PHILIPPINE HEALTH-CARE PROVIDERS, INC.

(MAXICARE), petitioner,
vs.
CARMELA ESTRADA/CARA HEALTH SERVICES, respondent.

to 18% from individual, family, group accounts; 2.5 to

10% on tailored fit plans; and 10% on standard plans of
commissionable amount on corporate accounts from all
membership dues collected and remitted by you to
[Maxicare].

NACHURA, J.:
G.R. No. 171052

January 28, 2008

This petition for review on certiorari assails the Decision1 dated June
16, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 66040
which affirmed in toto the Decision2 dated October 8, 1999 of the
Regional Trial Court (RTC), Branch 135, of Makati City in an action
for breach of contract and damages filed by respondent Carmela
Estrada, sole proprietor of Cara Health Services, against Philippine
Health-Care Providers, Inc. (Maxicare).
The facts, as found by the CA and adopted by Maxicare in its petition,
follow:
[Maxicare] is a domestic corporation engaged in selling health
insurance plans whose Chairman Dr. Roberto K. Macasaet,
Chief Operating Officer Virgilio del Valle, and Sales/Marketing
Manager Josephine Cabrera were impleaded as defendantsappellants.
On September 15, 1990, [Maxicare] allegedly engaged the
services of Carmela Estrada who was doing business under the
name of CARA HEALTH [SERVICES] to promote and sell the
prepaid group practice health care delivery program called
MAXICARE Plan with the position of Independent Account
Executive. [Maxicare] formally appointed [Estrada] as its
"General Agent," evidenced by a letter-agreement dated
February 16, 1991. The letter agreement provided for plaintiffappellees [Estradas] compensation in the form of commission,
viz.:
Commission
In consideration of the performance of your functions
and duties as specified in this letter-agreement,
[Maxicare] shall pay you a commission equivalent to 15

[Maxicare] alleged that it followed a "franchising system" in

dealing with its agents whereby an agent had to first secure
permission from [Maxicare] to list a prospective company as
client. [Estrada] alleged that it did apply with [Maxicare] for
the MERALCO account and other accounts, and in fact, its
franchise to solicit corporate accounts, MERALCO account
included, was renewed on February 11, 1991.
Plaintiff-appellee [Estrada] submitted proposals and made
representations to the officers of MERALCO regarding the
MAXICARE Plan but when MERALCO decided to subscribe
to the MAXICARE Plan, [Maxicare] directly negotiated with
MERALCO regarding the terms and conditions of the
agreement and left plaintiff-appellee [Estrada] out of the
discussions on the terms and conditions.
On November 28, 1991, MERALCO eventually subscribed to
the MAXICARE Plan and signed a Service Agreement directly
with [Maxicare] for medical coverage of its qualified members,
i.e.: 1) the enrolled dependent/s of regular MERALCO
executives; 2) retired executives and their dependents who
have opted to enroll and/or continue their MAXICARE
membership up to age 65; and 3) regular MERALCO female
executives (exclusively for maternity benefits). Its duration was
for one (1) year from December 1, 1991 to November 30,
1992. The contract was renewed twice for a term of three (3)
years each, the first started on December 1, 1992 while the
second took effect on December 1, 1995.
The premium amounts paid by MERALCO to [Maxicare] were
alleged to be the following: a) P215,788.00 in December 1991;
b) P3,450,564.00 in 1992; c) P4,223,710.00 in 1993; d)
P4,782,873.00 in 1994; e) P5,102,108.00 in 1995; and

P2,394,292.00 in May 1996. As of May 1996, the total amount

of premium paid by MERALCO to [Maxicare] was
P20,169,335.00.
On March 24, 1992, plaintiff-appellee [Estrada], through
counsel, demanded from [Maxicare] that it be paid
commissions for the MERALCO account and nine (9) other
accounts. In reply, [Maxicare], through counsel, denied
[Estradas] claims for commission for the MERALCO and
other accounts because [Maxicare] directly negotiated with
MERALCO and the other accounts(,) and that no agent was
given the go signal to intervene in the negotiations for the
terms and conditions and the signing of the service agreement
with MERALCO and the other accounts so that if ever
[Maxicare] was indebted to [Estrada], it was only for P1,555.00
and P43.l2 as commissions on the accounts of Overseas
Freighters Co. and Mr. Enrique Acosta, respectively.
[Estrada] filed a complaint on March 18, 1993 against
[Maxicare] and its officers with the Regional Trial Court (RTC)
of Makati City, docketed as Civil Case No. 93-935, raffled to
Branch 135.
Defendants-appellants [Maxicare] and its officers filed their
Answer with Counterclaim on September 13, 1993 and their
Amended Answer with Counterclaim on September 28, 1993,
alleging that: plaintiff-appellee [Estrada] had no cause of
action; the cause of action, if any, should be is against
[Maxicare] only and not against its officers; CARA HEALTHs
appointment as agent under the February 16, 1991 letteragreement to promote the MAXICARE Plan was for a period
of one (1) year only; said agency was not renewed after the
expiration of the one (1) year period; [Estrada] did not
intervene in the negotiations of the contract with MERALCO
which was directly negotiated by MERALCO with [Maxicare];
and [Estradas] alleged other clients/accounts were not
accredited with [Maxicare] as required, since the agency
contract on the MAXICARE health plans were not renewed.
By way of counterclaim, defendants-appellants [Maxicare] and

its officers claimed P100,000.00 in moral damages for each of

the officers of [Maxicare] impleaded as defendant,
P100,000.00 in exemplary damages, P100,000.00 in attorneys
fees, and P10,000.00 in litigation expenses.3
After trial, the RTC found Maxicare liable for breach of contract and
ordered it to pay Estrada actual damages in the amount equivalent to
10% of P20,169,335.00, representing her commission for the total
premiums paid by Meralco to Maxicare from the year 1991 to 1996,
plus legal interest computed from the filing of the complaint on March
18, 1993, and attorneys fees in the amount of P100,000.00.
On appeal, the CA affirmed in toto the RTCs decision. In ruling for
Estrada, both the trial and appellate courts held that Estrada was the
"efficient procuring cause" in the execution of the service agreement
between Meralco and Maxicare consistent with our ruling in Manotok
Brothers, Inc. v. Court of Appeals.4
Undaunted, Maxicare comes to this Court and insists on the reversal of
the RTC Decision as affirmed by the CA, raising the following issues,
to wit:
1. Whether the Court of Appeals committed serious error in
affirming Estradas entitlement to commissions for the
execution of the service agreement between Meralco and
Maxicare.
2. Corollarily, whether Estrada is entitled to commissions for
the two (2) consecutive renewals of the service agreement
effective on December 1, 19925 and December 1, 1995.6
We are in complete accord with the trial and appellate courts ruling.
Estrada is entitled to commissions for the premiums paid under the
service agreement between Meralco and Maxicare from 1991 to 1996.
Well-entrenched in jurisprudence is the rule that factual findings of the
trial court, especially when affirmed by the appellate court, are
accorded the highest degree of respect and are considered conclusive
between the parties.7 A review of such findings by this Court is not
warranted except upon a showing of highly meritorious circumstances,
such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower courts
inference from its factual findings is manifestly mistaken, absurd or

impossible; (3) when there is grave abuse of discretion in the

appreciation of facts; (4) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different conclusion; (5)
when there is a misappreciation of facts; (6) when the findings of fact
are conclusions without mention of the specific evidence on which
they are based, are premised on the absence of evidence, or are
contradicted by evidence on record.8 None of the foregoing exceptions
which would warrant a reversal of the assailed decision obtains in this
instance.
Maxicare urges us that both the RTC and CA failed to take into
account the stipulations contained in the February 19, 1991 letter
agreement authorizing the payment of commissions only upon
satisfaction of twin conditions, i.e., collection and contemporaneous
remittance of premium dues by Estrada to Maxicare. Allegedly, the
lower courts disregarded Estradas admission that the negotiations with
Meralco failed. Thus, the flawed application of the "efficient procuring
cause" doctrine enunciated in Manotok Brothers, Inc. v. Court of
Appeals,9 and the erroneous conclusion upholding Estradas
entitlement to commissions on contracts completed without her
participation.
We are not persuaded.
Contrary to Maxicares assertion, the trial and the appellate courts
carefully considered the factual backdrop of the case as borne out by
the records. Both courts were one in the conclusion that Maxicare
successfully landed the Meralco account for the sale of healthcare
plans only by virtue of Estradas involvement and participation in the
negotiations. The assailed Decision aptly states:
There is no dispute as to the role that plaintiff-appellee
[Estrada] played in selling [Maxicares] health insurance plan
to Meralco. Plaintiff-appellee [Estradas] efforts consisted in
being the first to offer the Maxicare plan to Meralco, using her
connections with some of Meralco Executives, inviting said
executives to dinner meetings, making submissions and
representations regarding the health plan, sending follow-up
letters, etc.

These efforts were recognized by Meralco as shown by the

certification issued by its Manpower Planning and Research
Staff Head Ruben A. Sapitula on September 5, 1991, to wit:
"This is to certify that Ms. Carmela Estrada has
initiated talks with us since November 1990 with
regards (sic) to the HMO requirements of both our rank
and file employees, managers and executives, and that
it was favorably recommended and the same be
approved by the Meralco Management Committee."
xxxx
This Court finds that plaintiff-appellee [Estradas] efforts were
instrumental in introducing the Meralco account to [Maxicare]
in regard to the latters Maxicare health insurance plans.
Plaintiff-appellee [Estrada] was the efficient "intervening
cause" in bringing about the service agreement with Meralco.
As pointed out by the trial court in its October 8, 1999
Decision, to wit:
"xxx Had not [Estrada] introduced Maxicare Plans to
her bosom friends, Messrs. Lopez and Guingona of
Meralco, PHPI would still be an anonymity. xxx"10
Under the foregoing circumstances, we are hard pressed to disturb the
findings of the RTC, which the CA affirmed.
We cannot overemphasize the principle that in petitions for review on
certiorari under Rules 45 of the Rules of Court, only questions of law
may be put into issue. Questions of fact are not cognizable by this
Court. The finding of "efficient procuring cause" by the CA is a
question of fact which we desist from passing upon as it would entail
delving into factual matters on which such finding was based. To
reiterate, the rule is that factual findings of the trial court, especially
those affirmed by the CA, are conclusive on this Court when supported
by the evidence on record.11
The jettisoning of the petition is inevitable even upon a close perusal
of the merits of the case.
First. Maxicares contention that Estrada may only claim commissions
from membership dues which she has collected and remitted to
Maxicare as expressly provided for in the letter-agreement does not

convince us. It is readily apparent that Maxicare is attempting to evade

payment of the commission which rightfully belongs to Estrada as the
broker who brought the parties together. In fact, Maxicares former
Chairman Roberto K. Macasaet testified that Maxicare had been trying
to land the Meralco account for two (2) years prior to Estradas entry
in 1990.12 Even without that admission, we note that Meralcos
Assistant Vice-President, Donatila San Juan, in a letter 13 dated January
21, 1992 to then Maxicare President Pedro R. Sen, categorically
acknowledged Estradas efforts relative to the sale of Maxicare health
plans to Meralco, thus:
Sometime in 1989, Meralco received a proposal from
Philippine Health-Care Providers, Inc. (Maxicare) through the
initiative and efforts of Ms. Carmela Estrada, who introduced
Maxicare to Meralco. Prior to this time, we did not know that
Maxicare is a major health care provider in the country. We
have since negotiated and signed up with Maxicare to provide a
health maintenance plan for dependents of Meralco executives,
effective December 1, 1991 to November 30, 1992.
At the very least, Estrada penetrated the Meralco market, initially
closed to Maxicare, and laid the groundwork for a business
relationship. The only reason Estrada was not able to participate in the
collection and remittance of premium dues to Maxicare was because
she was prevented from doing so by the acts of Maxicare, its officers,
and employees.
14

In Tan v. Gullas, we had occasion to define a broker and distinguish it

from an agent, thus:
[O]ne who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has
no concern; the negotiator between the other parties, never
acting in his own name but in the name of those who employed
him. [A] broker is one whose occupation is to bring the parties
together, in matter of trade, commerce or navigation.15
An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his pay
merely by bringing the buyer and the seller together, even if no
sale is eventually made.16
In relation thereto, we have held that the term "procuring cause" in
describing a brokers activity, refers to a cause originating a series of

events which, without break in their continuity, result in the

accomplishment of the prime objective of the employment of the
brokerproducing a purchaser ready, willing and able to buy on the
owners terms.17 To be regarded as the "procuring cause" of a sale as to
be entitled to a commission, a brokers efforts must have been the
foundation on which the negotiations resulting in a sale began.18 Verily,
Estrada was instrumental in the sale of the Maxicare health plans to
Meralco. Without her intervention, no sale could have been
consummated.
Second. Maxicare next contends that Estrada herself admitted that her
negotiations with Meralco failed as shown in Annex "F" of the
Complaint.
The chicanery and disingenuousness of Maxicares counsel is not lost
on this Court. We observe that this Annex "F" is, in fact, Maxicares
counsels letter dated April 10, 1992 addressed to Estrada. The letter
contains a unilateral declaration by Maxicare that the efforts initiated
and negotiations undertaken by Estrada failed, such that the service
agreement with Meralco was supposedly directly negotiated by
Maxicare. Thus, the latter effectively declares that Estrada is not the
"efficient procuring cause" of the sale, and as such, is not entitled to
commissions.
Our holding in Atillo III v. Court of Appeals,19 ironically the case cited
by Maxicare to bolster its position that the statement in Annex "F"
amounted to an admission, provides a contrary answer to Maxicares
ridiculous contention. We intoned therein that in spite of the presence
of judicial admissions in a partys pleading, the trial court is still given
leeway to consider other evidence presented.20 We ruled, thus:
As provided for in Section 4 of Rule 129 of the Rules of Court,
the general rule that a judicial admission is conclusive upon the
party making it and does not require proof admits of two
exceptions: 1) when it is shown that the admission was made
through palpable mistake, and 2) when it is shown that no such
admission was in fact made. The latter exception allows one to
contradict an admission by denying that he made such an
admission.

For instance, if a party invokes an "admission" by an

adverse party, but cites the admission "out of context,"
then the one making the admission may show that he
made no "such" admission, or that his admission was
taken out of context.
This may be interpreted as to mean "not in the sense in
which the admission is made to appear." That is the
reason for the modifier "such."21
In this case, the letter, although part of Estradas Complaint, is not,
ipso facto, an admission of the statements contained therein, especially
since the bone of contention relates to Estradas entitlement to
commissions for the sale of health plans she claims to have brokered.
It is more than obvious from the entirety of the records that Estrada
has unequivocally and consistently declared that her involvement as
broker is the proximate cause which consummated the sale between
Meralco and Maxicare.
Moreover, Section 34,22 Rule 132 of the Rules of Court requires the
purpose for which the evidence is offered to be specified. Undeniably,
the letter was attached to the Complaint, and offered in evidence, to
demonstrate Maxicares bad faith and ill will towards Estrada.23
Even a cursory reading of the Complaint and all the pleadings filed
thereafter before the RTC, CA, and this Court, readily show that
Estrada does not concede, at any point, that her negotiations with
Meralco failed. Clearly, Maxicares assertion that Estrada herself does
not pretend to be the "efficient procuring cause" in the execution of the
service agreement between Meralco and Maxicare is baseless and an
outright falsehood.
After muddling the issues and representing that Estrada made an
admission that her negotiations with Meralco failed, Maxicares
counsel then proceeds to cite a case which does not, by any stretch of
the imagination, bolster the flawed contention.

ought to be reacquainted with Canon 1024 of the Code of Professional

Responsibility, specifically, Rule 10.02, to wit:
Rule 10.02 A lawyer shall not knowingly misquote or
misrepresent the contents of a paper, the language or the
argument of opposing counsel, or the text of a decision or
authority, or knowingly cite as law a provision already
rendered inoperative by repeal or amendment, or assert as a
fact that which has not been proved.
Third. Finally, we likewise affirm the uniform ruling of the RTC and
CA that Estrada is entitled to 10% of the total amount of premiums
paid25 by Meralco to Maxicare as of May 1996. Maxicares argument
that assuming Estrada is entitled to commissions, such entitlement
only covers the initial year of the service agreement and should not
include the premiums paid for the succeeding renewals thereof, fails to
impress. Considering that we have sustained the lower courts factual
finding of Estradas close, proximate and causal connection to the sale
of health plans, we are not wont to disturb Estradas complete
entitlement to commission for the total premiums paid until May 1996
in the amount of P20,169,335.00.
WHEREFORE, premises considered and finding no reversible error
committed by the Court of Appeals, the petition is hereby DENIED.
Costs against the petitioner.
SO ORDERED.
FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE
ASSURANCE, INC.), Petitioner,
- versus TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her
Attorney-in-Fact PONCIANO C. MARQUEZ, Respondents.
February 4, 2008, G.R. No. 159489
QUISUMBING, J.:

We, therefore, ADMONISH Maxicares counsel, and, in turn, remind

every member of the Bar that the practice of law carries with it
responsibilities which are not to be trifled with. Maxicares counsel

This petition for review on certiorari seeks the reversal of the

Decision[1] and Resolution,[2] dated November 29, 2002 and August
5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.

33568. The appellate court had affirmed the Decision[3] dated October
10, 1989 of the Regional Trial Court (RTC) of Manila, Branch 3,
finding petitioner as defendant and the co-defendants below jointly
and severally liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year
endowment life insurance issued by petitioner Filipinas Life Assurance
Company (Filipinas Life). Pedroso claims Renato Valle was her
insurance agent since 1972 and Valle collected her monthly premiums.
In the first week of January 1977, Valle told her that the Filipinas Life
Escolta Office was holding a promotional investment program for
policyholders. It was offering 8% prepaid interest a month for certain
amounts deposited on a monthly basis. Enticed, she initially invested
and issued a post-dated check dated January 7, 1977 for P10,000.[4] In
return, Valle issued Pedroso his personal check for P800 for the 8%[5]
prepaid interest and a Filipinas Life Agents Receipt No. 807838.[6]
Subsequently, she called the Escolta office and talked to Francisco
Alcantara, the administrative assistant, who referred her to the branch
manager, Angel Apetrior. Pedroso inquired about the promotional
investment and Apetrior confirmed that there was such a promotion.
She was even told she could push through with the check she issued.
From the records, the check, with the endorsement of Alcantara at the
back, was deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioners duly authorized
representatives Apetrior and Alcantara, as well as having known agent
Valle for quite some time, Pedroso waited for the maturity of her initial
investment. A month after, her investment of P10,000 was returned to
her after she made a written request for its refund. The formal written
request, dated February 3, 1977, was written on an inter-office
memorandum form of Filipinas Life prepared by Alcantara.[7] To
collect the amount, Pedroso personally went to the Escolta branch
where Alcantara gave her the P10,000 in cash. After a second
investment, she made 7 to 8 more investments in varying amounts,
totaling P37,000 but at a lower rate of 5%[8] prepaid interest a month.
Upon maturity of Pedrosos subsequent investments, Valle would take

back from Pedroso the corresponding yellow-colored agents receipt he

issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life
insurance policyholder, about the investment plan. Palacio made a total
investment of P49,550[9] but at only 5% prepaid interest. However,
when Pedroso tried to withdraw her investment, Valle did not want to
return some P17,000 worth of it. Palacio also tried to withdraw hers,
but Filipinas Life, despite demands, refused to return her money. With
the assistance of their lawyer, they went to Filipinas Life Escolta
Office to collect their respective investments, and to inquire why they
had not seen Valle for quite some time. But their attempts were futile.
Hence, respondents filed an action for the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its codefendants Valle, Apetrior and Alcantara jointly and solidarily liable to
the respondents.
On appeal, the Court of Appeals affirmed the trial courts ruling and
subsequently denied the motion for reconsideration.
Petitioner now comes before us raising a single issue:
Whether or not the Court of Appeals committed a reversible error and
gravely abused its discretion in affirming the decision of the lower
court holding FLAC [Filipinas LIFE] to be jointly and severally liable
with its co-defendants on the claim of respondents instead of holding
its agent, Renato Valle, solely liable to the respondents.[10]
Simply put, did the Court of Appeals err in holding petitioner and its
co-defendants jointly and severally liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims that
it was only a life insurance company and was not engaged in the
business of collecting investment money. It contends that the
investment scheme offered to respondents by Valle, Apetrior and
Alcantara was outside the scope of their authority as agents of
Filipinas Life such that, it cannot be held liable to the respondents.[11]

On the other hand, respondents contend that Filipinas Life authorized

Valle to solicit investments from them. In fact, Filipinas Lifes official
documents and facilities were used in consummating the transactions.
These transactions, according to respondents, were confirmed by its
officers Apetrior and Alcantara. Respondents assert they exercised all
the diligence required of them in ascertaining the authority of
petitioners agents; and it is Filipinas Life that failed in its duty to
ensure that its agents act within the scope of their authority.
Considering the issue raised in the light of the submissions of the
parties, we find that the petition lacks merit. The Court of Appeals
committed no reversible error nor abused gravely its discretion in
rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso and Palacio had
invested P47,000 and P49,550, respectively. These were received by
Valle and remitted to Filipinas Life, using Filipinas Lifes official
receipts, whose authenticity were not disputed. Valles authority to
solicit and receive investments was also established by the parties.
When respondents sought confirmation, Alcantara, holding a
supervisory position, and Apetrior, the branch manager, confirmed that
Valle had authority. While it is true that a person dealing with an agent
is put upon inquiry and must discover at his own peril the agents
authority, in this case, respondents did exercise due diligence in
removing all doubts and in confirming the validity of the
representations made by Valle.
Filipinas Life, as the principal, is liable for obligations contracted by
its agent Valle. By the contract of agency, a person binds himself to
render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter.[12] The general
rule is that the principal is responsible for the acts of its agent done
within the scope of its authority, and should bear the damage caused to
third persons.[13] When the agent exceeds his authority, the agent
becomes personally liable for the damage.[14] But even when the
agent exceeds his authority, the principal is still solidarily liable
together with the agent if the principal allowed the agent to act as
though the agent had full powers.[15] In other words, the acts of an
agent beyond the scope of his authority do not bind the principal,

unless the principal ratifies them, expressly or impliedly.[16]

Ratification in agency is the adoption or confirmation by one person of
an act performed on his behalf by another without authority.[17]
Filipinas Life cannot profess ignorance of Valles acts. Even if Valles
representations were beyond his authority as a debit/insurance agent,
Filipinas Life thru Alcantara and Apetrior expressly and knowingly
ratified Valles acts. It cannot even be denied that Filipinas Life
benefited from the investments deposited by Valle in the account of
Filipinas Life. In our considered view, Filipinas Life had clothed Valle
with apparent authority; hence, it is now estopped to deny said
authority. Innocent third persons should not be prejudiced if the
principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his agents
acts beyond the latters authority. The act of the agent is considered that
of the principal itself. Qui per alium facit per seipsum facere videtur.
He who does a thing by an agent is considered as doing it himself.[18]
WHEREFORE, the petition is DENIED for lack of merit. The
Decision and Resolution, dated November 29, 2002 and August 5,
2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568
are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
PHILEX MINING CORPORATION, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF
APPEALS, and THE COURT OF TAX APPEALS, respondents.
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975[1]
affirming the Court of Tax Appeals decision in CTA Case No. 4872
dated March 16, 1995[2] ordering it to pay the amount of
P110,677,668.52 as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest

from August 6, 1994 until fully paid pursuant to Sections 248 and 249
of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex
asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of
1991 as well as the 1st and 2nd quarter of 1992 in the total amount of
P123,821,982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST
TOTAL EXCISE

the amount of P119,977,037.02 plus interest. Therefore, these claims

for tax credit/refund should be applied against the tax liabilities, citing
our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992,[6] found no
merit in Philexs position. Since these pending claims have not yet been
established or determined with certainty, it follows that no legal
compensation can take place. Hence, he BIR reiterated its demand that
Philex settle the amount plus interest within 30 days from the receipt
of the letter.

