Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

184036 October 13, 2010

8. Eventually, plaintiffs decided not to exercise their option to buy back the KPP shares and did not give any buy-back instruction/s to their broker, defendant EIB. 9. On various dates in June 2004, without plaintiffs prior knowledge and consent, defendant EIB sold plaintiffs 32,180,000 DMCI shares of stock for an average price of P0.24 per share. Defendant EIB sold the DMCI shares of plaintiffs for an average price of only P0.24 per share despite full knowledge by defendant EIB that the sale would result in a substantial loss to the plaintiffs of around P4.5 Million since plaintiffs acquired the DMCI shares at P0.38 per share. (cf. Article 1888, Civil Code). Attached Annexes "B" to "B-7" are the Sell Confirmation slips issued by defendant EIB showing the unauthorized sale of plaintiffs 32,180,000 DMCI shares. 9.1 The proceeds of said DMCI shares sold by defendant EIB without plaintiffs knowledge and consent were used by defendant EIB to buy back 61,100,000 KPP shares earlier sold by plaintiffs on 01 April 2004. Attached as Annexes "C" to "C-5" are the Buy Confirmation slips issued by defendant showing the unauthorized "buy back" of KPP shares. 9.2 Defendant EIB sold without authority plaintiffs 32,180,000 DMCI shares and used the proceeds thereof to buy back 61,000,000 KPP shares because defendant EIB made an unauthorized promise and commitment to the buyer/s of plantiffs KPP shares in April 2004 that plaintiffs woul d buy back the KPP shares. 9.3 Plaintiffs learned of the unauthorized sale of their 32,180,000 DMCI shares and the unauthorized "buy back" of 61,000,000 KPP shares only much later. Upon further inquiry, plaintiffs also learned that all throughout their business dealings, defendant EIB had surreptitiously charged and collected from plaintiffs exorbitant interest amounting to thirty percent (30%) of all amounts owing from the plaintiffs. 10. On 05 January 2005, plaintiffs wrote to defendant EIB to demand that their 32,180,000 DMCI shares be transferred to Westlink Global Equities Inc. ("Westlink"). Copies of the demand letters, all dated 05 January 2005, are attached as Annex "D" to "D-4" respectively. 11. Since the 32,180,000 DMCI shares belonging to plaintiffs had already been sold by defendant EIB without plaintiffs prior knowledge and consent as early as June 2004, defendant EIB could not comply with the demand of plaintiffs as stated in their demand letters dated 05 January 2005. 12. In his letters to the plaintiffs dated 12 January 2005, defendant EIB admitted having sold the 32,180,000 DMCI shares of stock of plaintiffs without the latters prior knowledge and consent. Copies of defendant EIBs letters to plaintiffs, all dated 12 January 2005, are attached as Annexes "E" to "E-4", respectively. 12.1 Defendant EIB states in its aforesaid letters that it sent statements of account to plaintiffs in July 2004. Defendant EIB claims, albeit erroneously, that since plaintiffs made no exceptions to the statements of account, the sale of plaintiffs DMCI shares in June 2004 [was] supposedly "validly executed". 13. Hence, this Complaint. xxxx SECOND CAUSE OF ACTION 17. Plaintiffs replead all of the foregoing allegations. 18. The sale by defendant EIB of the 32,180,000 DMCI shares of plaintiffs was done with malice and fraudulent intent. As such, defendant should be directed to pay plaintiffs the amount of at least PhP3,000,000.00 as moral damages.4

PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH HOLDINGS, INC., FORUM HOLDINGS CORPORATION, and EAST ASIA OIL COMPANY,INC., Petitioners, vs. EIB SECURITIES, INC., Respondent. DECISION VELASCO, JR., J.: The Case Via this Petition for Review on Certiorari under Rule 45, petitioners seek reversal of the Decision1 dated April 11, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 87713 which revoked the October 18, 2005 Resolution,2 a judgment on the pleadings, of the Regional Trial Court (RTC), Branch 66 in Makati City, in Civil Case No. 05-178 entitled Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., et al. v. EIB Securities, Inc., and remanded the case for further proceedings. Also assailed is the CA Resolution3 dated August 5, 2008 denying petitioners motion for reconsideration. Petitioners initiatory pleading in Civil Case No. 05-178 reveals the following averments: COMMON ALLEGATIONS FOR ALL CAUSES OF ACTION 1. On various dates during the period June 2003 to March 2004, plaintiffs bought 60,790,000 Kuok Properties, Inc. ("KPP") shares of stock through the Philippine Stock Exchange ("PSE"). The KPP shares were acquired by plaintiffs through their broker, defendant EIB. 2. The KPP shares of stock were bought by plaintiffs at an average price of P0.22 per share. 3. Also on various dates in July and August 2003, plaintiffs bought/acquired 32,180,000 DMCI shares of stock through the PSE. Of these shares, 16,180,000 were likewise acquired by the plaintiffs through their broker, defendant EIB, while the remaining 16,000,000 DMCI shares were transferred from Westlink Global Equities, Inc. 4. The DMCI shares of stock were bought by plaintiffs at an average price of P0.38 per share. 5. On 01 April 2004, plaintiffs and defendant EIB agreed to sell the 60,790,000 KPP shares of plaintiffs to any party for the price of P0.14 per share. Attached as Annexes "A" to "A-6" are copies of the notices of sales sent by defendant EIB to the plaintiffs, which bear the conformity of plaintiffs representative. 6. As agreed by plaintiffs and defendant, the sale of the KPP shares of plaintiffs was made with an option on the part of the plaintiffs to buy back or reacquire the said KPP shares within a period of thirty (30) days from the transaction date, at the buy-back price of P0.18 per share (See Annexes "A" to "A-6"). 7. When the last day of the 30-day buy back period for the KPP shares came, plaintiff were undecided on whether or not to exercise their option to reacquire said shares. Thus, plaintiffs and defendant EIB agreed that plaintiffs would have an extended period of until 03 June 2004 to exercise their option to buy back/reacquire the KKP shares that had been sold.

In response, respondent EIB Securities, Inc. (EIB) submitted its Answer which contained the following averments: ADMISSIONS AND DENIALS: 1. Defendant admits the allegations contained in paragraphs under the heading The Parties. Likewise, defendant admits the allegations contained in paragraph 1. 2. Paragraph 2 of the Complaint is specifically denied, the truth of the matter is that the KPP shares of stock were bought by plaintiffs at an average price of only 18 centavos per share. 3. Paragraph 3 is admitted, qualified, however, that the remaining 16,000,000 DMCI shares of plaintiffs were transferred by Westlink Global Equities, Inc. and other brokerages firms to the defendant primarily to serve as a collateral in the cash account obligations of the plaintiffs to the defendant. 4. Paragraph 4 of the Complaint is specifically denied, the truth of the matter being the DMCI shares of stock were bought by the plaintiffs at an approximate average price of only 25 centavos per share. 5. Defendant admits paragraph 5 of the Complaint insofar as the allegation that plaintiffs and defendant agreed to sell the 60,790,000 KPP share of plaintiffs to any party for the price of 14 centavos per share, qualified, however, by the presence of a provision "Full Cross to Seller" meaning that the Sellers (who are the plaintiffs) have the obligation to buy back or reacquire the shares from the buyers. 6. Defendant specifically denies paragraph 6 of the Complaint, the truth of the matter and as evidenced by the same Notices of Sale (Annex"A" to "A-6" of the Complaint), plaintiffs have no option to buy back or reacquire the said KPP shares, the nature or kind of transaction agreement is Full Cross to seller which is an obligation and not merely an option on the part of the plaintiffs to buy back or reacquire the said KPP shares sold to buyers. 7. Defendant specifically and vehemently denies the allegations of paragraphs 7 and 8 of the Complaint. The truth of the matter is that there was no extension agreed upon by the parties for the plaintiffs to exercise option to buy back/reacquire the Kuok Properties, Inc. shares of stocks (KKP). The Contracts for the sale of KPP shares of stocks as already stated above and as clearly shown from the same Annexes "A" to "A-6" of the Complaint was an obligation that there was no extension period given to the plaintiffs. 8. Defendant also specifically and vehemently denies the allegations of paragraphs 9 of the Complaint and its sub-paragraphs. The truth of the matter being that under the trading rules, honoring ones obligation is a sacred commitment of stocks and market traders. Considering that in the sale of the KPP shares there is an obligation as certified by the word Full Cross to Seller, the KPP shares of stocks that were sold to buyers have to be bought back 30 days from the transaction date at the Buy Back Amount of 18 centavos per share and that plaintiffs and defendant have to honor the said buy back obligation. Considering, however, that plaintiffs were not delivering funds to the defendant in order to honor the said buy back obligation, not to mention the Cash account obligations of the plaintiffs to the defendant amounting to more or less 70 Million Pesos, defendant had no more recourse but to buy back the KPP shares from the buyers by selling the DMCI shares of the plaintiffs under the defendants possession, and thus, enforcing the provisions of the Securities Dealing Accounts Agreements that was signed by the plaintiffs in favor of the defendant, a copy of which is hereto attached and made an integral part hereof as Annex "1". Section 7 of the aforesaid Securities Dealing Accounts Agreements states: "7. Lien

The client agrees that all monies and/or securities and/or all other property of the Client (plaintiffs) in the Companys (defendant) custody or control held from time to time shall be subject to a general lien in favour of Company for the discharge of all or any indebtedness of the Client to the Company. The Client shall not be entitled to withdraw any monies or securities held by the Company pending the payment in full to the Company of any indebtedness of the Client to the Company. The company shall be entitled at any time and without notice to the Client to retain, apply, sell or dispose of all or any of the [clients] property if any such obligation or liability is not discharged in full by the client when due or on demand in or towards the payment and discharge of such obligation or liability and the Company shall be under no duty to the client as to the price obtained or any losses or liabilities incurred or arising in respect of any such sale or disposal. Subject to the relevant law and regulation on the matter, the client hereby authorizes the Company, on his/its behalf, at any time and without notice to the clients property if any such obligation or liability is not discharged." [Emphasis in the original.] [Defendant] specifically denies the allegation of the plaintiffs that defendant sold the DMCI shares of plaintiffs for an average price of only 24 centavos for the truth of the matter being the average price those DMCI shares were sold was P0.2565 centavos per share and likewise, that price was the controlling market price of DMCI share at the time of the transaction. Defendant likewise, specifically denies the allegation that defendant surreptitiously charged and collected an interest of 30% from the plaintiff for the truth of the matter is that what defendant did not charge such interest. Moreoever, and contrary to the allegations of the Complaint, plaintiffs are fully aware and knowledgeable of the sale of their DMCI shares as early as June 2004 and that the proceeds thereof were not even enough to fully pay the buy back obligation of the plaintiffs to the buyers of KPP shares of stocks. Plaintiffs, in order to feign ignorance of the sale of their DMCI shares had attached in the Complaint various Sales Confirmations Receipts which were marked thereto as Annexes "B" to "B-7". Wittingly or unwittingly, plaintiffs attached only the Receipts that do not bear the corresponding acknowledgement signatures of their respective officers. As averred by the defendant, plaintiffs were fully aware and knowledgeable of the sale of their DMCI shares as early June 2004, and to expose the real truth, defendant hereto attaches the identical Sales Confirmation Receipts hereto marked as Annexes "2" to "2-G". In the same manner that in each and every Sales Confirmation Receipts (Annexes "2" to "2-G") the following IMPORTANT NOTICE is written: "All transaction are subject to the rules and customs of the Exchange and its Clearing House. It is agreed that all securities shall secure all my/our liabilities to e.securities and is authorized in their discretion to all or any of them without notice to we/us whenever in the opinion of e.securities my/our account is not properly secured." [Emphasis in the original.] Likewise, after each and every transaction, defendant sent Statement of Accounts showing a detailed transaction that were entered into and that plaintiffs duly received aforesaid Statement of Accounts from the defendants as evidenced by the signatures of plaintiffs respective officers hereto marked as Annexes "3" to "3-G". In each and every Statements of Accounts the following Notice is clearly printed therein: "This statement will be considered correct unless we receive notice in writing of any exceptions within 5 days from receipt. Please address all correspondence concerning exceptions to our OPERATIONS DEPARTMENT. Kindly notify us in writing of any changes in your address." Hence, plaintiffs, may have other ulterior motives in filing this baseless Complaint since they fully knew and consented almost a year ago of the nature of their transactions with the defendant. 9. Defendant admits paragraphs 10 to 12 inclusive of the subparagraphs only to the existence of the plaintiffs demand letters all dated January 5, 20[0]5, but qualifies that the aforesaid letters had been answered by the defendant on January 12, 2005. The rest of the allegations are being specifically denied. In defendants reply to the said letters, defendant clearly pointed out that plaintiffs had been duly notified of the subject transactions as early as June 9, 2004. That

