impleaded therein as the spouse of Brigida.

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That criminal case appears to be still pending in said trial court.

During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz when he received the subject items of jewelry and, because he failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable with him therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed that the same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he alone who was involved in the transaction with the petitioners; that he neither acted as agent for nor was he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts indicated that the items were received by him for the latter. He further claimed that he never delivered any of the items he received from petitioners to Brigida.

Brigida, on her part, denied that she had anything to do with the transactions between petitioners and Deganos. She claimed that she never authorized Deganos to receive any item of jewelry in her behalf and, for that matter, neither did she actually receive any of the articles in question.

After trial, the court below found that only Deganos was liable to petitioners for the amount and damages claimed. It held that while Brigida D. Luz did have transactions with petitioners in the past, the items involved were already paid for and all that Brigida owed petitioners was the sum of P21,483.00 representing interest on the principal account which she had previously paid for.[6]

The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the items were received by Deganos for Evelyn Aquino and Brigida D. Luz. [7]Said court was “persuaded that Brigida D. Luz was behind Deganos,” but because there was no memorandum to this effect, the agreement between the parties was unenforceable under the Statute of Frauds. [8] Absent the required memorandum or any written document connecting the respondent Luz spouses with the subject receipts, or authorizing Deganos to act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon from June 25, 1990, and attorney’s fees. Brigida D. Luz was ordered to payP21,483.00 representing the interest on her own personal loan. She and her co-defendant spouse were absolved from any other or further liability. [9]

As stated at the outset, petitioners appealed the judgment of the court a quo to the Court of Appeals which affirmed said judgment. [10] The motion for reconsideration filed by petitioners was subsequently dismissed, [11] hence the present recourse to this Court.

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The primary issue in the instant petition is whether or not herein respondent spouses are liable to petitioners for the latter’s claim for money and damages in the sum ofP725,463.98, plus interests and attorney’s fees, despite the fact that the evidence does not show that they signed any of the subject receipts or authorized Deganos to receive the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by the finding of fact of the appellate court that “(Deganos) acted as agent of his sister (Brigida Luz).” [12] In support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the latter acknowledged her obligation to petitioners and requested for more time to fulfill the same. They likewise aver that Brigida testified in the trial court that Deganos took some gold articles from petitioners and delivered the same to her.

Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters concerned the previous obligations of Brigida to petitioners, and had nothing to do with the money sought to be recovered in the instant case. Such concurrent factual findings are entitled to great weight, hence, petitioners cannot plausibly claim in this appellate review that the letters were in the nature of acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is no showing whatsoever that her statement referred to the items which are the subject matter of this case. It cannot, therefore, be validly said that she admitted her liability regarding the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent authority as her agent and held him out to the public as such, hence Brigida can not be permitted to deny said authority to innocent third parties who dealt with Deganos under such belief. [13] Petitioners further represent that the Court of Appeals recognized in its decision that Deganos was an agent of Brigida.[14]

The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and that the latter should consequently be held solidarily liable with Deganos in his obligation to petitioners. While the quoted statement in the findings of fact of the assailed appellate decision mentioned that Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals categorically stated that, “(Brigida Luz) never authorized her brother (Deganos) to act for and in her behalf in any transaction with Petitioners x x x.” [15] It is clear, therefore, that even assuming arguendo that Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard to the transactions subject of this case.

The Civil Code provides: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.

The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of Deganos or authorized him to act on her behalf, much less with respect to the particular transactions involved. Petitioners’ attempt to foist liability on respondent spouses through the supposed agency relation with Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value without requiring a written authorization from his alleged principal. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. [16]

The records show that neither an express nor an implied agency was proven to have existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with Deganos, cannot seek relief from the effects of their negligence by conjuring a supposed agency relation between the two respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court below, which it affirmed, is “null and void” as it contradicted its ruling in CA-G.R. SP No. 39445 holding that there is “sufficient evidence/proof” against Brigida D. Luz and Deganos for estafa in the pending criminal case. They further aver that said appellate court erred in ruling against them in this civil action since the same would result in an inevitable conflict of decisions should the trial court convict the accused in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals to set aside the denial of their demurrer and motion for reconsideration but, as just stated, their petition therefor was dismissed.[17]

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a finding that there is sufficient evidence in the estafa case against Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that the decision and resolution of the Court of Appeals now being impugned in the case at bar would result in a possible conflict with the prospective decision in the criminal case. Instead of promulgating the present decision and resolution under review, so they suggest, the Court of Appeals should have awaited the decision in the criminal case, so as not to render academic or preempt the same or, worse, create two conflicting rulings. [18]








Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution and shall require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed, and that although there was a move to consolidate both cases, the same was denied by the trial court. Consequently, it was the duty of the two branches of the Regional Trial Court concerned to independently proceed with the civil and criminal cases. It will also be observed that a final judgment rendered in a civil action absolving the defendant from civil liability is no bar to a criminal action. [19]

It is clear, therefore, that this civil case may proceed independently of the criminal case [20] especially because while both cases are based on the same facts, the quantum of proof required for holding the parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and resolution of the Court of Appeals in the present case would be preemptive of the outcome of the criminal case. Their fancied fear of possible conflict between the disposition of this civil case and the outcome of the pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud perpetrated by its court officers. [21] They charge that said appellate court, through conspiracy and fraud on the part of its officers, gravely abused its discretion in issuing that resolution denying their motion for reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued by the members of the Eleventh Division of said court within one and a half days from the elevation thereof by the division clerk of court to the office of the ponente.

It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made without waiting for the lapse of the ten-day period for respondents to file their comment and for petitioners to file their reply. It was allegedly impossible for the Court of Appeals to resolve the issue in just one and a half days, especially because itsponente, the late Justice Maximiano C. Asuncion, was then recuperating from surgery and, that, additionally, “hundreds of more important cases were pending.” [22]

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments which, as already found by both the trial and intermediate appellate courts, are devoid of factual and legal substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate tribunal and its judicial officers through ad hominem imputations could well be contumacious, but we are inclined to let that pass with a strict admonition that petitioners refrain from indulging in such conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court’s decision. [23] Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a comment. Respondents filed the same on August 5, 1997 [24] and petitioners filed their reply to said comment on August 15, 1997. [25] The Eleventh Division of said court issued the questioned resolution denying petitioner’s motion for reconsideration on August 18, 1997.[26]

It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a resolution disposing of a case sooner than expected of it. They would even deny the exercise of discretion by the appellate court to prioritize its action on cases in line with the procedure it has adopted in disposing thereof and in declogging its dockets. It is definitely not for the parties to determine and dictate when and how a tribunal should act upon those cases since they are not even aware of the status of the dockets and the internal rules and policies for acting thereon.

The fact that a resolution was issued by said court within a relatively short period of time after the records of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no showing whatsoever that the resolution was issued without considering the reply filed by petitioners. In fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which could not be analyzed within an hour. It is a legal presumption, born of wisdom and experience, that official duty has been regularly performed; [27] that the proceedings of a judicial tribunal are regular and valid, and that judicial acts and duties have been and will be duly and properly performed. [28] The burden of proving irregularity in official conduct is on the part of petitioners and they have utterly failed to do so. It is thus reprehensible for them to cast aspersions on a court of law on the bases of conjectures or surmises, especially since one of the petitioners appears to be a member of the Philippine Bar.

Lastly, petitioners fault the trial court’s holding that whatever contract of agency was established between Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of this case allegedly is not covered thereby. [29] They proceed on the premise that the Statute of Frauds applies only to executory contracts and not to executed or to partially executed ones. From there, they move on to claim that the contract involved in this case was an executed contract as the items had already been delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract and removed the same from the coverage of the Statute of Frauds.












Petitioners’ claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the appellate court categorically stated that there was such a contractual relation between these two respondents. The trial court merely said that if there was such an agency existing between them, the same is unenforceable as the contract would fall under the Statute of Frauds which requires the presentation of a note or memorandum thereof in order to be enforceable in court. That was merely a preparatory statement of a principle of law. What was finally proven as a matter of fact is that there was no such contract between Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of any of the items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is DENIED, with double costs against petitioners

SO ORDERED.

[G.R. No. 117356. June 19, 2000]VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.

D E C I S I O NQUISUMBING, 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."[2] The SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."[3]

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

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks.[6]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the former could not be served with summons, the case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through summons.[7] CSC, however, did not bother to pursue its case against her, but instead used her as its witness.CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.[8] Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs

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prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests.Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.Since no settlement was reached at pre-trial, the trial court heard the case on the merits.As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company:"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs."SO ORDERED."[9]

It made the following observations:"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant Victorias Milling Company showing the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of the purchased price were dishonored. However, said witness failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by SLDR No. 1214 were dishonored."[10]

Petitioner appealed the trial 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.The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer



from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys fees;"3) Pay the costs of suit."SO ORDERED."[11]

Both parties then seasonably filed separate motions for reconsideration.In its resolution dated September 30, 1994, the appellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;"(2) Pay costs of suit."SO ORDERED."[12]

The appellate court explained the rationale for the modification as follows:"There is merit in plaintiff-appellee's position."Exhibit ‘F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit ‘F' which was offered to prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained undelivered."Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor."After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point."[13]

Hence, the instant petition, positing the following errors as grounds for review:"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code)." 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which, had they been considered, would have shown that petitioner was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable Court." 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct contracts between the same parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other sales




or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two or more distinct contracts between the same parties (emphasis in the original)."4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. ‘F’ between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated and its balance binding."5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco warehouse, made the sale conditional and prevented STM or private respondent from acquiring title to the sugar; and the non-availability of sugar freed petitioner from further obligation."6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor."[14]

Simply stated, the issues now to be resolved are:(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the court below could not 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 appoint[18] or an intention naturally inferable from his words or actions;[19] and on the part of the agent, there must be an intention to accept the appointment and act on it,[20] and in the absence of such intent, there is generally no agency.[21] One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal.[22] The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category.[23] The Court of Appeals, in finding that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and











transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-plaintiff."[24]

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract is one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed.[25] That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties.[26] That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it.[27] The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.[28] However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and independent transaction; it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each other. No reversible error could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present case.Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:

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

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law between the contracting parties.[30] And where the terms and conditions so stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld.[31] Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny, we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof.WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.SO ORDERED.









G.R. No. 167552 April 23, 2007EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs.EDWIN CUIZON and ERWIN CUIZON, Respondents.

D E C I S I O NCHICO-NAZARIO, J.:Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.The generative facts of the case are as follows:Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said capacity.From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent part of which states:

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump;2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;3.) That the ASSIGNEE does hereby accept this assignment.7

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

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 09339prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents’ total obligations stood at P295,000.00 excluding interests and attorney’s fees.11 Because of respondents’ failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City.12

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

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s allegations with respect to the sale transactions entered into by Impact Systems and petitioner between January and April 1995.15 He, however, disputed the total amount of Impact Systems’ indebtedness to petitioner which, according to him, amounted to only P220,000.00.16

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

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served summons and other processes of the Honorable Court.1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in such capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted petitioner’s motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied petitioner’s motion for summary

http://www.lawphil.net/judjuris/juri2007/apr2007/gr_167552_2007.html#fnt18


















judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.19However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’s Memorandum21 in support of his special and affirmative defenses and petitioner’s opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court –A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later.In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant.23

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

Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally liable for the obligations of his principal.26

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

In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction.We do not find merit in the petition.In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latter’s consent.29 The underlying principle of the contract of agency is to accomplish results by using the services of others – to do a great variety of things like selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality of the principal or the party for whom another acts and from whom he or she derives the authority to act.31 It is said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence – qui facit per alium facit per se.33
















The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.34

In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code.We disagree.Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision.The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal, thus:The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems’ indebtedness.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems’ perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWIN’s participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal.We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the situations when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of authority by the agent, like what petitioner claims exists here, the law does not say that a third person can recover from both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a defendant in the suit before the court a quo.WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of the proceedings against respondent Erwin Cuizon.SO ORDERED.









G.R. No. 76931 May 29, 1991ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner, vs.COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.G.R. No. 76933 May 29, 1991AMERICAN AIRLINES, INCORPORATED, petitioner, vs.COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED,respondents.PADILLA, J.:p

This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 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 decision 2 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:

WITNESSETHIn consideration of the mutual convenants herein contained, the parties hereto agree as follows:1. Representation of American by Orient Air ServicesOrient 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;(c) arranging for distribution of American's timetables, tariffs and promotional material to sales agents and the general public in the assigned territory;(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by 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(e) holding out a passenger reservation facility to sales agents and the general public in the assigned territory.

In connection with scheduled or non-scheduled air passenger transportation within the United States, 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 to be performed within the United States by other scheduled air carriers provided American does not provide substantially equivalent schedules between the points involved.

xxx xxx xxx4. RemittancesOrient 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. CommissionsAmerican will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or its sub-agents as follows:(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 commissionIn 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 xxx10. DefaultIf 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 RulesThe 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 xxx13. TerminationAmerican 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 xxx 3

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 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 Answer 6 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 filed3) 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;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. Commissionsa) . . .b) Overriding CommissionIn 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 its sub-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

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 theobscurity. 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. We 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."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 Agreement without 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.

GREGORIO V. TONGKO, Petitioner,

- versus - THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, Respondents.

G.R. No. 167622 Present:

CORONA, C.J., CARPIO, CARPIO MORALES, VELASCO, JR., NACHURA, LEONARDO-DE CASTRO, BRION, PERALTA, BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, MENDOZA, and SERENO, JJ. Promulgated: January 25, 2011

x-----------------------------------------------------------------------------------------xR E S O L U T I O N

BRION, J.:

We resolve petitioner Gregorio V. Tongko’s bid, through his Motion for Reconsideration,[1] to set aside our June 29, 2010 Resolution that reversed our Decision of November 7, 2008.[2] With the reversal, the assailed June 29, 2010 Resolution effectively affirmed the Court of Appeals’ ruling[3] in CA-G.R. SP No. 88253 that the petitioner was an insurance agent, not the employee, of the respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife).

In his Motion for Reconsideration, petitioner reiterates the arguments he had belabored in his petition and

various other submissions. He argues that for 19 years, he performed administrative functions and exercised supervisory authority over employees and agents of Manulife, in addition to his insurance agent functions.[4] In these 19 years, he was designated as a Unit Manager, a Branch Manager and a Regional Sales Manager, and now posits that he was not only an insurance agent for Manulife but was its employee as well.

We find no basis or any error to merit the reconsideration of our June 29, 2010 Resolution.

A. Labor Law Control = Employment Relationship

Control over the performance of the task of one providing service – both with respect to the means and

manner, and the results of the service – is the primary element in determining whether an employment relationship exists. We resolve the petitioner’s Motion against his favor since he failed to show that the control Manulife exercised over him was the control required to exist in an employer-employee relationship; Manulife’s control fell short of this norm and carried only the characteristic of the relationship between an insurance company and its agents, as defined by the Insurance Code and by the law of agency under the Civil Code.

The petitioner asserts in his Motion that Manulife’s labor law control over him was demonstrated (1) when

it set the objectives and sales targets regarding production, recruitment and training programs; and (2) when it prescribed the Code of Conduct for Agents and the Manulife Financial Code of Conduct to govern his activities.[5] We find no merit in these contentions.

In our June 29, 2010 Resolution, we noted that there are built-in elements of control specific to an

insurance agency, which do not amount to the elements of control that characterize an employment relationship governed by the Labor Code. The Insurance Code provides definite parameters in the way an agent negotiates for the sale of the company’s insurance products, his collection activities and his delivery of the insurance contract or policy.[6] In addition, the Civil Code defines an agent as a person who binds himself to do something in behalf of

http://sc.judiciary.gov.ph/jurisprudence/2011/january2011/167622.htm#_ftn6






another, with the consent or authority of the latter.[7] Article 1887 of the Civil Code also provides that in the execution of the agency, the agent shall act in accordance with the instructions of the principal.

All these, read without any clear understanding of fine legal distinctions, appear to speak of control by the

insurance company over its agents. They are, however, controls aimed only at specific results in undertaking an insurance agency, and are, in fact, parameters set by law in defining an insurance agency and the attendant duties and responsibilities an insurance agent must observe and undertake. They do not reach the level of control into the means and manner of doing an assigned task that invariably characterizes an employment relationship as defined by labor law. From this perspective, the petitioner’s contentions cannot prevail.

To reiterate, guidelines indicative of labor law “control” do not merely relate to the mutually desirable result intended by the contractual relationship; they must have the nature of dictating the means and methods to be employed in attaining the result.[8] Tested by this norm, Manulife’s instructions regarding the objectives and sales targets, in connection with the training and engagement of other agents, are among the directives that the principal may impose on the agent to achieve the assigned tasks. They are targeted results that Manulife wishes to attain through its agents. Manulife’s codes of conduct, likewise, do not necessarily intrude into the insurance agents’ means and manner of conducting their sales. Codes of conduct are norms or standards of behavior rather than employer directives into how specific tasks are to be done. These codes, as well as insurance industry rules and regulations, are not per se indicative of labor law control under our jurisprudence.[9]

The duties[10] that the petitioner enumerated in his Motion are not supported by evidence and, therefore, deserve scant consideration. Even assuming their existence, however, they mostly pertain to the duties of an insurance agent such as remitting insurance fees to Manulife, delivering policies to the insured, and after-sale services. For agents leading other agents, these include the task of overseeing other insurance agents, the recruitment of other insurance agents engaged by Manulife as principal, and ensuring that these other agents comply with the paperwork necessary in selling insurance. That Manulife exercises the power to assign and remove agents under the petitioner’s supervision is in keeping with its role as a principal in an agency relationship; they are Manulife agents in the same manner that the petitioner had all along been a Manulife agent.

The petitioner also questions Manulife’s act of investing him with different titles and positions in the course of their relationship, given the respondents’ position that he simply functioned as an insurance agent. [11] He also considers it an unjust and inequitable situation that he would be unrewarded for the years he spent as a unit manager, a branch manager, and a regional sales manager.[12]

Based on the evidence on record, the petitioner’s occupation was to sell Manulife’s insurance policies and

products from 1977 until the termination of the Career Agent’s Agreement (Agreement). The evidence also shows that through the years, Manulife permitted him to exercise guiding authority over other agents who operate under their own agency agreements with Manulife and whose commissions he shared.[13] Under this scheme – an arrangement that pervades the insurance industry– petitioner in effect became a “lead agent” and his own commissions increased as they included his share in the commissions of the other agents;[14] he also received greater reimbursements for expenses and was allowed to use Manulife’s facilities. His designation also changed from unit manager to branch manager and then to regional sales manager, to reflect the increase in the number of agents he recruited and guided, as well as the increase in the area where these agents operated.

As our assailed Resolution concluded and as we now similarly conclude, these arrangements, and the titles

and positions the petitioner was invested with, did not change his status from the insurance agent that he had always been (as evidenced by the Agreement that governed his relationship with Manulife from the start to its disagreeable end). The petitioner simply progressed from his individual agency to being a lead agent who could use other agents in selling insurance and share in the earnings of these other agents.

In sum, we find absolutely no evidence of labor law control, as extensively discussed in our Resolution

of June 29, 2010, granting Manulife’s motion for reconsideration. The Dissent, unfortunately, misses this point.

B. No Resulting Inequity

We also do not agree that our assailed Resolution has the effect of fostering an inequitable or unjust situation. The records show that the petitioner was very amply paid for his services as an insurance agent, who also shared in the commissions of the other agents under his guidance. In 1997, his income was P2,822,620; in 1998, P4,805,166.34; in 1999, P6,797,814.05; in 2001, P6,214,737.11; and in 2002, P8,003,180.38. All these he earned as an insurance agent, as he failed to ever prove that he earned these sums as an employee. In technical









terms, he could not have earned all these as an employee because he failed to provide the substantial evidence required in administrative cases to support the finding that he was a Manulife employee. No inequity results under this legal situation; what would be unjust is an award of backwages and separation pay – amounts that are not due him because he was never an employee.

The Dissent’s discussion on this aspect of the case begins with the wide disparity in the status of the

parties – that Manulife is a big Canadian insurance company while Tongko is but a single agent of Manulife. The Dissent then went on to say that “[i]f is but just, it is but right, that the Court interprets the relationship between Tongko and Manulife as one of employment under labor laws and to uphold his constitutionally protected right, as an employee, to security of tenure and entitlement to monetary award should such right be infringed.” [15] We cannot simply invoke the magical formula by creating an employment relationship even when there is none because of the unavoidable and inherently weak position of an individual over a giant corporation.

The Dissent likewise alluded to an ambiguity in the true relationship of the parties after Tongko’s

successive appointments. We already pointed out that the legal significance of these appointments had not been sufficiently explained and that it did not help that Tongko never bothered to present evidence on this point. The Dissent recognized this but tried to excuse Tongko from this failure in the subsequent discussion, as follows:

[o]ther evidence was adduced to show such duties and responsibilities. For one, in his letter of November 6, 2001, respondent De Dios addressed petitioner as sales manager. And as I wrote in my Dissent to the June 29, 2010 Resolution, it is difficult to imagine that Manulife did not issue promotional appointments to petitioner as unit manager, branch manager, and, eventually, regional sales manager. Sound management practice simply requires an appointment for any upward personnel movement, particularly when additional functions and the corresponding increase in compensation are involved. Then, too, the adverted affidavits of the managers of Manulife as to the duties and responsibilities of a unit manager, such as petitioner, point to the conclusion that these managers were employees of Manulife, applying the “four-fold” test.[16]

This Court (and all adjudicators for that matter) cannot and should not fill in the evidentiary gaps in a party’s

case that the party failed to support; we cannot and should not take the cudgels for any party. Tongko failed to support his cause and we should simply view him and his case as they are; our duty is to sit as a judge in the case that he and the respondent presented.