TAX DUE
2nd Qtr., 1991
19,517,021.91

12,911,124.60

3,227,781.15

3,378,116.16

3rd Qtr., 1991

21,721,845.60

14,994,749.21

3,748,687.30

2,978,409.09

4th Qtr., 1991

26,889,937.88

19,406,480.13

4,851,620.03

2,631,837.72

------------------- ----------------- ----------------- --------------------47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

In view of the BIRs denial of the offsetting of Philexs claim for VAT
input credit/refund against its exercise tax obligation, Philex raised the
issue to the Court of Tax Appeals on November 6, 1992.[7] In the
course of the proceedings, the BIR issued a Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied to the total
tax liabilities of Philex of P123,821,982.52; effectively lowered the
latters tax obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex
to pay the remaining balance of P110,677,688.52 plus interest,
elucidating its reason, to wit:

========== ========== =========== ===========[3]

Thus, for legal compensation to take place, both obligations must be

liquidated and demandable. Liquidated debts are those where the exact
amount has already been determined (PARAS, Civil Code of the
Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant
case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case
No. 4707). A fortiori, the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against the unliquidated claim
which Petitioner conceived to exist in its favor (see Compaia General
de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39
Phil. 34).[8]

In a letter dated August 20, 1992,[4] Philex protested the demand for
payment of the tax liabilities stating that it has pending claims for VAT
input credit/refund for the taxes it paid for the years 1989 to 1991 in

Moreover, the Court of Tax Appeals ruled that taxes cannot be subject
to set-off on compensation since claim for taxes is not a debt or
contract.[9] The dispositive portion of the CTA decision[10] provides:

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

In all the foregoing, this Petition for Review is hereby DENIED for
lack of merit and Petitioner is hereby ORDERED to PAY the
Respondent the amount of P110,677,668.52 representing excise tax
liability for the period from the 2nd quarter of 1991 to the 2nd quarter
of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court
of Appeals docketed as CA-G.R. CV No. 36975.[11] Nonetheless, on
April 8, 1996, the Court of Appeals affirmed the Court of Tax Appeals
observation. The pertinent portion of which reads:[12]
WHEREFORE, the appeal by way of petition for review is hereby
DISMISSED and the decision dated March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless,
denied in a Resolution dated July 11, 1996.[13]
However, a few days after the denial of its motion for reconsideration,
Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994, computed as
follows:[14]
Period Covered By Tax Credit Certificate Date Of Issue Amount
Claims For Vat Number
refund/credit
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now
contends that the same should, ipso jure, off-set its excise tax
liabilities[15] since both had already become due and demandable, as
well as fully liquidated;[16] hence, legal compensation can properly
take place.
We see no merit in this contention.

In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the
simple reason that the government and the taxpayer are not creditors
and debtors of each other.[17] There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its sovereign
capacity.[18] We find no cogent reason to deviate from the
aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate
Court,[19] we categorically held that taxes cannot be subject to set-off
or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the government.
A person cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being collected.
The collection of tax cannot await the results of a lawsuit against the
government.
The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,[20] which reiterated that:
x x x a taxpayer may not offset taxes due from the claims that he may
have against the government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off.
Further, Philexs reliance on our holding in Commissioner of Internal
Revenue v. Itogon-Suyoc Mines, Inc., wherein we ruled that a pending
refund may be set off against an existing tax liability even though the
refund has not yet been approved by the Commissioner,[21] is no
longer without any support in statutory law.
It is important to note that the premise of our ruling in the
aforementioned case was anchored on Section 51(d) of the National
Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the ItogonSuyoc pronouncement was based was omitted.[22] Accordingly, the
doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philexs position, it

asserts that the imposition of surcharge and interest for the nonpayment of the excise taxes within the time prescribed was unjustified.
Philex posits the theory that it had no obligation to pay the excise
liabilities within the prescribed period since, after all, it still has
pending claims for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an outright
disregard of the basic principle in tax law that taxes are the lifeblood
of the government and so should be collected without unnecessary
hindrance.[24] Evidently, to countenance Philexs whimsical reason
would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax
liabilities on the ground that it has a pending tax claim for refund or
credit against the government which has not yet been granted. It must
be noted that a distinguishing feature of a tax is that it is compulsory
rather than a matter of bargain.[25] Hence, a tax does not depend upon
the consent of the taxpayer.[26] If any payer can defer the payment of
taxes by raising the defense that it still has a pending claim for refund
or credit, this would adversely affect the government revenue system.
A taxpayer cannot refuse to pay his taxes when they fall due simply
because he has a claim against the government or that the collection of
the tax is contingent on the result of the lawsuit it filed against the
government.[27] Moreover, Philex's theory that would automatically
apply its VAT input credit/refund against its tax liabilities can easily
give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their
tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input
claim/refund with the government is immaterial for the imposition of
charges and penalties prescribed under Section 248 and 249 of the Tax
Code of 1977. The payment of the surcharge is mandatory and the BIR
is not vested with any authority to waive the collection thereof.[28]
The same cannot be condoned for flimsy reasons,[29] similar to the
one advanced by Philex in justifying its non-payment of its tax
liabilities.

Finally, Philex asserts that the BIR violated Section 106(e)[30] of the
National Internal Revenue Code of 1977, which requires the refund of
input taxes within 60 days,[31] when it took five years for the latter to
grant its tax claim for VAT input credit/refund.[32]
In this regard, we agree with Philex. While there is no dispute that a
claimant has the burden of proof to establish the factual basis of his or
her claim for tax credit or refund,[33] however, once the claimant has
submitted all the required documents, it is the function of the BIR to
assess these documents with purposeful dispatch. After all, since
taxpayers owe honesty to government it is but just that government
render fair service to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to
1991 but the refund of these erroneously paid taxes was only granted
in 1996. Obviously, had the BIR been more diligent and judicious with
their duty, it could have granted the refund earlier. We need not remind
the BIR that simple justice requires the speedy refund of wrongly-held
taxes.[35] Fair dealing and nothing less, is expected by the taxpayer
from the BIR in the latter's discharge of its function. As aptly held in
Roxas v. Court of Tax Appeals:[36]
"The power of taxation is sometimes called also the power to destroy.
Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collectot kill the 'hen that lays the golden egg.'
And, in the order to maintain the general public's trust and confidence
in the Government this power must be used justly and not
treacherously."
Despite our concern with the lethargic manner by which the BIR
handled Philex's tax claim, it is a settled rule that in the performance of
governmental function, the State is not bound by the neglect of its
agents and officers. Nowhere is this more true than in the field of
taxation.[37] Again, while we understand Philex's predicament, it must
be stressed that the same is not valid reason for the non- payment of its
tax liabilities.
To be sure, this is not state that the taxpayer is devoid of remedy
against public servants or employees especially BIR examiners who, in
investigating tax claims are seen to drag their feet needlessly. First, if
the BIR takes time in acting upon the taxpayer's claims for refund, the
latter can seek judicial remedy before the Court of Tax Appeals in the
manner prescribed by law.[38] Second, if the inaction can be

characterized as willful neglect of duty, then recourse under the Civil

Code and the Tax Code can also be availed of.
Article 27 of the Civil Code provides:
"Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to perform
his official duty may file an action for damages and other relief against
the latter, without prejudice to any disciplinary action that may be
taken."
More importantly, Section 269 (c) of the National Internal Revenue
Act of 1997 states:
"xxx xxx xxx
(c) wilfully neglecting to give receipts, as by law required for any sum
collected in the performance of duty or wilfully neglecting to perform,
any other duties enjoined by law."
Simply put, both provisions abhor official inaction, willful neglect and
unreasonable delay in the performance of official duties.[39] In no
uncertain terms must we stress that every public employee or servant
must strive to render service to the people with utmost diligence and
efficiency. Insolence and delay have no place in government service.
The BIR, being the government collecting arm, must and should do no
less. It simply cannot be apathetic and laggard in rendering service to
the taxpayer if it wishes to remain true to its mission of hastening the
country's development. We take judicial notice of the taxpayer's
generally negative perception towards the BIR; hence, it is up to the
latter to prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in
performing its duties, still, the same cannot justify Philex's nonpayment of its tax liabilities. The adage "no one should take the law
into his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby
DISMISSED. The assailed decision of the Court of Appeals dated
April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Kapunan and Purisima, JJ., concur.
LEO WEE, Petitioner,
- versus -

GEORGE DE CASTRO (on his behalf and as attorney-in-fact of

ANNIE DE CASTRO and FELOMINA UBAN) and
MARTINIANA DE CASTRO, Respondents.
G.R. No. 176405; August 20, 2008
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari[1] under Rule
45 of the Revised Rules of Court filed by petitioner Leo Wee, seeking
the reversal and setting aside of the Decision[2] dated 19 September
2006 and the Resolution[3] dated 25 January 2007 of the Court of
Appeals in CA-G.R. SP No. 90906. The appellate court, in its assailed
Decision, reversed the dismissal of Civil Case. No. 1990, an action for
ejectment instituted by respondent George de Castro, on his own
behalf and on behalf of Annie de Castro, Felomina de Castro Uban and
Jesus de Castro[4] against petitioner, by the Municipal Trial Court
(MTC) of Alaminos City, which was affirmed by the Regional Trial
Court (RTC), Branch 54, Alaminos City, Pangasinan; and, ruling in
favor of the respondents, ordered the petitioner to vacate the subject
property. In its assailed Resolution dated 25 January 2007, the Court of
Appeals refused to reconsider its earlier Decision of 19 September
2006.
In their Complaint[5] filed on 1 July 2002 with the MTC of Alaminos
City, docketed as Civil Case No. 1990, respondents alleged that they
are the registered owners of the subject property, a two-storey building
erected on a parcel of land registered under Transfer Certificate of
Title (TCT) No. 16193 in the Registry of Deeds of Pangasinan,
described and bounded as follows:
A parcel of land (Lot 13033-D-2, Psd-01550-022319, being a portion
of Lot 13033-D, Psd-018529, LRC Rec. No. ____) situated in Pob.,
Alaminos City; bounded on the NW. along line 1-2 by Lot 13035-D-1
of the subdivision plan; on the NE. along line 2-3 by Vericiano St.; on
the SE. along line 3-4 by Lot 13033-D-2 of the subdivision plan; on
the SW. along line 4-1 by Lot 575, Numeriano Rabago. It is coverd by
TCT No. 16193 of the Register of Deeds of Pangasinan (Alaminos

City) and declared for taxation purposes per T.D. No. 2075, and
assessed in the sum of P93,400.00.[6]
Respondents rented out the subject property to petitioner on a month to
month basis for P9,000.00 per month.[7] Both parties agreed that
effective 1 October 2001, the rental payment shall be increased from
P9,000.00 to P15,000.00. Petitioner, however, failed or refused to pay
the corresponding increase on rent when his rental obligation for the
month of 1 October 2001 became due. The rental dispute was brought
to the Lupon Tagapagpamayapa of Poblacion, Alaminos, Pangasinan,
in an attempt to amicably settle the matter but the parties failed to
reach an agreement, resulting in the issuance by the Barangay Lupon
of a Certification to file action in court on 18 January 2002. On 10
June 2002, respondent George de Castro sent a letter to petitioner
terminating their lease agreement and demanding that the latter vacate
and turn over the subject property to respondents. Since petitioner
stubbornly refused to comply with said demand letter, respondent
George de Castro, together with his siblings and co-respondents, Annie
de Castro, Felomina de Castro Uban and Jesus de Castro, filed the
Complaint for ejectment before the MTC.
It must be noted, at this point, that although the Complaint stated that
it was being filed by all of the respondents, the Verification and the
Certificate of Non-Forum Shopping were signed by respondent George
de Castro alone. He would subsequently attach to his position paper
filed before the MTC on 28 October 2002 the Special Powers of
Attorney (SPAs) executed by his sisters Annie de Castro and Felomina
de Castro Uban dated 7 February 2002 and 14 March 2002
respectively, authorizing him to institute the ejectment case against
petitioner.
Petitioner, on the other hand, countered that there was no agreement
between the parties to increase the monthly rentals and respondents
demand for an increase was exorbitant. The agreed monthly rental was
only for the amount of P9,000.00 and he was religiously paying the
same every month. Petitioner then argued that respondents failed to
comply with the jurisdictional requirement of conciliation before the
Barangay Lupon prior to the filing of Civil Case. No. 1990, meriting
the dismissal of their Complaint therein. The Certification to file action

issued by the Barangay Lupon appended to the respondents Complaint

merely referred to the issue of rental increase and not the matter of
ejectment. Petitioner asserted further that the MTC lacked jurisdiction
over the ejectment suit, since respondents Complaint was devoid of
any allegation that there was an unlawful withholding of the subject
property by the petitioner.[8]
During the Pre-Trial Conference[9] held before the MTC, the parties
stipulated that in May 2002, petitioner tendered to respondents the sum
of P9,000.00 as rental payment for the month of January 2002;
petitioner paid rentals for the months of October 2001 to January 2002
but only in the amount of P9,000.00 per month; respondents, thru
counsel, sent a letter to petitioner on 10 June 2002 terminating their
lease agreement which petitioner ignored; and the Barangay Lupon did
issue a Certification to file action after the parties failed to reach an
agreement before it.
After the submission of the parties of their respective Position Papers,
the MTC, on 21 November 2002, rendered a Decision[10] dismissing
respondents Complaint in Civil Case No. 1990 for failure to comply
with the prior conciliation requirement before the Barangay Lupon.
The decretal portion of the MTC Decision reads:
WHEREFORE, premised considered, judgment is hereby rendered
ordering the dismissal of this case. Costs against the [herein
respondents].
On appeal, docketed as Civil Case No. A-2835, the RTC of Alaminos,
Pangasinan, Branch 54, promulgated its Decision[11] dated 27 June
2005 affirming the dismissal of respondents Complaint for ejectment
after finding that the appealed MTC Decision was based on facts and
law on the matter. The RTC declared that since the original agreement
entered into by the parties was for petitioner to pay only the sum of
P9.000.00 per month for the rent of the subject property, and no
concession was reached by the parties to increase such amount to
P15.000.00, petitioner cannot be faulted for paying only the originally
agreed upon monthly rentals. Adopting petitioners position, the RTC
declared that respondents failure to refer the matter to the Barangay
court for conciliation process barred the ejectment case, conciliation

before the Lupon being a condition sine qua non in the filing of
ejectment suits. The RTC likewise agreed with petitioner in ruling that
the allegation in the Complaint was flawed, since respondents failed to
allege that there was an unlawful withholding of possession of the
subject property, taking out Civil Case No. 1990 from the purview of
an action for unlawful detainer. Finally, the RTC decreed that
respondents Complaint failed to comply with the rule that a co-owner
could not maintain an action without joining all the other co-owners.
Thus, according to the dispositive portion of the RTC Decision:
WHEREFORE the appellate Court finds no cogent reason to disturb
the findings of the court a quo. The Decision dated November 21,
2002 appealed from is hereby AFFIRMED IN TOTO.[12]
Undaunted, respondents filed a Petition for Review on Certiorari[13]
with the Court of Appeals where it was docketed as CA-G.R. SP No.
90906. Respondents argued in their Petition that the RTC gravely erred
in ruling that their failure to comply with the conciliation process was
fatal to their Complaint, since it is only respondent George de Castro
who resides in Alaminos City, Pangasinan, while respondent Annie de
Castro resides in Pennsylvania, United States of America (USA);
respondent Felomina de Castro Uban, in California, USA; and
respondent Jesus de Castro, now substituted by his wife, Martiniana,
resides in Manila. Respondents further claimed that the MTC was not
divested of jurisdiction over their Complaint for ejectment because of
the mere absence therein of the term unlawful withholding of their
subject property, considering that they had sufficiently alleged the
same in their Complaint, albeit worded differently. Finally,
respondents posited that the fact that only respondent George de
Castro signed the Verification and the Certificate of Non-Forum
Shopping attached to the Complaint was irrelevant since the other
respondents already executed Special Powers of Attorney (SPAs)
authorizing him to act as their attorney-in-fact in the institution of the
ejectment suit against the petitioner.
On 19 September 2006, the Court of Appeals rendered a Decision
granting the respondents Petition and ordering petitioner to vacate the
subject property and turn over the same to respondents. The Court of
Appeals decreed:

WHEREFORE, premises considered, the instant petition is

GRANTED. The assailed Decision dated June 27, 2005 issued by the
RTC of Alaminos City, Pangasinan, Branch 54, is REVERSED and
SET ASIDE. A new one is hereby rendered ordering [herein petitioner]
Leo Wee to SURRENDER and VACATE the leased premises in
question as well as to pay the sum of P15,000.00 per month reckoned
from March, 2002 until he shall have actually turned over the
possession thereof to petitioners plus the rental arrearages of
P30,000.00 representing unpaid increase in rent for the period from
October, 2001 to February, 2002, with legal interest at 6% per annum
to be computed from June 7, 2002 until finality of this decision and
12% thereafter until full payment thereof. Respondent is likewise
hereby ordered to pay petitioners the amount of P20,000.00 as and for
attorneys fees and the costs of suit.[14]
In a Resolution dated 25 January 2007, the appellate court denied the
Motion for Reconsideration interposed by petitioner for lack of merit.
Petitioner is now before this Court via the Petition at bar, making the
following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
DECLARING THAT CONCILIATION PROCESS IS NOT A
JURISDICTIONAL REQUIREMENT THAT NON-COMPLIANCE
THEREWITH DOES NOT AFFECT THE JURISDICTION IN
EJECTMENT CASE;
II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
UPHOLDING THE SUFFICIENCY OF THE ALLEGATIONS IN
THE COMPLAINT FOR EJECTMENT DESPITE THE WANT OF
ALLEGATION OF UNLAWFUL WITHOLDING PREMISES (sic)
QUESTIONED BY PETITIONER;
III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

RULING THAT THE FILING OF THE COMPLAINT OF
RESPONDENT GEORGE DE CASTRO WITHOUT JOINING ALL
HIS OTHER CO-OWNERS OVER THE SUBJECT PROPERTY IS
PROPER;

precondition to filing a complaint in court subject to certain

exceptions. The said section has been declared compulsory in nature.
[17]

IV.

Presidential Decree No. 1508 is now incorporated in Republic Act No.

7160 (The Local Government Code), which took effect on 1 January
1992.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

NOT APPLYING SUPREME COURT CIRCULAR NO. 10 WHICH
DIRECTS A PLEADER TO INDICATE IN HIS PLEADINGS HIS
OFFICIAL RECEIPT OF HIS PAYMENT OF HIS IBP DUES.[15]
Petitioner avers that respondents failed to go through the conciliation
process before the Barangay Lupon, a jurisdictional defect that bars
the legal action for ejectment. The Certification to file action dated 18
January 2002 issued by the Barangay Lupon, appended by the
respondents to their Complaint in Civil Case No. 1990, is of no
moment, for it attested only that there was confrontation between the
parties on the matter of rental increase but not on unlawful detainer of
the subject property by the petitioner. If it was the intention of the
respondents from the very beginning to eject petitioner from the
subject property, they should have brought up the alleged unlawful
stay of the petitioner on the subject property for conciliation before the
Barangay Lupon.
The barangay justice system was established primarily as a means of
easing up the congestion of cases in the judicial courts. This could be
accomplished through a proceeding before the barangay courts which,
according to the one who conceived of the system, the late Chief
Justice Fred Ruiz Castro, is essentially arbitration in character; and to
make it truly effective, it should also be compulsory. With this primary
objective of the barangay justice system in mind, it would be wholly in
keeping with the underlying philosophy of Presidential Decree No.
1508 (Katarungang Pambarangay Law), which would be better served
if an out-of-court settlement of the case is reached voluntarily by the
parties.[16] To ensure this objective, Section 6 of Presidential Decree
No. 1508 requires the parties to undergo a conciliation process before
the Lupon Chairman or the Pangkat ng Tagapagkasundo as a

The pertinent provisions of the Local Government Code making

conciliation a precondition to the filing of complaints in court are
reproduced below:
SEC. 412. Conciliation.- (a) Pre-condition to filing of complaint in
court. No complaint, petition, action, or proceeding involving any
matter within the authority of the lupon shall be filed or instituted
directly in court or any other government office for adjudication,
unless there has been a confrontation between the parties before the
lupon chairman or the pangkat, and that no conciliation or settlement
has been reached as certified by the lupon secretary or pangkat
secretary as attested to by the lupon or pangkat chairman or unless the
settlement has been repudiated by the parties thereto.
(b) Where parties may go directly to court. The parties may go directly
to court in the following instances:
(1) Where the accused is under detention;
(2) Where a person has otherwise been deprived of personal liberty
calling for habeas corpus proceedings;
(3) Where actions are coupled with provisional remedies such as
preliminary injunction, attachment, delivery of personal property, and
support pendente lite; and
(4) Where the action may otherwise be barred by the statute of
limitations.

(c) Conciliation among members of indigenous cultural communities.

The customs and traditions of indigenous cultural communities shall
be applied in settling disputes between members of the cultural
communities.
SEC. 408. Subject Matter for Amicable Settlement; Exception Thereto.
The lupon of each barangay shall have authority to bring together the
parties actually residing in the same city or municipality for amicable
settlement of all disputes except:

There is no question that the parties to this case appeared before the
Barangay Lupon for conciliation proceedings. There is also no dispute
that the only matter referred to the Barangay Lupon for conciliation
was the rental increase, and not the ejectment of petitioner from the
subject property. This is apparent from a perusal of the Certification to
file action in court issued by the Barangay Lupon on 18 January 2002,
to wit:
CERTIFICATION TO FILE COMPLAINTS
This is to certify that:

(a)
Where one party is the government or any subdivision or
instrumentality thereof;
(b) Where one party is a public officer or employee, and the dispute
relates to the performance of his official functions;
(c) Offenses punishable by imprisonment exceeding one (1) year or a
fine exceeding Five thousand pesos (P5,000.00);
(d) Offenses where there is no private offended party;
(e) Where the dispute involves real properties located in different
cities or municipalities unless the parties thereto agree to submit their
differences to amicable settlement by an appropriate lupon;
(f) Disputes involving parties who actually reside in barangays of
different cities or municipalities, except where such barangay units
adjoin each other and the parties thereto agree to submit their
differences to amicable settlement by an appropriate lupon;
(g) Such other classes of disputes which the President may determine
in the interest of justice or upon the recommendation of the Secretary
of Justice.