defendant had furnished the plaintiffs as early as July 14, 2004 Statements of Accounts of all their transactions for the period of June 1-20, 2004 which included the sale of the subject shares with a clear instruction to notify the defendant in writing within five (5) days from receipt thereof of any exception therein. That if no correspondence was received by the defendant from the plaintiffs, the sale shall be considered as validly executed.5 On July 19, 2005, petitioners registered a Motion for Judgment on the Pleadings, 6 asserting that EIB materially admitted the allegations of their complaint by not tendering any genuine issue in its answer. This was opposed7 by EIB, with both parties subsequently filing their respective reply and rejoinder. On October 7, 2005, petitioners moved that the trial court resolve their motion for judgment on the pleadings. The Ruling of the RTC On October 18, 2005, the RTC rendered its judgment on the pleadings through a Resolution, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered directing the defendant [EIB] to return the plaintiffs [petitioners] 32,180,000 DMCI shares, as of judicial demand. On the other hand, plaintiffs are directed to reimburse the defendant the amount of P10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks at P0.18 per share. Defendants Motion to Discharge Writ of Preliminary Attachment, based on the submitted counter bond issued by Intra Strata Assurance Corporation is hereby GRANTED. SO ORDERED.8 The trial court found merit in rendering a judgment on the pleadings: first, the assailed transactions were all documented; second, the transactions were admitted by the parties; and third, the main issues can be resolved based on the parties documentary evidence appended to the pleadings. The RTC, interpreting the agreement agreed upon by the parties, held that the sale of the Kuok Properties, Inc. (KKP) shares was with a buy-back obligation and not an option as petitioners argued. However, it found that, as per their notices of sale agreements, the collateral for the sale transactions is the same KKP shares. Thus, it held that EIB erred in selling the DMCI shares instead of the KKP shares which served as collateral. It ruled that Section 7 of the Securities Dealings Account Agreement (SDAA) does not apply, since it provided for a general agreement executed prior to the subsequent and specific agreements entered into by the parties specifically for the sale and repurchase of the KKP shares. Thus, the trial court concluded that EIB went beyond its authority in selling petitioners DMCI shares in order to buy back the KKP shares. Anent petitioners apparent lack of objection to the account statements issued by EIB and the sales confirmation receipts covering the sale of DMCI shares, the RTC viewed it as not constituting ratification by petitioners for said documents did not disclose the purpose of the sale, applying the rule that any ambiguity in a written document should be strictly construed against the party who caused its preparation. In fine, it held that since the parties relat ion is fiduciary in nature, with more reason that EIB should have been more forthright in getting the prior consent of petitioners before selling the DMCI shares. EIB timely filed its motion for partial reconsideration of the RTC Resolution dated October 18, 2005. In the meantime, EIB moved to inhibit Judge Rommel O. Baybay from further handling the case. Both motions of EIB were opposed by petitioners. On April 28, 2006, RTC Judge Baybay inhibited himself.9 Subsequently, on July 26, 2006, the RTC, Branch 66, through its new Presiding Judge, Joselito C. Villarosa, denied EIBs motion for partial reconsideration. 10 After oral arguments on June 23, 2006, the RTC affirmed the propriety of the judgment on the pleadings rendered by Pairing Judge Baybay. Citing Savellano v. Northwest Airlines,11 on the strict construal of any ambiguity on a written document on the party issuing it, the trial court reiterated its ruling that petitioners

are not estopped from assailing the sale by EIB of their DMCI shares, for the sale confirmation receipts do not disclose the purpose of the sales made. The Ruling of the CA On April 11, 2008, the appellate court rendered the assailed decision, revoking the RTCs judgment on the pleadings and remanding the case back to the RTC for further proceedings. The fallo reads: WHEREFORE, premises considered, the instant appeal is GRANTED. Accordingly, the Court a quos Resolution dated 18 October 2005 is REVOKED and SET ASIDE and this case is ordered remanded to the Court a quo which is directed to conduct further proceedings hereof with dispatch. SO ORDERED.12 While EIB raised six issues on appeal, the CA resolvedwhat it considered the pivotal issue the propriety of the rendition by the trial court of a judgment on the pleadings. The CA found that while some material allegations in petitioners complaint were admitted by EIB, the latters answer nonetheless raised other genuine issues which it viewed can only be threshed out in a full-blown trial, like "the average price of the KPP shares of stock, the scope of the collaterals stated in the Notices of Sale and the monetary claims of the Appellant [EIB] against the Appellees [petitioners]."13 Petitioners filed their motion for reconsideration, while EIB filed a Manifestation with Motion for Clarification/Deletion which was opposed by petitioners. In its motion for clarification/deletion, EIB took exception to the appellate courts pronouncement that it (EIB) admitted the sale of petitioners DMCI shares for the purpose of buying back the KKP shares, which strengthened petitioners claim of the nullity of the sale. Both motions were denied by the assailed resolution issued on August 5, 2008. Thus, we have this petition. The Issues I CONTRARY TO THE RULING OF THE COURT OF APPEALS, THE TRIAL COURT WAS CORRECT IN RENDERING JUDGMENT ON THE PLEADINGS IN THE CASE BEFORE IT. II THE TRIAL COURT WAS CORRECT IN RULING THAT PETITIONERS DMCI SHARES COULD NOT BE SOLD BY RESPONDENT EIB UNDER THE NOTICES OF SALE. III THE TRIAL COURT WAS CORRECT IN HOLDING THAT RESPONDENT EIB COULD NOT INVOKE SECTION 7 OF THE SECURITIES DEALINGS ACCOUNT AGREEMENT AS BASIS FOR THE SALE OF PETITIONERS DMCI SHARES. IV THE TRIAL COURT WAS CORRECT IN HOLDING THAT PETITIONERS WERE NOT BARRED BY RATIFICATION, LACHES OR ESTOPPEL FROM QUESTIONING THE UNAUTHORIZED SALE OF THEIR DMCI SHARES. V THE TRIAL COURT HAD JURISDICTION OVER THE CASE FILED BEFORE IT BY PETITIONERS WHO HAD FULLY PAID THE DOCKET FEES ASSESSED BY THE CLERK OF COURT. VI

UNDER PREVAILING JURISPRUDENCE, THE PAIRING JUDGE DID NOT COMMIT GRAVE ABUSE OF DISCRETION. IN ANY EVENT, THE APPOINTMENT OF A PRESIDING JUDGE WHO EVENTUALLY DENIED RESPONDENTS MOTION FOR RECONSIDERATION RENDERED THE MATTER MOOT AND ACADEMIC.14 The Courts Ruling We grant the petition. Threshold Issue: Proper Payment of Docket Fees EIB asserts that the trial court has no jurisdiction over the complaint on account of insufficient dockets fees. Although petitioners paid a total of PhP 120,758.80 15 in legal fees with the RTC, EIB argues that what was paid is based merely on petitioners prayer for moral damages of PhP 3 million, exemplary damages of PhP 3 million, and attorneys fees of PhP 2 million, but not including petitioners claim for PhP 4.5 million as actual damages as averred in paragraph 9 of the complaint. Thus, EIB, relying on Manchester Development Corporation v. Court of Appeals 16 (Manchester) and Sun Insurance Office, Ltd. v. Asuncion,17 maintains that the RTC should not have entertained the case. It is hornbook law that courts acquire jurisdiction over a case only upon payment of the prescribed docket fee. A plain reading of the prayer does not show that petitioners asked for the payment of actual damages of PhP 4.5 million. The reliefs asked by petitioners in the prayer are: 1. Upon the filing of the Complaint, a writ of preliminary attachment be issued ex parte against defendant pursuant to Section 2, Rule 57 of the 1997 Rules of Civil Procedure; 2. After trial, judgment rendered in favor of plaintiffs and against defendant as follows: On the FIRST CAUSE OF ACTION declaring void the sale by defendant of the 32,180,000 DMCI shares of stock of plaintiffs and directing defendant to return to plaintiffs the latters 32,180,000 DMCI shares of stock, or in the event the return thereof is not possible, holding defendant liable under Articles 1888,1889,1909 and other pertinent provisions of the Civil Code. On the SECOND CAUSE OF ACTION directing defendant to pay plaintiffs moral damages in the amount of at least P3,000,000.00; On the THIRD CAUSE OF ACTION directing defendant to pay plaintiffs exemplary damages in the amount of at least P3,000,000.00; and On the FOURTH CAUSE OF ACTION directing defendant to pay plaintiffs attorneys fees in the amount of P2,000,000.00 and such amounts as may be proven at the trial as litigation expenses. Other just and equitable relief are likewise prayed for.18 Since the prayer did not ask for the payment of actual damages of PhP 4.5 million, the clerk of court correctly assessed the amount of PhP 120,758.80 as docket fees based on the total amount of PhP 8 million consisting of PhP 3 million as moral damages, PhP 3 million as exemplary damages, and PhP 2 million as attorneys fees. In disputing the fees paid by petitioners, respondent relies on our ruling in Manchester, where we said that "all complaints, petitions, answers and other similar pleadings should specify the amount of damages being prayed for not only in the body of the pleading but also in the prayer, and said damages shall be considered in the assessment of the filing fees in any case." 19 EIB insinuates that petitioners, by alleging the substantial loss of PhP 4.5 million from the sale of the DMCI shares but not specifying the amount in their prayer, circumvented the Manchester ruling to evade the payment of the correct filing fees. This postulation is incorrect. It is clear that petitioners demanded the return of the DMCI shares in the prayer of the complaint and NOT the alleged loss in the value of the shares. If the DMCI shares are returned, then no actual damages are suffered by petitioners. A recall of the averment in par. 9 of the complaint shows that the alleged loss of PhP 4.5 million to petitioners resulted from the sale of DMCI shares at PhP 0.24

per share when they acquired it at PhP 0.38 per share. More importantly, the court was proscribed by the Manchester ruling from granting actual damages of PhP 4.5 million to petitioners, because precisely the alleged damages were never sought in the prayer. Ergo, EIBs attack on the trial courts assumption of jurisdiction must fail. Procedural Issue: Judgment on the Pleadings At the outset, we lay stress on the Courts policy that cases should be promptly and expeditiously resolved. The Rules of Court seeks to abbreviate court procedure in order to allow the swift disposition of cases. Specifically, special strategies like demurrer to evidence, judgment on the pleadings, and summary judgment were adopted to attain this avowed goal. Full-blown trial is dispensed with and judgment is rendered on the basis of the pleadings, supporting affidavits, depositions, and admissions of the parties. In the instant petition, the Court is confronted with the propriety of the judgment on the pleadings rendered by the Makati City RTC. Petitioners claim such adjudication on said papers and attachments is proper. The petitioners position is impressed with merit. Rule 34 of the Rules of Court provides that "where an answer fails to tender an issue or otherwise admits the material allegations of the adverse partys pleading, the court may, on motion of that party, direct judgment on such pleading." Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing in the pleadings of the parties and the annexes, if any, without consideration of any evidence aliunde.20 When what is left are not genuinely issues requiring trial but questions concerning the proper interpretation of the provisions of some written contract attached to the pleadings, judgment on the pleadings is proper.21 From the pleadings, the parties admitted the following facts: (1) EIB is the stockbroker of petitioners. (2) Petitioners and EIB entered into a SDAA, Annex "1" of EIBs answer, which governed the relationship between petitioners as clients and EIB as stockbroker. Sec. 7 of the SDAA provides: 7. Lien The client agrees that all monies and/or securities and/or all other property of the Client (plaintiffs) in the Companys (defendant) custody or control held from time to time shall be subject to a general lien in favour of Company for the discharge of all or any indebtedness of the Client to the Company. The Client shall not be entitled to withdraw any monies or securities held by the Company pending the payment in full to the Company of any indebtedness of the Client to the Company. The company shall be entitled at any time and without notice to the Client to retain, apply, sell or dispose of all or any of the [clients] property if any such obligation or liability is not discharged in full by the client when due or on demand in or towards the payment and discharge of such obligation or liability and the Company shall be under no duty to the client as to the price obtained or any losses or liabilities incurred or arising in respect of any such sale or disposal. Subject to the relevant law and regulation on the matter, the client hereby authorizes the Company, on his/its behalf, at any time and without notice to the clients property if any such obligation or liability is not discharged. 22 (Emphasis supplied.) It is clear from the SDAA that all monies, securities, and other properties of petitioners in EIBs custody or control shall be subject to a general lien in favor of the latter solely for the discharge of all or any indebtedness to EIB. (3) From June 2003 to March 2004, petitioners, through their broker, EIB, bought 60,790,000 KKP shares of stock at the Philippine Stock Exchange (PSE).