To support its arguments on equity, the Dissent uses the Constitution and the Civil Code, using provisions

and principles that are all motherhood statements. The mandate of the Court, of course, is to decide cases based on the facts and the law, and not to base its conclusions on fundamental precepts that are far removed from the particular case presented before it. When there is no room for their application, of capacity of principles, reliance on the application of these fundamental principles is misplaced. C. Earnings were Commissions

That his earnings were agent’s commissions arising from his work as an insurance agent is a matter that

the petitioner cannot deny, as these are the declarations and representations he stated in his income tax returns through the years. It would be doubly unjust, particularly to the government, if he would be allowed at this late point to turn around and successfully claim that he was merely an employee after he declared himself, through the years, as an independent self-employed insurance agent with the privilege of deducting business expenses. This aspect of the case alone – considered together with the probative value of income tax declarations and returns filed prior to the present controversy — should be enough to clinch the present case against the petitioner’s favor.

D. The Dissent’s Solution:

Unwieldy and Legally Infirm

The Dissent proposes that Tongko should be considered as part employee (as manager) and part insurance agent; hence, the original decision should be modified to pertain only to the termination of his employment as a manager and not as an insurance agent. Accordingly, the backwages component of the original award to him should not include the insurance sales commissions. This solution, according to the line taken by the Dissent then, was justified on the view that this was made on a case-to-case basis.



Decisions of the Supreme Court, as the Civil Code provides, form part of the law of the land. When the Court states that the determination of the existence of an employment relationship should be on a case-to-case basis, this does not mean that there will be as many laws on the issue as there are cases. In the context of this case, the four-fold test is the established standard for determining employer-employee relationship and the existence of these elements, most notably control, is the basis upon which a conclusion on the absence of employment relationship was anchored. This simply means that a conclusion on whether employment relationship exists in a particular case largely depends on the facts and, in no small measure, on the parties’ evidence vis-à-vis the clearly defined jurisprudential standards. Given that the parties control what and how the facts will be established in a particular case and/or how a particular suit is to be litigated, deciding the issues on a case-to-case basis becomes an imperative.

Another legal reality, a more important one, is that the duty of a court is to say what the law is.[17] This is the

same duty of the Supreme Court that underlies thestare decisis principle. This is how the public, in general and the insurance industry in particular, views the role of this Court and courts in general in deciding cases. The lower courts and the bar, most specially, look up to the rulings of this Court for guidance. Unless extremely unavoidable, the Court must, as a matter of sound judicial policy, resist the temptation of branding its ruling pro hac vice.

The compromise solution of declaring Tongko both an employee and an agent is legally unrealistic,

unwieldy and is, in fact, legally infirm, as it goes against the above basic principles of judicial operation. Likewise, it does not and cannot realistically solve the problem/issue in this case; it actually leaves more questions than answers.

As already pointed out, there is no legal basis (be it statutory or jurisprudential) for the part-employee/part-

insurance agent status under an essentially principal-agent contractual relation which the Dissent proposes to accord to Tongko. If the Dissent intends to establish one, this is highly objectionable for this would amount to judicial legislation. A legal relationship, be it one of employment or one based on a contract other than employment, exists as a matter of law pursuant to the facts, incidents and legal consequences of the relationship; it cannot exist devoid of these legally defined underlying facts and legal consequences unless the law itself creates the relationship – an act that is beyond the authority of this Court to do.

Additionally, the Dissent’s conclusion completely ignores an unavoidable legal reality – that the parties are

bound by a contract of agency that clearly subsists notwithstanding the successive designation of Tongko as a unit manager, a branch manager and a regional sales manager. (As already explained in our Resolution granting Manulife’s motion for reconsideration, no evidence on record exists to provide the Court with clues as to the precise impact of all these designations on the contractual agency relationship.) The Dissent, it must be pointed out, concludes that Tongko’s employment as manager was illegally terminated; thus, he should be accordingly afforded relief therefor. But, can Tongko be given the remedies incidental to his dismissal as manager separately from his status as an insurance agent? In other words, since the respondents terminated all relationships with Tongko through the termination letter, can we simply rule that his role as a manager was illegally terminated without touching on the consequences of this ruling on his status as an insurance agent? Expressed in these terms, the inseparability of his contract as agent with any other relationship that springs therefrom can thus be seen as an insurmountable legal obstacle.

The Dissent’s compromise approach would also sanction split jurisdiction. The labor tribunals shall have

jurisdiction over Tongko’s employment as manager while another entity shall decide the issues/cases arising from the agency relationship. If the managerial employment is anchored on the agency, how will the labor tribunals decide an issue that is inextricably linked with a relationship that is outside the loop of their jurisdiction? As already mentioned in the Resolution granting Manulife’s reconsideration, the DOMINANT relationship in this case is agency and no other. E. The Dissent’s Cited Cases

The Dissent cites the cases of Great Pacific Life Assurance Corporation v. National Labor Relations

Commission[18] and Insular Life Assurance Co., Ltd. v. National Labor Relations Commission [19] to support the allegation that Manulife exercised control over the petitioner as an employer.

In considering these rulings, a reality that cannot but be recognized is that cases turn and are decided on

the basis of their own unique facts; the ruling in one case cannot simply be bodily lifted and applied to another, particularly when notable differences exist between the cited cases and the case under consideration; their respective facts must be strictly examined to ensure that the ruling in one applies to another. This is particularly




true in a comparison of the cited cases with the present case. Specifically, care should be taken in reading the cited cases and applying their rulings to the present case as the cited cases all dealt with the proper legal characterization of subsequent management contracts that superseded the original agency contract between the insurance company and the agent.

In Great Pacific Life, the Ruiz brothers were appointed to positions different from their original positions as

insurance agents, whose duties were clearly defined in a subsequent contract. Similarly, in Insular, de los Reyes, a former insurance agent, was appointed as acting unit manager based on a subsequent contract. In both cases, the Court anchored its findings of labor control on the stipulations of these subsequent contracts.

In contrast, the present case is remarkable for the absence of evidence of any change in the nature of the

petitioner’s employment with Manulife. As previously stated above and in our assailed Resolution, the petitioner had always been governed by the Agreement from the start until the end of his relationship with Manulife. His agency status never changed except to the extent of being a lead agent. Thus, the cited cases – where changes in company-agent relationship expressly changed and where the subsequent contracts were the ones passed upon by the Court – cannot be totally relied upon as authoritative.

We cannot give credit as well to the petitioner’s claim of employment based on the affidavits executed by

other Manulife agents describing their duties, because these same affidavits only affirm their status as independent agents, not as employees. To quote these various claims:[20]

1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on the computed premiums paid in full on the policies obtained thereat;1.b. I have no fixed working hours and employ my own method in soliciting insurance at a time and place I see fit;1.c. I have my own assistant and messenger who handle my daily work load;1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;

x x x x 6. I have my own staff that handles day to day operations of my office;7. My staff are my own employees and received salaries from me; x x x x9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a self-employed individual or professional with a ten (10) percent creditable withholding tax. I also remit monthly for professionals. The petitioner cannot also rely on the letter written by respondent Renato Vergel de Dios to prove that

Manulife exercised control over him. As we already explained in the assailed Resolution:

Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into Tongko’s exercise of his role as manager in guiding the sales agents. Strictly viewed, de Dios’ directives are merely operational guidelines on how Tongko could align his operations with Manulife’s re-directed goal of being a “big league player.” The method is to expand coverage through the use of more agents. This requirement for the recruitment of more agents is not a means-and-method control as it relates, more than anything else, and is directly relevant, to Manulife’s objective of expanded business operations through the use of a bigger sales force whose members are all on a principal-agent relationship. An important point to note here is that Tongko was not supervising regular full-time employees of Manulife engaged in the running of the insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife through the same agreement that he had with manulife, all the while sharing in these agents’ commissions through his overrides.[21]

Lastly, in assailing the Agreement between him and Manulife, the petitioner cites Paguio v. National Labor

Relations Commission[22] on the claim that the agreement that the parties signed did not conclusively indicate the legal relationship between them.

The evidentiary situation in the present case, however, shows that despite the petitioner’s insistence that

the Agreement was no longer binding between him and Manulife, no evidence was ever adduced to show that their




relationship changed so that Manulife at some point controlled the means and method of the petitioner’s work. In fact, his evidence only further supports the conclusion that he remained an independent insurance agent – a status he admits, subject only to the qualification that he is at the same time an employee. Thus, we can only conclude that the Agreement governed his relations with Manulife.

Additionally, it is not lost on us that Paguio is a ruling based on a different factual setting; it involves a

publishing firm and an account executive, whose repeated engagement was considered as an indication of employment. Our ruling in the present case is specific to the insurance industry, where the law permits an insurance company to exercise control over its agents within the limits prescribed by law, and to engage independent agents for several transactions and within an unlimited period of time without the relationship amounting to employment. In light of these realities, the petitioner’s arguments on his last argument must also fail. The dissent also erroneously cites eight other cases — Social Security System v. Court of Appeals,[23] Cosmopolitan Funeral Homes, Inc. v. Maalat,[24]Algon Engineering Construction Corporation v. National Labor Relations Commission,[25] Equitable Banking Corporation v. National Labor Relations Commission,[26] Lazaro v. Social Security Commission,[27] Dealco Farms, Inc. v. National Labor Relations Commission,[28] South Davao Development Company, Inc. v. Gamo,[29] and Abante, Jr. v. Lamadrid Bearing & Parts Corporation.[30] The dissent cited these cases to support its allegation that labor laws and jurisprudence should be applied in cases, to the exclusion of other laws such as the Civil Code or the Insurance Code, even when the latter are also applicable.

In Social Security System, Cosmopolitan Funeral Homes, Dealco Farms, and South Davao Development, the issue that repeats itself is whether complainants were employees or independent contractors; the legal relationships involved are both labor law concepts and make no reference to the Civil Code (or even the Insurance Code). The provisions cited in the Dissent — Articles 1458-1637 of the Civil Code [31] and Articles 1713-1720 of the Civil Code [32] — do not even appear in the decisions cited.

In Algon, the issue was whether the lease contract should dictate the legal relationship between the parties, when there was proof of an employer-employee relationship. In the cited case, the lease provisions on termination were thus considered irrelevant because of a substantial evidence of an employment relationship. The cited case lacks the complexity of the present case; Civil Code provisions on lease do not prescribe that lessees exercise control over their lessors in the way that the Insurance Code and the Civil provide that insurance companies and principals exercised control over their agents.

The issue in Equitable, on the other hand, is whether a lawyer-client relationship or an employment

relationship governs the legal relation between parties. Again, this case is inapplicable as it does not illustrate the predominance of labor laws and jurisprudence over other laws, in general, and the Insurance Code and Civil Code, in particular. It merely weighed the evidence in favor of an employment relationship over that of a lawyer-client relationship. Similarly in Lazaro, the Court found ample proof of control determinative of an employer-employee relationship. Both cases are not applicable to the present case, which is attended by totally different factual considerations as the petitioner had not offered any evidence of the company’s control in the means and manner of the performance of his work.

On the other hand, we find it strange that the dissent cites Abante as a precedent, since the Court, in this

case, held that an employee-employer relationship is notably absent in this case as the complainant was a sales agent. This case better supports the majority’s position that a sales agent, who fails to show control in the concept of labor law, cannot be considered an employee, even if the company exercised control in the concept of a sales agent.[33]

It bears stressing that our ruling in this case is not about which law has primacy over the other, but that we

should be able to reconcile these laws. We are merely saying that where the law makes it mandatory for a company to exercise control over its agents, the complainant in an illegal dismissal case cannot rely on these legally prescribed control devices as indicators of an employer-employee relationship. As shown in our discussion, our consideration of the Insurance Code and Civil Code provisions does not negate the application of labor laws and jurisprudence; ultimately, we dismissed the petition because of its failure to comply with the control test.

WHEREFORE, premises considered, we hereby DENY the Motion for Reconsideration WITH FINALITY for

lack of merit. No further pleadings shall be entertained. Let entry of judgment proceed in due course.

SO ORDERED.












G.R. No. L-30573 October 29, 1971VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants, vs.GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.Teofilo Leonin for petitioners-appellants.Osorio, Osorio & Osorio for respondent-appellee.Teofilo P. Purisima in his own behalf as intervenor-respondent. MAKASIAR, J.:Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus costs.The following facts were found to be established by the majority of the Special Division of Five of the Court of Appeals:In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the 30-day duration of the agency or if the property is sold by Vicente within three months from the termination of the agency to apurchaser to whom it was submitted by Gregorio during the continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy was given to Vicente, while the original and another copy were retained by Gregorio.On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer, promising him one-half of the 5% commission.Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the purchase price. It was again amended to the effect that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the United States, for which reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three months after the expiration of the 30-day period of the exclusive agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente sold his

property to the same buyer, Oscar de Leon and his wife, he demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have common or identical interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission.The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price; (2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that it does not constitute breach of trust or fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio if he could effect better terms for him from the seller, independent of his legitimate commission, is not fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes that such terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. 1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil Code.Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.Every stipulation exempting the agent from the obligation to render an account shall be void.xxx xxx xxxArt. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with more less rigor by the courts, according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that:Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue of the agency, even though what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more comprehensive than the former.Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an agent — condemning as void any stipulation exempting the agent from the duty and liability imposed on him in paragraph one thereof.Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil Code which reads thus:

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

The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes upon the agent the absolute

obligation to make a full disclosure or complete account to his principal of all his transactions and other material facts relevant to the agency, so much so that the law as amended does not countenance any stipulation exempting the agent from such an obligation and considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest justice. 2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage. 3 By taking such profit or bonus or gift or propina from the vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no agency had existed. The fact that the principal may have been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to blame for such a result by reason of his treachery or perfidy.This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An administrator of an estate was likewise under the same Article 1720 for failure to render an account of his administration to the heirs unless the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered. 5

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

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

The American jurisprudence on this score is well-nigh unanimous.Where a principal has paid an agent or broker a commission while ignorant of the fact that the latter has been unfaithful, the principal may recover back the commission paid, since an agent or broker who has been unfaithful is not entitled to any compensation.xxx xxx xxxIn discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded on the highest and truest principles, of morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire fidelity towards his principal, but is guilty of taking a secret profit or commission in regard the matter in which he is employed, he loses his right to compensation on the ground that he has taken a position wholly inconsistent with that of agent for his employer, and which gives his employer, upon discovering it, the right to treat him so far as compensation, at least, is concerned as if no agency had existed. This may operate to give to the principal the benefit of valuable services rendered by the agent, but the agent has only himself to blame for that result."xxx xxx xxxThe intent with which the agent took a secret profit has been held immaterial where the agent has in fact entered into a relationship inconsistent with his agency, since the law condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260. 9

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

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his prospective buyer to purchase the property on the most advantageous terms desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his principal.The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's accepting such a gift.The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal.Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs

G.R. No. 75198 October 18, 1988SCHMID & OBERLY, INC., petitioner, vs.RJL MARTINEZ FISHING CORPORATION, respondent.Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner.Siguion Reyna, Montecillo & Ongsiako Law Office for respondent. CORTES, J.:Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly Inc. (hereafter to be referred to simply as "SCHMID") to refund the purchase price paid by RJL Martinez Fishing Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be referred to simply as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus consequential damages, and attorneys fees.The facts as found by the Court of Appeals, are as follows:

The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows: that the plaintiff RJL Martinez Fishing Corporation is engaged in deep-sea fishing, and in the course of its business, needed electrical generators for the operation of its business; that the defendant sells electrical generators with the brand of "Nagata", a Japanese product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of Japan, that the defendant Schmid & Oberly Inc. advertised the 12 Nagata generators for sale; that the plaintiff purchased 12 brand new Nagata generators, as advertised by herein defendant; that through an irrevocable line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff 12 electric generators, and the latter paid the amount of the purchase price; that the 12 generators were found to be factory defective; that the plaintiff informed the defendant herein that it shall return the 12 generators as in fact three of the 12 were actually returned to the defendant; that the plaintiff sued the defendant on the warranty; asking for rescission of the contract; that the defendant be ordered to accept the generators and be ordered to pay back the purchase money; and that the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA Decision, pp. 34; Rollo, pp. 47-48.]

On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to private respondent the purchase price for the twelve (12) generators and to accept delivery of the same and to pay s and attorney's fees, with a slight modification as to the amount to be refunded. In its resolution of the motion for reconsideration, the Court of Appeals further modified the trial courts decision as to the award of consequential damages.Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's decisions under Rule 45 of the Revised Rules of Court, the scope of the Court's inquiry being limited to a review of the imputed errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R. No. L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that the appealed judgment is premised on a misapprehension offacts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals, G.R. No. I,48290, September 29, 1983, 124 SCRA 808.]Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals indeed misapprehended the facts could not be determined without a thorough review of the records.Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts incomplete. It failed to include certain material facts.The facts are actually as follows:RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID sold electric generators of different brands, negotiations between them for the acquisition thereof took place. The parties had two separate transactions over "Nagata"-brand generators.The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the vendor of the generators. The company supplied the generators from its stockroom; it was also SCHMID which invoiced the sale.The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"-brand generators. 'These are the facts surrounding this particular transaction:As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the following specifications:

"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type and radio suppressor,, 5KVA (5KW) $546.75 @

It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO. Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following:

Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated on the face of this memorandum, specifying shipment from any Foreign port to Manila or any safe Philippine port, permitting partial shipments and providing that in the event the shippers are unable to ship within the specified period due to strikes, lack of shipping space or other circumstances beyond their reasonable control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter of Credit shall otherwise be subject to the conditions stated in this memorandum of contract. [Emphasis supplied.]

Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. Accordingly, on November 20,1975, SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to RJL MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets was—bought by order and for account risk of Messrs. RJL Martinez Fishing Corporation.For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".]All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical representatives who made an ocular inspection and conducted tests on some of the burned out generators, which by then had been delivered to the premises of SCHMID.The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice, the capacity of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4 KVA.SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand.As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither repaired nor replaced. NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators, request for spare parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not agreeable to these terms [Exhibit "10".]As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid damages. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators and, as such vendor, was liable under its warranty against hidden defects.Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the second transaction and was liable under its warranty. Accordingly, the courts a quo rendered judgment in favor of RJL MARTINEZ. Hence, the instant recourse to this Court.In this petition for review, SCHMID seeks reversal on the following grounds:

(i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co., the exporter and RJL Martinez, the importer;(ii) as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid not having personally assumed any such warranty.(iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied warranty against hidden defects in the sale of these twelve (12) generators because these were sold under their trade name "Nagata"; and(iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's unsubstantiated claim of PI 10.33 operational losses a day nor for exemplary damages, attorney's fees and costs. [Petition, p. 6.]

1. As may be expected, the basic issue confronting this Court is whether the second transaction between the parties was a sale or an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a sale.At the outset, it must be understood that a contract is what the law defines it to be, considering its essential elements, and not what it is caged by the contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]The Civil Code defines a contract of sale, thus:

ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised [Commissioner of Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA 779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "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." [Ibid.]On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in this manner:

... A foreign firm which does business through the middlemen acting in their own names, such asindentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines [Part I, Rule I, Section 1, par. g (1).]

Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get an Idea of what an indentor is, a look at the definition of those in his class may prove helpful.

A broker is generally defined 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; he is strictly a middleman and for some purpose the agent of both parties. (1 9 Cyc 186; Henderson vs. The State, 50 Ind., 234; Black's Law Dictionary.) A broker is one whose occupation it is to bring parties together to bargain, or to bargain for them, in matters of trade, commerce or navigation. Mechem on Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in his work on Agency, defines a broker as an agent employed to make bargains and contracts between other persons, in matters of trade, commerce or navigation, for compensation commonly called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274, 279-80 (1916).]A commission merchant is one engaged in the purchase or sale for another of personal property which, for this purpose, is placed in his possession and at his disposal. He maintains a relation not only with his principal and the purchasers or vendors, but also with the property which is subject matter of the transaction. [Pacific Commercial Co. v. Yatco, 68 Phil. 398, 401 (1939).]

Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are merely intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction.Webster defines an indent as "a purchase order for goods especially when sent from a foreign country." [Webster's Ninth New Collegiate Dictionary 612 (1986).] It would appear that there are three parties to an indent transaction, namely, the buyer, the indentor, and the supplier who is usually a non-resident manufacturer residing in the country where the goods are to be bought [Commissioner of Internal Revenue v. Cadwallader Pacific Company, G.R. No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor may therefore be best described as one who, for compensation, acts as a middleman in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser.Coming now to the case at bar, the admissions of the parties and the facts appearing on record more than suffice to warrant the conclusion that SCHMID was not a vendor, but was merely an indentor, in the second transaction.In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on Appeal, p. 6.] In the same vein, it admitted in its demand letter previously sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased through your company (SCHMID), by indent order and three (3) by direct purchase." [Exhibit "D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators, and that the latter company itself invoiced the sale [Exhibit "B"], and shipped the generators directly to the former. The only participation of SCHMID was to act as an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which the company received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".]The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own stock (which it had itself imported from NAGATA CO.), issued its own invoice, and collected payment directly from the purchaser.These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the following grounds:First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the conclusion that NAGATA CO., and not SCHMID, was the real seller in the case of the twelve (12) generators in that:

(i) the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale (impliedly, as between the signatories thereto—i.e., RJL MARTINEZ and SCHMID);(ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of payment requested by SCHMID (implying that SCHMID, as seller, merely chose to waive direct payment, stipulating delivery of payment instead to NAGATA CO. as supplier);

Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its awareness that it was the vendor and acknowledgment of its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ complained to SCHMID that the generators were defective, SCHMID immediately asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong. SCHMID likewise informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID made available its technicians, its shop and its testing equipment. After the generators were found to have factory defects, SCHMID facilitated the shipment of three (3) generators to Japan and, after their repair, back to the Philippines [Memorandum for the Respondent, p. 8.]Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the generators indicated that the latter was "within the purview of a seller." [Ibid.]Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not licensed to do business in the Philippines, then the officers and employees of the former may be penalized for violation of the old Corporation Law which provided:

Sec. 69 ... Any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine 'of not less than two hundred pesos nor more than one thousand pesos or both such imprisonment and fine, in the discretion of the Court.