1. There was personal confrontation between parties before the

barangay Lupon regarding rental increase of a commercial building
but conciliation failed;
2. Therefore, the corresponding dispute of the above-entitled case may
now be filed in Court/Government Office.[18] (Emphasis ours.)
The question now to be resolved by this Court is whether the
Certification dated 18 January 2002 issued by the Barangay Lupon
stating that no settlement was reached by the parties on the matter of
rental increase sufficient to comply with the prior conciliation
requirement under the Katarungang Pambarangay Law to authorize the
respondents to institute the ejectment suit against petitioner.
The Court rules affirmatively.
While it is true that the Certification to file action dated 18 January
2002 of the Barangay Lupon refers only to rental increase and not to
the ejectment of petitioner from the subject property, the submission of
the same for conciliation before the Barangay Lupon constitutes
sufficient compliance with the provisions of the Katarungang
Pambarangay Law. Given the particular circumstances of the case at
bar, the conciliation proceedings for the amount of monthly rental
should logically and reasonably include also the matter of the
possession of the property subject of the rental, the lease agreement,
and the violation of the terms thereof.
We now proceed to discuss the meat of the controversy.

The contract of lease between the parties did not stipulate a fixed
period. Hence, the parties agreed to the payment of rentals on a
monthly basis. On this score, Article 1687 of the Civil Code provides:
Art. 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is annual;
from month to month, if it is monthly; from week to week, if the rent
is weekly; and from day to day, if the rent is to be paid daily. However,
even though a monthly rent is paid, and no period for the lease has
been set, the courts may fix a longer term for the lease after the lessee
has occupied the premises for over one year. If the rent is weekly, the
courts may likewise determine a longer period after the lessee has been
in possession for over six months. In case of daily rent, the courts may
also fix a longer period after the lessee has stayed in the place for over
one month. (Emphasis supplied.)
The rentals being paid monthly, the period of such lease is deemed
terminated at the end of each month. Thus, respondents have every
right to demand the ejectment of petitioners at the end of each month,
the contract having expired by operation of law. Without a lease
contract, petitioner has no right of possession to the subject property
and must vacate the same. Respondents, thus, should be allowed to
resort to an action for ejectment before the MTC to recover possession
of the subject property from petitioner.
Corollarily, petitioners ejectment, in this case, is only the reasonable
consequence of his unrelenting refusal to comply with the respondents
demand for the payment of rental increase agreed upon by both parties.
Verily, the lessors right to rescind the contract of lease for nonpayment of the demanded increased rental was recognized by this
Court in Chua v. Victorio[19]:
The right of rescission is statutorily recognized in reciprocal
obligations, such as contracts of lease. In addition to the general
remedy of rescission granted under Article 1191 of the Civil Code,
there is an independent provision granting the remedy of rescission for
breach of any of the lessor or lessees statutory obligations. Under
Article 1659 of the Civil Code, the aggrieved party may, at his option,

ask for (1) the rescission of the contract; (2) rescission and
indemnification for damages; or (3) only indemnification for damages,
allowing the contract to remain in force.
Payment of the rent is one of a lessees statutory obligations, and, upon
non-payment by petitioners of the increased rental in September 1994,
the lessor acquired the right to avail of any of the three remedies
outlined above. (Emphasis supplied.)
Petitioner next argues that respondent George de Castro cannot
maintain an action for ejectment against petitioner, without joining all
his co-owners.
Article 487 of the New Civil Code is explicit on this point:
ART. 487.
ejectment.

Any one of the co-owners may bring an action in

This article covers all kinds of action for the recovery of possession,
i.e., forcible entry and unlawful detainer (accion interdictal), recovery
of possession (accion publiciana), and recovery of ownership (accion
de reivindicacion). As explained by the renowned civilist, Professor
Arturo M. Tolentino[20]:
A co-owner may bring such an action, without the necessity of joining
all the other co-owners as co-plaintiffs, because the suit is deemed to
be instituted for the benefit of all. If the action is for the benefit of the
plaintiff alone, such that he claims possession for himself and not for
the co-ownership, the action will not prosper. (Emphasis added.)
In the more recent case of Carandang v. Heirs of De Guzman,[21] this
Court declared that a co-owner is not even a necessary party to an
action for ejectment, for complete relief can be afforded even in his
absence, thus:
In sum, in suits to recover properties, all co-owners are real parties in
interest. However, pursuant to Article 487 of the Civil Code and the
relevant jurisprudence, any one of them may bring an action, any kind
of action for the recovery of co-owned properties. Therefore, only one

of the co-owners, namely the co-owner who filed the suit for the
recovery of the co-owned property, is an indispensable party thereto.
The other co-owners are not indispensable parties. They are not even
necessary parties, for a complete relief can be afforded in the suit even
without their participation, since the suit is presumed to have been
filed for the benefit of all co-owners.
Moreover, respondents Annie de Castro and Felomina de Castro Uban
each executed a Special Power of Attorney, giving respondent George
de Castro the authority to initiate Civil Case No. 1990.
A power of attorney is an instrument in writing by which one person,
as principal, appoints another as his agent and confers upon him the
authority to perform certain specified acts or kinds of acts on behalf of
the principal. The written authorization itself is the power of attorney,
and this is clearly indicated by the fact that it has also been called a
letter of attorney.[22]
Even then, the Court views the SPAs as mere surplusage, such that the
lack thereof does not in any way affect the validity of the action for
ejectment instituted by respondent George de Castro. This also
disposes of petitioners contention that respondent George de Castro
lacked the authority to sign the Verification and the Certificate of NonForum Shopping. As the Court ruled in Mendoza v. Coronel[23]:
We likewise hold that the execution of the certification against forum
shopping by the attorney-in-fact in the case at bar is not a violation of
the requirement that the parties must personally sign the same. The
attorney-in-fact, who has authority to file, and who actually filed the
complaint as the representative of the plaintiff co-owner, pursuant to a
Special Power of Attorney, is a party to the ejectment suit. In fact,
Section 1, Rule 70 of the Rules of Court includes the representative of
the owner in an ejectment suit as one of the parties authorized to
institute the proceedings. (Emphasis supplied.)
Failure by respondent George de Castro to attach the said SPAs to the
Complaint is innocuous, since it is undisputed that he was granted by
his sisters the authority to file the action for ejectment against
petitioner prior to the institution of Civil Case No. 1990. The SPAs in

his favor were respectively executed by respondents Annie de Castro

and Felomina de Castro Uban on 7 February 2002 and 14 March 2002;
while Civil Case No. 1990 was filed by respondent George de Castro
on his own behalf and on behalf of his siblings only on 1 July 2002, or
way after he was given by his siblings the authority to file said action.
The Court quotes with approval the following disquisition of the Court
of Appeals:
Moreover, records show that [herein respondent] George de Castro
was indeed authorized by his sisters Annie de Castro and Felomina de
Castro Uban, to prosecute the case in their behalf as shown by the
Special Power of Attorney dated February 7, 2002 and March 14,
2002. That these documents were appended only to [respondent
George de Castros] position paper is of no moment considering that
the authority conferred therein was given prior to the institution of the
complaint in July, 2002. x x x.[24]
Respondent deceased Jesus de Castros failure to sign the Verification
and Certificate of Non-Forum Shopping may be excused since he
already executed an Affidavit[25] with respondent George de Castro
that he had personal knowledge of the filing of Civil Case No. 1990. In
Torres v. Specialized Packaging Development Corporation,[26] the
Court ruled that the personal signing of the verification requirement
was deemed substantially complied with when, as in the instant case,
two out of 25 real parties-in-interest, who undoubtedly have sufficient
knowledge and belief to swear to the truth of the allegations in the
petition, signed the verification attached to it.
In the same vein, this Court is not persuaded by petitioners assertion
that respondents failure to allege the jurisdictional fact that there was
unlawful withholding of the subject property was fatal to their cause of
action.
It is apodictic that what determines the nature of an action as well as
which court has jurisdiction over it are the allegations in the complaint
and the character of the relief sought. In an unlawful detainer case, the
defendants possession was originally lawful but ceased to be so upon
the expiration of his right to possess. Hence, the phrase unlawful
withholding has been held to imply possession on the part of

defendant, which was legal in the beginning, having no other source

than a contract, express or implied, and which later expired as a right
and is being withheld by defendant.[27]

suit. Respondents must be duly indemnified for the loss of income

from the subject property on account of petitioners refusal to vacate
the leased premises.

In Barba v. Court of Appeals,[28] the Court held that although the

phrase unlawfully withholding was not actually used by therein
petitioner in her complaint, the Court held that her allegations,
nonetheless, amounted to an unlawful withholding of the subject
property by therein private respondents, because they continuously
refused to vacate the premises even after notice and demand.

WHEREFORE, premises considered, the instant Petition is DENIED.

The Decision dated 19 September 2006 and Resolution dated 25
January 2007 of the Court of Appeals in CA-G.R. SP No. 90906 are
hereby AFFIRMED in toto. Costs against petitioner.

In the Petition at bar, respondents alleged in their Complaint that they

are the registered owners of the subject property; the subject property
was being occupied by the petitioner pursuant to a monthly lease
contract; petitioner refused to accede to respondents demand for rental
increase; the respondents sent petitioner a letter terminating the lease
agreement and demanding that petitioner vacate and turn over the
possession of the subject property to respondents; and despite such
demand, petitioner failed to surrender the subject property to
respondents.[29] The Complaint sufficiently alleges the unlawful
withholding of the subject property by petitioner, constitutive of
unlawful detainer, although the exact words unlawful withholding
were not used. In an action for unlawful detainer, an allegation that
the defendant is unlawfully withholding possession from the plaintiff
is deemed sufficient, without necessarily employing the terminology
of the law.[30]

ESTATE OF LINO OLAGUER, Represented by Linda O.

Olaguer, and LINDA O. MONTAYRE, Petitioners,
- versus EMILIANO M. ONGJOCO, Respondent.

Petitioners averment that the Court of Appeals should have dismissed

respondents Petition in light of the failure of their counsel to attach the
Official Receipt of his updated payment of Integrated Bar of the
Philippines (IBP) dues is now moot and academic, since respondents
counsel has already duly complied therewith. It must be stressed that
judicial cases do not come and go through the portals of a court of law
by the mere mandate of technicalities.[31] Where a rigid application of
the rules will result in a manifest failure or miscarriage of justice,
technicalities should be disregarded in order to resolve the case. [32]

The relevant factual antecedents of the case, as found by the trial court
and adapted by the Court of Appeals, are as follows:

Finally, we agree in the ruling of the Court of Appeals that petitioner is

liable for the payment of back rentals, attorneys fees and cost of the

Lino Olaguer died on October 3, 1957 so Special Proceedings No. 528

for probate of will was filed in the then Court of First Instance of

SO ORDERED.

G.R. No. 173312; August 26, 2008

CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari[1] is the Decision[2]
of the Court of Appeals dated 27 February 2006 in CA-G.R. CV No.
71710. Said decision modified the Decision[3] and the subsequent
Order[4] of the Regional Trial Court (RTC) of Legazpi City, Branch 6,
in Civil Case No. 6223, and upheld the validity of the sales of
properties to respondent Emiliano M. Ongjoco.

The plaintiffs Sor Mary Edith Olaguer, Aurora O. de Guzman, Clarissa

O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre are the
legitimate children of the spouses Lino Olaguer and defendant Olivia
P. Olaguer.

Albay. Defendant Olivia P. Olaguer was appointed as administrator

pursuant to the will. Later, defendant Eduardo Olaguer was appointed
as co-administrator. x x x
On October 15, 1959 defendant Olivia P. Olaguer got married to
defendant Jose A. Olaguer before the then Justice of the Peace of Sto.
Domingo (Libog) Albay. (Exhibit NNNN) On January 24, 1965 they
were married in church. (Exhibit XX)
In the order of the probate court dated April 4, 1961, some properties
of the estate were authorized to be sold to pay obligations of the estate.
Pursuant to this authority, administrators Olivia P. Olaguer and
Eduardo Olaguer on December 12, 1962 sold to Pastor Bacani for
[P]25,000 Pesos, twelve (12) parcels of land, particularly, Lots 4518,
4526, 4359, 8750, 7514, 6608, 8582, 8157, 7999, 6167, 8266, and 76
with a total area of 99 hectares. (Exhibit A Deed of Sale notarized by
defendant Jose A. Olaguer)
This sale of twelve (12) parcels of land to Pastor Bacani was approved
by the Probate Court on December 12, 1962. (Exhibit 15)
The following day, December 13, 1962, Pastor Bacani sold back to
Eduardo Olaguer and Olivia Olaguer for [P]12,000.00 Pesos, one of
the twelve (12) lots he bought the day before, particularly, Lot No. 76
in the proportion of 7/13 and 6/13 pro-indiviso respectively. (Exhibit B
Deed of Sale notarized by Felipe A. Cevallos, Sr.)
Simultaneously, on the same day December 13, 1962, Pastor Bacani
sold back to Olivia Olaguer and Eduardo Olaguer the other eleven (11)
parcels he bought from them as follows:
To Olivia Olaguer Four (4) parcels for 10,700 Pesos, particularly Lots
4518, 4526, 4359, 8750 with a total area of 84 hectares. (Exhibit E
Deed of Sale notarized by Felipe A. Cevallos, Sr.)
To Eduardo Olaguer Seven (7) parcels of land for 2,500 Pesos,
particularly Lots 7514, 6608, 8582, 8157, 7999, 6167, and 8266 with a
total area of 15 hectares. (Exhibit C Deed of Sale notarized by
defendant Jose A. Olaguer)

Relying upon the same order of April 4, 1961 but without prior notice
or permission from the Probate Court, defendants Olivia P. Olaguer
and Eduardo Olaguer on November 1, 1965 sold to Estanislao Olaguer
for 7,000 Pesos, ten (10) parcels of land, particularly, (a) TCT No. T4011 Lot No. 578, (b) TCT No. T-1417 Lot No. 1557, (c) TCT No. T4031 Lot No. 1676, (d) TCT No. T-4034 Lot No. 4521, (e) TCT No. T4035 Lot No. 4522, (f) TCT No. 4013 Lot No. 8635, (g) TCT No. T4014 Lot 8638, (h) TCT No. T-4603 Lot No. 7589, (i) TCT No. 4604
Lot No. 7593, and (j) TCT No. T-4605 Lot No. 7396. (Exhibit D Deed
of Sale notarized by Rodrigo R. Reantaso)
This sale to Estanislao Olaguer was approved by the Probate Court on
November 12, 1965.
After the foregoing sale to Estanislao Olaguer, the following
transactions took place:
1) On July 7, 1966, defendant Olivia P. Olaguer executed a Special
Power of Attorney notarized by Rodrigo R. Reantaso (Exhibit T) in
favor of defendant Jose A. Olaguer, authorizing the latter to sell,
mortgage, assign, transfer, endorse and deliver the properties covered
by TCT No. 14654 for Lot 76 6/13 share only, T-13983, T-14658, T14655, T-14656, and T-14657.
2) On July 7, 1966, Estanislao Olaguer executed a Special Power of
Attorney in favor of Jose A. Olaguer (Exhibit X) notarized by Rodrigo
R. Reantaso authorizing the latter to sell, mortgage, assign, transfer,
endorse and deliver the properties covered by TCT No. T-20221, T20222, T-20225 for Lot No. 8635, T-20226 for Lot No. 8638, T-20227,
T-20228, and T-20229.
By virtue of this Special Power of Attorney, on March 1, 1967, Jose A.
Olaguer as Attorney-in-Fact of Estanislao Olaguer mortgaged Lots
7589, 7593 and 7396 to defendant Philippine National Bank (PNB) as
security for a loan of 10,000 Pesos. The mortgage was foreclosed by
the PNB on June 13, 1973 and the properties mortgage were sold at
public auction to PNB. On December 10, 1990, the PNB transferred
the properties to the Republic of the Philippines pursuant to Exec.

Order No. 407 dated June 14, 1990 for agrarian reform purposes.
(records, vol. 1, page 66)
3) On October 29, 1966, Estanislao Olaguer executed a General Power
of Attorney notarized by Rodrigo R. Reantaso (Exhibit Y) in favor of
Jose A. Olaguer, authorizing the latter to exercise general control and
supervision over all of his business and properties, and among others,
to sell or mortgage any of his properties.
4) On December 29, 1966, Estanislao Olaguer sold to Jose A. Olaguer
for 15,000 Pesos, (Exhibit UU) the ten (10) parcels of land (Lots 578,
4521, 4522, 1557, 1676, 8635, 8638, 7589, 7593 and 7396) he bought
from Olivia P. Olaguer and Eduardo Olaguer under Exhibit D.

Olivia P. Olaguer and Eduardo Olaguer were removed as

administrators of the estate and on February 12, 1980, plaintiff Ma.
Linda Olaguer Montayre was appointed administrator by the Probate
Court.
Defendant Jose A. Olaguer died on January 24, 1985. (Exhibit NN) He
was survived by his children, namely the defendants Nimfa Olaguer
Taguay, Corazon Olaguer Uy, Jose Olaguer, Jr., Virgilio Olaguer,
Jacinto Olaguer, and Ramon Olaguer.
Defendant Olivia P. Olaguer died on August 21, 1997 (Exhibit OO)
and was survived by all the plaintiffs as the only heirs.

5) On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer for

1 Peso and other valuable consideration Lot No. 4521 TCT No. T20223 and Lot 4522 TCT No. 20224 with a total area of 2.5 hectares.
(records, vol. 1, page 33)

The decedent Lino Olaguer have had three marriages. He was first
married to Margarita Ofemaria who died April 6, 1925. His second
wife was Gloria Buenaventura who died on July 2, 1937. The third
wife was the defendant Olivia P. Olaguer.

6) On June 5, 1968, Estanislao Olaguer sold Lot No. 8635 under TCT
No. T-20225, and Lot No. 8638 under TCT No. 20226 to Jose A.
Olaguer for 1 Peso and other valuable consideration. (Exhibit F) Deed
of Sale was notarized by Rodrigo R. Reantaso.

Lot No. 76 with an area of 2,363 square meters is in the heart of the
Poblacion of Guinobatan, Albay. The deceased Lino Olaguer inherited
this property from his parents. On it was erected their ancestral home.

7) On May 13, 1971, Jose A. Olaguer in his capacity as Attorney inFact of Estanislao Olaguer sold to his son Virgilio Olaguer for 1 Peso
and other valuable consideration Lot No. 1557 TCT No. 20221 and
Lot No. 1676 TCT No. 20222. The deed of sale was notarized by
Otilio Sy Bongon.
8) On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer
Lot No. 4521 and Lot No. 4522 for 1,000 Pesos. Deed of Sale was
notarized by Otilio Sy Bongon. (records, vol. 1, page 34)
9) On September 16, 1978 Virgilio Olaguer executed a General Power
of Attorney in favor of Jose A. Olaguer notarized by Otilio Sy Bongon
(Exhibit V) authorizing the latter to exercise general control and
supervision over all of his business and properties and among others,
to sell or mortgage the same.

As already said above, Lot No. 76 was among the twelve (12) lots sold
for 25,000 Pesos, by administrators Olivia P. Olaguer and Eduardo
Olaguer to Pastor Bacani on December 12, 1962. The sale was
approved by the probate court on December 12, 1962.
But, the following day, December 13, 1962 Pastor Bacani sold back
the same 12 lots to Olivia P. Olaguer and Eduardo Olaguer for 25,200
Pesos, as follows:
a) Lot No. 76 was sold back to Olivia P. Olaguer and Eduardo Olaguer
for 12,000 Pesos, in the proportion of [6/13] and [7/13] respectively.
(Exhibit B)
b) 4 of the 12 lots namely, Lots 4518, 4526, 4359, and 8750 were sold
back to Olivia Olaguer for 10,700 Pesos. (Exhibit E)

c) 7 of the 12 lots namely, Lots 7514, 6608, 8582, 8157, 7999, 6167,
and 8266 were sold back to Eduardo Olaguer for 2,500 Pesos. (Exhibit
C)
d) Lot No. 76 was thus issued TCT No. T-14654 on December 13,
1962 in the names of Eduardo B. Olaguer married to Daisy Pantig and
Olivia P. Olaguer married to Jose A. Olaguer to the extent of 7/13 and
6/13 pro-indiviso, respectively. (Exhibit FF also 14-a)

- do -

76-E

171

T-36281

101

- do -

76-F

171

T-36282

102

76-G

202

T-36283

103

76-H

168

T-36284

104

76-I

168

T-36285

105

- do -

76-J

168

T-36286

106

Emiliano M. [Ongjoco]
Page

76-K

473

T-36287

107

e) It appears from Plan (LRC) Psd-180629 (Exhibit 3) that defendant

Jose A. Olaguer caused the subdivision survey of Lot 76 into eleven
- do (11) lots, namely, 76-A, 76-B, 76-C, 76-D, 76-E, 76-F, 76-G, 76-H,
76-I, 76-J, and 76-K, sometime on April 3, 1972. The subdivision
survey was approved on October 5, 1973. After the approval of the Domingo O. de la
subdivision survey of Lot 76, a subdivision agreement was entered
Torre
into on November 17, 1973, among Domingo Candelaria, Olivia P.
Olaguer, Domingo O. de la Torre and Emiliano M. [Ongjoco].
(records, vol. 2, page 109).
- do This subdivision agreement is annotated in TCT No. 14654 (Exhibit 14
14-d) as follows:
Area in
Owner

Lot No.

TCT No.

Vol.

sq. m.
Domingo Candelaria

76-A

300

T-36277

Olivia P. Olaguer

76-B

200

T-36278

206

97
98

- do -

76-C

171

T-36279

99

- do -

76-D

171

T-36280

100

After Lot 76 was subdivided as aforesaid, Jose A. Olaguer as attorneyin-fact of Olivia P. Olaguer, sold to his son Virgilio Olaguer Lots 76-B,
76-C, 76-D, 76-E, 76-F, and 76-G on January 9, 1974 for 3,000 Pesos.
(Exhibit G) The deed of absolute sale was notarized by Otilio Sy
Bongon.
Lots 76-B and 76-C were consolidated and then subdivided anew and
designated as Lot No. 1 with an area of 186 square meters and Lot No.
2 with an area of 185 square meters of the Consolidation Subdivision
Plan (LRC) Pcs-20015. (Please sketch plan marked as Exhibit 4,
records, vol. 2, page 68)

On January 15, 1976, Jose A. Olaguer claiming to be the attorney-infact of his son Virgilio Olaguer under a general power of attorney Doc.
No. 141, Page No. 100, Book No. 7, Series of 1972 of Notary Public
Otilio Sy Bongon, sold Lot No. 1 to defendant Emiliano M. [Ongjoco]
for 10,000 Pesos per the deed of absolute sale notarized by Otilio Sy
Bongon. (Exhibit H) The alleged general power of attorney however
was not presented or marked nor formally offered in evidence.