(4) On various dates in July and August 2003, petitioners bought 16,180,000 DMCI shares of stock through EIB likewise at the PSE, while 16,000,000 DMCI shares of petitioners were transferred to EIB by Westlink Global Equities, Inc. Thus, a total of 32,180,000 DMCI shares of stock owned by petitioners were placed in the custody or control of EIB. (5) On April 1, 2004, petitioners ordered the sale of 60,790,000 KPP shares to any buyer at the price of PhP 0.14 per share. The KPP shares were eventually sold at PhP 0.14 per share to interested buyers. (6) Petitioners failed to reacquire or buy back the KPP shares at PhP 0.18 per share after 30 days from date of transaction. (7) As petitioners failed to deliver funds to EIB to honor the buy-back obligation, not to mention the cash account obligations of petitioners in the amount of PhP 70 million to EIB, EIB had no recourse but to sell the DMCI shares of petitioners to reacquire the KPP shares. (8) Thus, on various dates in June 2004, EIB, without petitioners knowledge and consent, sold petitioners 32,180,000 DMCI shares at the controlling market price. EIB later sent sales confirmation receipts to petitioners regarding the sale of their DMCI shares, said receipts containing the common notice, which reads: All transaction[s] are subject to the rules and customs of the Exchange and its Clearing House. It is agreed that all securities shall secure all my/our liabilities to e.securities and is authorized in their discretion to sell all or any of them without notice to we/us whenever in the opinion of e.securities my/our account is not properly secured.23 (Emphasis supplied.) (9) EIB sent statements of accounts to petitioners showing the sale of the DMCI shares which uniformly contained the following notice: This statement will be considered correct unless we receive notice in writing of any exceptions within 5 days from receipt. Please address all correspondence concerning exceptions to our OPERATIONS DEPARTMENT. Kindly notify us in writing of any changes in your address.24 (10) On January 12, 2005, petitioners wrote EIB demanding the return of the 32,180,000 DMCI shares. (11) On January 12, 2005, EIB rejected petitioners demand for the return of the DMCI shares, as those were already sold to cover the buy back of the KPP shares. (12) Petitioners prayer is the return of the 32,180,000 DMCI shares by EIB to them. The principal issue in petitioners complaint is whether EIB can be compelled to return DMCI shares to petitioners based on the alleged unauthorized disposal or sale of said shares to comply with the buy back of the KKP shares. The threshold issue raised in the answer is the lack of jurisdiction over the complaint due to the alleged nonpayment of the proper docket fees. Affirmative defenses presented are that EIB disposed of the DMCI shares pursuant to Sec. 7 of the SDAA, and the notices of sale, ratification and laches. Based on the admissions in the pleadings and documents attached, the Court finds that the issues presented by the complaint and the answer can be resolved within the four corners of said pleadings without need to conduct further hearings. As explained by the Court in Philippine National Bank v. Utility Assurance & Surety Co., Inc.,25 when what remains to be done is the proper interpretation of the contracts or documents attached to the pleadings, then judgment on the pleadings is proper. In the case at bar, the issue of whether the sale of DMCI shares to effectuate the buy back of the KKP shares is valid can be decided by the trial court based on the SDAA, Notices of Sale, Sales Confirmation Receipts, the letters of the parties, and other appendages to the pleadings in conjunction with the allegations or admissions contained in the

pleadings without need of trial. The Makati City RTC is, therefore, correct in issuing the October 18, 2005 Resolution granting the Motion for Judgment on the Pleadings. The CA nullified the October 18, 2005 Resolution on the ground that there are other issues that must be resolved during a full-blown trial, ratiocinating this way: While it may be true that the Appellant has already admitted that the sale of the DMCI shares was for the purpose of buying back the KPP shares and that such admission strengthened Appellees claim that the sale of the DMCI shares is a nullity, there were other issues raised by the Appellant that can only be threshed out during a full blown trial, viz: the average price of the KPP shares of stock, the scope of the collaterals stated in the Notices of Sale and the monetary claims of the Appellant against the Appellees.26 To the mind of the Court, these matters are not genuinely triable issues but actually minor issues or mere incidental questions that can be resolved by construing the statements embodied in the appendages to the pleadings. The facts that gave rise to the side issues are undisputed and were already presented to the trial court rendering trial unnecessary. On the disparity in the average price of KPP shares of stock, petitioners claim that the average purchase price of the KPP share is PhP 0.22 per share (par. 2 of the complaint), while EIB claims it is only PhP 0.18 per share (par. 2 of the answer). The dissimilarity in the acquisition price paid by petitioners for the KPP shares is a non-issue, since the relief prayed for is the return of the DMCI shares and not the KPP shares. Petitioners did not even claim actual damages in the prayer of the complaint. On the scope of the collaterals stated in the Notices of Sale, it is clear from the notices that the collateral is "KPP Shares/Property":

April 01, 2004 PACIFIC REHOUSE CORP. Makati City Philippine[s] RE: SALE OF KUOK PROPERTIES INC., (KPP) As agreed upon the above mentioned stock will be sold to a party with the following conditions attached: NUMBER OF SHARES : 5,800,000/SHARES AMOUNT @ SHARE : PHP 0.14 CHARGES : Sellers Account BUY BACK DATE : after 30 days (used on transaction date) BUY BACK AMOUNT : PHP 0.18 DATE OF EXECUTION : APRIL 01, 200[4] KIND OF TRANSACTION : FULL CROSS TO SELLER COLLATERAL : KPP SHARES/PROPERTY For and behalf of EIB Securities. [Signed] PAULINE TAN27

April 01, 2004 FORUM HOLDINGS CORP. Makati City Philippine[s] RE: SALE OF KUOK PROPERTIES INC., (KPP) As agreed upon the above mentioned stock will be sold to a party with the following conditions attached: NUMBER OF SHARES : 15,560,000/SHARES AMOUNT @ SHARE : PHP 0.14 CHARGES : Sellers Account BUY BACK DATE : after 30 days (used on transaction date) BUY BACK AMOUNT : PHP 0.18 DATE OF EXECUTION : APRIL 01, 200[4] KIND OF TRANSACTION : FULL CROSS TO SELLER COLLATERAL : KPP SHARES/PROPERTY For and behalf of EIB Securities. [Signed] PAULINE TAN28

COLLATERAL : KPP SHARES/PROPERTY For and behalf of EIB Securities. [Signed] PAULINE TAN29

April 01, 2004 REXLON REALTY GROUP INC. Makati City Philippine[s] RE: SALE OF KUOK PROPERTIES INC., (KPP) As agreed upon the above mentioned stock will be sold to a party with the following conditions attached: NUMBER OF SHARES : 5,000,000/SHARES AMOUNT @ SHARE : PHP 0.14 CHARGES : Sellers Account BUY BACK DATE : after 30 days (used on transaction date) BUY BACK AMOUNT : PHP 0.18 DATE OF EXECUTION : APRIL 01, 200[4] KIND OF TRANSACTION : FULL CROSS TO SELLER

April 01, 2004 MIZPAH HOLDINGS INC. Makati City Philippine[s] RE: SALE OF KUOK PROPERTIES INC., (KPP) As agreed upon the above mentioned stock will be sold to a party with the following conditions attached: NUMBER OF SHARES : 8,430,000/SHARES AMOUNT @ SHARE : PHP 0.14 CHARGES : Sellers Account BUY BACK DATE : after 30 days (used on transaction date) BUY BACK AMOUNT : PHP 0.18 DATE OF EXECUTION : APRIL 01, 200[4] KIND OF TRANSACTION : FULL CROSS TO SELLER

COLLATERAL : KPP SHARES/PROPERTY For and behalf of EIB Securities. [Signed] PAULINE TAN30

April 01, 2004 RECOVERY DEVELOPMENT CORP. Makati City Philippine[s] RE: SALE OF KUOK PROPERTIES INC., (KPP) As agreed upon the above mentioned stock will be sold to a party with the following conditions attached: NUMBER OF SHARES : 12,350,000/SHARES

AMOUNT @ SHARE : PHP 0.14 CHARGES : Sellers Account BUY BACK DATE : after 30 days (used on transaction date) BUY BACK AMOUNT : PHP 0.18 DATE OF EXECUTION : APRIL 01, 200[4] KIND OF TRANSACTION : FULL CROSS TO SELLER COLLATERAL : KPP SHARES/PROPERTY For and behalf of EIB Securities. [Signed] PAULINE TAN31

any indebtedness and other obligations of the client to [EIB]." 33 Thus, the DMCI shares owned by petitioners are covered by the word "Property" in the Notices of Sale. On the monetary claims by petitioners against EIB, said claims are not a bar to a judgment on the pleadings. While it was averred by petitioners under par. 9 of the complaint that they suffered a loss of PhP 4.5 million from the sale of the DMCI shares, the claim for actual damages was not set up as a relief in the prayer and, therefore, the Manchester doctrine precludes such award to petitioners. Anent the claim for moral damages of PhP 3 million, exemplary damages of PhP 3 million, and attorneys fees of PhP 2 million, the claim is not proper in a judgment on the pleadings in the absence of proof.34 Sans such proof extent on record, the claim for damages is a non-issue. In sum, there are no genuine issues that cannot be determined based on the pleadings. Ergo, the assailed October 18, 2005 Resolution of the Makati City RTC granting judgment on the pleadings is in accord with Rule 34 of the Rules of Court and settled jurisprudence. Authority of EIB to Sell DMCI Shares of Petitioners Petitioners assert the inapplicability of Sec. 7 of the SDAA to their liability to reacquire the KKP shares, as the DMCI shares were not sold to pay for their PhP 70 million obligation to EIB but to settle their obligation to the buyers of their KKP shares. Petitioners position is impressed with merit. We rule that EIB has no legal authority to sell the DMCI shares for the purpose or reacquiring the KKP shares.

April 01, 2004 PACIFIC WIDE REALTY DEVELOPMENT CORP. Makati City Philippine[s] RE: SALE OF KUOK PROPERTIES INC., (KPP) As agreed upon the above mentioned stock will be sold to a party with the following conditions attached: NUMBER OF SHARES : 9,000,000/SHARES AMOUNT @ SHARE : PHP 0.14 CHARGES : Sellers Account BUY BACK DATE : after 30 days (used on transaction date) BUY BACK AMOUNT : PHP 0.18 DATE OF EXECUTION : APRIL 01, 200[4] KIND OF TRANSACTION : FULL CROSS TO SELLER COLLATERAL : KPP SHARES/PROPERTY For and behalf of EIB Securities [Signed] PAULINE TAN32

Sec. 7 of the SDAA pertains to outstanding obligations or indebtedness of petitioners to EIB but does not cover any obligation of petitioners to third-party purchasers to reacquire its KKP shares under the "full cross to seller" buy-back obligation subject of the various notices of sale. Let us scrutinize anew Sec. 7 of the SDAA: 7. Lien The client agrees that all monies and/or securities and/or all other property of the Client (plaintiffs) in the Companys (defendant) custody or control held from time to time shall be subject to a general lien in favour of Company for the discharge of all or any indebtedness of the Client to the Company. The Client shall not be entitled to withdraw any monies or securities held by the Company pending the payment in full to the Company of any indebtedness of the Client to the Company. The company shall be entitled at any time and without notice to the Client to retain, apply, sell or dispose of all or any of the [clients] property if any such obligation or liability is not discharged in full by the client when due or on demand in or towards the payment and discharge of such obligation or liability and the Company shall be under no duty to the client as to the price obtained or any losses or liabilities incurred or arising in respect of any such sale or disposal. Subject to the relevant law and regulation on the matter, the client hereby authorizes the Company, on his/its behalf, at any time and without notice to the clients property if any such obligation or liability is not discharged. (Emphasis supplied.) As couched, the lien in favor of EIB attaches to any money, securities, or properties of petitioners which are in EIBs possession for the discharge of all or any indebtedness and obligations of petitioners to EIB. For this, petitioners are also barred from withdrawing its assets that are in the possession of EIB pending full payment by petitioners of their indebtedness to EIB. The above proviso also gives EIB the authority to sell or dispose of petitioners securities or properties in its possession to pay for petitioners indebtedness to EIB. It is, thus, evident from the above SDAA provision that said lien and authority granted to EIB to dispose of petitioners securities or properties in the formers possession apply only to discharge and pay off petitioners indebtedness to EIB and nothing more. Sec. 7 of the SDAA does not apply to petitioners obligations to third -party purchasers of their KKP shares under the "full cross to seller" obligation, and certainly EIB could not use said provision for the repurchase of the KKP shares. Indubitably, the sale of the DMCI shares made by EIB is null and void for lack of authority to do so, for petitioners never gave their consent or permission to the sale.