The facts do not bear out these contentions.The first contention disregards the circumstances surrounding the second transaction as distinguished from those surrounding the first transaction, as noted above.Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when a client complains about the goods it has bought upon the indentor's mediation. In its desire to promote the product of the seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to act considerably. towards his clients.Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the defective generators.The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective generators, with the former supplying the replacement parts free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the generators of the second transaction or was acting "within the purview of a seller."Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and employees relative to the transactions in the instant case. What the law seeks to prevent, through said provision, is the circumvention by foreign corporations of licensing requirements through the device of employing local representatives. An indentor, acting in his own name, is not, however, covered by the above-quoted provision. In fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such that when a foreign corporation does business through such indentor, the foreign corporation is not deemed doing business in the Philippines.In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil Code [Art. 1561, et seq.]2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that twelve (12) generators subject of the second transaction are free from any hidden defects. In other words, SCHMID may be held answerable for some other contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore, he may expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil Code.)The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to warrant that the twelve (12) generators are free of any hidden defects.Again, we consider the facts.The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the things sold. There being no allegation nor any proof that the Quotation does not express the true intent and agreement of the contracting parties, extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.]The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department of RJL MARTINEZ, to support the finding that SCHMID did warrant the twelve (12) generators against defects.Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose the nature or terms and conditions of the warranty allegedly given by SC Was it a warranty that the generators would be fit for the fishing business of the buyer? Was it a warranty that the generators to be delivered would meet the

specifications indicated in the Quotation? Considering the different kinds of warranties that may be contracted, unless the nature or terms and conditions of the warranty are known, it would not be possible to determine whether there has been a breach thereof.Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals that they merely constituted an expression of opinion which cannot by any means be construed as a warranty [See Art. 1546, Civil Code.]We quote from Balagtas' testimony:

Atty. CATRAL:Q Did you not say at the start of your cross examination, Mr. Balagtas, that the only participation you had in the acquisition of those twelve (12) units [of] generators was your having issued a purchase order to your own company for the purchase of the units?ATTY. AQUINO:Misleading, your Honor.Atty. CATRAL:I am asking the witness.COURT:He has the right to ask that question because he is on cross. Moreover, if I remember, he mentioned something like that. Witness may answer.A Yes, sir. Before I submitted that, we negotiated with Schmid and Oberly the beat generators they can recommend because we are looking for generators. The representative of Schmid and Oberly said that Nagata is very good. That is why I recommended that to the management. [t.s.n., October 14, 1977, pp. 23-25.]

At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially that it was in the receipts covering the sale. (At this point, it may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO. and nowhere is it stated therein that SCHMID warranted the generators against defects.) When confronted with a copy of the invoice issued by NAGATA CO., he changed his assertion and claimed that what he meant was that the date of the commencement of the period of SCHMID's warranty would be based on the date of the invoice. On further examination, he again changed his mind and asserted that the warranty was given verbally [TSN, October 14, 1977, pp. 19-22.] But then again, as stated earlier, the witness failed to disclose the nature or terms and conditions of the warranty allegedly given by SCHMID.On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the company does not warrant goods bought on indent and that the company warrants only the goods bought directly from it, like the three generators earlier bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp. 63-64.] It must be recalled that SCHMID readily replaced the three generators from its own stock. In the face of these conflicting testimonies, this Court is of the view that RJL has failed to prove that SCHMID had given a warranty on the twelve (12) generators subject of the second transaction. Even assuming that a warranty was given, there is no way to determine whether there has been a breach thereof, considering that its nature or terms and conditions have not been shown.3. In view of the foregoing, it becomes unnecessary to pass upon the other issues.WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the appealed Decision and Resolution of the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. No costs.SO ORDERED.

[G.R. No. 143978. December 3, 2002]MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA, petitioners, vs. EDUARDO R. GULLAS

and NORMA S. GULLAS,respondents.D E C I S I O N

YNARES-SANTIAGO, J.:This is a petition for review seeking to set aside the decision[1] of the Court of Appeals[2] in CA-G.R. CV No.

46539, which reversed and set aside the decision[3] of the Regional Trial Court of Cebu City, Branch 22 in Civil Case No. CEB-12740.

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.

It was the first time that the buyers came to know that private respondent Eduardo Gullas was the owner of the property. On July 3, 1992, private respondents agreed to sell the property to the Sisters of Mary, and subsequently executed a special power of attorney[9] 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.

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.[11] Thereafter, 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 complaint[13] 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;

http://sc.judiciary.gov.ph/jurisprudence/2002/dec2002/143978.htm#_ftn15















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; and2) 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]

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.

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. 150678. February 18, 2005]BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs. COURT OF APPEALS, PACITA G.

BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR, respondents.D E C I S I O N

CALLEJO, SR., J.:This is a petition for review of the Decision[1] of the Court of Appeals (CA) affirming in toto the Decision[2] of the

Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 15664 which awarded to the respondents their 5% broker’s commission.

The facts are as follows:Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the Medrano family. In

1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a buyer of a foreclosed asset of the bank, [3] a 17-hectare mango plantation priced at P2,200,000.00, located in Ibaan, Batangas.[4]

Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs. Pacita G. Borbon, a licensed real estate broker. The two met through a previous transaction where Lee responded to an ad in a newspaper put up by Borbon for an 8-hectare property in Lubo, Batangas, planted with atis trees. Lee expressed that he preferred a land with mango trees instead. Borbon promised to get back to him as soon as she would be able to find a property according to his specifications.

Borbon relayed to her business associates and friends that she had a ready buyer for a mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation which was up for sale. She told Flor to confer with Medrano and to give them a written authority to negotiate the sale of the property.[5] Thus, on September 3, 1986, Medrano issued the Letter of Authority, as follows:

Mrs. Pacita G. Borbon & Miss Josefina E. AntonioCampos Rueda Building

Tindalo, Makati, M.M.Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig23 Mabini StreetQuezon City, M.M.

Dear Mesdames:This letter will serve as your authority* to negotiate with any prospective buyer for the sale of a certain real estate property more specifically a mango plantation which is described more particularly therein below:

Location : Barrio Tulay-na-Patpat, Ibaan, Batangas

Lot Area : 17 hectares (more or less) per attached Appendix “A”

Improvements : 720 all fruit-bearing mango trees (carabao variety) and other trees

Price : P 2,200,000.00For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay you a commission of 5% of the total purchase price to be agreed upon by the buyer and seller.

Very truly yours,(Sgd.)

B.R. MedranoOwner

* Subject to price sale.[6]

The respondents arranged for an ocular inspection of the property together with Lee which never materialized – the first time was due to inclement weather; the next time, no car was available for the tripping to Batangas.[7] Lee then called up Borbon and told her that he was on his way to Lipa City to inspect another property, and might as well also take a look at the property Borbon was offering. Since Lee was in a hurry, the respondents could no longer accompany him at the time. Thus, he asked for the exact address of the property and the directions on how to reach the lot in Ibaan from Lipa City. Thereupon, Lee was instructed to get in touch with Medrano’s daughter and also an officer of the bank, Mrs. Teresa Ganzon, regarding the property.[8]

Two days after the visit, respondent Josefina Antonio called Lee to inquire about the result of his ocular inspection. Lee told her that the mango trees “looked sick” so he was bringing an agriculturist to the property. Three weeks thereafter, Antonio called Lee again to make a follow-up of the latter’s visit to Ibaan. Lee informed her that he already purchased the property and had made a down payment of P1,000,000.00. The remaining balance of P1,200,000.00 was to be paid upon the approval of the incorporation papers of the corporation he was organizing by the Securities and Exchange Commission. According to Antonio, Lee asked her if they had already received their commission. She answered “no,” and Lee expressed surprise over this.[9]

A Deed of Sale was eventually executed on November 6, 1986 between the bank, represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by Dominador Lee

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(as Vendee), for the purchase price of P1,200,000.00.[10] Since the sale of the property was consummated, the respondents asked from the petitioners their commission, or 5% of the purchase price. The petitioners refused to pay and offered a measly sum of P5,000.00 each.[11] Hence, the respondents were constrained to file an action against herein petitioners.

The petitioners alleged that Medrano issued the letter of authority in favor of all the respondents, upon the representation of Flor that she had a prospective buyer. Flor was the only person known to Medrano, and he had never met Borbon and Antonio. Medrano had asked that the name of their prospective buyer be immediately registered so as to avoid confusion later on, but Flor failed to do so. Furthermore, the other officers of the bank had never met nor dealt with the respondents in connection with the sale of the property. Ganzon also asked Lee if he had an agent and the latter replied that he had none. The petitioners also denied that the purchase price of the property was P2,200,000.00 and alleged that the property only cost P1,200,000.00. The petitioners further contended that the letter of authority signed by Medrano was not binding or enforceable against the bank because the latter had a personality separate and distinct from that of Medrano. Medrano, on the other hand, denied liability, considering that he was not the registered owner of the property, but the bank. The petitioners, likewise, filed a counterclaim as they were constrained to hire the services of counsel and suffered damages.[12]

After the case was submitted for decision, Medrano died, but no substitution of party was made at this time.[13]

The trial court resolved the case based on the following common issues:1. Whether or not the letter of authority is binding and enforceable against the defendant Bank only or

both defendants; and2. Whether or not the plaintiffs are entitled to any commission for the sale of the subject property.[14]

On September 21, 1994, the trial court rendered a Decision in favor of the respondents. The petitioners were ordered to pay, jointly and severally, the 5% broker’s commission to herein respondents. The trial court found that the letter of authority was valid and binding as against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in behalf of the bank, and as owner of the property, promising to pay the respondents a 5% commission for their efforts in looking for a purchaser of the property. He is, therefore, estopped from denying liability on the basis of the letter of authority he issued in favor of the respondents. The trial court further stated that the sale of the property could not have been possible without the representation and intervention of the respondents. As such, they are entitled to the broker’s commission of 5% of the selling price of P1,200,000.00 as evidenced by the deed of sale.[15] The fallo of the decision reads as follows:WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants, for the latter, jointly and severally:1. To pay plaintiffs the sum of P60,000.00 representing their five percent (5%) commission of the purchase price of the property sold based on Exh. “D” or “9” plus legal interest from date of filing of the herein complaint until fully paid;2. To pay plaintiffs the sum of P20,000.00 as and for attorney’s fees;3. To pay the plaintiffs the sum of P10,000.00 as litigation expenses;4. To pay the costs of the proceedings.[16]

Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice of appeal.[17]

On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for Reconsideration[18] praying that the late Bienvenido Medrano be substituted by his heirs. They further prayed that the trial court’s decision as far as Medrano was concerned be set aside and dismissed considering his demise. The trial court denied the motion for reconsideration.[19]Hence, the heirs of Medrano also filed their notice of appeal.[20]

On appeal, the petitioners reiterated their stance that the letter of authority was not binding and enforceable, as the same was signed by Medrano, who was not actually the owner of the property. They refused to give the respondents any commission, since the latter did not perform any act to consummate the sale. The petitioners pointed out that the respondents (1) did not verify the real owner of the property; (2) never saw the property in question; (3) never got in touch with the registered owner of the property; and (4) neither did they perform any act of assisting their buyer in having the property inspected and verified. [21] The petitioners further raised the trial court’s error in not dismissing the case against Bienvenido Medrano considering his death.

On May 3, 2001, the CA promulgated the assailed decision affirming the finding of the trial court that the letter of authority was valid and binding. Applying the principle of agency, the appellate court ruled that Bienvenido Medrano constituted the respondents as his agents, granting them authority to represent and act on behalf of the former in the sale of the 17-hectare mango plantation. The CA also ruled that the trial court did not err in finding that the respondents were the procuring cause of the sale. Suffice it to state that were it not for the respondents, Lee would not have known that there was a mango orchard offered for sale.

The CA further ruled that an action for a sum of money continues even after the death of the defendant, and shall remain as a money claim against the estate of the deceased.

Undaunted by the CA’s unfavorable decision, the petitioners filed the instant petition, raising eight (8) assignments of errors, to wit:













I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATE RESPONDENTS TO BE THE PROCURING CAUSE OF THE SALE;

II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE LETTER-AUTHORITY OF PETITIONER MR. MEDRANO;

III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLY RECOGNIZED THE EXTENT OF THE PRIVATE RESPONDENTS’ OBLIGATION AND AUTHORITY CONTAINED IN MEDRANO’S LETTER-AUTHORITY AND YET ERRONEOUSLY GRANTED THE PRIVATE-RESPONDENTS’ DEMAND, NOTWITHSTANDING THE NON-PERFORMANCE OF THEIR OBLIGATION THEREUNDER;

IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD FAITH UPON THE PETITIONERS;V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF PROOF UPON THE

DEFENDANTS-PETITIONERS;VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND

INSTEAD RELIED ON INFERENCE;VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND

MERELY RELIED ON SPECULATION AND SURMISE;VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS PRESENTED BEFORE IT, AND

CONSEQUENTLY FAILED TO CONSIDER REASONABLY THE TWO (2) BASIC ARGUMENTS OF THE PETITIONERS.[22]

The petition is denied.The records disclose that respondent Pacita Borbon is a licensed real estate broker [23] and respondents

Josefina Antonio and Estela A. Flor are her associates.[24] A broker is generally defined 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; he is strictly a middleman and for some purposes the agent of both parties. A broker is one whose occupation is to bring parties together, in matters of trade, commerce or navigation.[25] For the respondents’ participation in finding a buyer for the petitioners’ property, the petitioners refuse to pay them commission, asserting that they are not the efficient procuring cause of the sale, and that the letter of authority signed by petitioner Medrano is not binding against the petitioners.

“Procuring cause” is meant to be the proximate cause. [26] The term “procuring cause,” in describing a broker’s activity, refers to a cause originating a series of events which, without break in their continuity, result in accomplishment of prime objective of the employment of the broker – producing a purchaser ready, willing and able to buy real estate on the owner’s terms.[27] A broker will be regarded as the “procuring cause” of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun.[28] The broker must be the efficient agent or the procuring cause of the sale. The means employed by him and his efforts must result in the sale. He must find the purchaser, and the sale must proceed from his efforts acting as broker.[29]

Indeed, the evidence on record shows that the respondents were instrumental in the sale of the property to Lee. Without their intervention, no sale could have been consummated. They were the ones who set the sale of the subject land in motion.[30] Upon being informed by Flor that Medrano was selling his mango orchard, Borbon lost no time in informing Lee that they had found a property according to his specifications. An ocular inspection of the property together with Lee was immediately planned; unfortunately, it never pushed through for reasons beyond the respondents’ control. Since Lee was in a hurry to see the property, he asked the respondents the exact address and the directions on how to reach Ibaan, Batangas. The respondents thereupon instructed him to look for Teresa Ganzon, an officer of the Ibaan Rural Bank and the person to talk to regarding the property. While the letter-authority issued in favor of the respondents was non-exclusive, no evidence was adduced to show that there were other persons, aside from the respondents, who informed Lee about the property for sale. Ganzon testified that no advertisement was made announcing the sale of the lot, nor did she give any authority to other brokers/agents to sell the subject property.[31] The fact that it was Lee who personally called Borbon and asked for directions prove that it was only through the respondents that Lee learned about the property for sale.[32] Significantly, too, Ms. Teresa Ganzon testified that there were no other persons other than the respondents who inquired from her about the sale of the property to Lee.[33] It can thus be readily inferred that the respondents were the only ones who knew about the property for sale and were responsible in leading a buyer to its consummation. All these circumstances lead us to the inescapable conclusion that the respondents were the procuring cause of the sale. When there is a close, proximate and causal connection between the broker’s efforts and the principal’s sale of his property, the broker is entitled to a commission.[34]

The petitioners insist that the respondents are not entitled to any commission since they did not actually perform any acts of “negotiation” as required in the letter-authority. They refuse to pay the commission since according to them, the respondents’ participation in the transaction was not apparent, if not nil. The respondents did not even look at the property themselves; did not introduce the buyer to the seller; did not hold any conferences














with the buyer, nor take part in concluding the sale. For the non-compliance of this obligation “to negotiate,” the petitioners argue, the respondents are not entitled to any commission.

We find the argument specious. The letter of authority must be read as a whole and not in its truncated parts. Certainly, it was not the intention of Medrano to expect the respondents to do just that (to negotiate) when he issued the letter of authority. The clear intention is to reward the respondents for procuring a buyer for the property. Before negotiating a sale, a broker must first and foremost bring in a prospective buyer. It has been held that a broker earns his pay merely by bringing the buyer and the seller together,even if no sale is eventually made.[35] The essential feature of a broker’s conventional employment is merely to procure a purchaser for a property ready, able, and willing to buy at the price and on the terms mutually agreed upon by the owner and the purchaser. And it is not a prerequisite to the right to compensation that the broker conduct the negotiations between the parties after they have been brought into contact with each other through his efforts.[36] The case of Macondray v. Sellner[37] is quite instructive:The business of a real estate broker or agent, generally, is only to find a purchaser, and the settled rule as stated by the courts is that, in the absence of an express contract between the broker and his principal, the implication generally is that the broker becomes entitled to the usual commissions whenever he brings to his principal a party who is able and willing to take the property and enter into a valid contract upon the terms then named by the principal, although the particulars may be arranged and the matter negotiated and completed between the principal and the purchaser directly.

Notably, there are cases where the right of the brokers to recover commissions were upheld where they actually took no part in the negotiations, never saw the customer, and even some in which they did nothing except advertise the property, as long as it can be shown that they were the efficient cause of the sale.[38]

In the case at bar, the role of the respondents in the transaction is undisputed. Whether or not they participated in the negotiations of the sale is of no moment. Armed with an authority to procure a purchaser and with a license to act as broker, we see no reason why the respondents can not recover compensation for their efforts when, in fact, they are the procuring cause of the sale.[39]

Anent the validity of the letter-authority signed by Medrano, we find no reversible error with the findings of the appellate and trial courts that the petitioners are liable thereunder. Such factual findings deserve this Court’s respect in the absence of any cogent reason to reverse the same. Medrano’s obligation to pay the respondents commission for their labor and effort in finding a purchaser or a buyer for the described parcel of land is unquestionable. In the absence of fraud, irregularity or illegality in its execution, such letter-authority serves as a contract, and is considered as the law between the parties. As such, Medrano can not renege on the promise to pay commission on the flimsy excuse that he is not the registered owner of the property. The evidence shows that he comported himself to be the owner of the property. His testimony is quite telling:

Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon, Josefina Antonio, and Stella (sic) F. Flor?

WITNESSA I know only Stella (sic) F. Flor. The rest, I do not know them. I have never met them, up to now.Q How about the co-defendant Ibaan Rural Bank?A I know co-defendant Ibaan Rural Bank, having been the founder and at one time or another, I have

served several capacities from President to Chairman of the Board.Q Are you familiar with a certain parcel of land located at Barrio Tulay na Patpat, Ibaan, Batangas, with

an area of 17 hectares?A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan Rural Bank.Q And what, if any, [did] the bank do to your property after you have mortgaged the same to it?A After many demands for payment or redemption of my mortgage, which I failed to do so, the Ibaan

Rural Bank sold it.Q After it was foreclosed?A Yes, Sir.Q Do you recall having made any transaction with plaintiff Stella (sic) F. Flor regarding the property?A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to my office once and

requested for a letter of authority which I issued [in] September 1986, I think, and I gave her the letter of authority.[40]

As to the liability of the bank, we quote with favor the disquisition of the respondent court, to wit:Further, the appellants cannot use the flimsy excuse (only to evade liability) that “(w)hat Mr. Medrano represented to the plaintiffs-appellees, without the knowledge or consent of the defendant Bank, did not bind the Bank. Res inter alios acta alteri nocere non debet.” (page 8 of the Appellant’s Brief; page 35 of the Rollo). While it may be true that technically the Ibaan Rural Bank did not authorize Bienvenido R. Medrano to sell the land under litigation or that the latter was no longer an officer of the said bank, still, these circumstances do not convince this Court fully well to absolve the bank. Note that, as former President of the said bank, it is improbable that he (Bienvenido R. Medrano) was completely oblivious of the developments therein. By reason of his past association with the officers of the said







bank (who are, in fact, his relatives), it is unbelievable that Bienvenido R. Medrano could simply have issued the said letter of authority without the knowledge of the said officers. Granting por aguendo that Bienvenido R. Medrano did not act on behalf of the bank, however, We doubt that he had no financial and/or material interest in the said sale – a fact that could not possibly have eluded Our attention.[41]

From all the foregoing, there can be no other conclusion than the respondents are indeed the procuring cause of the sale. If not for the respondents, Lee would not have known about the mango plantation being sold by the petitioners. The sale was consummated. The bank had profited from such transaction. It would certainly be iniquitous if the respondents would not be rewarded their commission pursuant to the letter of authority.

WHEREFORE, the petition is DENIED due course. The Decision of the Court of Appeals is AFFIRMED.SO ORDERED.