Page No. 11, Book No. XXIII, Series of 1972 of Notary Public
Antonio A. Arcangel. (Exhibit L)

On September 7, 1976, Jose A. Olaguer again claiming to be the

attorney-in-fact of Virgilio Olaguer under the same general power of
attorney referred to in the deed of absolute sale of Lot 1, sold Lot No.
2 to Emiliano M. [Ongjoco] for 10,000 Pesos. (Exhibit I) The deed of
absolute sale was notarized by Otilio Sy Bongon.

The same Lot 76-G was sold on February 29, 1980 by Jose A. Olaguer
as attorney-in-fact of Virgilio Olaguer under the same general power
of attorney of 1978 referred to above to Emiliano M. [Ongjoco] for
10,000 Pesos. The deed of absolute sale is Doc. No. l02, Page No. 30,
Book No. 17, Series of 1980 of Notary Public Otilio Sy Bongon.
(Exhibit O)[5] (Emphases ours.)

On July 16, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio

Olaguer under a general power of attorney Doc. No. 378, Page No. 76,
Book No. 14, Series of 1978 sold Lot No. 76-D to Emiliano M.
[Ongjoco] for 5,000 Pesos. The deed of absolute sale is Doc. No. 571,
Page No. 20, Book No. 16, Series of 1979 of Notary Public Otilio Sy
Bongon. (Exhibit K)
The same Lot No. 76-D was sold on October 22, 1979 by Jose A.
Olaguer as attorney-in-fact of Virgilio Olaguer under a general power
of attorney Doc. No. 378, Page No. 76, Book No. 14, Series of 1978 of
Notary Public Otilio Sy Bongon sold Lot No. 76-D to Emiliano M.
[Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No.
478, Page No. 97, Book NO. XXII, Series of 1979 of Notary Public
Antonio A. Arcangel. (Exhibit J)
On July 3, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio
Olaguer sold Lots 76-E and 76-F to Emiliano M. [Ongjoco] for 15,000
Pesos. The deed of absolute sale is Doc. No. 526, Page No. 11, Book
No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit M)
The same Lots 76-E and 76-F were sold on October 25, 1979, by Jose
A. Olaguer as attorney-in-fact of Virgilio Olaguer under the same
general power of attorney of 1978 referred to above to Emiliano M.
[Ongjoco] for 30,000 Pesos. The deed of absolute sale is Doc. No. 47,

On July 2, 1979 Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer

sold Lot No. 76-G to Emiliano M. [Ongjoco] for 10,000 Pesos. The
deed of sale is Doc. No. 516, Page No. 9, Book No. 16, Series of 1979
of Notary Public Otilio Sy Bongon. (Exhibit N)

Thus, on 28 January 1980, the Estate of Lino Olaguer represented by

the legitimate children of the spouses Lino Olaguer and defendant
Olivia P. Olaguer, namely, Sor Mary Edith Olaguer, Aurora O. de
Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O.
Montayre, as attorney-in-fact and in her own behalf, filed an action for
the Annulment of Sales of Real Property and/or Cancellation of
Titles[6] in the then Court of First Instance of Albay.[7]
Docketed as Civil Case No. 6223, the action named as defendants the
spouses Olivia P. Olaguer and Jose A. Olaguer; Eduardo Olaguer;
Virgilio Olaguer; Cipriano Duran; the Heirs of Estanislao O. Olaguer,
represented by Maria Juan Vda. de Olaguer; and the Philippine
National Bank (PNB).
In the original complaint, the plaintiffs therein alleged that the sales of
the following properties belonging to the Estate of Lino Olaguer to
Estanislao Olaguer were absolutely simulated or fictitious,
particularly: Lots Nos. 578, 1557, 1676, 4521, 4522, 8635, 8638,
7589, 7593, and 7396. In praying that the sale be declared as null and
void, the plaintiffs likewise prayed that the resulting Transfer
Certificates of Title issued to Jose Olaguer, Virgilio Olaguer, Cipriano
Duran and the PNB be annulled.

Defendant PNB claimed in its Answer,[8] inter alia, that it was a

mortgagee in good faith and for value of Lots Nos. 7589, 7593 and
7396, which were mortgaged as security for a loan of P10,000.00; the
mortgage contract and other loan documents were signed by the
spouses Estanislao and Maria Olaguer as registered owners; the
proceeds of the loan were received by the mortgagors themselves;
Linda Olaguer Montayre had no legal capacity to sue as attorney-infact; plaintiffs as well as Maria Olaguer were in estoppel; and the
action was already barred by prescription. PNB set up a compulsory
counterclaim for damages, costs of litigation and attorneys fees. It also
filed a cross-claim against Maria Olaguer for the payment of the value
of the loan plus the agreed interests in the event that judgment would
be rendered against it.
Defendants Olivia P. Olaguer, Jose A. Olaguer and Virgilio Olaguer, in
their Answer,[9] denied the material allegations in the complaint. They
maintained that the sales of the properties to Pastor Bacani and
Estanislao Olaguer were judicially approved; the complaint did not
state a sufficient cause of action; it was barred by laches and/or
prescription; lis pendens existed; that the long possession of the
vendees have ripened into acquisitive prescription in their favor, and
the properties no longer formed part of the Estate of Lino Olaguer;
until the liquidation of the conjugal properties of Lino Olaguer and his
former wives, the plaintiffs were not the proper parties in interest to
sue in the action; and in order to afford complete relief, the other
conjugal properties of Lino Olaguer with his former wives, and his
capital property that had been conveyed without the approval of the
testate court should also be included for recovery in the instant case.
Defendant Maria Juan Vda. de Olaguer, representing the heirs of
Estanislao Olaguer, in her Answer,[10] likewise denied the material
allegations of the complaint and insisted that the plaintiffs had no valid
cause of action against the heirs of the late Estanislao Olaguer, as the
latter did not participate in the alleged transfer of properties by Olivia
P. Olaguer and Eduardo Olaguer in favor of the late Estanislao
Olaguer.
Defendant Cipriano Duran claimed, in his Answer,[11] that the
complaint stated no cause of action; he was merely instituted by his

late sister-in-law Josefina Duran to take over the management of Lots

Nos. 8635 and 8638 in 1971; and the real party-in-interest in the case
was the administrator of the estate of Josefina Duran.
On 11 January 1995, an Amended Complaint[12] was filed in order to
implead respondent Emiliano M. Ongjoco as the transferee of Virgilio
Olaguer with respect to portions of Lot No. 76, namely Lots Nos. 1, 2,
76-D, 76-E, 76-F, and 76-G.
In his Answer with Counterclaim and Motion to Dismiss,[13]
respondent Ongjoco denied the material allegations of the amended
complaint and interposed, as affirmative defenses the statute of
limitations, that he was a buyer in good faith, that plaintiffs had no
cause of action against him, and that the sale of property to Pastor
Bacani, from whom Ongjoco derived his title, was judicially approved.
On 23 January 1996, plaintiffs filed a Re-Amended Complaint,[14] in
which the heirs of Estanislao Olaguer were identified, namely, Maria
Juan Vda. de Olaguer, Peter Olaguer, Yolanda Olaguer and Antonio
Bong Olaguer.
In their Answer,[15] the heirs of Estanislao Olaguer reiterated their
claim that Estanislao Olaguer never had any transactions or dealings
with the Estate of Lino Olaguer; nor did they mortgage any property to
the PNB.
On 5 August 1998, the heirs of Estanislao Olaguer and petitioner Ma.
Linda Olaguer Montayre submitted a compromise agreement,[16]
which was approved by the trial court.
On 6 October 1999, Cipriano Duran filed a Manifestation[17] in which
he waived any claim on Lots Nos. 8635 and 8638. Upon motion,
Duran was ordered dropped from the complaint by the trial court in an
order[18] dated 20 October 1999.
In a Decision[19] dated 13 July 2001, the RTC ruled in favor of the
plaintiffs. The pertinent portions of the decision provide:

The entirety of the evidence adduced clearly show that the sale of the
12 lots to Pastor Bacani pursuant to Exhibit A and the sale of the 10
lots to Estanislao Olaguer pursuant to Exhibit D were absolutely
simulated sales and thus void ab initio. The two deeds of sales Exhibits
A and D are even worse than fictitious, they are completely null and
void for lack of consideration and the parties therein never intended to
be bound by the terms thereof and the action or defense for the
declaration of their inexistence does not prescribe. (Art. 1410, Civil
Code) Aside from being simulated they were clearly and
unequivocally intended to deprive the compulsory heirs of their
legitime x x x.
The deeds of sale, Exhibits A and D being void ab initio, they are
deemed as non-existent and the approval thereof by the probate court
becomes immaterial and of no consequence, because the approval by
the probate court did not change the character of the sale from void to
valid x x x.
xxxx

Pesos, then caused Virgilio to execute a power of attorney authorizing

him to sell or encumber the 6/13 share which he did by selling the
same to defendant Emiliano M. [Ongjoco].
Virgilio Olaguer however executed an affidavit (Exhibit CC) wherein
he denied having bought any property from the estate of Lino Olaguer
and that if there are documents showing that fact he does not know
how it came about. x x x.
The 1972 power of attorney referred to by Jose A. Olaguer as his
authority for the sale of Lots 1 and 2 (formerly lots 76-B and 76-C)
was not presented nor offered in evidence.
There are two deeds of sale over Lot 76-D, (Exhibits K and J) in favor
of defendant Emiliano M. [Ongjoco] with different dates of execution,
different amount of consideration, different Notary Public.
There are two deeds of sale over Lots 76-E and 76-F (Exhibits M and
L) in favor of defendant Emiliano M. [Ongjoco] with different dates of
execution, different amount of consideration and different Notary
Public.

Defendant Jose A. Olaguer simulated the sales and had them approved
by the probate court so that these properties would appear then to
cease being a part of the estate and the vendee may then be at liberty to
dispose of the same in any manner he may want. They probably
believed that by making it appear that the properties were bought back
from Pastor Bacani under a simulated sale, they (Olivia Olaguer and
Eduardo Olaguer) would appear then as the owners of the properties
already in their personal capacities that disposals thereof will no longer
require court intervention. x x x.

There are two deeds of sale over Lot 76-G (Exhibits N and O) in favor
of Emiliano M. [Ongjoco] with different dates of execution with the
same amount of consideration and the same Notary Public.

xxxx

Under these circumstances, the documents of defendant Emiliano M.

[Ongjoco] on lots 76 therefore, in so far as the portions he allegedly
bought from Jose A. Olaguer as attorney in fact of Virgilio Olaguer
suffers seriously from infirmities and appear dubious.

[Jose A. Olaguer] had Olivia P. Olaguer execute a Special Power of

Attorney (Exhibit T) authorizing him (Jose A. Olaguer) to sell or
encumber the properties allegedly bought back from Pastor Bacani
which Jose A. Olaguer did with respect to the 6/13 share of Olivia P.
Olaguer on Lot No. 76 by selling it to his son Virgilio for only 3,000

While Lot 76-D was allegedly sold already to Emiliano M. [Ongjoco]

in 1979, yet it was still Jose A. Olaguer who filed a petition for the
issuance of a second owners copy as attorney in fact of Virgilio
Olaguer on August 8, 1980 (Exhibit SS) and no mention was made
about the sale.

Defendant Emiliano M. [Ongjoco] cannot claim good faith because

according to him, when these lots 76-[B] to 76-G were offered to him

his condition was to transfer the title in his name and then he pays. He
did not bother to verify the title of his vendor. x x x.
So with respect to the sale of Lots 76-B to 76-G, Emiliano M.
[Ongjoco] has no protection as innocent purchaser for good faith
affords protection only to purchasers for value from the registered
owners. x x x. Knowing that he was dealing only with an agent x x x,
it behooves upon defendant Emiliano M. [Ongjoco] to find out the
extent of the authority of Jose A. Olaguer as well as the title of the
owner of the property, because as early as 1973 pursuant to the
subdivision agreement, (records, vol. 2, page 109 and Exhibit 14 and
14-d) he already knew fully well that Lots 76-B to 76-G he was buying
was owned by Olivia P. Olaguer and not by Virgilio Olaguer.
xxxx
With respect to the 10 lots sold to [Eduardo] Olaguer (Exhibit D) Jose
A. Olaguer had Estanislao Olaguer execute a power of attorney
(Exhibit X) authorizing him (Jose A. Olaguer) to sell or encumber the
10 lots allegedly bought by Estanislao from the estate. With this power
of attorney, he mortgaged lots 7589, 7593 and 7398 to the PNB. He
sold lots 1557 and 1676 to his son Virgilio Olaguer. While under
Exhibit UU dated December 29, 1966, he bought the 10 parcels of
land, among which is lots 4521 and 4522 from Estanislao Olaguer, yet,
on March 16, 1968, he again bought lots 4521 and 4522 (records, vol.
1, page 38) from Estanislao Olaguer. While lots 8635 and 8638 were
among those sold to him under Exhibit UU, it appears that he again
bought the same on June 5, 1968 under Exhibit F.
The heirs of Estanislao Olaguer however denied having bought any
parcel of land from the estate of Lino Olaguer. Estanislao Olaguers
widow, Maria Juan vda. de Olaguer, executed an affidavit (Exhibit
BB) that they did not buy any property from the estate of Lino
Olaguer, they did not sell any property of the estate and that they did
not mortgage any property with the PNB. She repeated this in her
deposition. (records, vol. 2, page 51) This was corroborated by no less
than former co-administrator Eduardo Olaguer in his deposition too
(Exhibit RRRR) that the sale of the 10 parcels of land to Estanislao
Olaguer was but a simulated sale without any consideration. x x x.

xxxx
A partial decision was already rendered by this court in its order of
August 5, 1998 (records, vol. 2, page 64) approving the compromise
agreement with defendants Heirs of Estanislao Olaguer. (records, vol.
2 page 57).
Defendant Cipriano Duran was dropped from the complaint per the
order of the court dated October 20, 1999 (records, vol. 2, page 155)
because he waived any right or claim over lots 8635 and 8638.
(records, vol. 2, page 150). (Emphasis ours.)
The dispositive portion of the above decision was, however, amended
by the trial court in an Order[20] dated 23 July 2001 to read as
follows:
WHEREFORE, premises considered, decision is hereby rendered in
favor of the plaintiffs as follows:
1) The deed of sale to Pastor Bacani (Exhibit A) and the deed of sale
to Estanislao Olaguer (Exhibit D) are hereby declared as null and void
and without force and effect and all the subsequent transfers and
certificates arising therefrom likewise declared null and void and
cancelled as without force and effect, except as herein provided for.
2) Lot Nos. 4518, 4526, 4359 and 8750 are hereby ordered reverted
back to the estate of Lino Olaguer and for this purpose, within ten (10)
days from the finality of this decision, the heirs of Olivia P. Olaguer
(the plaintiffs herein) [sic] are hereby ordered to execute the necessary
document of reconveyance, failure for which, the Clerk of Court is
hereby ordered to execute the said deed of reconveyance.
3) Lot Nos. 7514, 6608, 8582, 8157, 7999, 6167 and 8266 are hereby
ordered reverted back to the estate of Lino Olaguer and for this
purpose, within ten (10) days from the finality of this decision,
defendant Eduardo Olaguer is hereby ordered to execute the necessary
document of reconveyance, failure for which, the Clerk of Court is
hereby ordered to execute the said deed of reconveyance.

4) Lots 1 and 2, Pcs-20015, and Lots 76-D, 76-E, 76-F and 76-G, Psd180629 sold to Emiliano M. [Ongjoco] are hereby ordered reverted
back to the estate of Lino Olaguer. For this purpose, within ten (10)
days from the finality of this decision, defendant Emiliano M.
[Ongjoco] is hereby ordered to execute the necessary deed of
reconveyance, otherwise, the Clerk of Court shall be ordered to
execute the said reconveyance and have the same registered with the
Register of Deeds so that new titles shall be issued in the name of the
estate of Lino Olaguer and the titles of Emiliano [Ongjoco] cancelled.
5) The parties have acquiesced to the sale of the 7/13 portion of Lot 76
to Eduardo Olaguer as well as to the latters disposition thereof and are
now in estoppel to question the same. The court will leave the parties
where they are with respect to the 7/13 share of Lot 76.
6) Lots 578, 1557, 1676, 4521, 4522, 8635, 8638, are hereby reverted
back to the estate of Lino Olaguer and for this purpose, the Clerk of
[Court] is hereby ordered to execute the necessary deed of
reconveyance within ten days from the finality of this decision and
cause its registration for the issuance of new titles in the name of the
Estate of Lino Olaguer and the cancellation of existing ones over the
same.
7) While the mortgage with the defendant PNB is null and void, Lots
7589, 7593 and 7396 shall remain with the Republic of the Philippines
as a transferee in good faith.
Both the petitioners and respondent filed their respective Notices of
Appeal[21] from the above decision. The case was docketed in the
Court of Appeals as CA-G.R. CV No. 71710.
In their Plaintiff-Appellants Brief[22] filed before the Court of
Appeals, petitioner Estate argued that the trial court erred in not
ordering the restitution and/or compensation to them of the value of
the parcels of land that were mortgaged to PNB, notwithstanding the
fact that the mortgage was declared null and void. Petitioners maintain
that the PNB benefited from a void transaction and should thus be
made liable for the value of the land, minus the cost of the mortgage

and the reasonable expenses for the foreclosure, consolidation and

transfer of the lots.
Ongjoco, on the other hand, argued in his Defendant-Appellants
Brief[23] that the trial court erred in: declaring as null and void the
Deeds of Sale in favor of Pastor Bacani and Eduardo Olaguer and the
subsequent transfers and certificates arising therefrom; ordering the
reconveyance of the lots sold to him (Ongjoco); and failing to resolve
the affirmative defenses of prescription, the authority of Olivia and
Eduardo to dispose of properties formerly belonging to the estate of
Lino Olaguer, recourse in a court of co-equal jurisdiction, and forum
shopping.
Petitioner Linda O. Montayre was likewise allowed to file a Brief[24]
on her own behalf, as Plaintiff-Appellee and Plaintiff-Appellant.[25]
She refuted therein the assignment of errors made by DefendantAppellant Ongjoco and assigned as error the ruling of the trial court
that the lots mortgaged to the PNB should remain with the Republic of
the Philippines as a transferee in good faith.
On 27 February 2006, the Court of Appeals rendered the assailed
Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed Decision is hereby
MODIFIED, in that Paragraph 4 of the amended decision is hereby
Ordered Deleted, and the questioned sales to defendant-appellant
Emiliano M. Ongjoco are UPHELD.[26]
In denying the appeal interposed by petitioners, the appellate court
reasoned that the claim for the value of the lots mortgaged with the
PNB were not prayed for in the original Complaint, the Amended
Complaint or even in the Re-Amended Complaint. What was sought
therein was merely the declaration of the nullity of the mortgage
contract with PNB. As the relief prayed for in the appeal was not
contained in the complaint, the same was thus barred.
The Court of Appeals also ruled that the evidence of petitioners failed
to rebut the presumption that PNB was a mortgagee in good faith.
Contrarily, what was proven was the fact that Olivia Olaguer and Jose

A. Olaguer were the persons responsible for the fraudulent transactions

involving the questioned properties. Thus, the claim for restitution of
the value of the mortgaged properties should be made against them.
As regards the appeal of respondent Ongjoco, the appellate court
found the same to be meritorious. The said court ruled that when the
sale of real property is made through an agent, the buyer need not
investigate the principals title. What the law merely requires for the
validity of the sale is that the agents authority be in writing.
Furthermore, the evidence adduced by petitioners was ruled to be
inadequate to support the conclusion that Ongjoco knew of facts
indicative of the defect in the title of Olivia Olaguer or Virgilio
Olaguer.
Petitioners moved for a partial reconsideration[27] of the Court of
Appeals decision in order to question the ruling that respondent
Ongjoco was a buyer in good faith. The motion was, however, denied
in a Resolution[28] dated 29 June 2006.
Aggrieved, petitioners filed the instant Petition for Review on
Certiorari under Rule 45 of the Revised Rules of Court, raising the
following assignment of errors:
I.
THE COURT OF APPEALS COMMITTED AN ERROR IN LAW
WHEN IT RULED, ON SPECULATION, THAT RESPONDENT
EMILIANO M. ONGJOCO WAS A BUYER IN GOOD FAITH OF
THE PROPERTIES OF THE ESTATE OF LINO OLAGUER,
DESPITE THE EXISTENCE OF FACTS AND CIRCUMSTANCES
FOUND BY THE TRIAL COURT THAT OUGHT TO PUT
EMILIANO M. ONGJOCO ON NOTICE THAT THE
PETITIONERS-APPELLANTS HAVE A RIGHT OR INTEREST
OVER THE SAID PROPERTIES, AND CONTRARY TO
PREVAILING JURISPRUDENCE.
II.

THE COURT OF APPEALS COMMITTED AN ERROR IN LAW

WHEN IT DISREGARDED THE CLEAR FINDINGS OF FACTS
AND CONCLUSIONS MADE BY THE TRIAL COURT, IN THE
ABSENCE OF ANY STRONG AND COGENT REASONS TO
REVERSE THE SAID FINDINGS, CONTRARY TO PREVAILING
JURISPRUDENCE.[29]
Essentially, the question that has been brought before us for
consideration is whether or not, under the facts and circumstances of
this case, respondent Ongjoco can be considered an innocent purchaser
for value.
Petitioners agree with the pronouncement of the trial court that
respondent Ongjoco could not have been a buyer in good faith since he
did not bother to verify the title and the capacity of his vendor to
convey the properties involved to him. Knowing that Olivia P. Olaguer
owned the properties in 1973 and that he merely dealt with Jose A.
Olaguer as an agent in January 1976, Ongjoco should have ascertained
the extent of Joses authority, as well as the title of Virgilio as the
principal and owner of the properties.
Petitioners likewise cite the following incidents that were considered
by the trial court in declaring that respondent was a buyer in bad faith,
namely: (1) that Virgilio Olaguer executed an affidavit,[30] wherein he
denied having bought any property from the estate of Lino Olaguer,
and that if there are documents showing that fact, he does not know
how they came about; (2) that the power of attorney referred to by Jose
A. Olaguer as his authority for the sale of Lots 1 and 2 (formerly Lots
76-B and 76-C) was not presented or offered in evidence; (3) that there
are two deeds of sale[31] over Lot 76-D in favor of Ongjoco; (4) that
there are two deeds of sale[32] over Lots 76-E and 76-F in favor of
Ongjoco; (5) that there are two deeds of sale[33] over Lot 76-G in
favor of Ongjoco; and (6) that while Lot 76-D was already sold to
Ongjoco in 1979, it was still Jose A. Olaguer as attorney in fact of
Virgilio Olaguer who filed on 8 August 1980 a petition for the issuance
of a second owners copy[34] of the title to the property, and no
mention was made about the sale to Ongjoco.