The determination of the collateral in said notices can easily be made from the notices itself and Sec. 7 of the SDAA. The KPP shares stated in the notices refer to the KPP shares owned by the "Petitioners" and sold to third parties by EIB. The word "Property" in the notices is elucidated in the aforementioned Sec. 7 as "all monies and/or securities and/or all other property of the Client in the companys custody or control held from time to time (Clients Property) x x x." These properties shall be subject to "a general lien in favour of the Company for the discharge of all or

Moreover, Article 1881 of the Civil Code provides that "the agent must act within the scope of his authority." Pursuant to the authority given by the principal, the agent is granted the right "to affect the legal relations of his principal by the performance of acts effectuated in accordance with the principals manifestation of consent."35 In the case at bar, the scope of authority of EIB as agent of petitioners is "to retain, apply, sell or dispose of all or any of the clients [petitioners] property," if all or any indebtedness or other obligations of petitioners to EIB are not discharged in full by petitioners "when due or on demand in or towards the payment and discharge of such obligation or liability." The right to sell or dispose of the properties of petitioners by EIB is unequivocally confined to payment of the obligations and liabilities of petitioners to EIB and none other. Thus, when EIB sold the DMCI shares to buy back the KKP shares, it paid the proceeds to the vendees of said shares, the act of which is clearly an obligation to a third party and, hence, is beyond the ambit of its authority as agent. Such act is surely illegal and does not bind petitioners as principals of EIB. As a last-ditch effort, EIB seeks refuge from the notices of sales it issued to petitioners: Let us scrutinize a typical notice of sale issued to petitioners, thus: RE: SALE OF KUOK PROPERTIES INC. (KPP) As agreed upon the above mentioned stock will be sold to a party with the following conditions attached: NUMBER OF SHARES : x x x/SHARES AMOUNT @ SHARE : PHP 0.14 CHARGES : Sellers Account BUY BACK DATE : After 30 days [based on transaction Date] BUY BACK AMOUNT : PHP 0.18 DATE OF EXECUTION : APRIL 1, 200[4] KIND OF TRANSACTION : FULL CROSS TO SELLER COLLATERAL : KPP SHARES/PROPERTY For and behalf of EIB Securities. [Signed] PAULINE TAN The above notice states that the collateral is KPP Shares/Property. EIB asserts that the word "Property" refers to all the "monies and/or securities and/or all other property" of petitioners in EIBs custody or control pursuant to Sec. 7 of the SDAA. This postulation is correct. The DMCI shares are included in the word "Property" under Sec. 7 of the SDAA. However, EIBs theory stops there. As earlier explained, the SDAA, more pa rticularly its Sec. 7, cannot be made the legal basis for EIB to sell petitioners properties in its possession or custody to pay petitioners obligations to third parties. The SDAA is confined only to obligations of petitioners to EIB and not to third parties like the purchases of the KKP shares. Thus, the sale of the DMCI shares to buy back the KPP shares is illegal and ineffective, since it is only answerable for the liabilities of petitioners to EIB and no one else. The notices of sale issued by EIB covering the sale of the KKP shares of petitioners clearly show that the very same KKP shares sold to third parties albeit under a buy-back arrangement and the "Property" of petitioners were made the collaterals to secure the payment of the reacquisition. Since the possession of the KKP shares and the "Property" were placed in EIB, a third party by common agreement, then the accessory contract in the case at bar is a contract of pledge governed by Arts. 2085 to 2092 of the Civil Code, which are provisions common to pledge and mortgage, and Arts. 2093 to 2139 on pledge.

The query is whether or not the pledge on "KKP Shares/Property" is valid. The answer is no. Art. 2085 of the Civil Code provides: Art. 2085. The following requisites are essential to the contracts of pledge and mortgage: (1) That they be constituted to secure the fulfillment of a principal obligation; (2) That the pledgor or mortgator be the absolute owner of the thing pledged or mortgaged; (3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. It is indispensable that the pledgor is the absolute owner of the thing pledged (second element). In the case at bar, the KKP shares were sold to third parties by EIB at PhP 0.14 and, as a result, petitioners lost their right of ownership over the KKP shares. Hence, from the time of the sale, petitioners were no longer the absolute owners of said shares, making the pledge constituted over said KKP shares null and void.36 Also, it is necessary under Art. 2085 that the person constituting the pledge has the free disposal of his or her property, and in the absence of that free disposal, that he or she be legally authorized for the purpose (third element). This element is absent in the case at bar. Petitioners no longer have the free disposal of the KKP shares when EIB sold said shares at the stock exchange as they are no longer the owners of the shares. Thus, there was no valid pledge constituted on the KKP shares. The notice of sale, assuming it incorporates the accessory contract of pledge, merely stated "Property" as collateral in addition to KKP shares. This is a blatant violation of Art. 2096, which provides that "a pledge shall not take effect against third persons if description of the thing pledged and the date of the pledge do not appear in a public instrument." The thing pledged must be amply and clearly described and specifically identified. Evidently, the word "Property" is vague, broad, and confusing as to the ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code. Worse, the notice of sale is not in a public instrument as required by said legal provision; therefore, the pledge on "property" is void and without legal effect. Moreover, the notices of sale must be construed against EIB. Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it.371avvphi1 The DMCI shares which EIB construed to be included within the ambit of the word "property" cannot be considered the thing pledged to secure the buy back of the KKP shares in view of the vagueness of the word "Property" and the non-applicability of the SDAA to the sale of the KKP shares. Lastly, the appellate court ruled that the affirmative defense of estoppel was raised by EIB due to the alleged failure of petitioners to object to the sale of the DMCI shares. The principle of estoppel rests on the rule that: [W]here a party, by his or her deed or conduct, has induced another to act in particular manner, estoppel effectively bars the former from adopting an inconsistent position, attitude or course of conduct that causes loss or injury to the latter. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one whom they were directed and who reasonably relied thereon.38 The essential elements of estoppel as related to the party estopped are: (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which calculated

to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at least expectation, that such conduct shall be acted upon by the other party; and (3) knowledge, actual or constructive, of the actual facts.39 Reliance by respondent EIB on estoppel is misplaced. The first element does not obtain from the factual setting presented by the pleadings, attachments, and admissions. There is no allegation that petitioners performed an act which can be considered as false representation that EIB can sell their DMCI shares to reacquire the KKP shares, or concealed a material fact. Sec. 7 of the SDAA is unequivocal that EIB can only sell the shares of petitioners for payment of any indebtedness to EIB. There was no act or concealment on the part of petitioners that made known or conveyed the impression to EIB that it can sell the DMCI shares of petitioners for the latters indebtedness or obligation to a third party in contravention of EIBs authority under Sec. 7 of the SDAA. Moreover, the second element is also absent. There was no showing that petitioners authorized EIB to pay a third party from the proceeds of the sale of their DMCI shares. Lastly, on the third element, petitioners had no knowledge of the fact that the proceeds of the sale of DMCI shares were paid to buy back the KPP shares. Reliance of EIB on the sales confirmation receipts40 issued to petitioners does not help any. The condition printed on said receipts explicitly states that the "securities shall secure [petitioners] liabilities to e.securities." Even the account statements41 issued by EIB do not reflect the payment of the proceeds of the sale of DMCI shares owned by petitioners to buy back the KKP shares previously owned by petitioners. All that these accounts show is the crediting of the proceeds of the sale of DMCI shares to petitioners and nothing more. There was no disclosure of the purpose of the sale of the DMCI shares. Clearly, there is no estoppel. WHEREFORE, the petition is GRANTED. The CA Decision dated April 11, 2008 in CA-G.R. CV No. 87713 is REVERSED and SET ASIDE. The RTC Resolution dated October 18, 2005 in Civil Case No. 05-178 is hereby REINSTATED. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 192085 February 22, 2012

V. Irrigated riceland, with an area of 1.5652 hectares, located at Bololo Centro, Libon, Albay, declared under Tax No. 07-005-104 in the sum of P 48,290.00 VI. Irrigated riceland, with an area of .6720 hectares, located at Bololo Centro, Libon, Albay, declared under Tax No. 07-005-103 in the sum of P 29,730.00 VII. Irrigated riceland, with an area of .6380 hectares, located at Balagon Centro, Libon, Albay, declared under Tax No. 07-005-222 in the sum of P 19,680.00 VIII. Coconut land, with an area of ten (10) hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-85 in the sum of P 42,840.00 IX. Coconut land, with an area of 3.7102 hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-86 in the sum of P 15,740.005 The properties shall hereinafter be referred to individually as "Lot I," "Lot II" and so on for brevity. Respondent avers that Lots I to IX are productive, and that petitioner as the administrator has collected and received all the fruits and income accruing therefrom. Petitioner, on the other hand, claims that several of the properties do not produce any fruit or generate any income at all,6 and that any supposed income derived from them is not sufficient to answer for all the expenses incurred to maintain them. 7 According to respondent, petitioner never rendered a full accounting of the fruits and income derived from the properties, but has instead appropriated and in fact applied these for her own use and benefit. Denying this allegation, petitioner presented five letters dated 21 January 1983, 12 March 1984, 15 September 1986, 2 December 1988, and one undatedwhich had been sent to respondent as proof of the accounting. 8 Furthermore, petitioner denies receipt of any letter asking her to make an accounting or to remit the fruits collected from the properties. 9 She further avers that, since the start of her agency agreement with respondent, the latter never answered "any of the communications" petitioner had sought to initiate. 10 As a result of the foregoing, respondent revoked, in writing, all the powers and authority of administration granted to petitioner effective March 1997. Thereafter, the former demanded that petitioner return and/or turn over the possession and administration of the properties. Respondent claims that she made repeated verbal, and served written, demands upon petitioner, asking the latter to render an accounting and to remit the owners share of the fruits. Petitioner, however, continued to fail and to refuse to perform her obligation. 11 In fact, she continues to hold on to the properties and the management and administration thereof. Further, she continues to collect, receive, and keep all the income generated by the properties. Thus, on 30 October 1997, respondent filed her Complaint with Preliminary Injunction, 12 praying that the RTC order petitioner to render an accounting and remit all the fruits and income the latter, as the administrator, received from the properties. In her Answer with Counterclaim,13 petitioner alleges as follows: 2.a. Lot area of 573 sq.m.-is being leased by Salome S. Segarra which is duly covered by a Lease Contract executed during the effectivity of the Special Power of Attorney granted to the herein defendant. Furthermore, the said Lease Contract was entered into with the express consent, and without any objection on the part of the plaintiff since she was consulted prior to its execution; xxx,

CARIDAD SEGARRA SAZON, Petitioner, vs. LETECIA VASQUEZ-MENANCIO, represented by Attorney-in-Fact EDGAR S. SEGARRA, Respondent. Villarama* DECISION SERENO, J.: The present case stems from a Complaint for Recovery of Possession of Real Properties, Accounting and Injunction1 filed by Leticia Vasquez-Menancio (respondent) against Caridad S. Sazon (petitioner) in the Regional Trial Court (RTC) of Ligao City, Albay. The RTC ruled in favor of respondent, but reversed itself when petitioner filed a Motion for Reconsideration (MR). Respondent appealed the case to the Court of Appeals (CA), but it affirmed the first Decision of the RTC. She filed another MR, but the CA denied it for lack of merit. The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the 26 November 2009 Decision3 of the appellate court in CA-GR CV No. 91570. The challenged Decision disposed as follows: WHEREFORE, the appeal is DISMISSED. The Decision dated 31 July 2007 of the Regional Trial Court, Branch 13, Ligao City, in Civil Case No. T-1944 is AFFIRMED with MODIFICATION in that Caridad S. Sazon is ORDERED to pay Leticia Vasquez-Menancio the amount of P 908,112.62, representing the unremitted fruits and income of the subject properties from 1979 to 1997. This is already net of administration expenses, allowance for compensation and proved real estate taxes paid. The Decision is affirmed in all other respects. SO ORDERED.4 Antecedents Respondent is a resident of the United States of America. Sometime in 1979, she entrusted the management, administration, care and preservation of her properties to petitioner. These properties are more specifically described as follows: I. Residential lot, with an area of 573 sq. m., located in Zone III, Libon, Albay, declared under Tax No. 097-03-0066 in the sum of P 24,070.00 II. Residential lot, with an area of 299 sq. m., located in Zone III, Libon, Albay, declared under Tax No. 097-003-00115 in the sum of P 12,560.00 III. Residential lot, with an area of 873 sq. m., located in San Antonio St., Libon, Albay, declared under Tax No. 097-003-00068 in the sum of P 36,670.00 IV. Irrigated riceland, Cad. Lot No. 852, with an area of 3.1304 hectares, located at San Isidro, Libon, Albay, declared under Tax No. 07-039-235 in the sum of P 96,580.00
2