G.R. No. 144805 June 8, 2006EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs.ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

D E C I S I O NCALLEJO, SR., J.:On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of EC’s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez.Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of sale, together with the necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land, to wit:

May 22, 1987Mr. L.G. MarquezL.G. Marquez, Inc.334 Makati Stock Exchange Bldg.6767 Ayala AvenueMakati, Metro ManilaPhilippines

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Dear Sir:Re: Land of Eternit CorporationI would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you.The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact, production has started again last week, and (sic) to recognize the participation in the Corporation.We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we would consult you again.

x x xYours sincerely,(Sgd.)C.F. DELSAUXcc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages they had suffered on account of the aborted sale. EC, however, rejected their demand.The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint.12The fallo of the decision reads:WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants.The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to consummate.In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved substantially all of the corporation’s assets, it would necessarily need the authority from the stockholders.On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from EC’s board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties.







In the instant petition for review, petitioners aver thatI

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

IIITHE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent EC’s counter-offer, resulting in a perfected contract of sale.Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove discussed, need not be in writing.2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from 1986 to 1987;3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-offer;5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties;6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL";7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’ offer was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’ offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:Dear Sir,Re: Land of Eternit CorporationI would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you.The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the Corporation.We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we would consult you again.In the meantime, I remainYours sincerely,C.F. DELSAUX19




Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties.By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the evidence on record, and should be affirmed in toto.Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.The petition has no merit.Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues, namely:(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law.It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides: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 to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights,obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general







principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations prescribed by law and the Constitution, as follows:SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and capacity:

x x x x7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution.The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from the board of directors.27 Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter.32 Consent of both principal and agent is necessary to create an agency. The principal must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and the intention of the parties must find expression either in words or conduct between

them.33

An agency may be expressed or implied from the act 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. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances.34 Agency may be oral unless the law requires a specific form.35 However, to create or convey real rights over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell the parcels of land.Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance.While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly


















authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being treated as one corporation.43

It bears stressing that 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.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing with an assumed agent are bound at their peril, and 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 prove it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agent’s authority or knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his position to his detriment.48 An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.49 Such proof is lacking in this case. In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC.Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification.IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.SO ORDERED.








SPOUSES REX AND CONCEPCION AGGABAO, Petitioners, -versus- DIONISIO Z. PARULAN, JR.and MA. ELENA PARULAN,

Respondents.

G.R. No. 165803 Present: CARPIO MORALES, ChairpersonBERSAMIN,DEL CASTILLO,*

VILLARAMA, JR., andSERENO, JJ. Promulgated:

September 1, 2010

x-----------------------------------------------------------------------------------------xD E C I S I O N

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.

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. 63376[2] and TCT No. 63377[3] 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 P20,000.00 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 P130,000.00 on February 4, 1991; (b) they would pay the balance of the bank loan of the respondents amounting to P650,000.00 on or before February 15, 1991; and (c) they would make the final payment of P700,000.00 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.[7] They noticed that the Banco Filipino loan had been effected through an SPA executed by Dionisio in favor of Ma. Elena.[8] They 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 P500,000.00.[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 P130,000.00 as additional down payment on February 4, 1991; and P650,000.00 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 P700,000.00 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 sellboth 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 P800,000.00” in exchange for the duplicate owner’s copy of TCT No. 63376, because Atty. Parulan represented the current value of the property to be P1.5 million. As a counter-offer, however, they tendered P250,000.00, 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 entitled Dionisio 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:

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 P50,000.00 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 Appeals[26] 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? 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 256[29] of the Family Code, the provisions of the Family Code may apply

retroactively provided no vested rights are impaired. InTumlos 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.

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 agent 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 witha 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.[36] Thus, 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.

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:[38]

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 P700,000.00 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 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, even assuming 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.D E C I S I O N

PARDO, J.:The Case

This is an appeal via certiorari[1] from the decision of the Court of Appeals[2] affirming the decision[3] of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarrain the payment of the claims of Dominion’s clients.

The FactsThe facts, as found by the Court of Appeals, are as follows:

“On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendant’s clients.“In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit.“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.“In due time, third-party defendant Austria filed his answer.“Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 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.“On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite 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 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:

“ORDER“When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. 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 notice.“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 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.“The plaintiff and his counsel are notified of this order in open court.“SO ORDERED.“Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992.“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 opposed by plaintiff.“On August 25, 1992 the trial court denied defendant’s motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious defense.“On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit 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 November 18, 1992, the court a quo rendered judgment as follows:“WHEREFORE, premises considered, judgment is hereby rendered ordering:

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“1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendant’s clients;“2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;“3. The dismissal of the counter-claim of the defendant and the third-party complaint;“4. The defendant to pay the costs of suit.”[4]

On December 14, 1992, Dominion appealed the decision to the Court of Appeals.[5]

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 the motion.[8]

Hence, this appeal.[9]

The IssuesThe issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and

(2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured.

The Court's RulingThe 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]

A perusal of the Special Power of Attorney[16] would show that petitioner (represented by third-party defendant Austria) 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:“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, 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:

“1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.

“2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf.

“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 COMPANY, INC.,[18] may hereafter become due, owing payable or transferable to said Corporation by reason of or in connection with the above-mentioned appointment.

“4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said Corporation.”[19] [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]

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 attorney.

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

“(1) To make such payments as are not usually considered as acts of administration;“xxx xxx xxx

“(15) Any other act of strict dominion.”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[23] dated February 18, 1987 which enumerates the scope of respondent Guevarra’s duties and responsibilities as agency manager for San Fernando, Pampanga, as follows:

“xxx xxx xxx





















“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.“2. Full authority is given you on TPPI claims settlement.

“xxx xxx xxx”[24]

In settling the claims mentioned above, respondent Guevarra’s authority is further limited by the written standard authority to pay,[25] which states that the payment shall come from respondent Guevarra’s revolving fund or collection. The authority to pay is worded as follows:“This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________ (P ) representing the payment on the _________________ claim of assured _______________ under Policy No. ______ in that accident of ___________ at ____________.“It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after effecting payment of the claim.“(sgd.) FERNANDO C. AUSTRIARegional Manager”[26]

[Emphasis supplied]The instruction of petitioner as the principal could not be any clearer. 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.Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the

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:“The principal is not liable for the expenses incurred by the agent in the following cases:“(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the benefits derived from the contract;

“xxx xxx xxx”However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to

recover may still be justified under the general law on obligations and contracts.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.”

In this case, when the risk insured against occurred, petitioner’s liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner.

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.

However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount.

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 Guevarra.

The FalloIN 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 claims of petitioner’s clients.

No costs in this instance.SO ORDERED.







[G.R. No. 102737. August 21, 1996]FRANCISCO A. VELOSO, petitioner, vs. COURT OF APPEALS, AGLALOMA B. ESCARIO, assisted by her

husband GREGORIO L. ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF MANILA, respondents.

D E C I S I O NTORRES, JR., J.:

This petition for review assails the decision of the Court of Appeals, dated July 29, 1991, the dispositive portion of which reads:“WHEREFORE, the decision appealed from is hereby AFFIRMED IN TOTO. Costs against appellant.”[1]

The following are the antecedent facts:Petitioner Francisco Veloso was the owner of a parcel of land situated in the district of Tondo, Manila, with an area of one hundred seventy seven (177) square meters and covered by Transfer Certificate of Title No. 49138 issued by the Registry of Deeds of Manila.[2] The title was registered in the name of Francisco A. Veloso, single,[3] on October 4, 1957.[4] The said title was subsequently canceled and a new one, Transfer Certificate of Title No. 180685, was issued in the name of Aglaloma B. Escario, married to Gregorio L. Escario, on May 24, 1988.[5]

On August 24, 1988, petitioner Veloso filed an action for annulment of documents, reconveyance of property with damages and preliminary injunction and/or restraining order. The complaint, docketed as Civil Case No. 88-45926, was raffled to the Regional Trial Court, Branch 45, Manila. Petitioner alleged therein that he was the absolute owner of the subject property and he never authorized anybody, not even his wife, to sell it. He alleged that he was in possession of the title but when his wife, Irma, left for abroad, he found out that his copy was missing. He then verified with the Registry of Deeds of Manila and there he discovered that his title was already canceled in favor of defendant Aglaloma Escario. The transfer of property was supported by a General Power of Attorney[6] dated November 29, 1985 and Deed of Absolute Sale, dated November 2, 1987, executed by Irma Veloso, wife of the petitioner and appearing as his attorney-in-fact, and defendant Aglaloma Escario.[7] Petitioner Veloso, however, denied having executed the power of attorney and alleged that his signature was falsified. He also denied having seen or even known Rosemarie Reyes and Imelda Santos, the supposed witnesses in the execution of the power of attorney. He vehemently denied having met or transacted with the defendant. Thus, he contended that the sale of the property, and the subsequent transfer thereof, were null and void. Petitioner Veloso, therefore, prayed that a temporary restraining order be issued to prevent the transfer of the subject property; that the General Power of Attorney, the Deed of Absolute Sale and the Transfer Certificate of Title No. 180685 be annulled; and the subject property be reconveyed to him.

Defendant Aglaloma Escario in her answer alleged that she was a buyer in good faith and denied any knowledge of the alleged irregularity. She allegedly relied on the general power of attorney of Irma Veloso which was sufficient in form and substance and was duly notarized. She contended that plaintiff (herein petitioner), had no cause of action against her. In seeking for the declaration of nullity of the documents, the real party in interest was Irma Veloso, the wife of the plaintiff. She should have been impleaded in the case. In fact, Plaintiff’s cause of action should have been against his wife, Irma. Consequently, defendant Escario prayed for the dismissal of the complaint and the payment to her of damages.[8]

Pre-trial was conducted. The sole issue to be resolved by the trial court was whether or not there was a valid sale of the subject property.[9]

During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he acquired the subject property from the Philippine Building Corporation, as evidenced by a Deed of Sale dated October 1, 1957. [10] He married Irma Lazatin on January 20, 1962.[11] Hence, the property did not belong to their conjugal partnership. Plaintiff further asserted that he did not sign the power of attorney and as proof that his signature was falsified, he presented Allied Bank Checks Nos. 16634640, 16634641 and 16634643, which allegedly bore his genuine signature.

Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the execution of the general power of attorney. He attested that he did not sign thereon, and the same was never entered in his Notarial Register on November 29, 1985.

In the decision of the trial court dated March 9, 1990,[12] defendant Aglaloma Escaro was adjudged the lawful owner of the property as she was deemed an innocent purchaser for value. The assailed general power of attorney was held to be valid and sufficient for the purpose. The trial court ruled that there was no need for a special power of attorney when the special power was already mentioned in the general one. It also declared that plaintiff failed to substantiate his allegation of fraud. The court also stressed that plaintiff was not entirely blameless for although he admitted to be the only person who had access to the title and other important documents, his wife was still able to possess the copy. Citing Section 55 of Act 496, the court held that Irma’s possession and production of the certificate of title was deemed a conclusive authority from the plaintiff to the Register of Deeds to enter a new certificate. Then applying the principle of equitable estoppel, plaintiff was held to bear the loss for it was he who made the wrong possible. Thus:“WHEREFORE, the Court finds for the defendants and against plaintiff-a. declaring that there was a valid sale of the subject property in favor of the defendant;

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b. denying all other claims of the parties for want of legal and factual basis.Without pronouncement as to costs.SO ORDERED.”

Not satisfied with the decision, petitioner Veloso filed his appeal with the Court of Appeals. The respondent court affirmed in toto the findings of the trial court.

Hence, this petition for review before us.This petition for review was initially dismissed for failure to submit an affidavit of service of a copy of the

petition on the counsel for private respondent.[13] A motion for reconsideration of the resolution was filed but it was denied in a resolution dated March 30, 1992.[14] A second motion for reconsideration was filed and in a resolution dated Aug. 3, 1992, the motion was granted and the petition for review was reinstated.[15]

A supplemental petition was filed on October 9, 1992 with the following assignment of errors:I

The Court of Appeals committed a grave error in not finding that the forgery of the power of attorney (Exh. “C”) had been adequately proven, despite the preponderant evidence, and in doing so, it has so far departed from the applicable provisions of law and the decisions of this Honorable Court, as to warrant the grant of this petition for review on certiorari.

IIThere are principles of justice and equity that warrant a review of the decision.

IIIThe Court of Appeals erred in affirming the decision of the trial court which misapplied the principle of equitable estoppel since the petitioner did not fail in his duty of observing due diligence in the safekeeping of the title to the property.

We find petitioner’s contentions not meritorious.An examination of the records showed that the assailed power of attorney was valid and regular on its face. It

was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a general power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit:“2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or other forms of real property, more specifically TCT No. 49138, upon such terms and conditions and under such covenants as my said attorney shall deem fit and proper.”[16]

Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required.

The general power of attorney was accepted by the Register of Deeds when the title to the subject property was canceled and transferred in the name of private respondent. In LRC Consulta No. 123, Register of Deeds of Albay, Nov. 10, 1956, it stated that:“Whether the instrument be denominated as “general power of attorney” or “special power of attorney,” what matters is the extent of the power or powers contemplated upon the agent or attorney in fact. If the power is couched in general terms, then such power cannot go beyond acts of administration. However, where the power to sell is specific, it not being merely implied, much less couched in general terms, there can not be any doubt that the attorney in fact may execute a valid sale. An instrument may be captioned as “special power of attorney” but if the powers granted are couched in general terms without mentioning any specific power to sell or mortgage or to do other specific acts of strict dominion, then in that case only acts of administration may be deemed conferred.”

Petitioner contends that his signature on the power of attorney was falsified. He also alleges that the same was not duly notarized for as testified by Atty. Tubig himself, he did not sign thereon nor was it ever recorded in his notarial register. To bolster his argument, petitioner had presented checks, marriage certificate and his residence certificate to prove his alleged genuine signature which when compared to the signature in the power of attorney, showed some difference.

We found, however, that the basis presented by the petitioner was inadequate to sustain his allegation of forgery. Mere variance of the signatures cannot be considered as conclusive proof that the same were forged. Forgery cannot be presumed.[17] Petitioner, however, failed to prove his allegation and simply relied on the apparent difference of the signatures. His denial had not established that the signature on the power of attorney was not his.

We agree with the conclusion of the lower court that private respondent was an innocent purchaser for value. Respondent Aglaloma relied on the power of attorney presented by petitioner’s wife, Irma. Being the wife of the owner and having with her the title of the property, there was no reason for the private respondent not to believe in her authority. Moreover, the power of attorney was notarized and as such, carried with it the presumption of its due execution. Thus, having had no inkling on any irregularity and having no participation thereof, private respondent was a buyer in good faith. It has been consistently held that a purchaser in good faith is one who buys property of another, without notice that some other person has a right to, or interest in such property and pays a full






and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other person in the property.[18]

Documents acknowledged before a notary public have the evidentiary weight with respect to their due execution. The questioned power of attorney and deed of sale, were notarized and therefore, presumed to be valid and duly executed. Atty. Tubig denied having notarized the said documents and alleged that his signature had also been falsified. He presented samples of his signature to prove his contention. Forgery should be proved by clear and convincing evidence and whoever alleges it has the burden of proving the same. Just like the petitioner, witness Atty. Tubig merely pointed out that his signature was different from that in the power of attorney and deed of sale. There had never been an accurate examination of the signature, even that of the petitioner. To determine forgery, it was held in Cesar vs. Sandiganbayan[19] (quoting Osborn, The Problem of Proof) that:“The process of identification, therefore, must include the determination of the extent, kind, and significance of this resemblance as well as of the variation. It then becomes necessary to determine whether the variation is due to the operation of a different personality, or is only the expected and inevitable variation found in the genuine writing of the same writer. It is also necessary to decide whether the resemblance is the result of a more or less skillful imitation, or is the habitual and characteristic resemblance which naturally appears in a genuine writing. When these two questions are correctly answered the whole problem of identification is solved.”

Even granting for the sake of argument, that the petitioner’s signature was falsified and consequently, the power of attorney and the deed of sale were null and void, such fact would not revoke the title subsequently issued in favor of private respondent Aglaloma. In the case of Tenio-Obsequio vs. Court of Appeals,[20] it was held, viz.:“The right of an innocent purchaser for value must be respected and protected, even if the seller obtained his title through fraud. The remedy of the person prejudiced is to bring an action for damages against those who caused or employed the fraud, and if the latter are insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund.”

Finally, the trial court did not err in applying equitable estoppel in this case. The principle of equitable estoppel states that where one or two innocent persons must suffer a loss, he who by his conduct made the loss possible must bear it. From the evidence adduced, it should be the petitioner who should bear the loss. As the court a quo found:“Besides, the records of this case disclosed that the plaintiff is not entirely free from blame. He admitted that he is the sole person who has access to TCT No. 49138 and other documents appertaining thereto (TSN, May 23, 1989, pp. 7-12). However, the fact remains that the Certificate of Title, as well as other documents necessary for the transfer of title were in the possession of plaintiff’s wife, Irma L. Veloso, consequently leaving no doubt or any suspicion on the part of the defendant as to her authority. Under Section 55 of Act 496, as amended, Irma’s possession and production of the Certificate of Title to defendant operated as “conclusive authority from the plaintiff to the Register of Deeds to enter a new certificate.”[21]

Considering the foregoing premises, We found no error in the appreciation of facts and application of law by the lower court that will warrant the reversal or modification of the appealed decision.

ACCORDINGLY, the petition for review is hereby DENIED for lack of merit.SO ORDERED.





G.R. No. 105562 September 27, 1993LUZ 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. 22950 1 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 check intended for spouses ALARCON, in the absence of any Special Power of Attorney for that matter, and for negligence with respect to the release of the other five checks.SO ORDERED. 10

In holding for the petitioners, the Insurance Commission made the following findings and conclusions:After taking into consideration the evidences [sic], testimonial and documentary for the complainants and 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 demand, receive, receipt and take delivery of insurance proceeds from respondent Insular Life. A cursory reading of the questioned powers of authority would disclosed [sic] that they do not contain in unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent company insurance proceeds arising from 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. . . .Second: The testimony of the complainants' rebuttal witness, Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her husband, executed a special power of attorney in favor of Captain Rosendo Nuval, authorizing him to claim, receive, receipt and take delivery of any insurance proceeds from Insular Life arising out of the death of their insured/seaman son, is not convincingly refuted.Third: Respondent Insular Life did not observe Section 180 of the Insurance Code, when it issued or released two checks in the amount of P150,000.00 for the three minor children (P50,000.00 each) of complainant, Dina Ayo and another check of P40,000.00 for minor beneficiary Marissa Lontok, daughter of another complainant Lucia Lontok, there being no showing of any court authorization presented or the requisite bond posted.Section 180 is quotes [sic] partly as follows:

. . . 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 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 . . . . 11

Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP No. 22950. The appeal urged the appellate court to reverse the decision because the Insurance Commission (a) had no jurisdiction over the case considering that the claims exceeded P100,000.00, (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, (c) erred in not giving credit to the version of Insular Life that the power of attorney supposed to have been executed in favor of the Alarcons was missing, and (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.On 10 October 1991, the public respondent rendered a decision, 12 the decretal portion of which reads:

WHEREFORE, the decision appealed from is modified by eliminating therefrom the award to Dina Ayo and Lucia Lontok in the amounts of P50,000.00 and P40,000.00, respectively. 13

It found the following facts to have been duly established:It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for brevity), a crewing/manning 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 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 beneficiaries under the policy.Following the tragic demise of their loved ones, complainants-appellees sought to claim death benefits due them and, for this purpose, they approached the President and General Manager of PMSI, Capt. Roberto Nuval. The latter evinced willingness to assist complainants-appellees to recover Overseas Workers Welfare Administration (OWWA) benefits from the POEA and to work for the increase of their PANDIMAN and other benefits arising from the deaths of their husbands/sons. They were thus made to execute, with the exception of the spouses Alarcon, special powers of attorney authorizing Capt. Nuval to, among others, "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 were able to receive their respective death benefits. Unknown to them, however, the PMSI, in its capacity as employer and policyholder of the life insurance of its deceased workers, filed with respondent-appellant formal claims for and in behalf of the beneficiaries, through its President, Capt. Nuval. Among the documents submitted by the latter for the processing of the claims were five special powers of attorney 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 of complainants-appellees. These checks were released to the treasurer of PMSI upon instructions of Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager for Group Administration Department of respondent-appellant. Capt. Nuval, upon receipt of these checks from the treasurer, who happened to be his son-in-law, endorsed and deposited them in his account with the Commercial Bank of Manila, now Boston Bank.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 from Insular Life but the latter denied their claim on the ground that the liability to complainants-appellees was already extinguished upon delivery to and receipt by PMSI of the six (6) checks issued in their names. 14

On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over the case on the 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 causes of action . . . and, like misjoinder of parties, it is not a ground for the dismissal of the action as it does not affect the other reliefs prayed for." 15 It also rejected Insular Life's claim that the Alarcons had submitted a special power of attorney which they (Insular Life) later misplaced.

On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied upon by Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds of the insurance pertaining to the beneficiaries. It stated:

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 signatures therein. The written power is specific enough to define the authority of the agent to collect any 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 reasonable interpretation even by an officer of respondent-appellant unschooled in the law. Had respondent 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. Such authority is not included in the enumeration of Art. 1878 of the New Civil Code. Neither do we perceive collection of insurance claims as an act of strict dominion as to require a special power of attorney. Moreover, respondent-appellant had no reason to doubt Capt. Nuval. Not only was he armed with a seemingly genuine authorization, he also appeared to be the proper person to deal with respondent-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 Capt. Nuval limiting the authority of the latter to claiming specified death benefits cannot prejudice the insurance company which relied on the terms of the powers of attorney which on their face do not disclose such limitation. Under the circumstances, it appearing that complainants-appellees have failed to point to a positive provision of law or stipulation in the policy requiring a specific power of attorney to be presented, respondents-appellant's reliance on the written powers was in order and it cannot be penalized for such an act. 16

Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the requirement in Section 180 of the Insurance Code which provides in part that:

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 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 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.

has been amended by the Family Code 17 which grants the father and mother joint legal guardianship over the property of their unemancipated common child without the necessity of a court appointment; however, when the market value of the property or the annual income of the child exceeds P50,000.00, the parent concerned shall be required to put up a bond in such amount as the court may determine.