Respondent Ongjoco, on the other hand, invokes the ruling of the

Court of Appeals that he was an innocent purchaser for value. His
adamant stance is that, when he acquired the subject properties, the
same were already owned by Virgilio Olaguer. Respondent insists that
Jose A. Olaguer was duly authorized by a written power of attorney
when the properties were sold to him (Ongjoco). He posits that this
fact alone validated the sales of the properties and foreclosed the need
for any inquiry beyond the title to the principal. All the law requires,
respondent concludes, is that the agents authority be in writing in order
for the agents transactions to be considered valid.
Respondent Ongjocos posture is only partly correct.
According to the provisions of Article 1874[35] of the Civil Code on
Agency, when the sale of a piece of land or any interest therein is
made through an agent, the authority of the latter shall be in writing.
Absent this requirement, the sale shall be void. Also, under Article
1878,[36] a special power of attorney is necessary in order for an agent
to enter into a contract by which the ownership of an immovable
property is transmitted or acquired, either gratuitously or for a valuable
consideration.
We note that the resolution of this case, therefore, hinges on the
existence of the written power of attorney upon which respondent
Ongjoco bases his good faith.
When Lots Nos. 1 and 2 were sold to respondent Ongjoco through
Jose A. Olaguer, the Transfer Certificates of Title of said properties
were in Virgilios name.[37] Unfortunately for respondent, the power of
attorney that was purportedly issued by Virgilio in favor of Jose
Olaguer with respect to the sale of Lots Nos. 1 and 2 was never
presented to the trial court. Neither was respondent able to explain the
omission. Other than the self-serving statement of respondent, no
evidence was offered at all to prove the alleged written power of
attorney. This of course was fatal to his case.
As it stands, there is no written power of attorney to speak of. The trial
court was thus correct in disregarding the claim of its existence.

Accordingly, respondent Ongjocos claim of good faith in the sale of

Lots Nos. 1 and 2 has no leg to stand on.
As regards Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to
present a general power of attorney that was executed by Virgilio
Olaguer. While the law requires a special power of attorney, the
general power of attorney was sufficient in this case, as Jose A.
Olaguer was expressly empowered to sell any of Virgilios properties;
and to sign, execute, acknowledge and deliver any agreement therefor.
[38] Even if a document is designated as a general power of attorney,
the requirement of a special power of attorney is met if there is a clear
mandate from the principal specifically authorizing the performance of
the act.[39] The special power of attorney can be included in the
general power when the act or transaction for which the special power
is required is specified therein.[40]
On its face, the written power of attorney contained the signature of
Virgilio Olaguer and was duly notarized. As such, the same is
considered a public document and it has in its favor the presumption of
authenticity and due execution, which can only be contradicted by
clear and convincing evidence.[41]

No evidence was presented to overcome the presumption in favor of

the duly notarized power of attorney. Neither was there a showing of
any circumstance involving the said document that would arouse the
suspicion of respondent and spur him to inquire beyond its four
corners, in the exercise of that reasonable degree of prudence required
of a man in a similar situation. We therefore rule that respondent
Ongjoco had every right to rely on the power of attorney in entering
into the contracts of sale of Lots Nos. 76-D to 76-G with Jose A.
Olaguer.
With respect to the affidavit of Virgilio Olaguer in which he allegedly
disavowed any claim or participation in the purchase of any of the
properties of the deceased Lino Olaguer, we hold that the same is
rather irrelevant. The affidavit was executed only on 1 August 1986 or
six years after the last sale of the properties was entered into in 1980.

In the determination of whether or not a buyer is in good faith, the

point in time to be considered is the moment when the parties actually
entered into the contract of sale.
Furthermore, the fact that Lots Nos. 76-D to 76-G were sold to
respondent Ongjoco twice does not warrant the conclusion that he was
a buyer in bad faith. While the said incidents might point to other
obscured motives and arrangements of the parties, the same do not
indicate that respondent knew of any defect in the title of the owner of
the property.
As to the petition filed by Jose A. Olaguer for the issuance of a second
owners copy of the title to Lot No. 76-D, after the property was
already sold to respondent Ongjoco, the same does not inevitably
indicate that respondent was in bad faith. It is more likely that Jose A.
Olaguer was merely compiling the documents necessary for the
transfer of the subject property. Indeed, it is to be expected that if the
title to the property is lost before the same is transferred to the name of
the purchaser, it would be the responsibility of the vendor to cause its
reconstitution.
In sum, we hold that respondent Emiliano M. Ongjoco was in bad faith
when he bought Lots Nos. 1 and 2 from Jose A. Olaguer, as the latter
was not proven to be duly authorized to sell the said properties.

However, respondent Ongjoco was an innocent purchaser for value

with regard to Lots Nos. 76-D, 76-E, 76-F and 76-G since it was
entirely proper for him to rely on the duly notarized written power of
attorney executed in favor of Jose A. Olaguer.
WHEREFORE, premises considered, the instant petition is hereby
PARTIALLY GRANTED. The assailed Decision of the Court of
Appeals dated 27 February 2006 in CA-G.R. CV NO. 71710 is
MODIFIED in that Paragraph 4 of the Decision dated 13 July 2001 of
the Regional Trial Court of Legazpi City, Branch 6, and the Order
dated 23 July 2001 shall read as follows:

4) Lots 1 and 2, Pcs-20015 sold to Emiliano M. Ongjoco are hereby

ordered reverted back to the estate of Lino Olaguer. For this purpose,
within ten (10) days from the finality of this decision, defendant
Emiliano M. Ongjoco is hereby ordered to execute the necessary deed
of reconveyance, otherwise, the Clerk of Court shall be ordered to
execute the said reconveyance and have the same registered with the
Register of Deeds so that new titles shall be issued in the name of the
estate of Lino Olaguer and the titles of Emiliano Ongjoco cancelled.
No costs.
SO ORDERED.
OBERT SAN PEDRO, Petitioner,
- versus WILLY ONG and NORMITA CABALLES, Respondents.
G.R. No. 177598, October 17, 2008
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45
of the Revised Rules of Court, filed by petitioner Robert San Pedro
(San Pedro), seeking to reverse and set aside the Decision[1] of the
Court of Appeals dated 29 December 2006 and its Resolution[2] dated
13 April 2007 in CA-G.R. CV No. 79399. In its assailed Decision, the
Court of Appeals reversed the Decision[3] dated 21 February 2003 of
the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 19, in
Civil Case No. 515-M-99, declaring, inter alia, that the deeds of real
estate mortgage constituted on the subject properties are null and void;
while, in its assailed Resolution, the appellate court denied San Pedros
Motion for Reconsideration.
The factual and procedural antecedents of this case are as follows:
On 3 April 1996, San Pedro purchased from the spouses Guillermo
Narciso and Brigida Santiago (spouses Narciso) two parcels of land
(subject properties) covered by Transfer Certificates of Title TCTs No.
T-82381 and No. T-82382 of the Registry of Deeds of Bulacan, with
areas of about 200 square meters and 150 square meters, respectively.

San Pedro bought the subject properties for P35,000.00, as evidenced

by Deeds of Sale executed in his favor by the spouses Narciso on 8
April 1996.[4]
In order to transfer in his name the TCTs covering the subject
properties, and upon the spouses Narcisos recommendation, San Pedro
hired the services of Adora Dela Pea (Dela Pea) who is known to be
very familiar with the intricacies of real property transfers.[5]
After sometime, San Pedro inquired with the Registry of Deeds of
Bulacan as to the status of his application for the issuance in his name
of new TCTs for the subject properties. He was surprised to find out,
however, that the subject properties were still registered in the names
of the Narciso spouses and were mortgaged to Willy Ong (Ong).[6]
According to the annotation stamped at the back of TCTs No. T-82381
and No. T-82382, the spouses Narciso, on 23 July 1998, executed
Special Powers of Attorney (SPAs) authorizing Dela Pea to mortgage
the subject properties to Ong. The SPAs were procured by Dela Pea
from the spouses Narciso with the help of one Rufino Landayan, a
tricycle driver who accompanied Dela Pea to the spouses Narcisos
residence. San Pedro found out that it was Normita Caballes
(Caballes), Ongs agent, who caused the registration of the mortgages
with the Registry of Deeds of Bulacan and the annotation thereof on
the TCTs of the spouses Narciso.[7]
In order to free the subject properties from the said encumbrances, San
Pedro filed with the RTC on 7 May 1999 a Petition for Nullification of
Mortgage with Damages against the spouses Narciso, Dela Pea,
Landayan, Ong, and Caballes, docketed as Civil Case No. 515-M-99.
On 14 May 1991, the RTC issued summons to spouses Narciso, Dela
Pea, Landayan, Ong, and Caballes, directing them to file their Answers
to San Pedros Petition in Civil Case No. 515-M-99. On the same day,
the Sheriff served the summons on all concerned as evidenced by the
Sheriffs Return,[8] which reads:

While the spouses Narciso, Landayan, Ong, and Caballes separately

filed their Answers in accordance with the summons, thereby
voluntarily submitting themselves to the jurisdiction of the RTC, Dela
Pea failed to do so and she was, thus, declared by the RTC to be in
default.
In their Answer,[9] the spouses Narciso admitted to selling the subject
properties to San Pedro, and denied authorizing the mortgage of the
same to Ong. Their signatures on the SPAs were fraudulently secured
by Dela Pea who misrepresented to them that such document was
necessary to facilitate the transfer of the TCTs of the subject properties
to San Pedro. The spouses Narciso denied that they participated in or
benefited from the loan obligation obtained by Dela Pea from Ong.
For their part, Caballes and Ong raised in their Joint Answer[10] the
defense of mortgagee-in-good-faith. They claimed that they both relied
in good faith on the SPAs granting Dela Pea the authority to mortgage
the subject properties since there was nothing on the face thereof
which would have raised their suspicion as to the authenticity of the
document. Ong alleged that the subject properties were used by Dela
Pea as collateral for the loan, amounting to P170,000.00, which she
obtained from Ong. Since the said loan obligation already became due
and demandable, Ong sought the foreclosure of the subject properties.

During the auction sale, Ong emerged as the highest bidder but the
TCTs of the subject properties were not yet transferred to his name.
Landayan, in his Answer,[11] denied any participation in the
procurement of the SPAs or in the mortgage of the subject properties,
except that he was hired by Dela Pea to bring her to the spouses
Narcisos residence at the time the alleged SPAs were fraudulently
procured.
After the Pre-Trial Conference, trial on the merits ensued.
During the trial, San Pedro presented Landayan to testify in his favor.
According to Landayan, he came to know Dela Pea when the latter
hired his tricycle. Landayan took Dela Pea and a woman, whom he
identified as Caballes sister, to the residence of the spouses Narciso to
secure Guillermo Narcisos signature on a certain document. While
Dela Pea and Caballes sister were inside the spouses Narcisos house,
Caballes was waiting for them outside in a white car. After a few
minutes, Dela Pea and Caballes sister came out, and together with
Caballes, they visited and inspected the subject properties; after which,
Dela Pea and Caballes sister proceeded to a restaurant to try and secure
Brigida Santiagos signature on the document they carried. After
somebody signed the document for Brigida Santiago, Dela Pea asked
Landayan to sign the same as witness, to which he obliged.[12]

Dela Pea before the Philippine National Police (PNP) Station in

Balagtas, Bulacan for the latters failure to effect the transfer of the
TCTs of the subject properties in San Pedros name, as she was obliged
to do. Tominago filed the complaint on behalf of San Pedro, who was
working abroad.[14]
Finally, a document examiner and handwriting expert from the
National Bureau of Investigation (NBI) was also presented as a
witness for San Pedro. He confirmed that the signature of Guillermo
Narciso on one of the SPAs was forged, while the signatures of his
wife Brigida Santiago on both SPAs were spurious.[15]
After San Pedro presented his evidence, Ong and Caballes filed a
demurrer to evidence, questioning the lack of jurisdiction of the RTC
over the person of Dela Pea. Since Dela Pea was an indispensable
party in the case, they claimed that no final determination of the same
could be arrived at without the said court acquiring jurisdiction over
Dela Pea.[16]

San Pedro himself took the witness stand. He testified that he bought
the subject properties from the spouses Narciso for P35,000.00. After
the execution of the Deeds of Sale and payment of the purchase price
to the spouses Narciso, possession of the subject properties were
turned over to him. San Pedro started to build his dream house on the
subject properties, spending about P2,000,000.00 thereon, only to find
out later on that the subject properties on which his house was built
was encumbered by Dela Pea to Ong on the strength of the SPAs
executed by the spouses Narciso in Dela Peas favor. When San Pedro
confronted the spouses Narciso about the mortgages, they denied
authorizing the same.[13]

In an Order dated 24 August 2001, the RTC denied the demurrer to

evidence filed by Ong and Caballes. Hence, trial proceeded with the
presentation of evidence by the defense.
Ong testified for the defense that Caballes informed him that she knew
of two parcels of land in Bulacan that were being offered as collaterals
for a loan. When Ong expressed interest in the subject properties,
Caballes showed him copies of the SPA executed by the spouses
Narciso in favor of Dela Pea. Ong then instructed Caballes to verify
with the Registry of Deeds whether the spouses Narciso were the real
owners of the subject properties and whether their TCTs were clean.
Caballes returned with certified true copies of the TCTs which were in
the names of the spouses Narciso and bore no encumbrances. Satisfied
with the documents, Ong agreed to release the amount of P170,000.00
as loan, secured by the subject properties. Ong admitted that he was
not able to personally talk to Dela Pea or to the spouses Narciso. All
negotiations pertaining to the loan and mortgages were transacted
through Caballes.[17]

San Pedros sister, Luz San Pedro Tominago (Tominago), narrated

before the RTC that on 31 March 1991, she filed a complaint against

Caballes also offered her testimony, in which she stated that she came
to know Dela Pea because the latter was looking for someone who can

grant her a loan with the subject properties as collateral. Dela Pea was
armed with the SPAs from the spouses Narciso authorizing her to
mortgage the subject properties. After Caballes examined the
documents, she proceeded to the Registry of Deeds of Bulacan to
verify the status and ownership of the subject properties. After she
found out that the TCTs were in the name of the spouses Narciso and
were clean, Caballes went to Ong who released the money for the loan.
Dela Pea issued nine post-dated checks to Ong as payment for her loan
obligation. All nine checks were dishonored by the drawee bank when
presented for payment because Dela Peas account was already closed.
Ong, thus, instituted before the Municipal Trial Court (MTC) of
Balagtas, Bulacan, a case against Dela Pea for violation of Batas
Pambansa Blg. 22.[18]
On 21 February 2003, the RTC rendered a Decision in Civil Case No.
515-M-99, declaring null and void the mortgages constituted over the
subject properties in Ongs favor. According to the court a quo, Ong
and Caballes failed to exercise reasonable degree of diligence before
they entered into mortgage contracts with Dela Pea, who was not the
registered owner of the properties being mortgaged and was only
purportedly authorized by the registered owners thereof. The RTC,
thus, ruled:

5. Ordering the Registry of Deeds for the Province of Bulacan to

cancel the recordings of mortgages in favor of Ong constituted in [sic]
TCT No. 82381 and TCT No. 82382 as well as any annotation of
foreclosure proceedings if there are any by [Ong].
6. Ordering [Ong] to return to [San Pedro] the owners duplicate copy
of TCT No. 82381 and TCT No. 82382 which are presently in his
possession.
7. Ordering [Dela Pea] to pay [Ong] the sum of P245,000.00 plus legal
interest from September, 1998 until the whole obligation is fully
extinguished.
All other claims, counterclaims and cross claims are ordered denied
for lack of merit.[19]
Without filing any Motion for Reconsideration before the RTC, Ong
and Caballes appealed the adverse RTC Decision to the Court of
Appeals, assigning as error the lack of jurisdiction of the RTC over the
person of Dela Pea which rendered all the proceedings held before said
court fatally defective. Their appeal was docketed as CA-G.R. CV No.
79399.

WHEREFORE, judgment is hereby rendered as follows:

1. Declaring [San Pedro] the legal and rightful owner of the two (2)
parcels of land subject of this litigation, covered by TCT No. T-82381
and TCT No. 82382 presently in the name of [the spouses Narciso].
2. Adjudging the sale by [the spouses Narciso] to [San Pedro], legal,
valid, subsisting and in all respect enforceable.
3. Resolving to declare the Special Power[s] of Attorney constituted in
favor of [Dela Pea] null and void.
4. Declaring the Deeds of Mortgage purportedly executed by [Dela
Pea] as Attorney-in-fact of [the spouses Narciso], in favor of [Ong]
constituted in [sic] TCT No. T-82381 and TCT No. 82382 void ab
initio.

In a Decision[20] dated 29 December 2006, the Court of Appeals

granted the appeal of Ong and Caballes, and accordingly reversed the
RTC Decision dated 21 February 2003. The appellate court justified its
reversal of the ruling of the RTC on its finding that the service of
summons on Dela Pea was invalid; thus, the RTC did not acquire
jurisdiction over her person. The substituted service of summons
employed by the Sheriff was ineffective for failure to comply with the
statutory requirements before such mode of service could be resorted
to. The Sheriff in the present case used substituted service without
even showing that Dela Pea could not be served personally with the
summons within reasonable time. Since Dela Pea was an indispensable
party to the controversy, without her no final determination of the case
can be had. Thus, the dispositive portion of the assailed Court of
Appeals Decision reads:

WHEREFORE, all the above premises considered, the Decision, dated

February 21, 2003, of the Regional Trial Court of Malolos, Bulacan,
Branch 19, is hereby set aside for want of jurisdiction. The instant case
is hereby remanded to the court a quo for appropriate proceedings. No
costs.[21]
The Motion for Reconsideration filed by San Pedro was denied by the
Court of Appeals in its Resolution[22] dated 13 April 2007 for the
issues raised therein were already sufficiently threshed out in its
Decision.
San Pedro is now before this Court assailing the adverse decision
rendered by the Court of Appeals.[23] For the resolution of this Court
are the following issues:

To provide perspective, it is crucial to determine first whether the

action is in personam, in rem, or quasi in rem because the rules on
service of summons under Rule 14 of the Revised Rules of Court
apply according to the nature of the action.[25]
In the case at bar, Civil Case No. 515-M-99, instituted by San Pedro, is
anchored on his claim that he is the real and rightful owner of the
subject properties, thus, no one else has the right to mortgage them.
The real estate mortgages constituted on the subject properties in favor
of Ong, annotated on their TCTs, are encumbrances on said properties,
which may be considered a cloud on San Pedros title thereto.
Such cloud may be removed or San Pedros title quieted under Article
476 of the Civil Code, which reads:

I.

II.

Art. 476. Whenever there is a cloud on title to real property or any

interest therein, by reason of any instrument, record, claim,
encumbrance or proceeding which is apparently valid or effective but
is in truth and in fact invalid, ineffective, voidable, or unenforceable,
and may be prejudicial to said title, an action may be brought to
remove such cloud or to quiet the title.

WHETHER OR NOT DE LA PEA IS AN INDISPENSABLE PARTY

TO THE CASE.

An action may also be brought to prevent a cloud from being cast upon
title to real property or any interest therein. (Emphasis ours.)

III.

San Pedro alleged in his Petition in Civil Case No. 515-M-99 that the
mortgages in favor of Ong may, at first, appear valid and effective, but
are actually invalid or voidable for having been made without the
knowledge and authority of the spouses Narciso, the registered owners
of the subject properties and San Pedros predecessors-in-interest. In
asking the cancellation of the mortgages on the TCTs of the subject
properties, San Pedro was ultimately asking the RTC to remove a
cloud on his title to the same. It is, thus, irrefragable that Civil Case
No. 515-M-99 is an action for quieting of title.

WHETHER OR NOT THE RTC HAS JURISDICTION TO HEAR

AND DECIDE THE CASE FILED BY SAN PEDRO.

WHETHER OR NOT ONG WAS MORTGAGEE-IN-GOOD FAITH.

Vital to the resolution of the present controversy are the questions on
whether there was a valid service of summons upon Dela Pea; and if
there was none, whether the improper service of summons on Dela Pea
invalidates the entire proceedings before the court a quo.
Summons is a writ by which the defendant is notified of the action
brought against him. Service of such writ is the means by which the
court may acquire jurisdiction over his person. Any judgment without
such service in the absence of a valid waiver is null and void.[24]

Significantly, suits to quiet title are characterized as proceedings quasi

in rem. Technically, they are neither in rem nor in personam. In an
action quasi in rem, an individual is named as defendant. However,
unlike suits in rem, a quasi in rem judgment is conclusive only
between the parties. A proceeding quasi in rem is one brought against
persons seeking to subject the property of such persons to the
discharge of the claims assailed. [26]

In an action quasi in rem, an individual is named as defendant and the

purpose of the proceeding is to subject his interests therein to the
obligation or loan burdening the property. Actions quasi in rem deal
with the status, ownership or liability of a particular property but
which are intended to operate on these questions only as between the
particular parties to the proceedings and not to ascertain or cut off the
rights or interests of all possible claimants. The judgments therein are
binding only upon the parties who joined in the action.[27]

According to Section 6, Rule 14 of the Revised Rules of Court,

summons on the defendant in actions in personam must be served by
handing a copy thereof to the defendant in person, or, if he refuses to
receive it, by tendering it to him.[28] Meanwhile, in actions in rem or
quasi in rem, jurisdiction over the person of the defendant is not a
prerequisite to confer jurisdiction on the court provided that the court
acquires jurisdiction over the res, although summons must be served
upon the defendant in order to satisfy the due process requirements.
[29]

proceeding in rem or quasi in rem, jurisdiction over the person of the

defendant is not a prerequisite to confer jurisdiction on the court,
provided that the latter has jurisdiction over the res. Jurisdiction over
the res is acquired either (a) by the seizure of the property under legal
process, whereby it is brought into actual custody of the law; or (b) as
a result of the institution of legal proceedings, in which the power of
the court is recognized and made effective. The service of summons or
notice to the defendant is not for the purpose of vesting the court with
jurisdiction but merely for satisfying the due process requirements.
(Emphasis supplied.)

Given that Civil Case No. 515-M-99 is a an action for quieting of title,
settled to be quasi in rem, the RTC was not required to acquire
jurisdiction over the persons of the defendants, it being sufficient for
the said court to acquire jurisdiction over the subject matter of the
case. By San Pedros institution of Civil Case No. 515-M-99, the RTC
already acquired jurisdiction over the subject properties the res.
Therefore, the service of summons to the defendants in said case,
including Dela Pea, did not affect the jurisdiction of the RTC to hear
and decide Civil Case No. 515-M-99, and did not invalidate the
proceedings held therein on the basis of jurisdiction.

In Alba v. Court of Appeals, [30] the Court further elucidated that:

Admittedly, there was a defect in the service of the summons on Dela

Pea. The Sheriff immediately resorted to substituted service of
summons on Dela Pea without attempting first to effect personal
service within reasonable time. The Sheriffs Return[31] merely stated
that he served a copy of the summons on Dela Peas sister-in-law who
refused to sign the same.

In an action in personam, jurisdiction over the person of the defendant

is necessary for the court to validly try and decide the case. In a

Personal service of summons is preferred to substitute service. Only if

the former cannot be made promptly can the process server resort to

the latter. Moreover, the proof of service of summons must (a) indicate
the impossibility of service of summons within a reasonable time; (b)
specify the efforts exerted to locate the defendant; and (c) state that the
summons was served upon a person of sufficient age and discretion
who is residing in the address, or who is in charge of the office or
regular place of business, of the defendant. It is likewise required that
the pertinent facts proving these circumstances be stated in the proof
of service or in the officers return. The failure to comply faithfully,
strictly and fully with all the foregoing requirements of substituted
service renders the service of summons ineffective.[32] Indisputably,
the Sheriff did not comply with any of the foregoing requirements,
thus, rendering his service of summons on Dela Pea invalid.