2.b. Lot area of 299 sq. m. This is included in the [L]ease [C]ontract abovementioned. 2.c. Lot area of 873 sq. m. This is likewise duly covered by a Lease Contract executed between the herein defendant as lessee and Ana C. Segarra when the latter was still the administrator of the properties of the plaintiff. The said Lease Contract was likewise entered into with the express consent and without any objection on the part of the plaintiff since she was again consulted prior to its execution; xxx. 2.d. Lot area of 3.1304 hectares this is administered as to 2/3 of the total land area but not as to the other 1/3 as the same is owned by the defendants mother Ana C. Segarra by virtue of a contract of sale from Mrs. Josefina Segarra, the coowner of the plaintiff over the said land; xxx, 2.e. Lot area of 1.5652 hectares and .6720 hectares are not owned by the plaintiff but that of the mother of the herein defendant Ana C. Segarra by virtue of a Deed of Redemption, as in fact, they are in possession thereof as owners and not as administrator of the plaintiff; xxx, 2.f. Lot area of .6380 hectares said land is presently possessed by the alleged administrator of the plaintiff yet the plaintiff still seeks the return of the same which constitutes an act that trifles with the administration of justice and further prove that this groundless case was filed with this court purely to harass the herein defendant; 2.g. Lot area of 10 hectares and Lot area of 3.7102 hectares the herein defendant is no longer in possession of these lots as in fact, the fruits of these lands are not being turned over to the defendant ever since the plaintiff revoked the authority given to the defendant, xxx.14 In short, petitioner argues that respondent has no cause of action against her for the following reasons:15 1. The properties that cannot be returned because they are under valid lease agreementsLots I-IIIand those that have been transferred to a third party by virtue of contracts of sale with corresponding deeds of redemption Lots V and VIcan no longer be given to respondent;16 2. Some properties are already in respondents possessionLots IV and VII-IX.17 By way of compulsory counterclaim, petitioner is asking this Court to order respondent to return the one-third portion of Lot IV allegedly owned by petitioners mother and the fruits collected therefrom.18 During the pretrial conference held on 24 July 1998, the parties agreed that respondent already had possession over Lots IV, VII, VIII, and IX. They also agreed that all the income derived from Lots I to IX since 1979 were received by petitioner. 19 In a Decision20 dated 31 July 2007, the RTC ruled in favor of respondents. The dispositive portion thereof reads: WHEREFORE, the foregoing premises duly considered, judgment is hereby rendered in favor of plaintiff Leticia Vasquez-Menancio and against defendant Caridad S. Sazon, as follows: a) ordering the defendant to turn over the possession, management and administration of all the properties enumerated in paragraph 2 of the complaint, except parcels 4, 7, 8 and 9 which were already under plaintiffs possession since August, 1977, to the plaintiff, thru attorney-in-fact Edgar S. Segarra;

b) ordering the defendant to remit to the plaintiff the total sum of P 1,265,493.75 representing unremitted fruits and income of the subject properties, less the amount of P 150,000.00 by way of administration expenses incurred by defendant; c) ordering the defendant to pay the plaintiff the sum of P 50,000.00 as moral damages; d) ordering the defendant to reimburse the plaintiff the sum of P 20,000.00 as and for attorneys fees, plus the sum of P 1,000.00 for every court appearance of counsel; and e) ordering the defendant to pay the costs of the suit. On the other hand, plaintiff Leticia Vasquez-Menancio is hereby ordered to pay defendant Caridad S. Sazon the total sum of P 180,000.00, representing the latters compensation in administering the formers properties based on quantum meruit. SO ORDERED.21 Petitioner filed her MR on 20 August 2007 questioning the trial courts Decision to rely on the computation made by respondents attorney-in-fact. These computations, reflected in paragraph (b) of the dispositive portion, were used by the RTC to determine the prices of palay, corn and copra at the time that petitioner administered the properties. Realizing, however, that it should have considered the Certifications issued by the National Food Authority (NFA) and the Philippine Coconut Authority (PCA) for that purpose, the RTC ruled in favor of respondent and partly reversed its 28 March 2008 Decision, the dispositive portion of which reads: WHEREFORE, the foregoing premises duly considered, the Court resolves to set aside the Decision dated July 31, 2007. In lieu thereof, a new decision is hereby rendered as follows: a) ordering the defendant Caridad S. Sazon to turn over the possession, management and administration of all the properties enumerated in paragraph 2 of the complaint, except parcels 4, 7, 8 and 9 which were already under plaintiffs possession since August, 2007, to plaintiff Leticia Vasquez-Menancio, thru her attorney-in-fact Edgar S. Segarra; b) ordering the defendant to render full, accurate and complete accounting of all the fruits and proceeds of the subject properties during the period of her administration; and c) ordering the defendant to reimburse the plaintiff the sum of P 20,000.00, as and for attorneys fees; Costs against defendant. SO ORDERED.22 (Emphasis supplied in the original) Still aggrieved, petitioner raised the matter to the CA, but it dismissed her appeal. It affirmed the trial courts 31 July 2007 Decision, except for the amount ordered to be remitted to respondent, which was reduced to P 908,112.62. The MR filed by petitioner was also denied on 29 April 2010.23 Petitioner is now asking this Court to set aside the CAs Decision. 24 In questioning the Decision of the CA, petitioner first raises a procedural issue. She argues that the appellate court should not have affirmed the RTC Decision in this case, because when the trial court abandoned its original Decision, the latter impliedly admitted that it had "committed erroneous findings of facts."25 Respondent argues that the CA had the power

to affirm the RTCs second Decisionthe Resolution on the MRbecause the entire case was opened for review upon appeal. We agree with respondent. In Heirs of Carlos Alcaraz v. Republic of the Philippines, 26 we reiterated the cardinal rule that when a case is appealed, the appellate court has the power the review the case in its entirety, to wit: In any event, when petitioners interposed an appeal to the Court of Appeals, the appealed case was thereby thrown wide open for review by that court, which is thus necessarily empowered to come out with a judgment as it thinks would be a just determination of the controversy. Given this power, the appellate court has the authority to either affirm, reverse or modify the appealed decision of the trial court. To withhold from the appellate court its power to render an entirely new decision would violate its power of review and would, in effect, render it incapable of correcting patent errors committed by the lower courts. Thus, we agree with respondent that the CA was free to affirm, reverse, or modify either the Decision or the Order of the RTC. Next, petitioner avers that she cannot turn over possession of Lots I to III, because these are subject of valid lease agreements . None of the parties question the appellate courts finding that the lease agreements covering Lots I-III should be respected. After all, when petitioner entered into these agreements, she acted within her authority as respondents agent.27 In this matter, we agree with the CA in its ruling that even though the lease agreements covering these lots should be respected, petitioner must turn over the administration of the leases to respondents attorney-in-fact.28 The reason is that respondent has already revoked the authority of petitioner as administrator. Hence, the latter no longer has the right to administer the properties or to receive the income they generate on respondents behalf. With respect to the one-third portion of Lot IV, the parties also agree that the sale of onethird of this lot to petitioners mother s hould be respected by respondent.29 Lot IV has been in the latters possession since 1997. Since it is not controverted that one -third of this lot is now owned by petitioners mother, respondent should turn over possession of the corresponding one-third portion and remit all fruits collected therefrom since 1997. Petitioner questions the factual findings of the appellate court. She claims that the CA erred in finding that "the reason why petitioner allegedly never rendered an accounting of income is because the respondent never demanded it." 30 According to petitioner, she never claimed that this was the reason why she never rendered an accounting of income. In fact, she insists that she actually sent letters of accounting to respondent. Supposedly, she only said that respondent never demanded accounting from her to refute the claim of respondent that such demand letter was sent to her. Petitioner insists, however, that Article 1891 of the Civil Code contains a few of the obligations owed by an agent to his principal, viz: Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal. Every stipulation exempting the agent from the obligation to render an account shall be void.

It is evident that the reason behind the failure of petitioner to render an accounting to respondent is immaterial. What is important is that the former fulfill her duty to render an account of the relevant transactions she entered into as respondents agent . Petitioner claims that in the course of her administration of the properties, the letters she sent to respondent should be considered as a fulfillment of her obligation, as respondents agent, to render an accounting of her administration. 31 Both the RTC and the CA found these letters insufficient. We agree. Petitioner was the administrator of respondents properties for 18 years or from 1979 to 1997, and four letters within 18 years can hardly be considered as sufficient to keep the principal informed and updated of the condition and status of the latters properties. As to Lots V and VI, petitioner avers that ownership thereof was transferred to her mother through a Deed of Redemption,32 viz: Defendant averred that her mother owned parcels 5 and 6. She Identified a Deed of Redemption purporting to have transferred the property to her mother. When the deed was executed, plaintiff was in the United States but defendants mother notified her. She saw her mother putting 100-peso bills amounting to P 6,500.00 in a big brown envelope to pay for the lot. Her father Simeon Segarra who just came from the United States gave her the money.33 On this matter, the RTC found thus: As regards parcels 5 and 6, the defendant averred that they were owned by her mother Ana Segarra because she was the one who redeemed the properties. But the evidence extant in the records disclosed that the said parcels of land were declared for taxation purposes in the name of plaintiff Leticia Vasquez-Menancio. In many cases, it has been repeatedly held that although tax declarations are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of an owner for no one in his right mind would be paying taxes for a property that is not under his actual or at least constructive possession. Hence, the fruits and profits of these properties shall still incur to the plaintiff.34 For its part, the CA held as follows: To prove that one of Leticias properties now belongs to her mother, Ana Segarra, Sazon presented evidence showing that when Ana was still the administrator of Leticias properties, she redeemed Leticias property that was sold by Leticias father to vendee -aretro, Loreto San Andres-Seda. However, the Deed of Redemption clearly shows that Ana redeemed the property only in her capacity as attorney-in-fact of Leticia, and not in her personal capacity.35 Factual findings of the trial court are accorded high respect and are generally not disturbed by appellate courts, unless found to be clearly arbitrary or baseless. 36 This Court does not review the factual findings of an appellate court, unless these findings are "mistaken, absurd, speculative, conjectural, conflicting, tainted with grave abuse of discretion, or contrary to the findings culled by the trial court of origin." 37 Although the pronouncement of the trial court is not identical to that of the CA, the declaration of one corroborates the findings of the other. We rule that the findings of the lower court and the CA regarding Lots V and VI should be respected. The mother of petitioner purchased both of these lots in her capac ity as respondents attorney-in-fact, which explains why these lots werefor taxation purposesdeclared in the name of respondent. Petitioner bewails the appellate courts supposed failure to rule on her claim that respondent promised to give the former a 20% commission for the sale of respondents properties in Las Pias, Quiapo; and Fraternal, Sampaloc, Manila. 38 We rule that petitioner