Hence, this petition for review on certiorari which we gave due course after the private respondent had filed the required comment thereon and the petitioners their reply to the comment.We rule for the petitioners.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 uniformly granted to Capt. Rosendo Nuval the following powers:

To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of money due me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida, Casablanca, Morocco on the evening of February 17, 1986; andTo 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 acceptable to my said attorney.

We agree with the Insurance Commission that the special powers of attorney "do not contain in unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent company insurance proceeds arising from 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:

[t]here is nothing in the law which mandates a specific or special power of attorney to be executed to collect insurance proceeds. Such authority is not included in the enumeration of art. 1878 of the New Civil Code. Neither do we perceive collection of insurance claims as an act of strict dominion as to require a special power of attorney.

If this be so, then they could not have been meant to be a general power of attorney since Exhibits "1" to "5" are special powers of attorney. The execution by the principals of special powers of attorney, which

clearly appeared to be in prepared forms and only had to be filled up with their names, residences, dates of execution, dates of acknowledgment and others, excludes any intent to grant a general power of attorney or to constitute a universal agency. Being special powers of attorney, they must be strictly construed.

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 of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was a deviation from its practice with respect to group policies. Such practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group Administrative Department, thus:

ATTY. CAGUIOA:Can you explain to us why in this case, the claim was filed by a certain Capt. Noval [sic]?WITNESS:a The practice of our company in claim pertaining to group insurance, the policyholder is the one who files the claim for the beneficiaries of the deceased. At that time, Capt. Noval [sic] is the President and General Manager of Prime Marine.q What is the reason why policyholders are the ones who file the claim and not the designated beneficiaries of the employees of the policyholders?a Yes because group insurance is normally taken by the employer as an employee-benefit 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

On cross-examination, Urbano further elaborated that even payments, among other things, are coursed through the policyholder:

q What is the corporate concept of group insurance insofar as Insular Life is concerned?

WITNESS:a Group insurance is a contract where a group of individuals are covered under one master 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 not have contractual obligations with the individual employees; it is between Prime Marine and Insular Life.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?a Yes that is our practice.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?

xxx xxx xxxWITNESS:a No. Sir.ATTY. AMPIL:q Why? Is this case, the present case different from the cases which you answered that no power of attorney is necessary in claims payments?WITNESS:a We did not pay Prime Marine; we paid the beneficiaries.q Will you now tell the Honorable Commission why you did not pay Prime Marine and instead paid the beneficiaries, the designated beneficiaries?

xxx xxx xxxATTY. AMPIL:

I will rephrase the question.q Will you tell the Commission what circumstances led you to pay the designated beneficiaries, the complainants in this case, instead of the policyholder when as you answered a while ago, it is your practice in group insurance that claims payments, etc., are coursed thru the policyholder?WITNESS:a It is coursed but, it is not paid to the policyholder.

q And so in this case, you gave the checks to the policyholder only coursing them thru said policyholder?a That is right, Sir.q Not directly to the designated beneficiaries?a Yes, Sir. 21

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 insurer to a representative of the group or to an administrator of the insurance program, such as an employer. 23The employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise 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 plan as compared to a non-contributory plan where the premiums are solely paid by the employer.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-contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the 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.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 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 the employees to carry a larger amount of insurance than they could otherwise, and helps to attract and hold a permanent class of employees. 26

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:

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 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 course, is advantageous to both the employer and the employees, the insurer also enjoys significant advantages from the arrangement. The reduction in the premium which results from 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.

xxx xxx xxxThe 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 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 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 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:[t]he employer owes to the employee the duty of good faith and due care in attending to the policy, and that the employer should make clear to the employee anything required of him to keep the policy in effect, and the time that the obligations are due. In its position as administrator of the policy, we feel also that the employer should be considered as the agent of the insurer, and any omission of duty to the employee in its administration should be attributable to the insurer.

The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual Life Insurance Co. 29 and Metropolitan Life Insurance Co. vs. State Board of Equalization. 30

In the light of the above disquisitions and after an examination of the facts of this case, we hold that PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular Life. The latter is thus bound by the misconduct of its agent.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.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 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 Family Code reads as follows:

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 disagreement, the father's decision shall prevail, unless there is judicial order to the contrary.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 guarantee the performance of the obligations prescribed for general guardians.

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 the property or the annual income of the child," which means, therefore, the aggregate of the child's property or annual income; if this exceeds P50,000.00, a bond is required. There is no evidence that the share of each of the minors in the proceeds of the group policy in question is the minor's only property. Without such evidence, it would not be safe to conclude that, indeed, that is his only property.WHEREFORE, the instant petition is GRANTED. The Decision of 10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No. 22950 are SET ASIDE and the Decision of the Insurance Commission in IC Case No. RD-058 is REINSTATED.Costs against the private respondent.SO ORDERED.

G.R. No. L-25593 November 15, 1967HOME INSURANCE COMPANY, plaintiff-appellant, vs.UNITED STATES LINES CO., ET AL., defendants-appellees.Quasha, Asperilla, Blanco, Zafra and Tayag for plaintiff-appellant.Ross, Selph, Salcedo, Del Rosario, Bito and Mesa for defendants-appellees.BENGZON, J.P., J.:Sometime in 1964, SS "Pioneer Moon" arrived in Manila and discharged unto the custody of the Bureau of Customs, as arrastre operator, two hundred (200) cartons of carbonized adding machine rolls consigned to Burroughs, Limited. When the cargo was delivered to the consignee, however, several cartons were damaged. The consignee claimed the P2,605.64 worth of damage from the Bureau of Customs, the United Lines Company owner of the vessel, and the Home Insurance Company which had insured the cargo. The latter paid the claim and demanded reimbursement from either arrastre operator or the carrier. When both rejected the claim, the Home Insurance Company, as subrogee, filed on June 11, 1965 an action against the Republic of the Philippines, the Bureau of Customs and the United States Lines, in the alternative, for the recovery of P2,605.64, with interest plus costs.Both defendants answered. The United States Lines disclaimed liability on the ground that the damage was incurred while the cargo was in the possession of its co-defendants. The Republic of the Philippines and the Bureau of Customs, after denial of their motion to dismiss, answered and alleged among others, non-suability and non-compliance with Act 3083, as amended by Commonwealth Act 327 which requires money claims to be filed with the Auditor General.On December 7, 1965, the date set for pre-trial, only the counsel for the plaintiff appeared, who upon being asked for written authority to compromise, assured the court that though he had no written authority, he had such authority verbally given by the plaintiff. On the same day, the court dismissed the case for failure of the plaintiff to appear at the pre-trial conference.Its motion for reconsideration having been denied, plaintiff appealed to Us, claiming that the lower court erred in dismissing the case for failure of the plaintiff to appear.As against the Republic of the Philippines and the Bureau of Customs, the dismissal must be sustained in the light of our decision in Mobil Philippines Exploration v. Customs Arrastre Service and Bureau of Customs, L-23139, December 17, 1966 and subsequent rulings,1 where We held that on grounds of public policy, the Republic of the Philippines or its agencies, may not be sued for the performance of arrastre operations as a function necessarily incidental to the governmental function of taxation.As regards the other defendants, Section 1, Rule 20 of the Revised Rules of Court, making pre-trial mandatory partly provides: ". . . in any action, after the last pleading has been filed, the court shall direct the parties and their attorneys to appear before it for a conference" (emphasis supplied). This is different from Section 1 of Rule 25 of the old Rules of Court which provided that "the court may in its discretion direct the attorneys for the parties to appear before it for a conference . . . " (emphasis supplied). Section 2, Rule 20 of the new Rules of Court says that "a party who fails to appear at a pre-trial conference may be non-suited or considered as in default." This shows the purpose of the Rules to compel the parties to appear personally before the court to reach, if possible, a compromise. Accordingly, the court is given the discretion to dismiss the case should plaintiff not appear at the pre-trial.Taking into consideration said purpose and spirit of the new Rules as well as the facts in the present case, We find no reversible error committed by the court a quo in dismissing the action for the reason that only plaintiff's counsel appeared at the pre-trial (and not plaintiff's official representative also). True, said counsel asserted that he had verbal authority to compromise the case. The Rules, however, require, for attorneys to compromise the litigation of their clients, a "special authority" (Section 23, Rule 138, Rules of Court). 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. The court below, therefore did not act erroneously in proceeding to dismiss the case in spite of such manifestation of plaintiffs counsel. For, authority to compromise cannot lightly be presumed. And if, with good reason, the judge is not satisfied that said authority exists, as in this case, dismissal of the suit for non-appearance of plaintiff in pre-trial is sanctioned by the Rules. The dismissal should therefore be sustained in toto, with respect to all the defendants.WHEREFORE, the appealed order of dismissal is affirmed, without costs. So ordered.

ESTATE OF LINO OLAGUER, Represented by Linda O. Olaguer, and LINDA O. MONTAYRE, Petitioners,

- versus - EMILIANO M. ONGJOCO, Respondent.

G.R. No. 173312 Present: YNARES-SANTIAGO, J., Chairperson,AUSTRIA-MARTINEZ,CHICO-NAZARIO,NACHURA, andREYES, JJ. Promulgated: August 26, 2008

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D E C I S I O N CHICO-NAZARIO, J.:

Assailed in this Petition for Review on Certiorari[1] is the Decision[2] of the Court of Appeals dated 27

February 2006 in CA-G.R. CV No. 71710. Said decision modified the Decision[3] and the subsequent Order[4] of the Regional Trial Court (RTC) of Legazpi City, Branch 6, in Civil Case No. 6223, and upheld the validity of the sales of properties to respondent Emiliano M. Ongjoco.

The relevant factual antecedents of the case, as found by the trial court and adapted by the Court of

Appeals, are as follows:

The plaintiffs Sor Mary Edith Olaguer, Aurora O. de Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre are the legitimate children of the spouses Lino Olaguer and defendant Olivia P. Olaguer.

Lino Olaguer died on October 3, 1957 so Special Proceedings No. 528 for probate of will

was filed in the then Court of First Instance of Albay. Defendant Olivia P. Olaguer was appointed as administrator pursuant to the will. Later, defendant Eduardo Olaguer was appointed as co-administrator. x x x

On October 15, 1959 defendant Olivia P. Olaguer got married to defendant Jose A.

Olaguer before the then Justice of the Peace of Sto. Domingo (Libog) Albay. (Exhibit “NNNN”) On January 24, 1965 they were married in church. (Exhibit “XX”)

In the order of the probate court dated April 4, 1961, some properties of the estate were

authorized to be sold to pay obligations of the estate. Pursuant to this authority, administrators Olivia P. Olaguer and Eduardo Olaguer on December 12, 1962 sold to Pastor Bacani for [P]25,000 Pesos, twelve (12) parcels of land, particularly, Lots 4518, 4526, 4359, 8750, 7514, 6608, 8582, 8157, 7999, 6167, 8266, and 76 with a total area of 99 hectares. (Exhibit “A” – Deed of Sale notarized by defendant Jose A. Olaguer)

This sale of twelve (12) parcels of land to Pastor Bacani was approved by the Probate

Court on December 12, 1962. (Exhibit “15”) The following day, December 13, 1962, Pastor Bacani sold back to Eduardo Olaguer

and Olivia Olaguer for [P]12,000.00 Pesos, one of the twelve (12) lots he bought the day before, particularly, Lot No. 76 in the proportion of 7/13 and 6/13 pro-indiviso respectively. (Exhibit “B” – Deed of Sale notarized by Felipe A. Cevallos, Sr.)

Simultaneously, on the same day December 13, 1962, Pastor Bacani sold back to Olivia

Olaguer and Eduardo Olaguer the other eleven (11) parcels he bought from them as follows:

To Olivia Olaguer – Four (4) parcels for 10,700 Pesos, particularly Lots

4518, 4526, 4359, 8750 with a total area of 84 hectares. (Exhibit “E” – Deed of Sale notarized by Felipe A. Cevallos, Sr.)

To Eduardo Olaguer – Seven (7) parcels of land for 2,500 Pesos,

particularly Lots 7514, 6608, 8582, 8157, 7999, 6167, and 8266 with a total area of 15 hectares. (Exhibit “C” – Deed of Sale notarized by defendant Jose A. Olaguer) Relying upon the same order of April 4, 1961 but without prior notice or permission from

the Probate Court, defendants Olivia P. Olaguer and Eduardo Olaguer on November 1, 1965 sold to Estanislao Olaguer for 7,000 Pesos, ten (10) parcels of land, particularly, (a) TCT No. T-4011 – Lot No. 578, (b) TCT No. T-1417 – Lot No. 1557, (c) TCT No. T-4031 –Lot No. 1676, (d) TCT No. T-4034 – Lot No. 4521, (e) TCT No. T-4035 – Lot No. 4522, (f) TCT No. 4013 – Lot No. 8635, (g) TCT No. T-4014 – Lot 8638, (h) TCT No. T-4603 – Lot No. 7589, (i) TCT No. 4604 – Lot No. 7593, and (j) TCT No. T-4605 – Lot No. 7396. (Exhibit “D” – Deed of Sale notarized by Rodrigo R. Reantaso)

This sale to Estanislao Olaguer was approved by the Probate Court on November 12,

1965. After the foregoing sale to Estanislao Olaguer, the following transactions took place: 1) On July 7, 1966, defendant Olivia P. Olaguer executed a Special Power of

Attorney notarized by Rodrigo R. Reantaso (Exhibit “T”) in favor of defendant Jose A. Olaguer, authorizing the latter to “sell, mortgage, assign, transfer, endorse and deliver” the properties covered by TCT No. 14654 for Lot 76 6/13 share only, T-13983, T-14658, T-14655, T-14656, and T-14657.

2) On July 7, 1966, Estanislao Olaguer executed a Special Power of Attorney in favor of

Jose A. Olaguer (Exhibit “X”) notarized by Rodrigo R. Reantaso authorizing the latter to “sell, mortgage, assign, transfer, endorse and deliver” the properties covered by TCT No. T-20221, T-20222, T-20225 for Lot No. 8635, T-20226 for Lot No. 8638, T-20227, T-20228, and T-20229.

By virtue of this Special Power of Attorney, on March 1, 1967, Jose A. Olaguer as

Attorney-in-Fact of Estanislao Olaguer mortgaged Lots 7589, 7593 and 7396 to defendant Philippine National Bank (PNB) as security for a loan of 10,000 Pesos. The mortgage was foreclosed by the PNB on June 13, 1973 and the properties mortgage were sold at public auction to PNB. On December 10, 1990, the PNB transferred the properties to the Republic of the Philippines pursuant to Exec. Order No. 407 dated June 14, 1990 for agrarian reform purposes. (records, vol. 1, page 66)

3) On October 29, 1966, Estanislao Olaguer executed a General Power of Attorney

notarized by Rodrigo R. Reantaso (Exhibit “Y”) in favor of Jose A. Olaguer, authorizing the latter to exercise general control and supervision over all of his business and properties, and among others, to sell or mortgage any of his properties.

4) On December 29, 1966, Estanislao Olaguer sold to Jose A. Olaguer for 15,000 Pesos,

(Exhibit “UU”) the ten (10) parcels of land (Lots 578, 4521, 4522, 1557, 1676, 8635, 8638, 7589, 7593 and 7396) he bought from Olivia P. Olaguer and Eduardo Olaguer under Exhibit “D”.

5) On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer for 1 Peso and other

valuable consideration Lot No. 4521 – TCT No. T-20223 and Lot 4522 – TCT No. 20224 with a total area of 2.5 hectares. (records, vol. 1, page 33)

6) On June 5, 1968, Estanislao Olaguer sold Lot No. 8635 under TCT No. T-20225,

and Lot No. 8638 under TCT No. 20226 to Jose A. Olaguer for 1 Peso and other valuable consideration. (Exhibit “F”) Deed of Sale was notarized by Rodrigo R. Reantaso.

7) On May 13, 1971, Jose A. Olaguer in his capacity as Attorney in-Fact of Estanislao Olaguer sold to his son Virgilio Olaguer for 1 Peso and other valuable consideration Lot No. 1557 – TCT No. 20221 and Lot No. 1676 – TCT No. 20222. The deed of sale was notarized by Otilio Sy Bongon.

8) On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer Lot No. 4521 and

Lot No. 4522 for 1,000 Pesos. Deed of Sale was notarized by Otilio Sy Bongon. (records, vol. 1, page 34)

9) On September 16, 1978 Virgilio Olaguer executed a General Power of Attorney in

favor of Jose A. Olaguer notarized by Otilio Sy Bongon (Exhibit “V”) authorizing the latter to exercise general control and supervision over all of his business and properties and among others, to sell or mortgage the same.

Olivia P. Olaguer and Eduardo Olaguer were removed as administrators of the estate and

on February 12, 1980, plaintiff Ma. Linda Olaguer Montayre was appointed administrator by the Probate Court.

Defendant Jose A. Olaguer died on January 24, 1985. (Exhibit “NN”) He was survived by

his children, namely the defendants Nimfa Olaguer Taguay, Corazon Olaguer Uy, Jose Olaguer, Jr., Virgilio Olaguer, Jacinto Olaguer, and Ramon Olaguer.

Defendant Olivia P. Olaguer died on August 21, 1997 (Exhibit “OO”) and was survived by

all the plaintiffs as the only heirs. The decedent Lino Olaguer have had three marriages. He was first married to Margarita

Ofemaria who died April 6, 1925. His second wife was Gloria Buenaventura who died on July 2, 1937. The third wife was the defendant Olivia P. Olaguer.

Lot No. 76 with an area of 2,363 square meters is in the heart of the Poblacion of

Guinobatan, Albay. The deceased Lino Olaguer inherited this property from his parents. On it was erected their ancestral home.

As already said above, Lot No. 76 was among the twelve (12) lots sold for 25,000

Pesos, by administrators Olivia P. Olaguer and Eduardo Olaguer to Pastor Bacani on December 12, 1962. The sale was approved by the probate court on December 12, 1962.

But, the following day, December 13, 1962 Pastor Bacani sold back the same 12 lots to

Olivia P. Olaguer and Eduardo Olaguer for 25,200 Pesos, as follows:

a) Lot No. 76 was sold back to Olivia P. Olaguer and Eduardo Olaguer for 12,000 Pesos, in the proportion of [6/13] and [7/13] respectively. (Exhibit “B”)

b) 4 of the 12 lots namely, Lots 4518, 4526, 4359, and 8750 were sold

back to Olivia Olaguer for 10,700 Pesos. (Exhibit “E”) c) 7 of the 12 lots namely, Lots 7514, 6608, 8582, 8157, 7999, 6167, and

8266 were sold back to Eduardo Olaguer for 2,500 Pesos. (Exhibit “C”) d) Lot No. 76 was thus issued TCT No. T-14654 on December 13,

1962 in the names of Eduardo B. Olaguer married to Daisy Pantig and Olivia P. Olaguer married to Jose A. Olaguer to the extent of 7/13 and 6/13 pro-indiviso, respectively. (Exhibit “FF” also “14-a)

e) It appears from Plan (LRC) Psd-180629 (Exhibit “3”) that defendant

Jose A. Olaguer caused the subdivision survey of Lot 76 into eleven (11) lots, namely, 76-A, 76-B, 76-C, 76-D, 76-E, 76-F, 76-G, 76-H, 76-I, 76-J, and 76-K, sometime on April 3, 1972. The subdivision survey was approved on October 5, 1973. After the approval of the subdivision survey of Lot 76, a

subdivision agreement was entered into on November 17, 1973, among Domingo Candelaria, Olivia P. Olaguer, Domingo O. de la Torre and Emiliano M. [Ongjoco]. (records, vol. 2, page 109). This subdivision agreement is annotated in TCT No. 14654 (Exhibit “14” – “14-d”) as

follows:

Owner Lot No.Area insq. m.

TCT No. Vol. Page

Domingo Candelaria 76-A 300 T-36277 206 97Olivia P. Olaguer 76-B 200 T-36278 “ 98

- do - 76-C 171 T-36279 “ 99- do - 76-D 171 T-36280 “ 100- do - 76-E 171 T-36281 “ 101- do - 76-F 171 T-36282 “ 102- do - 76-G 202 T-36283 “ 103

Domingo O. de la Torre 76-H 168 T-36284 “ 104- do - 76-I 168 T-36285 “ 105- do - 76-J 168 T-36286 “ 106

Emiliano M. [Ongjoco] 76-K 473 T-36287 “ 107 After Lot 76 was subdivided as aforesaid, Jose A. Olaguer as attorney-in-fact of

Olivia P. Olaguer, sold to his son Virgilio Olaguer Lots 76-B, 76-C, 76-D, 76-E, 76-F, and 76-G on January 9, 1974 for 3,000 Pesos. (Exhibit “G”) The deed of absolute sale was notarized by Otilio Sy Bongon.

Lots 76-B and 76-C were consolidated and then subdivided anew and designated

as Lot No. 1 with an area of 186 square meters and Lot No. 2 with an area of 185 square meters of the Consolidation Subdivision Plan (LRC) Pcs-20015. (Please sketch plan marked as Exhibit “4”, records, vol. 2, page 68)

On January 15, 1976, Jose A. Olaguer claiming to be the attorney-in-fact of his son

Virgilio Olaguer under a general power of attorney Doc. No. 141, Page No. 100, Book No. 7, Series of 1972 of Notary Public Otilio Sy Bongon, sold Lot No. 1 to defendant Emiliano M. [Ongjoco] for 10,000 Pesos per the deed of absolute sale notarized by Otilio Sy Bongon. (Exhibit “H”) The alleged general power of attorney however was not presented or marked nor formally offered in evidence.