Nonetheless, the improper service of summons on Dela Pea did not

void the proceedings conducted by the RTC in Civil Case No. 515-M99, for lack of jurisdiction. As the Court has underscored herein, in
quasi in rem proceedings, the court need not acquire jurisdiction over
the persons of the defendants, for as long as it has acquired jurisdiction
over the res. The defect in the service of summons merely infringed
Dela Peas right to due process that precluded the RTC from rendering
a valid judgment with respect to her personal liability. And since Dela
Peas right to due process is personal and pertains to her alone, it could
not be invoked by her other co-defendants in Civil Case No. 515-M-99
so as to escape the judgment of liability against them.

Contrary to the pronouncement of the Court of Appeals, Dela Pea was

not an indispensable party to this case, without whom, no final
conclusion of the case can be arrived at.

The Court defined indispensable party in Philippine National Bank v.

Heirs of Estanislao Militar and Deogracias Militar, [33] as follows:

An indispensable party is one whose interest will be affected by the

court's action in the litigation, and without whom no final
determination of the case can be had. The party's interest in the
subject matter of the suit and in the relief sought are so inextricably
intertwined with the other parties' (sic) that his legal presence as a
party to the proceeding is an absolute necessity. In his absence there
cannot be a resolution of the dispute of the parties before the court
which is effective, complete, or equitable.
Conversely, a party is not indispensable to the suit if his interest in the
controversy or subject matter is distinct and divisible from the interest
of the other parties and will not necessarily be prejudiced by a
judgment which does complete justice to the parties in court. He is not
indispensable if his presence would merely permit complete relief
between him and those already parties to the action or will simply
avoid multiple litigation. (Emphasis supplied.)

Evidently, Dela Pea does not fall within the definition of an

indispensable party. As the Court has explained, Civil Case No. 515M-99 is an action for quieting of title, intended to remove any cloud
upon San Pedros title to the subject properties. The real estate
mortgages in favor of Ong annotated on the TCTs of the subject
properties constitute the cloud to be removed. Thus, the crux of the
controversy is the title of San Pedro to the subject properties vis--vis
that of Ong, for the determination of which, Dela Peas participation is
not an absolute necessity. The judgment of the RTC upholding San
Pedros title to the subject properties over Ongs, or even if it were the
other way around, would not have affected Dela Pea, because Dela Pea
never claimed title to the subject properties; she only misrepresented
that she had authority to mortgage the same on behalf of the registered
owners, namely, the spouses Narciso. After she successfully, albeit,
fraudulently, obtained the loan using the subject properties as
mortgage, her interest in the same had ended. She may have
perpetrated fraud for which she may be held liable but, clearly, these

may be established in a separate and subsequent case. Her presence in

the proceedings before the RTC would have only permitted complete
relief since the said court could have already determined therein her
liability for the damages she had caused to any of the parties, but it
does not make her presence indispensable.

San Pedros title proved to be superior to that of Ongs. The subject

properties were sold to him prior to the mortgage of the same to Ong.
The spouses Narciso, registered owners of the subject properties,
admitted the sale thereof to San Pedro and denied giving any authority
to Dela Pea to mortgage the said properties. An expert witness
affirmed that the signature of Guillermo Narciso on one of the
purported SPAs in favor of Dela Pea was forged, while the signatures
of his wife Brigida Santiago on both SPAs were spurious. Ong and
Caballes cannot even point out any defect in San Pedros title to the
subject properties. Ong can only assert better right to the same as
allegedly a mortgagee in good faith.

However, the well-entrenched legal principle in our jurisprudence

requires a higher degree of diligence to be exercised by the mortgagee
when he is not directly dealing with the registered owner of real
property. As the Court enunciated in Abad v. Guimba[34]:

While one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from one who is not the
registered owner is expected to examine not only the certificate of title
but all factual circumstances necessary for [one] to determine if there
are any flaws in the title of the transferor, or in [the] capacity to
transfer the land. Although the instant case does not involve a sale but
only a mortgage, the same rule applies inasmuch as the law itself
includes a mortgagee in the term purchaser.

The Court has stressed time and again that every person dealing with
an agent is put upon inquiry, and must discover upon his peril the
authority of the agent, and this is especially true where the act of the
agent is of unusual nature. If a person makes no inquiry, he is
chargeable with knowledge of the agents authority, and his ignorance
of that authority will not be any excuse.[35]

In the more recent case of Bank of Commerce v. San Pablo, Jr.,[36] the
Court elucidated:

The Bank of Commerce clearly failed to observe the required degree

of caution in ascertaining the genuineness and extent of the authority
of Santos to mortgage the subject property. It should not have simply
relied on the face of the documents submitted by Santos, as its
undertaking to lend a considerable amount of money required of it a
greater degree of diligence. That the person applying for the loan is
other than the registered owner of the real property being mortgaged
should have already raised a red flag and which should have induced
the Bank of Commerce to make inquiries into and confirm Santos
authority to mortgage the Spouses San Pablos property. A person who
deliberately ignores a significant fact that could create suspicion in an
otherwise reasonable person is not an innocent purchaser for value
(Emphasis ours.)

Considering Ongs undue haste in granting the loan without inquiring

into the ownership of the subject properties being mortgaged, as well
as the authority of the supposed agent to constitute the mortgages on
behalf of the owners, he cannot be considered a mortgagee-in-goodfaith. Ongs averment that he exercised prudence in the loan-mortgage
transaction is debunked by his own admission that he merely relied on

Caballes representations thereon, without personally meeting or

speaking with Dela Pea, the supposed agent, or the spouses Narciso,
the registered owners of the subject properties. Although he instructed
Caballes to check the TCTs of the subject properties, he did not bother
to personally meet Dela Pea and ascertain the genuineness and
authenticity of the latters authority to mortgage the same on behalf of
the spouses Narciso especially considering that the one mortgaging the
property is not the registered owner.

The real estate mortgages constituted on the subject properties based

on false and fraudulent SPAs are void ab initio. In Veloso and Rosales
v. La Urbana,[37] the Court ruled that forged powers of attorney are
without force and effect and, thus, nullified the mortgage constituted
on the strength thereof:

In view of the forgoing facts, the court held that pursuant to Article
1714 of the Civil Code and under the Torrens Act in force in this
jurisdiction, the forged powers of attorney prepared by Del Mar were
without force and effect and that the registration of the mortgages
constituted by virtue thereof were likewise null and void and without
force and effect, and that they could not in any way prejudice the
rights of the plaintiff as the registered owner of her participations in
the properties in question.

WHEREFORE, in view of the foregoing, the instant Petition is

GRANTED. The Decision dated 29 December 2006 rendered by the
Court of Appeals in CA-G.R. CV No. 79399 is REVERSED and SET
ASIDE. The Decision dated 21 February 2003 of the Regional Trial
Court of Malolos, Bulacan, Branch 19, in Civil Case No. 515-M-99, is
hereby REINSTATED with the modification that the portion ordering
Adora Dela Pea to pay Willy G. Ong the sum of P245,000.00 plus
legal interest, is DELETED.

SO ORDERED.
epublic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 162333

December 23, 2008

BIENVENIDO C. TEOCO and JUAN C. TEOCO, JR., petitioners,

vs.
METROPOLITAN BANK AND TRUST COMPANY, respondent.
DECISION
REYES, R.T., J.:

Consequently, the foreclosure proceedings on the mortgaged properties

are likewise void ab initio. Since Ong cannot be deemed a mortgageein-good-faith nor an innocent purchaser for value of the subject
properties at the auction sale thereof, his claim to the said properties
cannot prevail over that of San Pedro. The Courts ruling, however, is
without prejudice to the right of Ong to proceed against those who
perpetrated the fraud to his prejudice.

REAL creditors are rarely unwilling to receive their debts from any
hand which will pay them.1 Ang tunay na may pautang ay bihirang
tumanggi sa kabayaran mula kaninuman.
This is a petition for review on certiorari seeking the reversal of the
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 58891
dated February 20, 2004 which annulled and set aside the decision of
the Regional Trial Court (RTC) of Catbalogan, Samar on July 22, 1997

in Cadastral Record No. 1378. The RTC originally dismissed the

petition for writ of possession filed by respondent Metropolitan Bank
and Trust Company (Metrobank) on the ground that intervenors and
present petitioners, the brothers Bienvenido Teoco and Juan Teoco, Jr.
(the brothers Teoco), have redeemed the subject property. The CA
reversed this dismissal and ordered the issuance of a writ of possession
in favor of respondent Metrobank.
Culled from the records, the facts are as follows:
Lydia T. Co, married to Ramon Co, was the registered owner of two
parcels of land situated in Poblacion, Municipality of Catbalogan,
Province of Samar under Transfer Certificate of Title (TCT) Nos. T6220 and T-6910.3 Ramon Co mortgaged the said parcels of land to
Metrobank for a sum of P200,000.00.
On February 14, 1991, the properties were sold to Metrobank in an
extrajudicial foreclosure sale under Act No. 3135. One year after the
registration of the Certificates of Sale, the titles to the properties were
consolidated in the name of Metrobank for failure of Ramon Co to
redeem the same within the one year period provided for by law. TCT
Nos. T-6220 and T-6910 were cancelled and TCT Nos. T-8482 and T8493 were issued in the name of Metrobank.
On November 29, 1993, Metrobank filed a petition for the issuance of
a writ of possession against Ramon Co and Lydia Co (the spouses Co).
However, since the spouses Co were no longer residing in the
Philippines at the time the petition was filed, the trial court ordered
Metrobank, on January 12, 1994 and again on January 26, 1994 to
effect summons by publication against the spouses Co.

Metrobank, in its reply, alleged that the amount deposited by the

brothers Teoco as redemption price was not sufficient, not being in
accordance with Section 78 of the General Banking Act. Metrobank
also said the assignment of the right of redemption by the spouses Co
in favor of the brothers Teoco was not properly executed, as it lacks
the necessary authentication from the Philippine Embassy.
On February 24, 1995, the trial court was informed that the brothers
Teoco had deposited the amount of P356,297.57 to the clerk of court
of the RTC in Catbalogan, Samar. The trial court ordered Metrobank to
disclose whether it is allowing the brothers Teoco to redeem the
subject properties. Metrobank refused to accept the amount deposited
by the brothers Teoco, alleging that they are obligated to pay the
spouses Cos subsequent obligations to Metrobank as well. The
brothers Teoco claimed that they are not bound to pay all the
obligations of the spouses Co, but only the value of the property sold
during the public auction.
On February 26, 1997, the trial court reiterated its earlier order
directing Metrobank to effect summons by publication to the spouses
Co. Metrobank complied with said order by submitting documents
showing that it caused the publication of summons against the spouses
Co. The brothers Teoco challenged this summons by publication,
arguing that the newspaper where the summons by publication was
published, the Samar Reporter, was not a newspaper of general
circulation in the Philippines. The brothers Teoco furthermore argued
that Metrobank did not present witnesses to identify the documents to
prove summons by publication.
RTC Disposition

On May 17, 1994, the brothers Teoco filed an answer-in-intervention

alleging that they are the successors-in-interest of the spouses Co, and
that they had duly and validly redeemed the subject properties within
the reglementary period provided by law. The brothers Teoco thus
prayed for the dismissal of Metrobanks petition for a writ of
possession, and for the nullification of the TCTs issued in the name of
Metrobank. The brothers Teoco further prayed for the issuance in their
name of new certificates of title.

On July 22, 1997, the RTC rendered its decision in favor of the
brothers Teoco, to wit:
WHEREFORE, judgment is hereby rendered dismissing the petition
for a writ of possession under Section 7 of Act 3135 it appearing that
intervenor Atty. Juan C. Teoco, Jr. and his brother Atty. Bienvenido C.
Teoco have legally and effectively redeemed Lot 61 and 67 of Psd-

66654, Catbalogan, Cadastre, from the petitioner Metropolitan Bank

and Trust Company.
Accordingly, Metrobank may now withdraw the aforesaid redemption
money of P356,297.57 deposited by Juan C. Teoco, Jr., on February
10, 1992 with the clerk of court and it is ordered that the Transfer
Certificate of Title Nos. T-8492 and T-8493 of Metropolitan Bank and
Trust Company be and are cancelled and in their place new transfer
certificates of title be issued in favor of Intervenors Attys. Bienvenido
C. Teoco and Juan C. Teoco, Jr., of legal age, married, and residents of
Calbiga, Samar, Philippines, upon payment of the prescribed fees
therefore. No pronouncement as to costs.4
According to the RTC, the case filed by Metrobank should be
dismissed since intervenor Juan C. Teoco, Jr., by his tender of
P356,297.57 to Metrobank on February 10, 1992, within the
reglementary period of redemption of the foreclosed property, had
legally and effectively redeemed the subject properties from
Metrobank. This redemption amount is a fair and reasonable price and
is in keeping with the letter and spirit of Section 78 of the General
Banking Act because Metrobank purchased the mortgaged properties
from the sheriff of the same court for only P316,916.29. In debunking
the argument that the amount tendered was insufficient, the RTC held:
It is contended for Metrobank that the redemption money deposited by
Juan C. Teoco, Jr., is insufficient and ineffective because the spouses
Ramon Co and Lydia T. Co owe it the total amount of P6,856,125
excluding interest and other charges and the mortgage contract
executed by them in favor of Metrobank in 1985 and 1986 (Exh. A and
B) are not only security for payment of their obligation in the amount
of P200,000 but also for those obligations that may have been
previously and later extended to the Co couple including interest and
other charges as appears in the accounts, books and records of the
bank.
Metrobank cites the case of Mojica v. Court of Appeals, 201 SCRA
517 (1991) where the Supreme Court held that mortgages given to
secure future advancements are valid and legal contracts; that the
amounts named as consideration in said contract do not limit the

amount for which the mortgage may stand as security; that a mortgage
given to secure the advancements is a continuing security and is not
discharged by repayment of the amount named in the mortgage until
the full amount of the advancements are paid. In the opinion of this
court, it is not fair and just to apply this rule to the case at bar. There is
no evidence offered by Metrobank that these other obligations of
Ramon Co and his wife were not secured by real estate mortgages of
other lands. If the other indebtedness of the Co couple to Metrobank
are secured by a mortgage on their other lands or properties the
obligation can be enforced by foreclosure which the court assumes
Metrobank has already done. There is no proof that Metrobank asked
for a deficiency judgment for these unpaid loans.
The Supreme Court in the Mojica case was dealing with the rights of
the mortgagee under a mortgage from an owner of the land. It
determined the security covered by the mortgage the intention of the
parties and the equities of the case. What was held in that case was
hedged about so as to limit the decision to the particular facts. It must
be apparent that the Mojica ruling cannot be construed to give
countenance or approval to the theory that in all cases without
exception mortgages given to secure past and future advancements are
valid and legal contracts.
In construing a contract between the bank and a borrower such a
construction as would be more favorable to the borrower should be
adopted since the alleged past and future indebtedness of Ramon Co to
the bank was not described and specified therein and that the
addendum was made because the mortgage given therefore were not
sufficient or that these past and future advancements were unsecured.
That being the case the mortgage contracts, Exh. A and B should be
interpreted against Metrobank which drew said contracts. A written
contract should, in case of doubt, be interpreted against the party who
has drawn the contract (6 R.C.L. 854; H.E. Heackock Co. vs.
Macondray & Co., 42 Phil. 205). Here, the mortgage contracts are in
printed form prepared by Metrobank and therefore ambiguities therein
should be construed against the party causing it (Yatco vs. El Hogar
Filipino, 67 Phil. 610; Hodges vs. Tazaro, CA, 57 O.G. 6970).5

The RTC added that there is another reason for dismissing

Metrobanks petition: the RTC failed to acquire jurisdiction over the
spouses Co. The RTC noted that Metrobank published its petition for
writ of possession, but did not publish the writ of summons issued by
said court on February 16, 1994. According to the RTC:
A petition for a writ of possession of foreclosed property is in reality a
possession suit. That Metrobank prayed for a writ of possession in an
independent special proceeding does not alter the nature of the case as
a possessory suit (Cabrera v. Sinoy, L.-12648, 23 November 1959).
The defendant or owner of the property foreclosed by the petitioner
should be summoned to answer the petition. Accordingly, the
publication made by the petitioner is fatally flawed and defective and
on that basis alone this court acquired no jurisdiction over the person
of respondents Ramon Co and his wife (Mapa vs. Court of Appeals,
G.R. No. 79394, October 2, 1992; Lopez vs. Philippine National Bank,
L-34223, December 10, 1982).6
Metrobank appealed to the CA. In its appeal, Metrobank claimed that
the RTC erred in finding that the publication made by it is fatally
flawed, and that the brothers Teoco had effectively redeemed the
properties in question.
CA Disposition
On February 20, 2004, the CA decided the appeal in favor of
Metrobank, with the following disposition:

As regards the question of jurisdiction, the CA ruled that since the

parcels of land in question were already registered in the name of
Metrobank at the time the petition was filed, and since the certificates
of title of the spouses Co were already cancelled, there is no more need
to issue summons to the spouses Co. The CA noted that the best proof
of ownership of the parcel of land is a certificate of title.8
The CA also held that the issue of the validity of summons to the
spouses Co is unimportant considering that the properties in question
were mortgaged to Metrobank and were subsequently sold to the same
bank after the spouses Co failed to satisfy the principal obligation.
Hence, the applicable law is Act No. 3135,9 as amended by Act No.
4118. Section 7 of said Act No. 3135 states that a petition for the
issuance of a writ of possession filed by the purchaser of a property in
an extrajudicial foreclosure sale may be done ex parte. It is the
ministerial duty of the trial court to grant such writ of possession. No
discretion is left to the trial court. Any question regarding the
cancellation of the writ, or with respect to the validity and regularity of
the public sale should be determined in a subsequent proceeding as
outlined in Section 9 of Act No. 3135.10
Further, the CA held that the brothers Teoco were not able to
effectively redeem the subject properties, because the amount tendered
was insufficient, and the brothers Teoco have not sufficiently shown
that the spouses Cos right of redemption was properly transferred to
them.
Issues

WHEREFORE, the appeal is hereby GRANTED. The assailed

Decision dated July 22, 1997 rendered by the Regional Trial Court of
Catbalogan, Samar Branch 29 in Cadastral Record No. 1378 is hereby
ANNULLED and SET ASIDE. Accordingly, let a writ of possession in
favor of petitioner-appellant METROPOLITAN BANK AND TRUST
COMPANY be issued over the properties and improvements covered
by Transfer Certificates of Title Nos. T-8492 and T-8493 of the
Registry of Deeds of Western Samar.
SO ORDERED.7

In this Rule 45 petition, the brothers Teoco impute to the CA the

following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR OF JUDGMENT IN HOLDING THAT
PETITIONERS FAILED TO REDEEM THE SUBJECT
PROPERTIES WITHIN THE REGLEMENTARY PERIOD OF ONE

YEAR AND THAT THE REDEMPTION PRICE TENDERED IS

INSUFFICIENT.
II
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR OF JUDGMENT IN HOLDING PETITIONERS
TO PAY NOT ONLY THE P200,000 PRINCIPAL OBLIGATION
BUT ALSO THAT PREVIOUSLY EXTENDED, WHETHER
DIRECT OR INDIRECT, PRINCIPAL OR SECONDARY AS
APPEARS IN THE ACCOUNTS, BOOKS AND RECORDS.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE PETITIONERS HAVE NOT SUFFICIENTLY SHOW(N)
THAT THE RIGHT OF REDEMPTION WAS PROPERLY
TRANSFERRED TO THEM.
IV
THE HONORABLE COURT OF APPEALS ERRED IN
REVERSING THE DECISION OF THE REGIONAL TRIAL
COURT, BRANCH 29, AND GRANTING THE WRIT OF
POSSESSION TO THE RESPONDENT.11 (Underscoring supplied)
Our Ruling
Sufficiency of Amount Tendered
We find that neither petitioners, the brothers Teoco, nor respondent,
Metrobank, were able to present sufficient evidence to prove whether
the additional loans granted to the spouses Co by Metrobank were
covered by the mortgage agreement between them. The brothers Teoco
failed to present any evidence of the supposed trust receipt agreement
between Metrobank and the spouses Co, or an evidence of the
supposed payment by the spouses Co of the other loans extended by
Metrobank. Metrobank, on the other hand, merely relied on the
stipulation on the mortgage deed that the mortgage was intended to

secure "the payment of the same (P200,000.00 loan) and those that
may hereafter be obtained."12 However, there was no mention
whatsoever of the mortgage agreement in the succeeding loans entered
into by the spouses Co.
While we agree with Metrobank that mortgages intended to secure
future advancements are valid and legal contracts,13 entering into such
mortgage contracts does not necessarily put within its coverage all
loan agreements that may be subsequently entered into by the parties.
If Metrobank wishes to apply the mortgage contract in order to satisfy
loan obligations not stated on the face of such contract, Metrobank
should prove by a preponderance of evidence that such subsequent
obligations are secured by said mortgage contract and not by any other
form of security.
In order to prevent any injustice to, or unjust enrichment of, any of the
parties, this Court holds that the fairest resolution is to allow the
brothers Teoco to redeem the foreclosed properties based on the
amount for which it was foreclosed (P255,441.14 plus interest). This is
subject, however, to the right of Metrobank to foreclose the same
property anew in order to satisfy the succeeding loans entered into by
the spouses Co, if they were, indeed, covered by the mortgage
contract. The right of Metrobank to foreclose the mortgage would not
be hampered by the transfer of the properties to the brothers Teoco as a
result of this decision, since Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it
passes into the hands of a third person. (Emphasis supplied)
Further, Article 2129 of the Civil Code provides:
Art. 2129. The creditor may claim from a third person in possession of
the mortgaged property, the payment of the part of the credit secured

by the property which said third person possesses, in the terms and
with the formalities which the law establishes.
The mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be to the fulfillment
of the obligation for whose security it was constituted. Otherwise
stated, a mortgage creates a real right which is enforceable against the
whole world. Hence, even if the mortgage property is sold or its
possession transferred to another, the property remains subject to the
fulfillment of the obligation for whose security it was constituted.14
Thus, the redemption by the brothers Teoco shall be without prejudice
to the subsequent foreclosure of same properties by Metrobank in
order to satisfy other obligations covered by the Real Estate Mortgage.
Transfer of Right of Redemption
The CA held that the brothers Teoco have not sufficiently shown that
the spouses Cos right of redemption was properly transferred to them.
The assignment of the right of redemption only stated that the spouses
Co are transferring the right of redemption to their parents, brothers,
and sisters, but did not specifically include the brothers Teoco, who are
just brothers-in-law of Ramon Co. Furthermore, the spouses Co no
longer reside in the Philippines, and the assignment of the right of
redemption was not properly executed and/or authenticated.