failed to prove that this agreement had been entered into. No other evidence, except for her testimony, was presented to prove that an agreement of this nature had been entered into between the parties.39 Finally, the crux of the present Petition is the determination of the value of all the fruits and proceeds collected from respondents properties from 1979 to 1997 and the total sum thereof. Petitioner does not deny that she never remitted to respondent any of the fruits or income derived from the properties. Instead, petitioner claims that (1) the properties did not produce any fruit or generate any income at all; 40 (2) any supposed income derived from the properties was not sufficient to answer for all the expenses incurred to maintain them; 41 and (3) she was never compensated for the services she rendered as the administrator of respondents properties. As previously mentioned, every agent is bound to deliver to the principal whatever the former may have received by virtue of the agency, even though that amount may not be owed to the principal.42 In determining the value of the fruits, the RTCin its original Decisionrelied on the computation submitted by respondents attorney-in-fact and ordered petitioner to remit to respondent the total sum of P 1,265,493.75, to wit: At the outset, it may be stated that plaintiffs attorney -in-fact Edgar S. Segarra, being a farmer himself and a resident of the area where the subject properties are located can best testify regarding the income thereof. In preparing a computation of income of his principal, plaintiff Leticia Vasquez-Menancio, he consulted people from the agrarian sector, as well as grains buyers. He also referred to the lease contracts entered into between the former administratrix and the tenants. Based on his computation, the amount which represented the fruits of the properties being administered by the defendant but were not remitted to the plaintiff totaled P 1,265,493.75 xxx, which amount to the mind of the Court, is not colossal but a reasonable claim, especially in this instance where the subject properties have been administered by defendant and her mother for more than (10) years. 43 The computation is based on the alleged prevailing price of P 8.75 per kilo for palay and P 12 per kilo for copra. The trial court also ordered respondent to reimburse petitioner in the amount of P 150,000 representing the administrative expenses the latter incurred as the agent. Furthermore, petitioner was awarded P 180,000 as compensation for administering respondents properties. Lastly, petitioner was ordered to pay respondent attorneys fees in the amount of P 20,000 plus P 1,000 for every appearance of counsel. In the Order of the RTC reversing its Decision, it found that it should have considered the Certifications issued by the NFA and PCA with respect to the prevailing prices of palay, corn, and copra at the time of petitioners administration. These Certifications revealed that the prevailing prices from 1979 to 1997 were as follows: (1) from P 1.75 to P 8 per kilo for palay; (2) from P 1to P 6 per kilo for corn; and (3) from P 3.15 to P 10.77 per kilo for copra. The RTC found that the parties failed to prove the exact quantity and quality of harvests for the period. Consequently, it ordered petitioner to "render full, accurate, and complete accounting of all the fruits and proceeds of the subject properties during the period of her administration."44 The CA affirmed the RTCs original Decision and ordered petitioner to pay respondent the amount of P 1,315,533.75even though the trial court had ordered the return of only P 1,265,493.75representing the total value of the fruits and rents derived from the properties from 1979 to 1997 less the P 150,000 administrative expenses, the P 180,000 compensation for administering the properties, and the P 77,221.13 real estate taxes paid by petitioner from 1979 to 1997.

We disagree with the appellate court s finding with respect to the total value of fruits and rents earned by the properties from 1979 to 1997. As found by the RTC, the following computation of the amounts owed by petitioner to respondent was submitted by the latters attorney-in-fact, Edgar S. Segarra: Witness Edgar S. Segarra testified that the properties which were administered by defendant Caridad S. Sazon consisted of residential and agricultural lands. Caridad Sazon leased the residential lots to one Salome Segarra in the amount of 100 pesos a month since 1988. Another parcel of land was leased to defendants mother Ana Segarra in exchange for one sack or 46 kilograms of palay for a period of 20 years. A cornland which is being tenanted by Orlando Macalinao produced P 72,000.00. The computation was based on a 75/25 sharing plan multiplied by the price of corn at 6 pesos and again multiplied by 15 years, the number of years that the properties were being tenanted. Another riceland was tilled by the defendants husband. This 1.56 hectares Ric eland produced 1,932 kilograms of rice per year and at P 8.75 a kilogram, for 14 years, the amount which was not remitted to the plaintiff amounted to P 836,670.00. Another property, located at Libon, Albay, containing an area of .6720 hectare and tilled by defendants husband produced harvest amounting to P 121,030.00. Further, a riceland with an area of .6380 hectare being farmed by the defendants daughter produced P 183,720.00. Two coconut lands, located at Macabugos, Libon, Albay, produced coconuts made into copras, thus bringing in profits of about P 705,600.00. The foregoing amounts correspond to the years by which the properties were administered by the defendant, the number of crops they harvested, the sharing plan, and the prevailing price of the produce during the years of administration. He also asked the comprador (buyer of grains) about the prices and consulted employees of the department of Agrarian Reform regarding the sharing of the crops. The lease contracts affecting the properties were also considered. All these amounts were never remitted by the defendant to the owner-plaintiff. 45 Petitioner correctly posits that it was wrong for the CA to base the computation of unremitted fruits and rents solely on the evidence submitted by respondents attorney -infact, as this computation was obviously self-serving. Furthermore, the Certifications issued by the NFA and PCA should have been be given weight, as they are documentary evidence issued by government offices mainly responsible for determining the buying/selling price of palay, corn, and other food and coconut products. We shall review the findings of fact of the Court of Appeals in view of some inconsistencies with those of the trial court and the evidence on record. This Court is convinced that the Certifications are genuine, authentic, valid, and issued in the proper exercise and regular performance of the issuing authoritys official duties. Under Section 3(m), Rule 131 of the Revised Rules of Court, there is a legal presumption that official duty has been regularly performed. No evidence was presented to rebut or dispute this presumption. Petitioner claims that several of the properties did not produce any fruit or generate any income at all.46 However, the trial court found that not only was there evidence on record showing that the properties administered yielded agricultural produce and rents, but petitioner herself had testified that the properties increased when she served as administrator. In effect, she admitted that the properties indeed generated income. 47 This Court is left with no other choice but to order both parties to present their evidence in support of their respective claims considering that no evidence was submitted to prove the quantity and quality of harvests for the relevant period. Neither the RTC nor the CA was able to explain or present a breakdown to show how it arrived at the supposed amount representing the total value of the fruits and rents derived from the properties.

The trial court correctly ordered petitioner to "render full, accurate, and complete accounting of all the fruits and proceeds of the subject properties during the period of her administration." However, it should have also ordered petitioner to present all her evidence regarding the alleged transportation expenses, attorneys fees, docket fees, and other fees; 48 the total amount expended for the purchase of respondents Las P ias property;49 and the total amount of real property taxes paid. These claimed expenses, if and when duly proven by sufficient evidence, should be deducted from the total income earned by the properties. Both parties should be required to present their evidence to finally resolve the following issues: (1) the total amount of the income generated by Lots I to IX during the administration of petitioner; and (2) the total amount of expenses incurred by petitioner that should be borne by respondent as the owner of the properties, or the total deductibles in petitioners favor. There is no doubt that petitioner is entitled to compensation for the services she rendered. Respondent does not deny that she never paid the former, since they had no agreement regarding the amount, the determination of which she left to petitioner. 50 Petitioner now argues that since the expenses for the maintenance of the properties exceeded whatever income they generated, then whatever is left of the income should now belong to her as compensation.51 She says that the "admission of the respondent admitted during cross-examination that she expected petitioner to fix her own salary out of the remaining income, if any, of the administered property" is enough reason to reverse and Decision and Resolution of the CA.52 The contention is not acceptable. Considering that neither of the parties was able to prove how much the properties earned, this Court cannot just agree with petitioners claim that whatever is left of this income, after the expenses have been deducted, should be considered as her salary. To begin with, she repeatedly claimed that all the income derived from these properties was insufficient to cover even just the expenses; thus, there is no "remaining income" left to speak of. We have already ruled that petitioner should be compensated for the services she rendered. Since there was no exact amount agreed upon, and she failed to fix her own salary despite the authority given to her, the RTC correctly applied the doctrine of quantum meruit. With respect to this matter, the trial court found thus: And where the payment is based on quantum meruit, the amount of recovery would only be the reasonable value of the thing or services rendered regardless of any agreement as to value. In the instant case, the amount of P 1,000.00 per month for 15 years representing defendants compensation for administering plaintiffs properties appears to be just, reasonable and fair.53 The doctrine of quantum meruit (as much as one deserves) prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it.54 Being an equitable principle, it should only be applied if no express contract was entered into, and no specific statutory provision is applicable. Although petitioner was given the authority to set the amount of her salary, she failed to do so. Thus, she should at least be given what she merits for her services. We find no reason to reverse the finding of both the RTC and the CA that P 1,000 per month for 15 years is a just, reasonable, and fair compensation to petitioner for administering respondents properties. The lower court is ordered to add this amount to the deductibles that petitioner is able to prove or, if the deductibles exceed the monetary value of the income generated by the properties, to add this amount to whatever respondent ends up owing petitioner. We delete the award of moral damages and attorney's fees in the absence of proof of bad faith and malice on the part of petitioner.

WHEREFORE, in view of the foregoing, the Petition is PARTLY GRANTED, as follows: (1) Petitioner Caridad S. Sazon is ordered to TURN OVER the possession, management, and administration of Lots I, II, III, V, and VI to respondent Leticia Vasquez-Menancio through the latters attorney-in-fact, Edgar S. Segarra. (2) Respondent is ordered to TURN OVER the possession, management, and administration of one-third of Lot IV to petitioner. (3) The case is REMANDED to the Regional Trial Court of Ligao City, Albay, the court of origin, which is ordered to do the following: (a) ORDER petitioner to render full, accurate, and complete accounting of all the fruits and proceeds earned by respondents properties during petitioners administration thereof; (b) ORDER petitioner to submit a detailed list with a breakdown of all her claimed expenses, including but not limited to the following: maintenance expenses including transportation expenses, legal expenses, attorneys fees, docket fees, etc; the tota l amount expended for the purchase of respondents Las Pias property; 55 and the total amount of real property taxes paid, all for the period 1979 to 1997; (c) ORDER the parties to submit their evidence to prove the exact quantity and quality of the harvests or the fruits produced by the properties and all the expenses incurred in maintaining them from 1979 to 1997; (d) DETERMINE the total amount earned by the properties by using as basis the declaration of the National Food Authority and the Philippine Coconut Authority with respect to the prevailing prices of palay, corn, and copra for the period 1979 to 1997; and (e) SUBTRACT from the determined total amount the expenses proven by petitioner and the P 180,000 serving as her compensation for administering the properties from 1979 to 1997. COSTS against petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 130423 November 18, 2002

On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and that she indeed failed to pay for the same. She claimed that she entrusted the pieces of jewelry to Marichu Labrador who failed to pay for the same, thereby causing her to default in paying Quilatan.10 She presented handwritten receipts (Exhibits 1 & 2)11 evidencing payments made to Quilatan prior to the filing of the criminal case. Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00. She identified an acknowledgment receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified that she sold the jewelry to a person who absconded without paying her. Labrador also explained that in the past, she too had directly transacted with Quilatan for the sale of jewelry on commission basis; however, due to her outstanding account with the latter, she got jewelry from petitioner instead.13 On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the dispositive portion of which reads: WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the maximum period plus one (1) year for every additional P10,000.00. Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the costs. SO ORDERED.14 Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the penalty as follows: WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of the crime of estafa is hereby AFFIRMED with the following MODIFICATION: Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as minimum to Twenty (20) Years of Reclusion Temporal. SO ORDERED.15 Upon denial of her motion for reconsideration,16 petitioner filed the instant petition under Rule 45, alleging that: I RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS. II RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT. 17 Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused the confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry; that her giving the pieces of jewelry to a sub-agent for sale on commission

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents. DECISION YNARES-SANTIAGO, J.: During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from receipt of the items. Upon petitioners failure to pay on September 24, 1992, Quilatan required her to execute an acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit: Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw. Las Pinas, September 24, 1992.1 The receipt was signed by petitioner and a witness, Rufina G. Navarette. Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the latter to sell on commission basis. Petitioner was not able to collect payment from Labrador, which caused her to likewise fail to pay her obligation to Quilatan. Subsequently, Quilatan, through counsel, sent a formal letter of demand 2 to petitioner for failure to settle her obligation. Quilatan executed a complaint affidavit 3 against petitioner before the Office of the Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315, paragraph 1(b)4 of the Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of the Regional Trial Court of Las Pinas. The information alleged: That on or about and sometime during the period from July 1992 up to September 1992, in the Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the said accused received in trust from the complainant Leonida E. Quilatan various pieces of jewelry in the total value of P567,750.00 to be sold on commission basis under the express duty and obligation of remitting the proceeds thereof to the said complainant if sold or returning the same to the latter if unsold but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and abuse of confidence and with intent to defraud, did then and there willfully, unlawfully and feloniously misappropriate and convert the same for her own personal use and benefit and despite oral and written demands, she failed and refused to account for said jewelry or the proceeds of sale thereof, to the damage and prejudice of complainant Leonida E. Quilatan in the aforestated total amount of P567,750.00. CONTRARY TO LAW.
5

Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on the merits thereafter ensued. Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of jewelriy;7 that at the start, petitioner was prompt in settling her obligation; however, subsequently the payments were remitted late;8 that petitioner still owed her in the amount of P424,750.00.9

basis did not violate her undertaking with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms upon which it was originally entrusted to her. It was established that petitioner had not derived any personal benefit from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or converted the same. We find merit in the petition. The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or other personal property is received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same; (2) that there be misappropriation or conversion of such money or property by the offender or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended party on the offender.18 While the first, third and fourth elements are concededly present, we find the second element of misappropriation or conversion to be lacking in the case at bar. Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the lower courts conclusion that this fact alone is sufficient ground for holding that petitioner disposed of the jewelry "as if it were hers, thereby committing conversion and a clear breach of trust."19 It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a substitute or sub-agent in the absence of an express agreement to the contrary between the agent and the principal.20 In the case at bar, the appointment of Labrador as petitioners sub-agent was not expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not contain any such limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan from passing on the jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus, it cannot be said that petitioners act of entrusting the jewelry to Labrador is characterized by abuse of confidence because such an act was not proscribed and is, in fact, legally sanctioned. The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or property received to the prejudice of the owner. The words "convert" and "misappropriated" connote an act of using or disposing of anothers property as if it were ones own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for ones own use includes not only conversion to ones personal advantage, but also every attempt to dispose of the property of another without right.21 In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to return the same if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador to achieve the very same end for which they were delivered to her in the first place. Consequently, there is no conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed upon. Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador "without right." Aside from the fact that no condition or limitation was imposed on the mode or manner by which petitioner was to effect the sale, it is also consistent with usual practice for the seller to necessarily part with the valuables in order to find a buyer and allow inspection of the items for sale. In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the complainant on commission basis, with the obligation to return the same in a few days if not sold. However, by reason of the fact that the rings were delivered also for sale on commission to sub-agents who failed to account for the rings or the proceeds of its sale, accused-appellant

likewise failed to make good his obligation to the complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant of the crime charged, we held: Where, as in the present case, the agents to whom personal property was entrusted for sale, conclusively proves the inability to return the same is solely due to malfeasance of a subagent to whom the first agent had actually entrusted the property in good faith, and for the same purpose for which it was received; there being no prohibition to do so and the chattel being delivered to the subagent before the owner demands its return or before such return becomes due, we hold that the first agent can not be held guilty of estafa by either misappropriation or conversion. The abuse of confidence that is characteristic of this offense is missing under the circumstances.23 Accordingly, petitioner herein must be acquitted. The lower courts reliance on People v. Flores 24 and U.S. v. Panes25 to justify petitioners conviction is misplaced, considering that the factual background of the cited cases differ from those which obtain in the case at bar. In Flores, the accused received a ring to sell under the condition that she would return it the following day if not sold and without authority to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was obliged to return the jewelry he received upon demand, but passed on the same to a sub-agent even after demand for its return had already been made. In the foregoing cases, it was held that there was conversion or misappropriation. Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case of People v. Trinidad,27 held that: In cases of estafa the profit or gain must be obtained by the accused personally, through his own acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried out the actual misappropriation, then the accused would be answerable for the acts of his co-conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear that the accused herself was the innocent victim of her sub-agents faithlessness, her acquittal is in order.28 (Italics copied) Labrador admitted that she received the jewelry from petitioner and sold the same to a third person. She further acknowledged that she owed petitioner P441,035.00, thereby negating any criminal intent on the part of petitioner. There is no showing that petitioner derived personal benefit from or conspired with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there is no estafa within contemplation of the law. Notwithstanding the above, however, petitioner is not entirely free from any liability towards Quilatan. The rule is that an accused acquitted of estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant. Then too, an agent who is not prohibited from appointing a sub-agent but does so without express authority is responsible for the acts of the sub-agent.29 Considering that the civil action for the recovery of civil liability arising from the offense is deemed instituted with the criminal action, 30 petitioner is liable to pay complainant Quilatan the value of the unpaid pieces of jewelry. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28, 1997 are REVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly liable in the amount of P424,750.00 as actual damages, plus legal interest, without subsidiary imprisonment in case of insolvency. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

500320 600 Fulls returned 5/6/80 P23,520.00 500326 600 Fulls returned 5/10/80 23,520.00 500344 600 Fulls returned 5/14/80 23,520.00 2 500346 Cash 5/15/80 10,000.00 Total P80,560.00

G.R. No. 103737 December 15, 1994 NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners, vs. HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., respondents. Public Attorney's Office for petitioners. Romualdo M. Jubay for private respondent.

Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in Sales Invoice No. 85366 dated May 15, 1980 in the amount of 3 P5,631.00, which was included in the computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned amounts were credited in their favor, it would be respondent corporation which would be indebted to them in the sum of P3,546.02 representing overpayment. After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering petitioners, as defendants therein to jointly and severally pay private respondent the amount of P74,849.00, plus 12% interest per annum until the principal 4 amount shall have been fully paid, as well as P20,000.00 as attorney's fees. On appeal in CA-G.R. CV No. 10623, the Court of Appeals declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of the 1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law on which they are based. The Court of Appeals accordingly remanded the records of the case to the trial court, directing it to render another decision in 5 accordance with the requirements of the Constitution. In compliance with the directive of the Court of Appeals, the lower court rendered a second decision on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of the action until full payment of the 6 amount adjudged. On appeal therefrom, the Court of Appeals affirmed the judgment 7 of the trial court in a decision promulgated on September 27, 1991. A motion for the reconsideration of said judgment of respondent court was subsequently denied in a 8 resolution dated January 23, 1992. We agree with petitioners and respondent court that the crux of the dispute in the case at bar is whether or not the amounts in the aforementioned trade provisional receipts should be credited in favor of herein petitioner spouses. In a so-called encyclopedic sense, however, our course of action in this case and the denouement of the controversy therein takes into account the jurisprudential rule that in the present recourse we would normally have restricted ourselves to questions of law and eschewed questions of fact were it not for our perception that the lower courts manifestly overlooked certain relevant factual considerations resulting in a misapprehension thereof. Consequentially, that position shall necessarily affect our analysis of the rules on the burden of proof and the burden of evidence, and ultimately, whether the proponent of the corresponding claim has preponderated or rested on an equipoise or fallen short of preponderance. First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its Legal Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-payment of debts to 9 the company, inefficiency, and loss of trust and confidence." The interview was reset to August 4, 1981 to enable said petitioner to bring along with him their union

REGALADO, J.: Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business of manufacturing, making bottling and selling soft drinks and beverages to the general public. Petitioner Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation. Although she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio had a regular charge account in both the Quezon City plant (under the name "Abigail Minimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of private respondent in its Quezon City plant. On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q34718 of the then Court of First Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners purchased and received on credit various products from its Quezon City plant. As of December 31, 1980, petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various occasions in 1980, petitioners also purchased and received on credit various products from respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11, 1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint 1 alleged, they failed to pay despite oral and written demands. In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and received by them from private respondent's Route Manager Jovencio Estrada of its Malate Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store. Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not be indebted to Pepsi-Cola. The details of said receipts are as follows: TPR No. Date of Issue Amount

president, Luis Isip. On said date, a statement of overdue accounts were prepared showing that petitioners owed respondent corporation the following amounts: Muntinlupa Plant Nora's Store 10 Trade Account P38,357.20 (as of 12/3/80) 11 Loaned Empties P35,856.40 (as of 7/11/81) Quezon City Plant Abigail Minimart Regular Account P20,437.40 (as of 1980) Total P94,651.00

disputed TPRs, as well as his affidavit dated February 5, 1982 wherein he affirmed his denial, are hearsay evidence because Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the terse statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation categorically denying that he issued and signed the disputed TPRs is, therefore, not 22 hearsay," there was no further explanation on this unusual doctrinal departure. The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those facts which he knows of his personal knowledge; that is, which are 23 derived from his own perception, except as otherwise provided in the Rules. In the present case, Estrada failed to appear as a witness at the trial. It was only Azurin who testified that during the investigation he conducted, Estrada supposedly denied having signed the TPRs. It is elementary that under the measure on hearsay evidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada's denial. For that matter, it is not admissible in evidence, petitioners' counsel having seasonably objected at the trial to such testimony of Azurin as hearsay. And, even if not objected to and thereby admissible, such hearsay evidence has no probative 24 value whatsoever. It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former case or proceeding, judicial or administrative, involving the same parties and subject matter, may be given in evidence against the adverse party who 25 had the opportunity to cross-examine him. Private respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule. Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an administrative hearing under statutory regulations and safeguards. It was merely an inter-office interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of the alleged stenographic notes, assuming arguendo that these notes are admissible in evidence, would show that the "investigation" was more of a free-flowing question and answer type of discussion wherein Estrada was asked some questions, after which Eugenio was likewise asked other questions. Indeed, there was no opportunity for Eugenio to object, much less to cross-examine Estrada. Even in a formal prior trial itself, if the opportunity for cross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-examine the witness when the testimony was offered, evidence relating to the testimony given therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the accused amounting to a waiver of his right to cross26 examine. Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted to the trial court. A copy of the stenographic report of the entire testimony at the former trial must be supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony of the witness as a sine qua non 27 for its competency and admissibility in evidence. The supposed stenographic notes on which respondent corporation relies is unauthenticated and necessarily inadmissible for the purpose intended. Lastly, although herein private respondent insinuated that Estrada was not presented as a witness because he had disappeared, no evidence whatsoever was offered to show or even intimate that this was due to any machination or instigation of petitioners. There is no showing that his absence was procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar, except for the self-

21

12

A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 13 after a reevaluation of the value of the loaned empties. Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a spurious document, was deducted 14 from their liability in their trade account with the Muntinlupa plant. Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items: Muntinlupa Plant Nora Store 15 Trade Account P32,726.20 16 Loaned Empties P21,686.00 Quezon City Plant Abigail Minimart 17 Trade Account P20,437.20 Total P74,849.40 After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be allowed to retire and the existing accounts be deducted from his retirement pay, but that he later withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently filed a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme Court, showed that this petitioner was indeed illegally dismissed, and that he never filed an application for retirement. In fact, this Court made a finding that the retirement papers allegedly filed 18 in the name of this petitioner were forged. This makes two falsified documents to be foisted against petitioners. With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during the investigation on December 4, 1981, 19 Estrada allegedly denied that he issued and signed the aforesaid TPRs. He also presented a supposed affidavit which Estrada allegedly executed during that investigation to affirm his verbal statements therein. Surprisingly, however, said 20 supposed affidavit is inexplicably dated February 5, 1982. At this point, it should be noted that Estrada never testified thereafter in court and what he is supposed to have done or said was merely related by Azurin. Now, on this point, respondent court disagreed with herein petitioners that the testimony on the alleged denial of Jovencio Estrada regarding his signatures on the

serving statement that Estrada had disappeared, no plausible explanation was given by respondent corporation. Estrada was an employee of private respondent, hence it can be assumed that it could easily trace or ascertain his whereabouts. It had the resources to do so, in contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to defend them here. Private respondent could not have been unaware of the importance of Estrada's testimony and the consequent legal necessity for presenting him in the trial court, through coercive process if necessary. Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as 28 evidence by the hearsay evidence rule. This is aside from the fact that, by their nature, affidavits are generally not prepared by the affiants themselves but by another who uses his own language in writing the affiant's statements, which may thus be 29 either omitted or misunderstood by the one writing them. The dubiety of that affidavit, as earlier explained, is further underscored by the fact that it was executed more than two months after the investigation, presumably for curative purposes as it were. Now, the authenticity of a handwriting may be proven, among other means, by its comparison made by the witness or the court with writings admitted or treated as genuine by the party against whom the evidence is offered or proved to be genuine to 30 the satisfaction of the judge. The alleged affidavit of Estrada states". . . that the comparison that was made as to the authenticity of the signature appearing in the TPRs and that of my signature showed that there was an apparent dissimilarity between the two signatures, xerox copy of my 201 File is attached hereto as Annex 31 'F' of this affidavit. However, a search of the Folder of Exhibits in this case does not reveal that private respondent ever submitted any document, not even the aforementioned 201 File, containing a specimen of the signature of Estrada which the Court can use as a basis for comparison. Neither was any document containing a specimen of Estrada's signature presented by private respondent in the formal offer of 32 its exhibits. Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said investigation to sign three times to provide specimens of his 33 genuine signature." There is, however, no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still be unable to make the necessary comparison because two signatures appear on the right margin of each and every page of the stenographic notes, without any indication whatsoever as to which of the signatures is Estrada's. The whole document was marked for identification but the signatures were not. In fact, although formally offered, it was merely introduced by the private respondent "in order to show that Jovencio Estrada had been investigated and categorically denied having collected from Abigail Minimart and denying having signed the receipts claimed by Alfredo Eugenio to be his 34 payment," and not for the purpose of presenting any alleged signature of Estrada on the document as a basis for comparison. This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not be found, and necessarily aware that his alleged denial of his signatures on said TPRs and his affidavit rendered the same vulnerable to the challenge that they are hearsay and

inadmissible, respondent corporation did nothing more. disappearance has not been explained up to the present.