On September 7, 1976, Jose A. Olaguer again claiming to be the attorney-in-fact of

Virgilio Olaguer under the same general power of attorney referred to in the deed of absolute sale of Lot 1, sold Lot No. 2 to Emiliano M. [Ongjoco] for 10,000 Pesos. (Exhibit “I”) The deed of absolute sale was notarized by Otilio Sy Bongon.

On July 16, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer under a

general power of attorney Doc. No. 378, Page No. 76, Book No. 14, Series of 1978 sold Lot No. 76-D to Emiliano M. [Ongjoco] for 5,000 Pesos. The deed of absolute sale is Doc. No. 571, Page No. 20, Book No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit “K”)

The same Lot No. 76-D was sold on October 22, 1979 by Jose A. Olaguer as

attorney-in-fact of Virgilio Olaguer under a general power of attorney Doc. No. 378, Page No. 76, Book No. 14, Series of 1978 of Notary Public Otilio Sy Bongon sold Lot No. 76-D to Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No. 478, Page No. 97, Book NO. XXII, Series of 1979 of Notary Public Antonio A. Arcangel. (Exhibit “J”)

On July 3, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer sold Lots 76-

E and 76-F to Emiliano M. [Ongjoco] for 15,000 Pesos. The deed of absolute sale is Doc.

No. 526, Page No. 11, Book No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit “M”)

The same Lots 76-E and 76-F were sold on October 25, 1979, by Jose A. Olaguer as

attorney-in-fact of Virgilio Olaguer under the same general power of attorney of 1978 referred to above to Emiliano M. [Ongjoco] for 30,000 Pesos. The deed of absolute sale is Doc. No. 47, Page No. 11, Book No. XXIII, Series of 1972 of Notary Public Antonio A. Arcangel. (Exhibit “L”)

On July 2, 1979 Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer sold Lot No.

76-G to Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of sale is Doc. No. 516, Page No. 9, Book No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit “N”)

The same Lot 76-G was sold on February 29, 1980 by Jose A. Olaguer as attorney-

in-fact of Virgilio Olaguer under the same general power of attorney of 1978 referred to above to Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No. l02, Page No. 30, Book No. 17, Series of 1980 of Notary Public Otilio Sy Bongon. (Exhibit “O”)[5] (Emphases ours.)

Thus, on 28 January 1980, the Estate of Lino Olaguer represented by the legitimate children of the spouses Lino Olaguer and defendant Olivia P. Olaguer, namely, Sor Mary Edith Olaguer, Aurora O. de Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre, as attorney-in-fact and in her own behalf, filed an action for the Annulment of Sales of Real Property and/or Cancellation of Titles[6] in the then Court of First Instance of Albay.[7]

Docketed as Civil Case No. 6223, the action named as defendants the spouses Olivia P. Olaguer and Jose

A. Olaguer; Eduardo Olaguer; Virgilio Olaguer; Cipriano Duran; the Heirs of Estanislao O. Olaguer, represented by Maria Juan Vda. de Olaguer; and the Philippine National Bank (PNB).

In the original complaint, the plaintiffs therein alleged that the sales of the following properties belonging to

the Estate of Lino Olaguer to Estanislao Olaguer were absolutely simulated or fictitious, particularly: Lots Nos. 578, 1557, 1676, 4521, 4522, 8635, 8638, 7589, 7593, and 7396. In praying that the sale be declared as null and void, the plaintiffs likewise prayed that the resulting Transfer Certificates of Title issued to Jose Olaguer, Virgilio Olaguer, Cipriano Duran and the PNB be annulled.

Defendant PNB claimed in its Answer,[8] inter alia, that it was a mortgagee in good faith and for value of

Lots Nos. 7589, 7593 and 7396, which were mortgaged as security for a loan of P10,000.00; the mortgage contract and other loan documents were signed by the spouses Estanislao and Maria Olaguer as registered owners; the proceeds of the loan were received by the mortgagors themselves; Linda Olaguer Montayre had no legal capacity to sue as attorney-in-fact; plaintiffs as well as Maria Olaguer were in estoppel; and the action was already barred by prescription. PNB set up a compulsory counterclaim for damages, costs of litigation and attorney’s fees. It also filed a cross-claim against Maria Olaguer for the payment of the value of the loan plus the agreed interests in the event that judgment would be rendered against it.

Defendants Olivia P. Olaguer, Jose A. Olaguer and Virgilio Olaguer, in their Answer,[9] denied the material

allegations in the complaint. They maintained that the sales of the properties to Pastor Bacani and Estanislao Olaguer were judicially approved; the complaint did not state a sufficient cause of action; it was barred by laches and/or prescription; lis pendens existed; that the long possession of the vendees have ripened into acquisitive prescription in their favor, and the properties no longer formed part of the Estate of Lino Olaguer; until the liquidation of the conjugal properties of Lino Olaguer and his former wives, the plaintiffs were not the proper parties in interest to sue in the action; and in order to afford complete relief, the other conjugal properties of Lino Olaguer with his former wives, and his capital property that had been conveyed without the approval of the testate court should also be included for recovery in the instant case.

Defendant Maria Juan Vda. de Olaguer, representing the heirs of Estanislao Olaguer, in her Answer,

[10] likewise denied the material allegations of the complaint and insisted that the plaintiffs had no valid cause of action against the heirs of the late Estanislao Olaguer, as the latter did not participate in the alleged transfer of properties by Olivia P. Olaguer and Eduardo Olaguer in favor of the late Estanislao Olaguer.

Defendant Cipriano Duran claimed, in his Answer,[11] that the complaint stated no cause of action; he was merely instituted by his late sister-in-law Josefina Duran to take over the management of Lots Nos. 8635 and 8638 in 1971; and the real party-in-interest in the case was the administrator of the estate of Josefina Duran.

On 11 January 1995, an Amended Complaint[12] was filed in order to implead respondent Emiliano M.

Ongjoco as the transferee of Virgilio Olaguer with respect to portions of Lot No. 76, namely Lots Nos. 1, 2, 76-D, 76-E, 76-F, and 76-G.

In his Answer with Counterclaim and Motion to Dismiss,[13] respondent Ongjoco denied the material

allegations of the amended complaint and interposed, as affirmative defenses the statute of limitations, that he was a buyer in good faith, that plaintiffs had no cause of action against him, and that the sale of property to Pastor Bacani, from whom Ongjoco derived his title, was judicially approved.

On 23 January 1996, plaintiffs filed a Re-Amended Complaint,[14] in which the heirs of Estanislao Olaguer

were identified, namely, Maria Juan Vda. de Olaguer, Peter Olaguer, Yolanda Olaguer and Antonio Bong Olaguer. In their Answer,[15] the heirs of Estanislao Olaguer reiterated their claim that Estanislao Olaguer never had

any transactions or dealings with the Estate of Lino Olaguer; nor did they mortgage any property to the PNB. On 5 August 1998, the heirs of Estanislao Olaguer and petitioner Ma. Linda Olaguer Montayre submitted a

compromise agreement,[16] which was approved by the trial court. On 6 October 1999, Cipriano Duran filed a Manifestation[17] in which he waived any claim on Lots Nos. 8635

and 8638. Upon motion, Duran was ordered dropped from the complaint by the trial court in an order[18] dated 20 October 1999.

In a Decision[19] dated 13 July 2001, the RTC ruled in favor of the plaintiffs. The pertinent portions of the

decision provide:

The entirety of the evidence adduced clearly show that the sale of the 12 lots to Pastor Bacani pursuant to Exhibit “A” and the sale of the 10 lots to Estanislao Olaguer pursuant to Exhibit “D” were absolutely simulated sales and thus void ab initio. The two deeds of sales Exhibits “A” and “D” are even worse than fictitious, they are completely null and void for lack of consideration and the parties therein never intended to be bound by the terms thereof and the action or defense for the declaration of their inexistence does not prescribe. (Art. 1410, Civil Code) Aside from being simulated they were clearly and unequivocally intended to deprive the compulsory heirs of their legitime x x x.

The deeds of sale, Exhibits “A” and “D” being void ab initio, they are deemed as non-

existent and the approval thereof by the probate court becomes immaterial and of no consequence, because the approval by the probate court did not change the character of the sale from void to valid x x x.

x x x x Defendant Jose A. Olaguer simulated the sales and had them approved by the probate

court so that these properties would appear then to cease being a part of the estate and the vendee may then be at liberty to dispose of the same in any manner he may want. They probably believed that by making it appear that the properties were bought back from Pastor Bacani under a simulated sale, they (Olivia Olaguer and Eduardo Olaguer) would appear then as the owners of the properties already in their personal capacities that disposals thereof will no longer require court intervention. x x x.

x x x x [Jose A. Olaguer] had Olivia P. Olaguer execute a Special Power of Attorney

(Exhibit “T”) authorizing him (Jose A. Olaguer) to sell or encumber the properties allegedly bought back from Pastor Bacani which Jose A. Olaguer did with respect to the 6/13 share of Olivia P. Olaguer on Lot No. 76 by selling it to his son Virgilio for only 3,000 Pesos, then

caused Virgilio to execute a power of attorney authorizing him to sell or encumber the 6/13 share which he did by selling the same to defendant Emiliano M. [Ongjoco].

Virgilio Olaguer however executed an affidavit (Exhibit “CC”) wherein he denied having

bought any property from the estate of Lino Olaguer and that if there are documents showing that fact he does not know how it came about. x x x.

The 1972 power of attorney referred to by Jose A. Olaguer as his authority for the

sale of Lots 1 and 2 (formerly lots 76-B and 76-C) was not presented nor offered in evidence.

There are two deeds of sale over Lot 76-D , (Exhibits “K” and “J”) in favor of

defendant Emiliano M. [Ongjoco] with different dates of execution, different amount of consideration, different Notary Public.

There are two deeds of sale over Lots 76-E and 76-F (Exhibits “M” and “L”) in favor

of defendant Emiliano M. [Ongjoco] with different dates of execution, different amount of consideration and different Notary Public.

There are two deeds of sale over Lot 76-G (Exhibits “N” and “O”) in favor of

Emiliano M. [Ongjoco] with different dates of execution with the same amount of consideration and the same Notary Public.

While Lot 76-D was allegedly sold already to Emiliano M. [Ongjoco] in 1979, yet it

was still Jose A. Olaguer who filed a petition for the issuance of a second owner’s copy as attorney in fact of Virgilio Olaguer on August 8, 1980 (Exhibit “SS”) and no mention was made about the sale.

Under these circumstances, the documents of defendant Emiliano M. [Ongjoco] on

lots 76 therefore, in so far as the portions he allegedly bought from Jose A. Olaguer as attorney in fact of Virgilio Olaguer suffers seriously from infirmities and appear dubious.

Defendant Emiliano M. [Ongjoco] cannot claim good faith because according to

him, when these lots 76-[B] to 76-G were offered to him his condition was to transfer the title in his name and then he pays. He did not bother to verify the title of his vendor. x x x.

So with respect to the sale of Lots 76-B to 76-G, Emiliano M. [Ongjoco] has no

protection as innocent purchaser for good faith affords protection only to purchasers for value from the registered owners. x x x. Knowing that he was dealing only with an agent x x x, it behooves upon defendant Emiliano M. [Ongjoco] to find out the extent of the authority of Jose A. Olaguer as well as the title of the owner of the property, because as early as 1973 pursuant to the subdivision agreement, (records, vol. 2, page 109 and Exhibit “14” and “14-d”) he already knew fully well that Lots 76-B to 76-G he was buying was owned by Olivia P. Olaguer and not by Virgilio Olaguer.

x x x x With respect to the 10 lots sold to [Eduardo] Olaguer (Exhibit “D”) Jose A. Olaguer had

Estanislao Olaguer execute a power of attorney (Exhibit “X”) authorizing him (Jose A. Olaguer) to sell or encumber the 10 lots allegedly bought by Estanislao from the estate. With this power of attorney, he mortgaged lots 7589, 7593 and 7398 to the PNB. He sold lots 1557 and 1676 to his son Virgilio Olaguer. While under Exhibit “UU” dated December 29, 1966, he bought the 10 parcels of land, among which is lots 4521 and 4522 from Estanislao Olaguer, yet, on March 16, 1968, he again bought lots 4521 and 4522 (records, vol. 1, page 38) from Estanislao Olaguer. While lots 8635 and 8638 were among those sold to him under Exhibit “UU”, it appears that he again bought the same on June 5, 1968 under Exhibit “F”.

The heirs of Estanislao Olaguer however denied having bought any parcel of land from

the estate of Lino Olaguer. Estanislao Olaguer’s widow, Maria Juan vda. de Olaguer, executed an affidavit (Exhibit “BB”) that they did not buy any property from the estate of Lino Olaguer, they did

not sell any property of the estate and that they did not mortgage any property with the PNB. She repeated this in her deposition. (records, vol. 2, page 51) This was corroborated by no less than former co-administrator Eduardo Olaguer in his deposition too (Exhibit “RRRR”) that the sale of the 10 parcels of land to Estanislao Olaguer was but a simulated sale without any consideration. x x x.

x x x x A partial decision was already rendered by this court in its order of August 5,

1998 (records, vol. 2, page 64) approving the compromise agreement with defendants Heirs of Estanislao Olaguer. (records, vol. 2 page 57).

Defendant Cipriano Duran was dropped from the complaint per the order of the court

dated October 20, 1999 (records, vol. 2, page 155) because he waived any right or claim over lots 8635 and 8638. (records, vol. 2, page 150). (Emphasis ours.)

The dispositive portion of the above decision was, however, amended by the trial court in an Order[20] dated 23 July 2001 to read as follows:

WHEREFORE, premises considered, decision is hereby rendered in favor of the plaintiffs

as follows: 1) The deed of sale to Pastor Bacani (Exhibit “A”) and the deed of sale to Estanislao

Olaguer (Exhibit “D”) are hereby declared as null and void and without force and effect and all the subsequent transfers and certificates arising therefrom likewise declared null and void and cancelled as without force and effect, except as herein provided for.

2) Lot Nos. 4518, 4526, 4359 and 8750 are hereby ordered reverted back to the

estate of Lino Olaguer and for this purpose, within ten (10) days from the finality of this decision, the heirs of Olivia P. Olaguer (the plaintiffs herein) [sic] are hereby ordered to execute the necessary document of reconveyance, failure for which, the Clerk of Court is hereby ordered to execute the said deed of reconveyance.

3) Lot Nos. 7514, 6608, 8582, 8157, 7999, 6167 and 8266 are hereby ordered reverted

back to the estate of Lino Olaguer and for this purpose, within ten (10) days from the finality of this decision, defendant Eduardo Olaguer is hereby ordered to execute the necessary document of reconveyance, failure for which, the Clerk of Court is hereby ordered to execute the said deed of reconveyance.

4) Lots 1 and 2, Pcs-20015, and Lots 76-D, 76-E, 76-F and 76-G, Psd-180629 sold to

Emiliano M. [Ongjoco] are hereby ordered reverted back to the estate of Lino Olaguer. For this purpose, within ten (10) days from the finality of this decision, defendant Emiliano M. [Ongjoco] is hereby ordered to execute the necessary deed of reconveyance, otherwise, the Clerk of Court shall be ordered to execute the said reconveyance and have the same registered with the Register of Deeds so that new titles shall be issued in the name of the estate of Lino Olaguer and the titles of Emiliano [Ongjoco] cancelled.

5) The parties have acquiesced to the sale of the 7/13 portion of Lot 76 to Eduardo

Olaguer as well as to the latter’s disposition thereof and are now in estoppel to question the same. The court will leave the parties where they are with respect to the 7/13 share of Lot 76.

6) Lots 578, 1557, 1676, 4521, 4522, 8635, 8638, are hereby reverted back to the estate

of Lino Olaguer and for this purpose, the Clerk of [Court] is hereby ordered to execute the necessary deed of reconveyance within ten days from the finality of this decision and cause its registration for the issuance of new titles in the name of the Estate of Lino Olaguer and the cancellation of existing ones over the same.

7) While the mortgage with the defendant PNB is null and void, Lots 7589, 7593 and 7396

shall remain with the Republic of the Philippines as a transferee in good faith.

Both the petitioners and respondent filed their respective Notices of Appeal[21] from the above decision. The case was docketed in the Court of Appeals as CA-G.R. CV No. 71710.

In their Plaintiff-Appellant’s Brief[22] filed before the Court of Appeals, petitioner Estate argued that the trial

court erred in not ordering the restitution and/or compensation to them of the value of the parcels of land that were mortgaged to PNB, notwithstanding the fact that the mortgage was declared null and void. Petitioners maintain that the PNB benefited from a void transaction and should thus be made liable for the value of the land, minus the cost of the mortgage and the reasonable expenses for the foreclosure, consolidation and transfer of the lots.

Ongjoco, on the other hand, argued in his Defendant-Appellant’s Brief [23] that the trial court erred in:

declaring as null and void the Deeds of Sale in favor of Pastor Bacani and Eduardo Olaguer and the subsequent transfers and certificates arising therefrom; ordering the reconveyance of the lots sold to him (Ongjoco); and failing to resolve the affirmative defenses of prescription, the authority of Olivia and Eduardo to dispose of properties formerly belonging to the estate of Lino Olaguer, recourse in a court of co-equal jurisdiction, and forum shopping.

Petitioner Linda O. Montayre was likewise allowed to file a Brief [24] on her own behalf, as Plaintiff-Appellee

and Plaintiff-Appellant.[25] She refuted therein the assignment of errors made by Defendant-Appellant Ongjoco and assigned as error the ruling of the trial court that the lots mortgaged to the PNB should remain with the Republic of the Philippines as a transferee in good faith.

On 27 February 2006, the Court of Appeals rendered the assailed Decision, the dispositive portion of which

reads:

WHEREFORE, premises considered, the appealed Decision is hereby MODIFIED, in that Paragraph 4 of the amended decision is hereby Ordered Deleted, and the questioned sales to defendant-appellant Emiliano M. Ongjoco are UPHELD.[26]

In denying the appeal interposed by petitioners, the appellate court reasoned that the claim for the value of the lots mortgaged with the PNB were not prayed for in the original Complaint, the Amended Complaint or even in the Re-Amended Complaint. What was sought therein was merely the declaration of the nullity of the mortgage contract with PNB. As the relief prayed for in the appeal was not contained in the complaint, the same was thus barred.

The Court of Appeals also ruled that the evidence of petitioners failed to rebut the presumption that PNB

was a mortgagee in good faith. Contrarily, what was proven was the fact that Olivia Olaguer and Jose A. Olaguer were the persons responsible for the fraudulent transactions involving the questioned properties. Thus, the claim for restitution of the value of the mortgaged properties should be made against them.

As regards the appeal of respondent Ongjoco, the appellate court found the same to be meritorious. The

said court ruled that when the sale of real property is made through an agent, the buyer need not investigate the principal’s title. What the law merely requires for the validity of the sale is that the agent’s authority be in writing.

Furthermore, the evidence adduced by petitioners was ruled to be inadequate to support the conclusion

that Ongjoco knew of facts indicative of the defect in the title of Olivia Olaguer or Virgilio Olaguer. Petitioners moved for a partial reconsideration[27] of the Court of Appeals’ decision in order to question the

ruling that respondent Ongjoco was a buyer in good faith. The motion was, however, denied in a Resolution[28] dated 29 June 2006.

Aggrieved, petitioners filed the instant Petition for Review on Certiorari under Rule 45 of the Revised Rules

of Court, raising the following assignment of errors:

I.THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT RULED, ON SPECULATION, THAT RESPONDENT EMILIANO M. ONGJOCO WAS A BUYER IN GOOD FAITH OF THE PROPERTIES OF THE ESTATE OF LINO OLAGUER, DESPITE THE EXISTENCE OF FACTS AND CIRCUMSTANCES FOUND BY THE TRIAL COURT THAT

OUGHT TO PUT EMILIANO M. ONGJOCO ON NOTICE THAT THE PETITIONERS-APPELLANTS HAVE A RIGHT OR INTEREST OVER THE SAID PROPERTIES, AND CONTRARY TO PREVAILING JURISPRUDENCE.

II.

THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT DISREGARDED THE CLEAR FINDINGS OF FACTS AND CONCLUSIONS MADE BY THE TRIAL COURT, IN THE ABSENCE OF ANY STRONG AND COGENT REASONS TO REVERSE THE SAID FINDINGS, CONTRARY TO PREVAILING JURISPRUDENCE.[29]

Essentially, the question that has been brought before us for consideration is whether or not, under the facts and circumstances of this case, respondent Ongjoco can be considered an innocent purchaser for value. Petitioners agree with the pronouncement of the trial court that respondent Ongjoco could not have been a buyer in good faith since he did not bother to verify the title and the capacity of his vendor to convey the properties involved to him. Knowing that Olivia P. Olaguer owned the properties in 1973 and that he merely dealt with Jose A. Olaguer as an agent in January 1976, Ongjoco should have ascertained the extent of Jose’s authority, as well as the title of Virgilio as the principal and owner of the properties.