Furthermore, we waived whatever rights we may have over the

properties in favor of the successor-in-interest including that of
transferring the title to whoever may redeem the aforesaid properties.
IN WITNESS WHEREOF, we have hereunto affixed our signatures
this 10th day of January, 1992 at Vancouver, Canada.15
The brothers Teoco may be brothers-in-law only of Ramon Co, but
they are also the brothers of Lydia Teoco Co, who is actually the
registered owner of the properties covered by TCT Nos. T-6910 and T6220. Clearly, the brothers Teoco are two of the persons referred to in
the above transfer of the right of redemption executed by the spouses
Co.
Anent the CA observation that the assignment of the right of
redemption was not properly executed and/or authenticated, Lopez v.
Court of Appeals16 is instructive. In Lopez, this Court ruled that a
special power of attorney executed in a foreign country is generally
not admissible in evidence as a public document in our courts. The
Court there held:

The alleged transfer of the right of redemption is couched in the

following language:

Is the special power of attorney relied upon by Mrs. Ty a public

document? We find that it is. It has been notarized by a notary public
or by a competent public official with all the solemnities required by
law of a public document. When executed and acknowledged in the
Philippines, such a public document or a certified true copy thereof is
admissible in evidence. Its due execution and authentication need not
be proven unlike a private writing.

KNOW ALL MEN BY THESE PRESENTS:

Section 25, Rule 132 of the Rules of Court provides

That we, RAMON CO and LYDIA CO, of legal ages, for and in
consideration of preserving the continuous ownership and possession
of family owned properties, by these presents, hereby cede, transfer
and convey in favor of my parents, brothers and sisters, the right to
redeem the properties under TCT Nos. T-6910 and T-6220, located in
Patag district, Catbalogan, Samar, sold by public auction sale on
February 14, 1991 to the Metropolitan Bank and Trust Company.

Sec. 25. Proof of public or official record. An official record or an

entry therein, when admissible for any purpose, may be evidenced by
an official publication thereof or by a copy attested by the officer
having the legal custody of the record, or by his deputy, and
accompanied, if the record is not kept in the Philippines, with a
certificate that such officer has the custody. If the office in which the
record is kept is in a foreign country, the certificate may be made by a
secretary of embassy or legation consul general, consul, vice consul, or

consular agent or by any officer in the foreign service of the

Philippines stationed in the foreign country in which the record is kept,
and authenticated by the seal of his office.

SEC. 20. Proof of private document. Before any private document

offered as authentic is received in evidence, its due execution and
authenticity must be proved either:

From the foregoing provision, when the special power of attorney is

executed and acknowledged before a notary public or other competent
official in a foreign country, it cannot be admitted in evidence unless it
is certified as such in accordance with the foregoing provision of the
rules by a secretary of embassy or legation, consul general, consul,
vice consul, or consular agent or by any officer in the foreign service
of the Philippines stationed in the foreign country in which the record
is kept of said public document and authenticated by the seal of his
office. A city judge-notary who notarized the document, as in this case,
cannot issue such certification.17

(a) By anyone who saw the document executed or written; or

Verily, the assignment of right of redemption is not admissible in

evidence as a public document in our courts. However, this does not
necessarily mean that such document has no probative value.

SEC. 23. Public documents are evidence. Documents consisting of

entries in public records made in the performance of a duty by a public
officer are prima facie evidence of the facts therein stated. All other
public documents are evidence, even against a third person, of the fact
which gave rise to their execution and of the date of the latter.
(Underscoring supplied)

There are generally three reasons for the necessity of the presentation
of public documents. First, public documents are prima facie evidence
of the facts stated in them, as provided for in Section 23, Rule 132 of
the Rules of Court:
SEC. 23. Public documents as evidence. Documents consisting of
entries in public records made in the performance of a duty by a public
officer are prima facie evidence of the facts therein stated. All other
public documents are evidence, even against a third person, of the fact
which gave rise to their execution and of the date of the latter.
(Underscoring supplied)
Second, the presentation of a public document dispenses with the need
to prove a documents due execution and authenticity, which is
required under Section 20, Rule 132 of the Rules of Court for the
admissibility of private documents offered as authentic:

(b) By evidence of the genuineness of the signature or handwriting of

the maker.
Any other private document need only be identified as that which it is
claimed to be. (Underscoring supplied)
In the presentation of public documents as evidence, on the other hand,
due execution and authenticity are already presumed:

SEC. 30. Proof of notarial documents. Every instrument duly

acknowledged or proved and certified as provided by law, may be
presented in evidence without further proof, the certificate of
acknowledgment being prima facie evidence of the execution of the
instrument or document involved. (Underscoring supplied)
Third, the law may require that certain transactions appear in public
instruments, such as Articles 1358 and 1625 of the Civil Code, which
respectively provide:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein
governed by Articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of

those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing
in a public document.
All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by Articles 1403, No. 2, and
1405.
Art. 1625. An assignment of a credit, right or action shall produce no
effect as against third person, unless it appears in a public instrument,
or the instrument is recorded in the Registry of Property in case the
assignment involves real property. (Underscoring supplied)
Would the exercise by the brothers Teoco of the right to redeem the
properties in question be precluded by the fact that the assignment of
right of redemption was not contained in a public document? We rule
in the negative.
Metrobank never challenged either the content, the due execution, or
the genuineness of the assignment of the right of redemption.
Consequently, Metrobank is deemed to have admitted the same.
Having impliedly admitted the content of the assignment of the right
of redemption, there is no necessity for a prima facie evidence of the
facts there stated. In the same manner, since Metrobank has impliedly
admitted the due execution and genuineness of the assignment of the
right of redemption, a private document evidencing the same is
admissible in evidence.18
True it is that the Civil Code requires certain transactions to appear in
public documents. However, the necessity of a public document for
contracts which transmit or extinguish real rights over immovable
property, as mandated by Article 1358 of the Civil Code, is only for

convenience; it is not essential for validity or enforceability.19 Thus,

in Cenido v. Apacionado,20 this Court ruled that the only effect of
noncompliance with the provisions of Article 1358 of the Civil Code is
that a party to such a contract embodied in a private document may be
compelled to execute a public document:
Article 1358 does not require the accomplishment of the acts or
contracts in a public instrument in order to validate the act or contract
but only to insure its efficacy, so that after the existence of said
contract has been admitted, the party bound may be compelled to
execute the proper document. This is clear from Article 1357, viz.:
"Art. 1357. If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article (Article
1358), the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract."21
On the other hand, Article 1625 of the Civil Code provides that "[a]n
assignment of a credit, right or action shall produce no effect as against
third person, unless it appears in a public instrument, or the instrument
is recorded in the Registry of Property in case the assignment involves
real property."
In Co v. Philippine National Bank,22 the Court interpreted the phrase
"effect as against a third person" to be damage or prejudice to such
third person, thus:
x x x In Lichauco vs. Olegario, et al., 43 Phil. 540, this Court held that
"whether or not x x x an execution debtor was legally authorized to
sell his right of redemption, is a question already decided by this Court
in the affirmative in numerous decisions on the precepts of Sections
463 and 464 and other sections related thereto, of the Code of Civil
Procedure." (The mentioned provisions are carried over in Rule 39 of
the Revised Rules of Court.) That the transfers or conveyances in
question were not registered is of miniscule significance, there being
no showing that PNB was damaged or could be damaged by such
omission. When CITADEL made its tender on May 5, 1976, PNB did
not question the personality of CITADEL at all. It is now too late and

purely technical to raise such innocuous failure to comply with Article

1625 of the Civil Code.23
In Ansaldo v. Court of Appeals,24 the Court held:
In its Decision, the First Division of the Appellate Tribunal, speaking
through the Presiding Justice at the time, Hon. Magno S. Gatmaitan,
held as regards Arnaldos contentions, that
xxxx
2) there was no need that the assignment be in a public document this
being required only "to produce x x x effect as against third persons"
(Article 1625, Civil Code), i.e., "to adversely affect 3rd persons," i.e.,
"a 3rd person with a right against original creditor, for example, an
original creditor of creditor, against whom surely such an assignment
by his debtor (creditor in the credit assigned) would be prejudicial,
because he, creditor of assigning creditor, would thus be deprived of
an attachable asset of his debtor x x x;
xxxx
Except for the question of the claimed lack of authority on the part of
TFCs president to execute the assignment of credit in favor of PCIB
improperly raised for the first time on appeal, as observed by the Court
of Appeals the issues raised by Ansaldo were set up by him in, and
after analysis and assessment rejected by, both the Trial Court and the
Appellate Tribunal. This court sees no error whatever in the
appreciation of the facts by either Court or their application of the
relevant law and jurisprudence to those facts, inclusive of the question
posed anew by Ansaldo relative to the alleged absence of authority on
the part of TFCs president to assign the corporations credit to
PCIB.25
In the case at bar, Metrobank would not be prejudiced by the
assignment by the spouses Co of their right of redemption in favor of
the brothers Teoco. As conceded by Metrobank, the assignees, the
brothers Teoco, would merely step into the shoes of the assignors, the
spouses Co. The brothers Teoco would have to comply with all the

requirements imposed by law on the spouses Co. Metrobank would not

lose any security for the satisfaction of any loan obtained from it by
the spouses Co. In fact, the assignment would even prove to be
beneficial to Metrobank, as it can foreclose on the subject properties
anew, provided it proves that the subsequent loans entered into by the
spouses Co are covered by the mortgage contract.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE.
The decision of the Regional Trial Court in Catbalogan, Samar is
REINSTATED with the following MODIFICATION: the redemption
by Bienvenido C. Teoco and Juan C. Teoco, Jr. of the properties
covered by TCT Nos. T-6910 and T-6220 shall be without prejudice to
the subsequent foreclosure of same properties by Metropolitan Bank
and Trust Company to satisfy other loans covered by the Real Estate
Mortgage.
SO ORDERED.
CORAZON L. ESCUETA, assisted by her husband EDGAR
ESCUETA, IGNACIO E. RUBIO, THE HEIRS OF LUZ R.
BALOLOY, namely, ALEJANDRINO R. BALOLOY and
BAYANI R. BALOLOY, Petitioners,
- versus
RUFINA LIM, Respondent.
G.R. No. 137162, January 24, 2007
AZCUNA, J.:
This is an appeal by certiorari[1] to annul and set aside the Decision
and Resolution of the Court of Appeals (CA) dated October 26, 1998
and January 11, 1999, respectively, in CA-G.R. CV No. 48282,
entitled Rufina Lim v. Corazon L. Escueta, etc., et. al.
The facts[2] appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet
title to, real property, with preliminary injunction and issuance of [a
hold-departure order] from the Philippines against Ignacio E. Rubio.

Respondent amended her complaint to include specific performance

and damages.

respondent failed to pay the balance of the purchase price as orally

promised on or before May 1, 1990.

In her amended complaint, respondent averred inter alia that she

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

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

As to petitioner Corazon Escueta, in spite of her knowledge that the

disputed lots have already been sold by Ignacio Rubio to respondent, it
is alleged that a simulated deed of sale involving said lots was effected
by Ignacio Rubio in her favor; and that the simulated deed of sale by
Rubio to Escueta has raised doubts and clouds over respondents title.
In their separate amended answers, petitioners denied the material
allegations of the complaint and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of sale
has no more force and effect as far as the Baloloys are concerned,
since they have withdrawn their offer to sell for the reason that

Respondent has no cause of action, because Rubio has not entered into
a contract of sale with her; that he has appointed his daughter Patricia
Llamas to be his attorney-in-fact and not in favor of Virginia Rubio
Laygo Lim (Lim for brevity) who was the one who represented him in
the sale of the disputed lots in favor of respondent; that the P100,000
respondent claimed he received as down payment for the lots is a
simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of
respondent, the trial court declared the Baloloys in default. They then
filed a motion to lift the order declaring them in default, which was
denied by the trial court in an order dated November 27, 1991.
Consequently, respondent was allowed to adduce evidence ex parte.
Thereafter, the trial court rendered a partial decision dated July 23,
1993 against the Baloloys, the dispositive portion of which reads as
follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in
favor of [respondent] and against [petitioners, heirs] of Luz R.
Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The
[petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to
immediately execute an [Absolute] Deed of Sale over their hereditary
share in the properties covered by TCT No. 74392 and TCT No.
74394, after payment to them by [respondent] the amount of
P[1,050,000] or consignation of said amount in Court. [For] failure of
[petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the
Absolute Deed of Sale over their hereditary share in the property
covered by TCT No. T-74392 and TCT No. T-74394 in favor of
[respondent], the Clerk of Court is ordered to execute the necessary
Absolute Deed of Sale in behalf of the Baloloys in favor of
[respondent,] with a consideration of P[1,500,000]. Further[,]
[petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to
jointly and severally pay [respondent] moral damages in the amount of

P[50,000] and P[20,000] for attorneys fees. The adverse claim

annotated at the back of TCT No. T-74392 and TCT No. T-74394[,]
insofar as the shares of Alejandrino Baloloy and Bayani Baloloy are
concerned[,] [is] ordered cancelled.

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

With costs against [petitioners] Alejandrino Baloloy and Bayani

Baloloy.

2. the Decision dismissing [respondents] complaint is REVERSED

and SET ASIDE and a new one is entered. Accordingly,

SO ORDERED.[3]

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

upheld.

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

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

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

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

c. the contracts of sale between Rubio and Escueta involving Rubios

share in the disputed properties is declared NULL and VOID.

IN VIEW OF THE FOREGOING, the complaint [and] amended

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

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

SO ORDERED.[4]

Petitioners Motion for Reconsideration of the CA Decision was

denied. Hence, this petition.

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

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

is DISMISSED.
SO ORDERED.[5]

The issues are:

I

WHEREFORE, upon all the foregoing premises considered, this Court

rules:

THE HONORABLE COURT OF APPEALS ERRED IN DENYING

THE PETITION FOR RELIEF FROM JUDGMENT FILED BY THE
BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
REINSTATING THE COMPLAINT AND IN AWARDING MORAL
DAMAGES AND ATTORNEYS FEES IN FAVOR OF
RESPONDENT RUFINA L. LIM CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF
SALE BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM
AND VIRGINIA LAYGO-LIM IS A CONTRACT TO SELL AND
NOT A CONTRACT OF SALE.

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER

OBLIGATIONS UNDER THE CONTRACT TO SELL THEREBY
WARRANTING THE CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH
IN ENTERING INTO THE CONTRACT OF SALE WITH IGNACIO
E. RUBIO.

THE HONORABLE COURT OF APPEALS

DISMISSING PETITIONERS COUNTERCLAIMS.

ERRED

IN

Briefly, the issue is whether the contract of sale between petitioners

and respondent is valid.

Petitioners argue, as follows:

First, the CA did not consider the circumstances surrounding

petitioners failure to appear at the pre-trial and to file the petition for
relief on time.

As to the failure to appear at the pre-trial, there was fraud, accident

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

Furthermore, petitioner Alejandrino was not clothed with a power of

attorney to appear on behalf of Bayani at the pre-trial conference.

III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E.
RUBIO AND CORAZON L. ESCUETA IS VALID.

IV

Second, the sale by Virginia to respondent is not binding. Petitioner

Rubio did not authorize Virginia to transact business in his behalf
pertaining to the property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not empowered to
designate a substitute attorney-in-fact. Llamas even disowned her
signature appearing on the Joint Special Power of Attorney, which

constituted Virginia as her true and lawful attorney-in-fact in selling

Rubios properties.

Dealing with an assumed agent, respondent should ascertain not only

the fact of agency, but also the nature and extent of the formers
authority. Besides, Virginia exceeded the authority for failing to
comply with her obligations under the Joint Special Power of Attorney.

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

Third, the contract between respondent and Virginia is a contract to

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

Fourth, Respondent failed to faithfully fulfill her part of the obligation.

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

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

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino

Baloloy. In the Baloloys answer to the original complaint and amended
complaint, the allegations relating to the personal circumstances of the
Baloloys are clearly admitted.

An admission, verbal or written, made by a party in the course of the

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

Pre-trial is mandatory.[10] The notices of pre-trial had been sent to

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

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

SEC. 3. Time for filing petition; contents and verification. A petition

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

The evidence on record as far as this issue is concerned shows that

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

The Baloloys[,] apparently in an attempt to cure the lapse of the

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

Furthermore, no fraud, accident, mistake, or excusable negligence

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

Article 1892 of the Civil Code provides:

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

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

Applying the above-quoted provision to the special power of attorney

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

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

Art. 1317. x x x

A contract entered into in the name of another by one who has no

authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked
by the other contracting party.

Ignacio Rubio merely denies the contract of sale. He claims, without

substantiation, that what he received was a loan, not the down payment
for the sale of the subject properties. His acceptance and encashment
of the check, however, constitute ratification of the contract of sale and
produce the effects of an express power of agency.[20] [H]is action
necessarily implies that he waived his right of action to avoid the
contract, and, consequently, it also implies the tacit, if not express,
confirmation of the said sale effected by Virginia Lim in favor of
respondent.

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

Indeed, Virginia Lim and respondent have entered into a contract of

sale. Not only has the title to the subject properties passed to the latter
upon delivery of the thing sold, but there is also no stipulation in the
contract that states the ownership is to be reserved in or retained by the
vendor until full payment of the price.[22]

Applying Article 1544 of the Civil Code, a second buyer of the

property who may have had actual or constructive knowledge of such
defect in the sellers title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyers title. In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property
subject of the sale.[23] Even the argument that a purchaser need not
inquire beyond what appears in a Torrens title does not hold water. A

perusal of the certificates of title alone will reveal that the subject
properties are registered in common, not in the individual names of the
heirs.

subject properties but also allowed their use as parking terminal for
jeepneys and buses. Moreover, the execution itself of the contract of
sale is constructive delivery.

Nothing in the contract prevents the obligation of the vendor to convey

title from becoming effective[24] or gives the vendor the right to
unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period.[25] Petitioners themselves have failed to deliver
their individual certificates of title, for which reason it is obvious that
respondent cannot be expected to pay the stipulated taxes, fees, and
expenses.

Consequently, Ignacio Rubio could no longer sell the subject

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

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

In fact, earnest money has been given by respondent. [I]t shall be

considered as part of the price and as proof of the perfection of the
contract.[28] It constitutes an advance payment to be deducted from
the total price.[29]

Article 1477 of the same Code also states that [t]he ownership of the
thing sold shall be transferred to the vendee upon actual or
constructive delivery thereof.[30] In the present case, there is actual
delivery as manifested by acts simultaneous with and subsequent to the
contract of sale when respondent not only took possession of the

WHEREFORE, the petition is DENIED. The Decision and Resolution

of the Court of Appeals in CA-G.R. CV No. 48282, dated
October 26, 1998 and January 11, 1999, respectively, are hereby
AFFIRMED. Costs against petitioners.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 158907

February 12, 2007

EDUARDO B. OLAGUER, Petitioner,

vs.
EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules
of Court, assailing the Decision,1 dated 30 June 2003, promulgated by
the Court of Appeals, affirming the Decision of the Regional Trial
Court, dated 26 July 1995, dismissing the petitioners suit.
The parties presented conflicting accounts of the facts.
EDUARDO B. OLAGUERS VERSION
Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000
shares of stock of Businessday Corporation (Businessday) with a total
par value of P600,000.00, with Certificates of Stock No. 005, No. 028,
No. 034, No. 070, and No. 100.2 At the time he was employed with the
corporation as Executive Vice-President of Businessday, and President
of Businessday Information Systems and Services and of Businessday
Marketing Corporation, petitioner, together with respondent Raul
Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the
political opposition against the Marcos dictatorship.3 Anticipating the
possibility that petitioner would be arrested and detained by the
Marcos military, Locsin, Joaquin, and Hector Holifea had an
unwritten agreement that, in the event that petitioner was arrested, they
would support the petitioners family by the continued payment of his
salary.4 Petitioner also executed a Special Power of Attorney (SPA),
on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin
and Hofilea for the purpose of selling or transferring petitioners
shares of stock with Businessday. During the trial, petitioner testified
that he agreed to execute the SPA in order to cancel his shares of stock,
even before they are sold, for the purpose of concealing that he was a
stockholder of Businessday, in the event of a military crackdown
against the opposition.5 The parties acknowledged the SPA before

respondent Emilio Purugganan, Jr., who was then the Corporate

Secretary of Businessday, and at the same time, a notary public for
Quezon City.6
On 24 December 1979, petitioner was arrested by the Marcos military
by virtue of an Arrest, Search and Seizure Order and detained for
allegedly committing arson. During the petitioners detention,
respondent Locsin ordered fellow respondent Purugganan to cancel the
petitioners shares in the books of the corporation and to transfer them
to respondent Locsins name.7
As part of his scheme to defraud the petitioner, respondent Locsin sent
Rebecca Fernando, an employee of Businessday, to Camp Crame
where the petitioner was detained, to pretend to borrow Certificate of
Stock No. 100 for the purpose of using it as additional collateral for
Businessdays then outstanding loan with the National Investment and
Development Corporation. When Fernando returned the borrowed
stock certificate, the word "cancelled" was already written therein.
When the petitioner became upset, Fernando explained that this was
merely a mistake committed by respondent Locsins secretary.8
During the trial, petitioner also agreed to stipulate that from 1980 to
1982, Businessday made regular deposits, each amounting to
P10,000.00, to the Metropolitan Bank and Trust Company accounts of
Manuel and Genaro Pantig, petitioners in-laws. The deposits were
made on every 15th and 30th of the month.9 Petitioner alleged that
these funds consisted of his monthly salary, which Businessday agreed
to continue paying after his arrest for the financial support of his
family.10 After receiving a total of P600,000.00, the payments
stopped. Thereafter, respondent Locsin and Fernando went to ask
petitioner to endorse and deliver the rest of his stock certificates to
respondent Locsin, but petitioner refused. 11
On 16 January 1986, petitioner was finally released from detention. He
then discovered that he was no longer registered as stockholder of
Businessday in its corporate books. He also learned that Purugganan,
as the Corporate Secretary of Businessday, had already recorded the
transfer of shares in favor of respondent Locsin, while petitioner was
detained. When petitioner demanded that respondents restore to him

full ownership of his shares of stock, they refused to do so. On 29 July

1986, petitioner filed a Complaint before the trial court against
respondents Purugganan and Locsin to declare as illegal the sale of the
shares of stock, to restore to the petitioner full ownership of the shares,
and payment of damages.12
RESPONDENT RAUL LOCSINS VERSION
In his version of the facts, respondent Locsin contended that petitioner
approached him and requested him to sell, and, if necessary, buy
petitioners shares of stock in Businessday, to assure support for
petitioners family in the event that something should happen to him,
particularly if he was jailed, exiled or forced to go underground.13 At
the time petitioner was employed with Businessday, respondent Locsin
was unaware that petitioner was part of a group, Light-a-Fire
Movement, which actively sought the overthrow of the Marcos
government through an armed struggle.14 He denied that he made any
arrangements to continue paying the petitioners salary in the event of
the latters imprisonment.15
When petitioner was detained, respondent Locsin tried to sell
petitioners shares, but nobody wanted to buy them. Petitioners
reputation as an oppositionist resulted in the poor financial condition
of Businessday and discouraged any buyers for the shares of stock.16
In view of petitioners previous instructions, respondent Locsin
decided to buy the shares himself.1awphi1.net Although the capital
deficiency suffered by Businessday caused the book value of the
shares to plummet below par value, respondent Locsin, nevertheless,
bought the shares at par value.17 However, he had to borrow from
Businessday the funds he used in purchasing the shares from
petitioner, and had to pay the petitioner in installments of P10,000.00
every 15th and 30th of each month.18
The trial court in its Decision, dated 26 July 1995, dismissed the
Complaint filed by the petitioner. It ruled that the sale of shares
between petitioner and respondent Locsin was valid. The trial court
concluded that petitioner had intended to sell the shares of stock to
anyone, including respondent Locsin, in order to provide for the needs
of his family should he be jailed or forced to go underground; and that

the SPA drafted by the petitioner empowered respondent Locsin, and

two other agents, to sell the shares for such price and under such terms
and conditions that the agents may deem proper. It further found that
petitioner consented to have respondent Locsin buy the shares himself.
It also ruled that petitioner, through his wife, received from respondent
Locsin the amount of P600,000.00 as payment for the shares of
stock.19 The dispositive part of the trial courts Decision reads:
WHEREFORE, for failure of the [herein petitioner] to prove by
preponderance of evidence, his causes of action and of the facts
alleged in his complaint, the instant suit is hereby ordered
DISMISSED, without pronouncement as to costs.
[Herein respondents] counterclaims, however, are hereby
DISMISSED, likewise, for dearth of substantial evidentiary support.20
On appeal, the Court of Appeals affirmed the Decision of the trial
court that there was a perfected contract of sale.21 It further ruled that
granting that there was no perfected contract of sale, petitioner,
nevertheless, ratified the sale to respondent Locsin by his receipt of the
purchase price, and his failure to raise any protest over the said sale.22
The Court of Appeals refused to credit the petitioners allegation that
the money his wife received constituted his salary from Businessday
since the amount he received as his salary, P24,000.00 per month, did
not correspond to the amount he received during his detention,
P20,000.00 per month (deposits of P10,000.00 on every 15th and 30th
of each month in the accounts of the petitioners in-laws). On the other
hand, the total amount received, P600,000.00, corresponds to the
aggregate par value of petitioners shares in Businessday. Moreover,
the financial condition of Businessday prevented it from granting any
form of financial assistance in favor of the petitioner, who was placed
in an indefinite leave of absence, and, therefore, not entitled to any
salary. 23
The Court of Appeals also ruled that although the manner of the
cancellation of the petitioners certificates of stock and the subsequent
issuance of the new certificate of stock in favor of respondent Locsin
was irregular, this irregularity will not relieve petitioner of the
consequences of a consummated sale.24