In

fact,

Estrada's

The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used in the day-to-day business transactions of the company. These trade provisional receipts are bound and given in booklets to the company sales representatives, under proper acknowledgment by them and with a record of the distribution thereof. After every transaction, when a collection is made the customer is given by the sales representative a copy of the trade provisional receipt, that is, the triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused TPRs, as well as the collections made, are turned over by the 35 sales representative to the appropriate company officer. According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed at the bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by delivering the original copy thereof stamped paid and signed by its cashier to the customer. . . . Defendants-appellants (herein petitioners) failed to present the original copies of the TPRs in question, showing that they were never confirmed by the plaintiff, nor did they demand from plaintiff the confirmed 36 original copies thereof." We do not agree with the strained implication intended to be adverse to petitioners. The TPRs presented in evidence by petitioners are disputably presumed as evidentiary of payments made on account of petitioners. There are presumptions juris tantum in law that private transactions have been fair and regular and that the 37 ordinary course of business has been followed. The role of presumptions in the law on evidence is to relieve the party enjoying the same of the evidential burden to prove the proposition that he contends for, and to shift the burden of evidence to the adverse party. Private respondent having failed to rebut the aforestated presumptions in favor of valid payment by petitioners, these would necessarily continue to stand in their favor in this case. Besides, even assuming arguendo that herein private respondent's cashier never received the amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly authorized agent with respect to petitioners, did not receive those amounts from the latter. As correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for as long as they pay their obligations to the sales representative of the private respondent using the latter's 38 official receipt, said payment extinguishes their obligations." Otherwise, it would unreasonably cast the burden of supervision over its employees from respondent corporation to its customers. The substantive law is that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest or any person authorized 39 to receive it. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his 40 authority according to an understanding between the principal and his agent. In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the 41 responsibility of the collector to turn over the collection." Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following observation:

. . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10, and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800 cases of soft drinks from plaintiff before those dates. Yet the Statement of Overdue Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-husband and his representative Luis Isip signed on August 3, 1981 does now show more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1980 or 42 the month before." We regret the inaccuracy in said theory of respondent court which was impelled by its sole and limited reliance on a mere statement of overdue amounts. Unlike a statement of account which truly reflects the day-to-day movement of an account, a statement of an overdue amount is only a summary of the account, simply reflecting the balance due thereon. A statement of account, being more specific and detailed in nature, allows one to readily see and verify if indeed deliveries were made during a specific period of time, unlike a bare statement of overdue payments. Respondent court cannot make its aforequoted categorical deduction unless supporting documents accompanying the statement of overdue amounts were submitted to enable easy and accurate verification of the facts. A perusal of the statement of overdue accounts shows that, except for a reference number given for each entry, no further details were volunteered nor offered. It is entirely possible that the statement of overdue account merely reflects the outstanding debt of a particular client, and not the specific particulars, such as deliveries made, particularly since the entries therein were surprisingly entered irrespective of their chronological order. Obviously, therefore, one can not use the statement of overdue amounts as conclusive proof of deliveries done within a particular time frame. Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank forms of the TPRs because he was a former route manager no evidence whatsoever was presented by private respondent in support of that theory. We are accordingly intrigued by such an unkind assertion of respondent corporation since Azurin himself admitted that their accounting department could not even inform 43 them regarding the persons to whom the TPRs were issued. In addition, it is significant that respondent corporation did not take proper action if indeed some receipts were actually lost, such as the publication of the fact of loss of the receipts, with the corresponding investigation into the matter. We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio submitted after the reconciliation meeting, "smacks too much of an 44 afterthought." The reconciliation meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y. Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store, 45 had eloped and she had possession of the TPRs. It was only in November, 1981 when petitioners were able to talk to Nanette that they were able to find and retrieve said TPRs. He added that during the reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be credited in his favor, hence he signed the reconciliation documents. Accordingly, when he presented the TPRs to private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the amount

stated in the reconciliation sheet was not final, as it was still subject to such receipts as may thereafter be presented by petitioners. On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount had already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola , Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a payment of P80,560.00, there was consequently an overpayment of P5,710.60. All told, we are constrained to hold that respondent corporation has dismally failed to comply with the pertinent rules for the admission of the evidence by which it sought to prove its contentions. Furthermore, there are questions left unanswered and begging for cogent explanations why said respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in this case. WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora and Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former. SO ORDERED.

TOYOTA SHAW, INC. vs. COURT OF APPEALS G.R. No. L-116650 May 23, 1995 Facts: Luna L. Sosa & Popong Bernardo, an agent of Toyota Shaw, entered into an agreement stating that Luna Sosa will give P100K as downpayment for a yellow light ace which Toyota will release on June 17. It was agreed that the balance would be paid through financing by BA. On June 17, Mr Sosa was not able to get the car because according to Bernardo, nasulot ng iba but as it turns out, the credit financing was not approved by BA. Toyota then gave Mr Sosa the option to purchase the unit by paying full price in cash but Sosa refused. Furthermore, Mr. Sosa claims that Popong Bernardo acted in his authority as agent of Toyota, thereby binding Toyota in the agreement that they executed. Issue: W/N the agreement could bind Toyota Held: No. The title of the agreement between the two parties was AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO OF TOYOTA SHAW INC, therefore, Popong Bernardo was acting on his personal capacity and did not represent Toyota in said agreement, something that Mr. Sosa should have been aware of. Mr. Sosa knew that Popong Bernado was only a sales representative of Toyota, and thus, a mere agent and was therefore limited in his authority to enter into contracts of sale of Toyotas vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

as I might or would lawfully do if personally present, with full power of substitution and revocation. The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao." As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES with the address at No 376-R Osmea Blvd., Cebu City (Exhibit "B-1"). 6 The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7 the petitioners alleged that Savellon was not their Chief Operating Officer and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it should have issued the check in their favor. They setup counterclaims for moral and exemplary damages and attorney's fees. Savellon did not file his Answer and was declared in default on 17 July 1990.
8

G.R. No. 114091 June 29, 1995 BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DAVIDE, JR., J.: Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB-8187 2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally liable to private respondent San Miguel Corporation under a Trip Charter Party. The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which read as follows: I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows: (1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES; (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; (3) To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON; (4) To extend to any person or company by substitution the same extent of authority that is granted to Rene Savellon; (5) In connection with the preceeding paragraphs to execute and sign documents, contracts, and other pertinent papers. Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes

At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for resolution: Plaintiff 1. Whether or not defendants are jointly liable to plaintiff for damages on account of breach of contract; 2. Whether or not the defendants acted in good faith in its representations to the plaintiff; 3. Whether or not defendant Bacaltos was duly enriched on the payment made by the plaintiff for the use of the vessel; 4. Whether or not defendant Bacaltos is estopped to deny the authorization given to defendant Savellon; Defendants 1. Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM [SHIP] II before entering into any contract with defendant Savellon; 2. Whether or not defendant Savellon was authorized to enter into a shipping contract with the [plaintiff] corporation; 3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines; 4. Whether or counterclaim. 9 not the plaintiff is liable on defendants'

After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon as follows: WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay to plaintiff: 1. The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus 12% interest to start from date of written demand, which is June 14, 1989; 2. The amount of P20,000.00 by way of exemplary damages; 3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation expenses. Plus costs. 10 It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the Trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners denial that they caused the printing of such official receipt is "lame" because they submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A-1") is written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and, (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon should have "bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim" against him. In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11 As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the "five

prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality. Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition wherein they raise the following errors: I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION; II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12 After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment thereto and reply to the comment, the Court resolved to give due course to the petition. Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows: A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to

the extent of his powers, or his mere assumption of authority without foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound to ascertain not only the fact of agency, but the nature and extent of the authority. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency. Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, Agency:
15

quoting Mechem on

The person dealing with the 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 estate 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]. In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows . . . [emphasis supplied]. There is only one express power granted to Savellon, viz., to use the coal operating contract for any legitimate purpose it may serve. The enumerated "five prerogatives" to employ the term used by the Court of Appeals are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause " but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated. The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was that there is no

evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein. 17 In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not. Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the Authorization. Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit: (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-examination, thus: Atty. Zosa (to witness ON CROSS) Q You said that in your office Mr. Rene Savellon presented to you this authorization marked Exhibit "C" and Exhibit "1" for the defendant? A Yes, sir. Q Did you read in the first part[y] of this authorization Mr. Valdescona that Mr. Rene Savellon was authorized as the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q Did it not occur to you that you should have examined further the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to enter into a trip charter party? A Yes, sir. We discussed about the extent of his authorization and he referred us to the number 2 provision of this authorization which is to engage in trading under the style of Bacaltos Coal Mines/Rene Savellon, which we followed up to the check preparation because it is part of the authority.

Q In other words, you examined this and you found out that Mr. Savellon is authorized to use the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q You doubted his authority but you found out in paragraph 2 that he is authorized that's why you agreed and entered into that trip charter party? A We did not doubt his authority but we were questioning as to the extent of his operating contract. Q Did you not require Mr. Savellon to produce that coal operating contract of Bacaltos Coal Mines? A No sir. We did not. 18 Since the principal subject of the Authorization is the coal operating contract, SMC should have required its presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature of a coal operating contract. A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources 19 in a specified contract area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus: Sec. 9. Obligations of Operator in Coal Operating Contract. The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include: (a) The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof; (b) Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and (c) The extraction and utilization of coal deposits. The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall require the operator to: (a) Provide all the necessary service and technology; (b) Provide the requisite financing; (c) Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this Decree; (d) Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property,

avoiding pollution of air, lands and waters, and pursuant to an efficient and economic program of operation; (e) Furnish the Energy Development Board promptly with all information, data and reports which it may require;. (f) Maintain detailed technical records and account of its expenditures; (g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interference with the rights of the other petroleum, mineral and natural resources operators; (h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board; (i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes. Section 11 thereof provides for the minimum terms and conditions of a coal operating contract. From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same. SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination as follows: A In October, a certain Rene Savellon called our office offering us shipping services. So I told him to give us a formal proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer. Q Did Mr. Rene Savellon go to your office? A Few days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo. Q Did he mention the owner of that vessel? A Yes, sir. That it is Bacaltos. Q Did he present a document to you? A Yes, sir. He presented to us the authorization. Q When Mr. Rene Savellon presented to you the authorization what did you do?.

A On the strength of that authorization we initially asked him for us to check the vessel to see its sea worthiness, and we assigned our in-house surveyor to check the sea worthiness of the vessel which was on dry dock that time in Danao. Q What was the result of your inspection? A We found out the vessel's sea worthiness to be our cargo carrier. Q After that what did you do? A After that we were discussing the condition of the contract. Q Were you able to execute that contract? A Yes, sir . 21 He further declared as follows: Q When you entered into a trip charter contract did you check the ownership of M/V Premship? A The representation made by Mr. Rene Savellon was that Bacaltos Coal Mines operates the vessel and on the strength of the authorization he showed us we were made to believe that it was Bacaltos Coal Mines that owned it. COURT: (to witness) Q In other words, you just believed Rene Savellon? A Yes, sir. COURT: (to witness) Q You did not check with Bacaltos Coal Mines? A That is the representation he made. Q Did he show you document regarding this M/V Premship II? A No document shown. 22 The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel while drydocked in Danao and thereafter conducted a sea worthiness test could not have failed to ascertain the registered owner of the vessel. The petitioners themselves declared in open court that they have not leased any vessel for they do not need it in their coal operations 23 thereby implying that they do not even own one. The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy.

We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the next hearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel. There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. 27 The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril. Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from German Bacaltos. WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners. SO ORDERED.