Petitioners likewise cite the following incidents that were considered by the trial court in declaring that respondent was a buyer in bad faith, namely: (1) that Virgilio Olaguer executed an affidavit,[30] wherein he denied having bought any property from the estate of Lino Olaguer, and that if there are documents showing that fact, he does not know how they came about; (2) that the power of attorney referred to by Jose A. Olaguer as his authority for the sale of Lots 1 and 2 (formerly Lots 76-B and 76-C) was not presented or offered in evidence; (3) that there are two deeds of sale[31] over Lot 76-D in favor of Ongjoco; (4) that there are two deeds of sale [32] over Lots 76-E and 76-F in favor of Ongjoco; (5) that there are two deeds of sale[33] over Lot 76-G in favor of Ongjoco; and (6) that while Lot 76-D was already sold to Ongjoco in 1979, it was still Jose A. Olaguer as attorney in fact of Virgilio Olaguer who filed on 8 August 1980 a petition for the issuance of a second owner’s copy [34] of the title to the property, and no mention was made about the sale to Ongjoco. Respondent Ongjoco, on the other hand, invokes the ruling of the Court of Appeals that he was an innocent purchaser for value. His adamant stance is that, when he acquired the subject properties, the same were already owned by Virgilio Olaguer. Respondent insists that Jose A. Olaguer was duly authorized by a written power of attorney when the properties were sold to him (Ongjoco). He posits that this fact alone validated the sales of the properties and foreclosed the need for any inquiry beyond the title to the principal. All the law requires, respondent concludes, is that the agent’s authority be in writing in order for the agent’s transactions to be considered valid. Respondent Ongjoco’s posture is only partly correct. According to the provisions of Article 1874[35] of the Civil Code on Agency, when the sale of a piece of land or any interest therein is made through an agent, the authority of the latter shall be in writing. Absent this requirement, the sale shall be void. Also, under Article 1878,[36] a special power of attorney is necessary in order for an agent to enter into a contract by which the ownership of an immovable property is transmitted or acquired, either gratuitously or for a valuable consideration. We note that the resolution of this case, therefore, hinges on the existence of the written power of attorney upon which respondent Ongjoco bases his good faith. When Lots Nos. 1 and 2 were sold to respondent Ongjoco through Jose A. Olaguer, the Transfer Certificates of Title of said properties were in Virgilio’s name.[37] Unfortunately for respondent, the power of attorney that was purportedly issued by Virgilio in favor of Jose Olaguer with respect to the sale of Lots Nos. 1 and 2 was never presented to the trial court. Neither was respondent able to explain the omission. Other than the self-serving statement of respondent, no evidence was offered at all to prove the alleged written power of attorney. This of course was fatal to his case. As it stands, there is no written power of attorney to speak of. The trial court was thus correct in disregarding the claim of its existence. Accordingly, respondent Ongjoco’s claim of good faith in the sale of Lots Nos. 1 and 2 has no leg to stand on.

As regards Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to present a general power of attorney that was executed by Virgilio Olaguer. While the law requires a special power of attorney, the general power of attorney was sufficient in this case, as Jose A. Olaguer was expressly empowered to sell any of Virgilio’s properties; and to sign, execute, acknowledge and deliver any agreement therefor.[38] Even if a document is designated as a general power of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the performance of the act.[39] The special power of attorney can be included in the general power when the act or transaction for which the special power is required is specified therein.[40]

On its face, the written power of attorney contained the signature of Virgilio Olaguer and was duly

notarized. As such, the same is considered a public document and it has in its favor the presumption of authenticity and due execution, which can only be contradicted by clear and convincing evidence.[41]

No evidence was presented to overcome the presumption in favor of the duly notarized power of

attorney. Neither was there a showing of any circumstance involving the said document that would arouse the suspicion of respondent and spur him to inquire beyond its four corners, in the exercise of that reasonable degree of prudence required of a man in a similar situation. We therefore rule that respondent Ongjoco had every right to rely on the power of attorney in entering into the contracts of sale of Lots Nos. 76-D to 76-G with Jose A. Olaguer.

With respect to the affidavit of Virgilio Olaguer in which he allegedly disavowed any claim or participation in

the purchase of any of the properties of the deceased Lino Olaguer, we hold that the same is rather irrelevant. The affidavit was executed only on 1 August 1986 or six years after the last sale of the properties was entered into in 1980. In the determination of whether or not a buyer is in good faith, the point in time to be considered is the moment when the parties actually entered into the contract of sale.

Furthermore, the fact that Lots Nos. 76-D to 76-G were sold to respondent Ongjoco twice does not warrant

the conclusion that he was a buyer in bad faith. While the said incidents might point to other obscured motives and arrangements of the parties, the same do not indicate that respondent knew of any defect in the title of the owner of the property.

As to the petition filed by Jose A. Olaguer for the issuance of a second owner’s copy of the title to Lot No.

76-D, after the property was already sold to respondent Ongjoco, the same does not inevitably indicate that respondent was in bad faith. It is more likely that Jose A. Olaguer was merely compiling the documents necessary for the transfer of the subject property. Indeed, it is to be expected that if the title to the property is lost before the same is transferred to the name of the purchaser, it would be the responsibility of the vendor to cause its reconstitution.

In sum, we hold that respondent Emiliano M. Ongjoco was in bad faith when he bought Lots Nos. 1 and 2

from Jose A. Olaguer, as the latter was not proven to be duly authorized to sell the said properties. However, respondent Ongjoco was an innocent purchaser for value with regard to Lots Nos. 76-D, 76-E,

76-F and 76-G since it was entirely proper for him to rely on the duly notarized written power of attorney executed in favor of Jose A. Olaguer.

WHEREFORE, premises considered, the instant petition is hereby PARTIALLY GRANTED. The assailed

Decision of the Court of Appeals dated 27 February 2006 in CA-G.R. CV NO. 71710 is MODIFIED in that Paragraph 4 of the Decision dated 13 July 2001 of the Regional Trial Court of Legazpi City, Branch 6, and the Order dated 23 July 2001 shall read as follows:

4) Lots 1 and 2, Pcs-20015 sold to Emiliano M. Ongjoco are hereby ordered reverted

back to the estate of Lino Olaguer. For this purpose, within ten (10) days from the finality of this decision, defendant Emiliano M. Ongjoco is hereby ordered to execute the necessary deed of reconveyance, otherwise, the Clerk of Court shall be ordered to execute the said reconveyance and have the same registered with the Register of Deeds so that new titles shall be issued in the name of the estate of Lino Olaguer and the titles of Emiliano Ongjoco cancelled.

No costs. SO ORDERED.

[G.R. No. 138639. February 10, 2000]CITY-LITE REALTY CORPORATION, petitioner, vs. COURT OF APPEALS and F.P. HOLDINGS & REALTY CORP., METRO DRUG INC., MELDIN AL G. ROY, VIEWMASTER CONSTRUCTION CORP., and the REGISTER OF DEEDS OF QUEZON CITY, respondent. marie

D E C I S I O NBELLOSILLO, J.:This is a petition for review on certiorari filed by CITY-LITE REALTY CORPORATION (CITY-LITE) seeking to annul the 20 October 1998 Decision of the Court of Appeals[1] which reversed the Decision of the Regional Trial Court of Quezon City in its Civil Case No. Q-92-11068 declaring that a contract of sale over the subject property was perfected and that Metro Drug Inc. and Meldin Al G. Roy had the authority to sell the property.[2]

Private respondent F. P. HOLDINGS AND REALTY CORPORATION (F.P. HOLDINGS), formerly the Sparta Holdings Inc., was the registered owner of a parcel of land situated along E. Rodriguez Avenue, Quezon City, also known as the "Violago Property" or the "San Lorenzo Ruiz Commercial Center," with an area of 71,754 square meters, more or less, and covered by Transfer Certificate of Title No. T-19599. The property was offered for sale to the general public through the circulation of a sales brochure containing the following information:

A parcel of land including buildings and other improvements thereon located along E. Rodriguez Avenue, Quezon City, with a total lot area of 71,754 square meters - 9,192 square meters in front, 23,332 square meters in the middle, and 39,230 square meters at the back. But the total area for sale excludes 5,000 square meters covering the existing chapel and adjoining areas which will be donated to the Archdiocese of Manila thus reducing the total saleable area to 66,754 square meters. Asking price was P6,250.00/square meter with terms of payment negotiable. Broker's commission was 2.0% of selling price, net of withholding taxes and other charges. As advertised, contact person was Meldin Al G. Roy, Metro Drug Inc., with address at 5/F Metro House, 345 Sen. Gil Puyat Avenue, Makati City.

The front portion consisting of 9,192 square meters is the subject of this litigation.On 22 August 1991 respondent Meldin Al G. Roy sent a sales brochure, together with the location plan and copy of the Transfer Certificate of Title No. T-19599 of the Register of Deeds of Quezon City, to Atty. Gelacio Mamaril, a practicing lawyer and a licensed real estate broker. Atty. Mamaril in turn passed on these documents to Antonio Teng, Executive Vice-President, and Atty. Victor P. Villanueva, Legal Counsel, of CITY-LITE.In a letter dated 19 September 1991 sent to Metro Drug (ATTN: MELDIN AL ROY) after an initial meeting with Meldin Al Roy that day, CITY-LITE conveyed its interest to purchase a portion or one-half (1/2) of the front lot of the "Violago Property." Apparently, Roy subsequently informed CITY-LITE's representative that it would take time to subdivide the lot and respondent F. P. HOLDINGS was not receptive to the purchase of only half of the front lot. After a few days, Atty. Mamaril wrote Metro Drug (ATTN: MELDIN AL ROY) expressing CITY-LITE's desire to buy the entire front lot of the subject property instead of only half thereof provided the asking price of P6,250.00/square meter was reduced and that payment be in installment for a certain period. Roy made a counter offer dated 25 September 1991 as follows:

Dear Atty. Mamaril,This has reference to your letter dated September 24, 1991 in connection with the interest of your clients, Mr. Antonio Teng/City-Lite Realty Corporation and/or any of their subsidiaries to buy a portion of the Violago Property fronting E. Rodriguez Sr. Avenue with an area of 9,192 square meters.We are pleased to inform you that we are prepared to consider the above offer subject to the following major terms and conditions: 1. The price shall beP6,250.00/square meter or a total of P57,450,000.00; 2. The above purchase price shall be paid to the owner as follows: (a) P15.0 Million downpayment; (b) balance payable within six (6) months from date of downpayment without interest. Should your client find the above major terms and conditions acceptable, please advise us in writing by tomorrow, September 26, 1991, so that we can start formal discussions on the matter x x x xnoveroVery truly yours,MELDIN AL G. ROY

On 26 September 1991 CITY-LITE's officers and Atty. Mamaril met with Roy at the Manila Mandarin Hotel in Makati to consummate the transaction. After some discussions, the parties finally reached an agreement and Roy agreed to sell the property to CITY-LITE provided only that the latter submit its acceptance in writing to the terms and conditions of the sale as contained in his letter of 25 September 1991. Later that afternoon after meeting with Roy at the Manila Mandarin Hotel, Atty. Mamaril and Antonio Teng of CITY-LITE conveyed their formal acceptance of the terms and conditions set forth by Roy in separate letters both dated 26 September 1991.However, for some reason or another and despite demand, respondent F. P. HOLDINGS refused to execute the corresponding deed of sale in favor of CITY-LITE of the front lot of the property. Upon its claim of protecting its interest as vendee of the property in suit, CITY-LITE registered an adverse claim to the title of the property with the

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Register of Deeds of Quezon City which was annotated in the Memorandum of Encumbrance of Transfer Certificate of Title No. T-19599 under Entry No. PE-1001 dated 27 September 1991.On 30 September 1991 CITY-LITE's counsel demanded in writing that Metro Drug (ATTN: MELDIN AL G. ROY) comply with its commitment to CITY-LITE by executing the proper deed of conveyance of the property under pain of court action. On 4 October 1991 F. P. HOLDINGS filed a petition for the cancellation of the adverse claim against CITY-LITE with the Regional Trial Court of Quezon City, docketed as LRC Case No. 91-10257, which was raffled to Br. 84.On 8 October 1991 Edwin Fernandez, President of F. P. HOLDINGS, in a move to amicably settle with CITY-LITE, met with the latter's officers during which he offered properties located in Caloocan City and in Quezon Boulevard, Quezon City, as substitute for the property, but CITY-LITE refused the offer because "it did not suit its business needs." With the filing of the petition of F. P. HOLDINGS for the cancellation of the adverse claim, CITY-LITE caused the annotation of the first notice of lis pendens which was recorded in the title of the property under Entry No. 4605.On 2 December 1991 the RTC-Br. 84 of Quezon City dismissed F. P. HOLDINGS' petition declaring that CITY-LITE's adverse claim had factual basis and was not "sham and frivolous." Meanwhile, F. P. HOLDINGS caused the resurvey and segregation of the property and asked the Register of Deeds of Quezon City to issue separate titles which the latter did on 17 January 1992 by issuing Transfer Certificate of Title No. T-51671. nigelFollowing the dismissal of F. P. HOLDINGS' petition for the cancellation of the adverse claim, CITY-LITE instituted a complaint against F. P. HOLDINGS originally for specific perfomance and damages and caused the annotation of the second notice of lis pendens on the new certificate of title. After the annotation of the second lis pendens, the property was transfered to defendant VIEWMASTER CONSTRUCTION CORP. (VIEWMASTER) for which Transfer Certificate of Title No. T-52398 was issued. However the notice of lis pendens was carried over and annotated on the new certificate of title.In view of the conveyance during the pendency of the suit, the original complaint for specific performance and damages was amended with leave of court to implead VIEWMASTER as a necessary party and the Register of Deeds of Quezon City as nominal defendant with the additional prayer for the cancellation of VIEWMASTER's certificate of title. The case was thereafter raffled to Br. 85 of the Regional Trial Court of Quezon City.On 4 October 1995 the court a quo rendered its decision in favor of CITY-LITE ordering F. P. HOLDINGS to execute a deed of sale of the property in favor of CITY-LITE for the total consideration of P55,056,250.00 payable as follows: P15 Million as downpayment to be payable immediately upon execution of the deed of sale and the balance within six (6) months from downpayment, without interest. The court also directed the Register of Deeds of Quezon City to cancel Transfer Certificate of Title No. T-52398 or any subsequent title it had issued affecting the subject property, and to issue a new one in the name of CITY-LITE upon the presentation of the deed of sale and other requirements for the transfer. It likewise ordered the defendants, except VIEWMASTER and the Register of Deeds of Quezon City, to pay CITY-LITE jointly and severally P800,000.00 by way of nominal damages,P250,000.00 for attorney's fees, and to pay the costs.On 30 October 1995 VIEWMASTER filed a motion for reconsideration of the decision of the lower court questioning its ruling that a perfected contract of sale existed between CITY-LITE and F. P. HOLDINGS as there was no definite agreement over the manner of payment of the purchase price, citing in support thereof Toyota Shaw Inc. v. Court of Appeals.[3]However the motion for reconsideration was denied.In the challenged Decision of 20 October 1998 the Court of Appeals reversed and set aside the judgment of the Regional Trial Court of Quezon City. On 10 May 1999 the Court of Appeals denied CITY-LITE's motion to reconsider its decision.Petitioner CITY-LITE is now before us assailing the Court of Appeals for declaring that no contract of sale was perfected between it and respondent F. P. HOLDINGS because of lack of a definite agreement on the manner of paying the purchase price and that respondents Metro Drug and Meldin Al G. Roy were not authorized to sell the property to CITY-LITE, and that the authority of Roy was only limited to that of a mere liaison or contact person. ellaWe cannot sustain petitioner. On the issue of whether a contract of sale was perfected between petitioner CITY-LITE and respondent F. P. HOLDINGS acting through its agent Meldin Al G. Roy of Metro Drug, Art. 1874 of the Civil Code provides: "When the 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." Petitioner anchors the authority of Metro Drug and Meldin Al G. Roy on (a) the testimonies of petitioner's three (3) witnesses and the admissions of Roy and the lawyer of Metro Drug; (b) the sales brochure specifying Meldin Al G. Roy as a contact person; (c) the guard posted at the property saying that Metro Drug was the authorized agent; and, (d) the common knowledge among brokers that Metro Drug through Meldin Al G. Roy was the authorized agent of F. P. HOLDINGS to sell the property. However, and more importantly, the Civil Code requires that an authority to sell a piece of land shall be in writing. The absence of authority to sell can be determined from the written memorandum issued by respondent F. P. HOLDINGS' President requesting Metro Drug's assistance in finding buyers for the property. The memorandum in part stated: "We will appreciate Metro Drug's assistance in referring to us buyers for the property. Please proceed to hold preliminary negotiations with interested buyers and endorse formal offers to us for our final evaluation and


appraisal." This obviously meant that Meldin Al G. Roy and/or Metro Drug was only to assist F. P. HOLDINGS in looking for buyers and referring to them possible prospects whom they were supposed to endorse to F. P. HOLDINGS. But the final evaluation, appraisal and acceptance of the transaction could be made only by F. P. HOLDINGS. In other words, Meldin Al G. Roy and/or Metro Drug was only a contact person with no authority to conclude a sale of the property. In fact, a witness for petitioner even admitted that Roy and/or Metro Drug was a mere broker,[4] and Roy's only job was to bring the parties together for a possible transaction.[5] Consequently, we hold that for lack of a written authority to sell the "Violago Property" on the part of Meldin Al G. Roy and/or Metro Drug, the sale should be as it is declared null and void. Therefore the sale could not produce any legal effect as to transfer the subject property from its lawful owner, F. P. HOLDINGS, to any interested party including petitioner CITY-LITE.WHEREFORE, the appealed Decision of the Court of Appeals being in accord with law and the evidence is AFFIRMED. Costs against petitioner CITY-LITE REALTY CORPORATION. marinellaSO ORDERED.



[G.R. No. 114311. November 29, 1996]COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF APPEALS and ISIDRO PEREZ, respondents.

D E C I S I O NBELLOSILLO, J.:

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

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

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

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

1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela Cruz the area at present occupied by defendant wherein his house is located is 333 square meters on the easternmost part of lot 443 and which portion has been occupied by defendant for several years now;2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact the sum of P26,640.00 computed at P80.00/square meter;3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of this compromise agreement over said portion of 333 square m. of lot 443 which portion will be located on the easternmost part as indicated in the sketch as annex A;4. Whatever expenses of subdivision, registration, and other incidental expenses shall be shouldered by the defendant.[3]

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

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

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

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

Petitioner challenges this verdict. It argues that the decision of the trial court is void because the compromise agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada did not possess the authority to sell or was she armed with a Board Resolution authorizing the sale of its property. She was merely empowered to enter

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into a compromise agreement in the recovery suit she was authorized to file against persons squatting on Lot No. 443, such authority being expressly confined to the “ejectment of third persons or squatters of x x x lot x x x (No.) 443 x x x for the said squatters to remove their houses and vacate the premises in order that the corporation may take material possession of the entire lot x x x x”

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

When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.[9] Thus the authority of an agent to execute a contract for the sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute.[10] A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration.[11] The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. [12] For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document.[13]

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

x x x x this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not binding upon and cannot be executed against the petitioners. It is evident that the compromise upon which the judgment was based was not subscribed by them x x x x Neither could Attorney Ortega bind them validly in the compromise because he had no special authority x x x xAs the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to render it, much less to order the execution thereof x x xx x x x A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is without legal efficacy and may properly be impugned in any proceeding by the party against whom it is sought to be enforced x x x xThis ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L. Reyes, a much-respected authority on

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

Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul and set aside judgments of Regional Trial Courts.[16] “Thus, the Intermediate Appellate Court (now Court of Appeals) shall exercise x x x x (2) Exclusive original jurisdiction over action for annulment of judgments of the Regional Trial Courts x x x x” However, certain requisites must first be established before a final and executory judgment can be









the subject of an action for annulment. It must either be void for want of jurisdiction or for lack of due process of law, or it has been obtained by fraud.[17]

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

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

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

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

It may be argued that petitioner knew of the compromise agreement since the principal is chargeable with and bound by the knowledge of or notice to his agent received while the agent was acting as such. But the general rule is intended to protect those who exercise good faith and not as a shield for unfair dealing. Hence there is a well-established exception to the general rule as where the conduct and dealings of the agent are such as to raise a clear presumption that he will not communicate to the principal the facts in controversy.[21]The logical reason for this exception is that where the agent is committing a fraud, it would be contrary to common sense to presume or to expect that he would communicate the facts to the principal. Verily, when an agent is engaged in the perpetration of a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal but is really acting for himself, entirely outside the scope of his agency.[22] Indeed, the basic tenets of agency rest on the highest considerations of justice, equity and fair play, and an agent will not be permitted to pervert his authority to his own personal advantage, and his act in secret hostility to the interests of his principal transcends the power afforded him.[23]

WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as the decision of the Regional Trial Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE. The “Compromise Agreement” entered into between Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared VOID. This is without prejudice to the right of petitioner to pursue its complaint against private respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot No. 443.

SO ORDERED.








G.R. No. L-9188 December 4, 1914GUTIERREZ HERMANOS, plaintiff-appellee, vs.ENGRACIO ORENSE, defendant-appellant.William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant.Rafael de la Sierra for appellee. TORRES, J.:Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April 14, 1913, by the Honorable P. M. Moir, judge, wherein he sentenced the defendant to make immediate delivery of the property in question, through a public instrument, by transferring and conveying to the plaintiff all his rights in the property described in the complaint and to pay it the sum of P780, as damages, and the costs of the suit.On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the Court of First Instance of Albay against Engacio Orense, in which he set forth that on and before February 14, 1907, the defendant Orense had been the owner of a parcel of land, with the buildings and improvements thereon, situated in the pueblo of Guinobatan, Albay, the location, area and boundaries of which were specified in the complaint; that the said property has up to date been recorded in the new property registry in the name of the said Orense, according to certificate No. 5, with the boundaries therein given; that, on February 14, 1907, Jose Duran, a nephew of the defendant, with the latter's knowledge and consent, executed before a notary a public instrument whereby he sold and conveyed to the plaintiff company, for P1,500, the aforementioned property, the vendor Duran reserving to himself the right to repurchase it for the same price within a period of four years from the date of the said instrument; that the plaintiff company had not entered into possession of the purchased property, owing to its continued occupancy by the defendant and his nephew, Jose Duran, by virtue of a contract of lease executed by the plaintiff to Duran, which contract was in force up to February 14, 1911; that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely confirmed and ratified by the defendant Orense; that, in order to perfect the title to the said property, but that the defendant Orense refused to do so, without any justifiable cause or reason, wherefore he should be compelled to execute the said deed by an express order of the court, for Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of the sale which he received, nor pay any sum whatever for the losses and damages occasioned by the said sale, aside from the fact that the plaintiff had suffered damage by losing the present value of the property, which was worth P3,000; that, unless such deed of final conveyance were executed in behalf of the plaintiff company, it would be injured by the fraud perpetrated by the vendor, Duran, in connivance with the defendant; that the latter had been occupying the said property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon him for its payment at the rate of P30 per month, the just and reasonable value for the occupancy of the said property, the possession of which the defendant likewise refused to deliver to the plaintiff company, in spite of the continuous demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez Hermanos, claiming to have rights of ownership and possession in the said property. Therefore it was prayed that judgment be rendered by holding that the land and improvements in question belong legitimately and exclusively to the plaintiff, and ordering the defendant to execute in the plaintiff's behalf the said instrument of transfer and conveyance of the property and of all the right, interest, title and share which the defendant has therein; that the defendant be sentenced to pay P30 per month for damages and rental of the property from February 14, 1911, and that, in case these remedies were not granted to the plaintiff, the defendant be sentenced to pay to it the sum of P3,000 as damages, together with interest thereon since the date of the institution of this suit, and to pay the costs and other legal expenses.The demurrer filed to the amended complaint was overruled, with exception on the part of the defendant, whose counsel made a general denial of the allegations contained in the complaint, excepting those that were admitted, and specifically denied paragraph 4 thereof to the effect that on February 14, 1907, Jose Duran executed the deed of sale of the property in favor of the plaintiff with the defendant's knowledge and consent.1awphil.netAs the first special defense, counsel for the defendant alleged that the facts set forth in the complaint with respect to the execution of the deed did not constitute a cause of action, nor did those alleged in the other form of action for the collection of P3,000, the value of the realty.As the second special defense, he alleged that the defendant was the lawful owner of the property claimed in the complaint, as his ownership was recorded in the property registry, and that, since his title had been registered under the proceedings in rem prescribed by Act No. 496, it was conclusive against the plaintiff and the pretended rights alleged to have been acquired by Jose Duran prior to such registration could not now prevail; that the defendant had not executed any written power of attorney nor given any verbal authority to Jose Duran in order that the latter might, in his name and representation, sell the said property to the plaintiff company; that the defendant's knowledge of the said sale was acquired long after the execution of the contract of sale between Duran and Gutierrez Hermanos, and that prior thereto the defendant did not intentionally and deliberately perform any act such as might have induced the plaintiff to believe that Duran was empowered and authorized by the defendant and

which would warrant him in acting to his own detriment, under the influence of that belief. Counsel therefore prayed that the defendant be absolved from the complaint and that the plaintiff be sentenced to pay the costs and to hold his peace forever.After the hearing of the case and an examination of the evidence introduced by both parties, the court rendered the judgment aforementioned, to which counsel for the defendant excepted and moved for a new trial. This motion was denied, an exception was taken by the defendant and, upon presentation of the proper bill of exceptions, the same was approved, certified and forwarded to the clerk of his court.This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a masonry house with the nipa roof erected thereon, effected by Jose Duran, a nephew of the owner of the property, Engracio Orense, for the sum of P1,500 by means of a notarial instrument executed and ratified on February 14, 1907.After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the property to the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the rate of P30 per month for its use and occupation since February 14, 1911, when the period for its repurchase terminated. His refusal was based on the allegations that he had been and was then the owner of the said property, which was registered in his name in the property registry; that he had not executed any written power of attorney to Jose Duran, nor had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name; and that, prior to the execution of the deed of sale, the defendant performed no act such as might have induced the plaintiff to believe that Jose Duran was empowered and authorized by the defendant to effect the said sale.The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with estafa, for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land and improvements, whereas in reality they did not belong to him, but to the defendant Orense. However, at the trial of the case Engracio Orense, called as a witness, being interrogated by the fiscal as to whether he and consented to Duran's selling the said property under right of redemption to the firm of Gutierrez Hermanos, replied that he had. In view of this statement by the defendant, the court acquitted Jose Duran of the charge of estafa.As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the owner of the property, to the effect that he had consented to his nephew Duran's selling the property under right of repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other remedies, that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the right, title and interest with Orense had in the property sold, and to pay to the same the rental of the property due from February 14, 1911.itc-alfNotwithstanding the allegations of the defendant, the record in this case shows that he did give his consent in order that his nephew, Jose Duran, might sell the property in question to Gutierrez Hermanos, and that he did thereafter confirm and ratify the sale by means of a public instrument executed before a notary.It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same way by selling the said property. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.)Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the defendant, the owner of the property, approved the action of his nephew, who in this case acted as the manager of his uncle's business, and Orense'r ratification produced the effect of an express authorization to make the said sale. (Civil Code, arts. 1888 and 1892.)Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized by him or without his legal representation according to law.

A contract executed in the name of another by one who has neither his authorization nor legal representation shall be void, unless it should be ratified by the person in whose name it was executed before being revoked by the other contracting party.

The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of Duran for estafa, virtually confirms and ratifies the sale of his property effected by his nephew, Duran, and, pursuant to article 1313 of the Civil Code, remedies all defects which the contract may have contained from the moment of its execution.The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself consented to his nephew Jose Duran's making the said sale. Moreover, pursuant to article 1309 of the Code, the right of action for nullification that could have been brought became legally extinguished from the moment the contract was validly confirmed and ratified, and, in the present case, it is unquestionable that the defendant did confirm the said contract of sale and consent to its execution.On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was acquitted, and it would not be just that the said testimony, expressive of his consent to the sale of his property, which determined the acquittal of his nephew, Jose Duran, who then acted as his business manager, and which testimony wiped out the deception that in the beginning appeared to have been practiced by the said Duran, should not now serve in passing upon the

conduct of Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove his consent to the sale of his property, for, had it not been for the consent admitted by the defendant Orense, the plaintiff would have been the victim of estafa.If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that admission, to the prejudice of the purchaser, who gave P1,500 for the said property.The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged to be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure, because the authority which Orense may have given to Duran to make the said contract of sale is not shown to have been in writing and signed by Orense, but the record discloses satisfactory and conclusive proof that the defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew Jose Duran. Such consent was proven in a criminal action by the sworn testimony of the principal and presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the defendant made no objection. Therefore the principal is bound to abide by the consequences of his agency as though it had actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed that he had given his consent to the sale of his property, meet the requirements of the law and legally excuse the lack of written authority, and, as they are a full ratification of the acts executed by his nephew Jose Duran, they produce the effects of an express power of agency.The judgment appealed from in harmony with the law and the merits of the case, and the errors assigned thereto have been duly refuted by the foregoing considerations, so it should be affirmed.The judgment appealed from is hereby affirmed, with the costs against the appellant.

[G.R. No. 148775. January 13, 2004]SHOPPER’S PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner, vs. EFREN P.

ROQUE, respondent.D E C I S I O N

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 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?

http://sc.judiciary.gov.ph/jurisprudence/2004/jan2004/148775.htm#_ftn1

“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?“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 x x x x x x“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.








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.

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. 70909 January 5, 1994CONCHITA T. VDA. DE CHUA, THELMA CHUA, assisted by her husband, CHARLIE DY, CHARLITO CHUA, REYNALDO CHUA, SUSAN CHUA, ALEX CHUA, EDDIE CHUA, SIMON CHUA, AND ERNESTO CHUA,petitioners, vs.THE INTERMEDIATE APPELLATE COURT, VICENTE GO, VICTORIA T. GO, AND HERMINIGILDA HERRERA,respondents.Alberto R. de Joya for petitioners.Zosa & Quijano Law Offices and Expedito P. Bugarin for private respondents. QUIASON, J.:This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of the Court of Appeals in AC-G.R. CV No. 67692 entitled "Conchita Vda. de Chua, et al. v. Herminigilda Herrera, et al.," affirming with modification the decision of the Court of First Instance of Cebu in Civil Case No. R-16589.The facts as found by the Court of Appeals, are summarized as follows:

Sometime in 1950, defendant Herminigilda Herrera executed a Contract of Lease (Exh. "A") in favor of Tian On (sic) (or Sy Tian On) whereby the former leased to the latter Lots. Nos. 620 and 7549 containing an area of 151 square meters, located at Manalili Street (now V. Gullas Street) Cebu City, for a term of ten (10) years, renewable for another five (5) years. The contract of lease (Exh. "A") contains a stipulation giving the lessee an option to buy the leased property (Exh. A-2) and that the lessor guarantees to leave the possession of said property to the lessee for a period of ten (10) years or as long as the lessee faithfully fulfills the terms and conditions of their contract (Exh. A-5).In accordance with the said contract of lease, the lessee, Tian On, erected a residential house on the leased premises.On February 2, 1954, or within four (4) years from the execution of the said contract of lease (Exh. "A"), the lessee, Sy Tian On, executed a Deed of Absolute Sale of Building (Exh. "B") in favor of Chua Bok, the predecessor-in-interest of the plaintiffs herein, whereby the former sold to the latter the aforesaid residential house for and in consideration of the sum of P8,000.00. Pertinent provisions of this deed of sale (Exh. "B") read as follows:

. . . That with the sale of the said house and as a legal consequence, I hereby assign all my rights and privileges as a lessee of the lot on which the said building is constructed together with its corresponding obligations as contained and expressly stipulated in the Contract of Lease executed in 1950 between myself and the lot owner, Herminigilda Herrera, to the said vendee, Chua Bok who hereby accepts the said assignment of the said lease and hereby promises and bind himself to abide by all the terms and conditions thereof, a copy of the Lease Contract is hereby attached as Appendix "A" and made a part hereof.That the present sale is made with the knowledge and express consent of the lot-owner and lessor, Herminigilda Herrera who is represented herein by her attorney-in-fact, Vicenta R. de Reynes who hereby also honors the annulment of the lease made by Sy Tian On in favor of Chua Bok, and hereby promises and binds herself to respect and abide by all the terms and conditions of the lease contract which is now assigned to the said Chua Bok.IN WITNESS WHEREOF, the parties have hereunto affixed their signatures on this 2nd day of February 1954, in the City of Cebu, Philippines.

(Sgd.) CHUA BOKVendee-Lessee-Assignee

(Sgd.) SY TIAN ONVendor-Lessor-Assignor

HERMINIGILDA HERRERABy:

(Sgd.) VICENTA R. DE REYNESAttorney-in-factLot-owner-Lessor

SIGNED IN THE PRESENCE OF:(Sgd.) ILLEGIBLE

AND(Sgd.) ILLEGIBLE

After the said sale transaction, Chua Bok and his family (plaintiffs herein) resided in the said residential building and they faithfully and religiously paid the rentals thereof.When the Original Contract of Lease expired in 1960, Chua Bok and defendant Herminigilda Herrera, through her alleged attorney-in-fact executed the following —

CONTRACT OF LEASE.THIS CONTRACT OF LEASE made and entered into this ___ day of August, 1960, in the City of Cebu, Philippines, by and between:

HERMINIGILDA HERRERA, of legal age, single, Filipino and a resident of Cebu City, Philippines, hereinafter known as Party of the First Part;

andCHUA BOK of legal age, married and a resident of Cebu City, Philippines, hereinafter known as the Party of the Second Part.

WITNESSETH:That the Party of the First Part who is the owner of a parcel of land located at Manalili Street, Cebu City containing of an area of about 151 (One Hundred Fifty-One) square meters, more or less, known as Lot. No. ________ of the Cadastral Survey of Cebu, hereby lets and leases unto the Party of the Second Part who hereby accepts in lease the abovementioned lot under the following terms and conditions:1. That the term of this contract shall be for a period of FIVE (5) years from August 1, 1960 to August 1, 1965, at a monthly rental of SIXTY PESOS (P60.00) Philippine Currency;2. That the rental of P60.00 will be paid within the first 10 days of every month, to the Party of the First Part without express demand and in advance;

xxx xxx xxx4. That the Party of the Second Part is given an option to buy the said leased premises if he is qualified and when the Party of the First Part decides to sell the same and that the Party of the second Part is also given the option to renew the Contract of Lease upon terms and conditions to be agreed by both parties;

xxx xxx xxx6. That it is hereby expressly reserved that should the property leased be sold by the Party of the First part to any other party, the terms and conditions of this Contract shall be valid and will continue for the duration of this contract. The Third party shall be expressed (sic) bound to respect the terms of this Contract of Lease;

xxx xxx xxxThat the parties herein, do hereby mutually and reciprocally stipulate that they will comply with the terms and conditions herein before set forth. That the Party of the First Part hereby (sic) these presents guarantees that she will leave the property in the possession of the Party of the Second Part for five (5) years or as long as the Party of the second Part faithfully fulfills with the terms and conditions herein set forth.IN WITNESS WHEREOF, we have hereunto affixed our signatures on this 9th day of September, 1960, in the City of Cebu, Philippines.(Sgd.) CHUA BOKParty of the Second PartHERMINIGILDA HERRERABy: Party of the First Part(Sgd.) VICENTA R. DE REYNESAttorney-in-FactSIGNED IN THE PRESENCE OF:(Sgd.) ILLEGIBLE(Sgd.) B.E. SUN

After the expiration of the contract of lease in question (Exh. "C") the plaintiffs herein, who are the successors-in-interest of Chua Bok (who had meanwhile died) continued possession of the premises up to April 1978, with adjusted rental rate of P1,000.00 (Exh. "D"); later readjusted to P2,000.00.

On July 26, 1977, defendant Herrera through her attorney-in-fact, Mrs. Luz Tormis, who was authorized with a special power of attorney, sold the lots in question to defendants-spouses, Vicente and Victoria Go. The defendants-spouses were able to have aforesaid sale registered with the Register of Deeds of the City of Cebu and the titles of the two parcels of land were transferred in their names (Exhs. "5-Herrera", or "5-Go" and "6-Herrera" or "6-Go").Thereafter, or on November 18, 1977, plaintiffs filed the instant case seeking the annulment of the said sale between Herminigilda Herrera and spouses Vicente and Victoria Go, alleging that the conveyance was in violation of the plaintiffs' right of option to buy the leased premises as provided in the Contract of Lease (Exh. "C") and that the defendants-spouses acted in bad faith in purchasing the said lots knowing fully well that the said plaintiffs have the option to buy those lots.After due trial, the lower court rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, this Court ORDERS:1) The DISMISSAL of plaintiffs' complaint, as against defendant spouses GO;2) The plaintiffs to VACATE Lot No. 620 and Lot No. 7549, ownership over by which defendants Vicente and Victoria Go being found valid and legitimate, and to peacefully turn over the same to said spouses, and to REMOVE the building thereon at plaintiffs' own expense, or such removal may be done by the declared land-owners, likewise at plaintiffs' expense.3) Defendant Herrera to pay the spouses Go, the sum of P15,000.00 as reimbursement to them for what they already paid to their lawyer;4) Defendant Herrera to pay plaintiffs the sum of P50,000.00 (later reduced to P20,000.00, on motion of defendant Herrera, which the court a quo granted) in concept of moral damages suffered by the latter; and5) Defendant Herrera to pay the costs of the proceedings (Record on Appeal, pp. 229-230) (Rollo, pp. 63-68).

Plaintiffs and defendant Herrera appealed from the decision of the trial court to the Court of Appeals.In said court, plaintiffs-appellants claimed that the trial court erred: (a) in dismissing their complaint as against defendants-spouses Go, (b) in ordering them to vacate the lots in question and to remove the improvements they had introduced in the premises, and (c) in ordering the execution of the judgment pending appeal. Defendant-appellant Herrera, on her part, claimed that the trial court erred in ordering her to pay P15,000.00 as attorney's fees to defendants-spouses Go and P50,000.00 as moral damages to plaintiffs-appellants.The Court of Appeals affirmed with modification the decision of the trial court, thus:

WHEREFORE, premises considered the appealed decision is hereby MODIFIED by eliminating the award of P20,000.00 moral damages in favor of the plaintiffs-appellants, the award of P15,000.00 attorney's fees in favor of defendants-appellees (Go spouses) and the costs of the proceedings. In all other respects the appealed decision is hereby AFFIRMED (Rollo, p. 78).

In their petition filed with us, petitioners (plaintiffs-appellants in AC-G.R. No. 67692) gave up their demand for the nullification of the sale of the lots in question to respondent-spouses Go and limited their appeal to questioning the affirmance by the Court of Appeals of the decision of the trial court, ordering their ejectment from the premises in question and the demolition of the improvements introduced thereon.In support of their right to possess the premises in question, petitioners rely on the contract of lease (Exh. "C") entered into by and between Chua Bok and Vicenta R. de Reynes, as attorney-in-fact of respondent Herrera, as well as on the tacit renewal thereof by respondent Herrera (Rollo, pp. 35-48).In declaring the contract of lease (Exh. "C") void, the Court of Appeals noted that Vicenta R. de Reynes was not armed with a special power of attorney to enter into a lease contract for a period of more than one year.We agree with the Court of Appeals.The lease contract (Exh. "C"), the linchpin of petitioners' cause of action, involves the lease of real property for a period of more than one year. The contract was entered into by the agent of the lessor and not the lessor herself. In such a case, the law requires that the agent be armed with a special power of attorney to lease the premises.Article 1878 of the New Civil Code, in pertinent part, provides:

Special Power of Attorney are necessary in the following cases:xxx xxx xxx

(8) To lease any real property to another person for more than one year.It is true that respondent Herrera allowed petitioners to occupy the leased premises after the expiration of the lease contract (Exh. "C") and under Article 1670 of the Civil Code of the Philippines, a tacit renewal of the lease (tacita reconduccion) is deemed to have taken place. However, as held in Bernardo M. Dizon v. Ambrosio Magsaysay, 57 SCRA 250 (1974), a tacit renewal is limited only to the terms of the contract which are germane to the lessee's right of continued enjoyment of the property and does not extend to alien matters, like the option to buy the leased premises.

In said case, Magsaysay leased to Dizon a parcel of land for a term of two years, expiring on April 1, 1951. Under the lease contract, Dizon was given the preferential right to purchase the land under the same conditions as those offered to other buyers. After the lease contract expired, Dizon continued to occupy the leased premises and to pay the monthly rentals, which Magsaysay accepted. On March 24, 1954, Dizon learned that Magsaysay had sold the property to a third party without giving him the opportunity to exercise the preferential right to purchase given him under the lease contract. Dizon then filed an action against Magsaysay and the buyer to annul the sale of the property or in the alternative, to recover damages from Magsaysay. The trial court dismissed the action and the Court of Appeals affirmed the dismissal. In the Supreme Court, Dizon claimed that a new lease contract was impliedly created when Magsaysay allowed him to continue to occupy the premises after the expiration of the original lease contract and that the other terms of the said contract, including the lessee's preferential right to purchase, were deemed revived. Dizon invoked Article 1670 of the Civil Code of the Philippines, which provides:

Art. 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived (Emphasis supplied).

We dismissed Dizon's appeal and sustained the interpretation of the Court of Appeals that "the other terms of the original contract" mentioned in Article 1670, are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. We held:

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 the rental, the date when it must be paid, the care of the property, the responsibility of 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.

Petitioners also question the jurisdiction of the trial court in Civil Case No. R-16589 in ordering their ejectment from the leased premises and the removal of the improvements introduced thereon by them. They claim that the action in Civil Case No. R-16589 was for the annulment of the sale of the property by defendant Herrera to defendants-spouses Go, and not an appropriate case for an ejectment. The right of possession of petitioners of the leased premises was squarely put in issue by defendants-spouse Go in their counterclaim to petitioner's complaint, where they asked that ". . . the plaintiff should vacate their premises as soon as feasible or as the Honorable Court may direct" (Record on Appeal, CA-G.R. No. 67692-R; p. 45).The said counterclaim in effect was an accion publiciana for the recovery of the possession of the leased premises.Clearly the Court of First Instance had jurisdiction over actions which involve the possession of real property or any interest therein, except forcible entry and detainer actions (Section 44[b], Judiciary Act of 1948; Concepcion v. Presiding Judge, Br. V, CFI Bulacan, 119 SCRA 222 [1982]).A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff (Valisno v. Plan, 143 SCRA 502 [1986]). It stands on the same footing and is to be tested by the same rules as if it were an independent action. Hence, the same rules on jurisdiction in an independent action apply to a counterclaim (Vivar v. Vivar, 8 SCRA 847 [1963]; Calo v. Ajax International, Inc. v. 22 SCRA 996 [1968]; Javier v. Intermediate Appellate Court, 171 SCRA 605 [1989]; Quiason, Philippine Courts and Their Jurisdictions, 1993 ed., p. 203).Finally, petitioners claim that the Court of Appeals erred in eliminating the award of moral damages in the amount of P20,000.00 given to them by the trial court (Rollo, pp. 48-52). The elimination of said award is a logical consequence of the finding that petitioners had no right of option to purchase the leased premises that can be enforced against respondent Herrera.WHEREFORE, the petition is DENIED.SO ORDERED.

agency ch 1 & 2

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Transcript of agency ch 1 & 2