Finally, the Court of Appeals affirmed the Decision of the trial court
disallowing respondent Locsins claims for moral and exemplary
damages due to lack of supporting evidence.25
Hence, the present petition, where the following issues were raised:
I.
THE APPELLATE COURT ERRED IN RULING THAT THERE
WAS A PERFECTED CONTRACT OF SALE BETWEEN
PETITIONER AND MR. LOCSIN OVER THE SHARES;
II.
THE APPELLATE COURT ERRED IN RULING THAT
PETITIONER CONSENTED TO THE ALLEGED SALE OF THE
SHARES TO MR. LOCSIN;
III.
THE APPELLATE COURT ERRED IN RULING THAT THE
AMOUNTS RECEIVED BY PETITIONERS IN LAWS WERE NOT
PETITIONERS SALARY FROM THE CORPORATION BUT
INSTALLMENT PAYMENTS FOR THE SHARES;
IV.
THE APPELLATE COURT ERRED IN RULING THAT MR.
LOCSIN WAS THE PARTY TO THE ALLEGED SALE OF THE
SHARES AND NOT THE CORPORATION; AND
V.
THE APPELLATE COURT ERRED IN RULING THAT THE
ALLEGED SALE OF THE SHARES WAS VALID ALTHOUGH
THE CANCELLATION OF THE SHARES WAS IRREGULAR.26
The petition is without merit.

The first issue that the petitioner raised is that there was no valid sale
since respondent Locsin exceeded his authority under the SPA27
issued in his, Joaquin and Holifenas favor. He alleged that the
authority of the afore-named agents to sell the shares of stock was
limited to the following conditions: (1) in the event of the petitioners
absence and incapacity; and (2) for the limited purpose of applying the
proceeds of the sale to the satisfaction of petitioners subsisting
obligations with the companies adverted to in the SPA.28
Petitioner sought to impose a strict construction of the SPA by limiting
the definition of the word "absence" to a condition wherein "a person
disappears from his domicile, his whereabouts being unknown,
without leaving an agent to administer his property,"29 citing Article
381 of the Civil Code, the entire provision hereunder quoted:
ART 381. When a person disappears from his domicile, his
whereabouts being unknown, and without leaving an agent to
administer his property, the judge, at the instance of an interested
party, a relative, or a friend, may appoint a person to represent him in
all that may be necessary.
This same rule shall be observed when under similar circumstances the
power conferred by the absentee has expired.
Petitioner also puts forward that the word "incapacity" would be
limited to mean "minority, insanity, imbecility, the state of being deafmute, prodigality and civil interdiction."30 He cites Article 38 of the
Civil Code, in support of this definition, which is hereunder quoted:
ART. 38 Minority, insanity or imbecility, the state of being a deafmute, prodigality and civil interdiction are mere restrictions on
capacity to act, and do not exempt the incapacitated person, from
certain obligations, as when the latter arise from his acts or from
property relations, such as easements.
Petitioner, thus, claims that his arrest and subsequent detention are not
among the instances covered by the terms "absence or incapacity," as
provided under the SPA he executed in favor of respondent Locsin.

Petitioners arguments are unpersuasive. It is a general rule that a

power of attorney must be strictly construed; the instrument will be
held to grant only those powers that are specified, and the agent may
neither go beyond nor deviate from the power of attorney. However,
the rule is not absolute and should not be applied to the extent of
destroying the very purpose of the power. If the language will permit,
the construction that should be adopted is that which will carry out
instead of defeat the purpose of the appointment. Clauses in a power of
attorney that are repugnant to each other should be reconciled so as to
give effect to the instrument in accordance with its general intent or
predominant purpose. Furthermore, the instrument should always be
deemed to give such powers as essential or usual in effectuating the
express powers.31
In the present case, limiting the definitions of "absence" to that
provided under Article 381 of the Civil Code and of "incapacity" under
Article 38 of the same Code negates the effect of the power of attorney
by creating absurd, if not impossible, legal situations. Article 381
provides the necessarily stringent standards that would justify the
appointment of a representative by a judge. Among the standards the
said article enumerates is that no agent has been appointed to
administer the property. In the present case, petitioner himself had
already authorized agents to do specific acts of administration and
thus, no longer necessitated the appointment of one by the court.
Likewise, limiting the construction of "incapacity" to "minority,
insanity, imbecility, the state of being a deaf-mute, prodigality and
civil interdiction," as provided under Article 38, would render the SPA
ineffective. Article 1919(3) of the Civil Code provides that the death,
civil interdiction, insanity or insolvency of the principal or of the agent
extinguishes the agency. It would be equally incongruous, if not
outright impossible, for the petitioner to require himself to qualify as a
minor, an imbecile, a deaf-mute, or a prodigal before the SPA becomes
operative. In such cases, not only would he be prevented from
appointing an agent, he himself would be unable to administer his
property.
On the other hand, defining the terms "absence" and "incapacity" by
their everyday usage makes for a reasonable construction, that is, "the

state of not being present" and the "inability to act," given the context
that the SPA authorizes the agents to attend stockholders meetings and
vote in behalf of petitioner, to sell the shares of stock, and other related
acts. This construction covers the situation wherein petitioner was
arrested and detained. This much is admitted by petitioner in his
testimony.32
Petitioners contention that the shares may only be sold for the sole
purpose of applying the proceeds of the sale to the satisfaction of
petitioners subsisting obligations to the company is far-fetched. The
construction, which will carry out the purpose, is that which should be
applied. Petitioner had not submitted evidence that he was in debt with
Businessday at the time he had executed the SPA. Nor could he have
considered incurring any debts since he admitted that, at the time of its
execution, he was concerned about his possible arrest, death and
disappearance. The language of the SPA clearly enumerates, as among
those acts that the agents were authorized to do, the act of applying the
proceeds of the sale of the shares to any obligations petitioner might
have against the Businessday group of companies. This interpretation
is supported by the use of the word "and" in enumerating the
authorized acts, instead of phrases such as "only for," "for the purpose
of," "in order to" or any similar terms to indicate that the petitioner
intended that the SPA be used only for a limited purpose, that of
paying any liabilities with the Businessday group of companies.
Secondly, petitioner argued that the records failed to show that he gave
his consent to the sale of the shares to respondent Locsin for the price
of P600,000.00. This argument is unsustainable. Petitioner received
from respondent Locsin, through his wife and in-laws, the installment
payments for a total of P600,000.00 from 1980 to 1982, without any
protest or complaint. It was only four years after 1982 when petitioner
demanded the return of the shares. The petitioners claim that he did
not instruct respondent Locsin to deposit the money to the bank
accounts of his in-laws fails to prove that petitioner did not give his
consent to the sale since respondent Locsin was authorized, under the
SPA, to negotiate the terms and conditions of the sale including the
manner of payment. Moreover, had respondent Locsin given the
proceeds directly to the petitioner, as the latter suggested in this
petition, the proceeds were likely to have been included among

petitioners properties which were confiscated by the military. Instead,

respondent Locsin deposited the money in the bank accounts of
petitioners in-laws, and consequently, assured that the petitioners
wife received these amounts. Article 1882 of the Civil Code provides
that the limits of an agents authority shall not be considered exceeded
should it have been performed in a manner more advantageous to the
principal than that specified by him.
In addition, petitioner made two inconsistent statements when he
alleged that (1) respondent Locsin had not asked the petitioner to
endorse and deliver the shares of stock, and (2) when Rebecca
Fernando asked the petitioner to endorse and deliver the certificates of
stock, but petitioner refused and even became upset.33 In either case,
both statements only prove that petitioner refused to honor his part as
seller of the shares, even after receiving payments from the buyer. Had
the petitioner not known of or given his consent to the sale, he would
have given back the payments as soon as Fernando asked him to
endorse and deliver the certificates of stock, an incident which
unequivocally confirmed that the funds he received, through his wife
and his in-laws, were intended as payment for his shares of stocks.
Instead, petitioner held on to the proceeds of the sale after it had been
made clear to him that respondent Locsin had considered the
P600,000.00 as payment for the shares, and asked petitioner, through
Fernando, to endorse and deliver the stock certificates for cancellation.
As regards the third issue, petitioners allegation that the installment
payments he was adjudged to have received for the shares were
actually salaries which Businessday promised to pay him during his
detention is unsupported and implausible. Petitioner received
P20,000.00 per month through his in-laws; this amount does not
correspond to his monthly salary at P24,000.00.34 Nor does the
amount received correspond to the amount which Businessday was
supposed to be obliged to pay petitioner, which was only P45,000.00
to P60,000.00 per annum.35 Secondly, the petitioners wife did not
receive funds from respondent Locsin or Businessday for the entire
duration of petitioners detention. Instead, when the total amount
received by the petitioner reached the aggregate amount of his shares
at par value -- P600,000.00 -- the payments stopped. Petitioner even
testified that when respondent Locsin denied knowing the petitioner

soon after his arrest, he believed respondent Locsins commitment to

pay his salaries during his detention to be nothing more than lipservice.36
Granting that petitioner was able to prove his allegations, such an act
of gratuity, on the part of Businessday in favor of petitioner, would be
void. An arrangement whereby petitioner will receive "salaries" for
work he will not perform, which is not a demandable debt since
petitioner was on an extended leave of absence, constitutes a donation
under Article 72637 of the Civil Code. Under Article 748 of the Civil
Code, if the value of the personal property donated exceeds P5,000.00,
the donation and the acceptance shall have to be made in writing.
Otherwise, the donation will be void. In the present case, petitioner
admitted in his testimony38 that such arrangement was not made in
writing and, hence, is void.
The fact that some of the deposit slips and communications made to
petitioners wife contain the phrase "household expenses" does not
disprove the sale of the shares. The money was being deposited to the
bank accounts of the petitioners in-laws, and not to the account of the
petitioner or his wife, precisely because some of his property had
already been confiscated by the military. Had they used the phrase
"sale of shares," it would have defeated the purpose of not using their
own bank accounts, which was to conceal from the military any
transaction involving the petitioners property.
Petitioner raised as his fourth issue that granting that there was a sale,
Businessday, and not respondent Locsin, was the party to the
transaction. The curious facts that the payments were received on the
15th and 30th of each month and that the payor named in the checks
was Businessday, were adequately explained by respondent Locsin.
Respondent Locsin had obtained cash advances from the company,
paid to him on the 15th and 30th of the month, so that he can pay
petitioner for the shares. To support his claim, he presented
Businessdays financial records and the testimony of Leo Atienza, the
Companys Accounting Manager. When asked why the term "shares of
stock" was used for the entries, instead of "cash advances," Atienza
explained that the term "shares of stock" was more specific rather than
the broader phrase "cash advances."39 More to the point, had the

entries been for "shares of stock," the issuance of shares should have
been reflected in the stock and transfer books of Businessday, which
the petitioner presented as evidence. Instead the stock and transfer
books reveal that the increase in respondent Locsins shares was a
result of the cancellation and transfer of petitioners shares in favor of
respondent Locsin.
Petitioner alleges that the purported sale between himself and
respondent Locsin of the disputed shares of stock is void since it
contravenes Article 1491 of the Civil Code, which provides that:
ART. 1491. The following persons cannot acquire by purchase, even at
a public or judicial auction, either in person or through the mediation
of another:
xxxx
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given; x
x x.
It is, indeed, a familiar and universally recognized doctrine that a
person who undertakes to act as agent for another cannot be permitted
to deal in the agency matter on his own account and for his own
benefit without the consent of his principal, freely given, with full
knowledge of every detail known to the agent which might affect the
transaction.40 The prohibition against agents purchasing property in
their hands for sale or management is, however, clearly, not absolute.
It does not apply where the principal consents to the sale of the
property in the hands of the agent or administrator.>41
In the present case, the parties have conflicting allegations. While
respondent Locsin averred that petitioner had permitted him to
purchase petitioners shares, petitioner vehemently denies having
known of the transaction. However, records show that petitioners
position is less credible than that taken by respondent Locsin given
petitioners contemporaneous and subsequent acts.42 In 1980, when
Fernando returned a stock certificate she borrowed from the petitioner,
it was marked "cancelled." Although the petitioner alleged that he was

furious when he saw the word cancelled, he had not demanded the
issuance of a new certificate in his name. Instead of having been put
on his guard, petitioner remained silent over this obvious red flag and
continued receiving, through his wife, payments which totalled to the
aggregate amount of the shares of stock valued at par. When the
payments stopped, no demand was made by either petitioner or his
wife for further payments.
From the foregoing, it is clear that petitioner knew of the transaction,
agreed to the purchase price of P600,000.00 for the shares of stock,
and had in fact facilitated the implementation of the terms of the
payment by providing respondent Locsin, through petitioners wife,
with the information on the bank accounts of his in-laws. Petitioners
wife and his son even provided receipts for the payments that were
made to them by respondent Locsin,43 a practice that bespeaks of an
onerous transaction and not an act of gratuity.
Lastly, petitioner claims that the cancellation of the shares and the
subsequent transfer thereof were fraudulent, and, therefore, illegal. In
the present case, the shares were transferred in the name of the buyer,
respondent Locsin, without the petitioner delivering to the buyer his
certificates of stock. Section 63 of the Corporation Code provides that:
Sec.63. Certificate of stock and transfer of shares. xxx Shares of
stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation showing
the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares
transferred. (Emphasis provided.)
The aforequoted provision furnishes the procedure for the transfer of
shares the delivery of the endorsed certificates, in order to prevent
the fraudulent transfer of shares of stock. However, this rule cannot be
applied in the present case without causing the injustice sought to be
avoided. As had been amply demonstrated, there was a valid sale of
stocks. Petitioners failure to deliver the shares to their rightful buyer

is a breach of his duty as a seller, which he cannot use to unjustly

profit himself by denying the validity of such sale. Thus, while the
manner of the cancellation of petitioners certificates of stock and the
issuance of the new certificates in favor of respondent Locsin was
highly irregular, we must, nonetheless, declare the validity of the sale
between the parties. Neither does this irregularity prove that the
transfer was fraudulent. In his testimony, petitioner admitted that they
had intended to conceal his being a stockholder of Businessday.44 The
cancellation of his name from the stock and transfer book, even before
the shares were actually sold, had been done with his consent. As
earlier explained, even the subsequent sale of the shares in favor of
Locsin had been done with his consent.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED.
This Court AFFIRMS the assailed Decision of the Court of Appeals,
promulgated on 30 June 2003, affirming the validity of the sale of the
shares of stock in favor of respondent Locsin. No costs.
SO ORDERED.
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
- versus EDWIN CUIZON and ERWIN CUIZON, Respondents.
G.R. No. 167552, April 23, 2007

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of

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

From January to April 1995, petitioner sold to Impact Systems various

products allegedly amounting to ninety-one thousand three hundred
thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to
buy from petitioner one unit of sludge pump valued at P250,000.00
with respondents making a down payment of fifty thousand pesos
(P50,000.00).[4] When the sludge pump arrived from the United
Kingdom, petitioner refused to deliver the same to respondents without
their having fully settled their indebtedness to petitioner. Thus, on 28
June 1995, respondent EDWIN and Alberto de Jesus, general manager
of petitioner, executed a Deed of Assignment of receivables in favor of
petitioner, the pertinent part of which states:

CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the
Decision[1] of the Court of Appeals dated 10 August 2004 and its
Resolution[2] dated 17 March 2005 in CA-G.R. SP No. 71397 entitled,
Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez.
The assailed Decision and Resolution affirmed the Order[3] dated 29
January 2002 rendered by Judge Antonio T. Echavez ordering the
dropping of respondent EDWIN Cuizon (EDWIN) as a party
defendant in Civil Case No. CEB-19672.

1.) That ASSIGNOR[5] has an outstanding receivables from Toledo

Power Corporation in the amount of THREE HUNDRED SIXTY
FIVE THOUSAND (P365,000.00) PESOS as payment for the
purchase of one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
CONVEY unto the ASSIGNEE[6] the said receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY
FIVE THOUSAND (P365,000.00) PESOS which receivables the
ASSIGNOR is the lawful recipient;

Systems indebtedness to petitioner which, according to him, amounted

to only P220,000.00.[16]
3.) That the ASSIGNEE does hereby accept this assignment.[7]
Following the execution of the Deed of Assignment, petitioner
delivered to respondents the sludge pump as shown by Invoice No.
12034 dated 30 June 1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the

existence of the Deed of Assignment, proceeded to collect from Toledo
Power Company the amount of P365,135.29 as evidenced by Check
Voucher No. 0933[9] prepared by said power company and an official
receipt dated 15 August 1995 issued by Impact Systems.[10] Alarmed
by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able
to make partial payments to petitioner. On 7 October 1996, petitioners
counsel sent respondents a final demand letter wherein it was stated
that as of 11 June 1996, respondents total obligations stood at
P295,000.00 excluding interests and attorneys fees.[11] Because of
respondents failure to abide by said final demand letter, petitioner
instituted a complaint for sum of money, damages, with application for
preliminary attachment against herein respondents before the Regional
Trial Court of Cebu City.[12]

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

On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he

admitted petitioners allegations with respect to the sale transactions
entered into by Impact Systems and petitioner between January and
April 1995.[15] He, however, disputed the total amount of Impact

By way of special and affirmative defenses, respondent EDWIN

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

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of

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

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a

resident of Cebu City. He is the Sales Manager of Impact Systems and
is sued in this action in such capacity.[17]

On 26 June 1998, petitioner filed a Motion to Declare Defendant

ERWIN in Default with Motion for Summary Judgment. The trial
court granted petitioners motion to declare respondent ERWIN in
default for his failure to answer within the prescribed period despite
the opportunity granted[18] but it denied petitioners motion for
summary judgment in its Order of 31 August 2001 and scheduled the
pre-trial of the case on 16 October 2001.[19] However, the conduct of
the pre-trial conference was deferred pending the resolution by the trial

court of the special and affirmative defenses raised by respondent

EDWIN.[20]

After the filing of respondent EDWINs Memorandum[21] in support

of his special and affirmative defenses and petitioners opposition[22]
thereto, the trial court rendered its assailed Order dated 29 January
2002 dropping respondent EDWIN as a party defendant in this case.
According to the trial court

A study of Annex G to the complaint shows that in the Deed of

Assignment, defendant Edwin B. Cuizon acted in behalf of or
represented [Impact] Systems Sales; that [Impact] Systems Sale is a
single proprietorship entity and the complaint shows that defendant
Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract
which is dated June 28, 1995. A study of Annex H to the complaint
reveals that [Impact] Systems Sales which is owned solely by
defendant Erwin H. Cuizon, made a down payment of P50,000.00 that
Annex H is dated June 30, 1995 or two days after the execution of
Annex G, thereby showing that [Impact] Systems Sales ratified the act
of Edwin B. Cuizon; the records further show that plaintiff knew that
[Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment of P50,000.00.
Plaintiff, therefore, cannot say that it was deceived by defendant
Edwin B. Cuizon, since in the instant case the principal has ratified the
act of its agent and plaintiff knew about said ratification. Plaintiff
could not say that the subject contract was entered into by Edwin B.
Cuizon in excess of his powers since [Impact] Systems Sales made a
down payment of P50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B.

Cuizon be dropped as party defendant.[23]

Aggrieved by the adverse ruling of the trial court, petitioner brought

the matter to the Court of Appeals which, however, affirmed the 29
January 2002 Order of the court a quo. The dispositive portion of the
now assailed Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify

the conclusions reached by the public respondent in his Order dated
January 29, 2002, it is hereby AFFIRMED.[24]

Petitioners motion for reconsideration was denied by the appellate

court in its Resolution promulgated on 17 March 2005. Hence, the
present petition raising, as sole ground for its allowance, the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE

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

To support its argument, petitioner points to Article 1897 of the New

Civil Code which states:

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

Petitioner contends that the Court of Appeals failed to appreciate the

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

Petitioner also contends that it fell victim to the fraudulent scheme of

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

In his Comment,[28] respondent EDWIN again posits the argument

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

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service

or to do something in representation or on behalf of another with the
latters consent.[29] The underlying principle of the contract of agency
is to accomplish results by using the services of others to do a great
variety of things like selling, buying, manufacturing, and transporting.
[30] Its purpose is to extend the personality of the principal or the
party for whom another acts and from whom he or she derives the
authority to act.[31] It is said that the basis of agency is representation,
that is, the agent acts for and on behalf of the principal on matters
within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal.[32] By this
legal fiction, the actual or real absence of the principal is converted
into his legal or juridical presence qui facit per alium facit per se.[33]

The elements of the contract of agency are: (1) consent, express or

implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for himself; (4) the agent acts within
the scope of his authority.[34]

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

bear the effect of his deed pursuant to Article 1897 of the New Civil
Code.

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

The Deed of Assignment clearly states that respondent EDWIN signed

thereon as the sales manager of Impact Systems. As discussed
elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the
principal, thus:

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

Applying the foregoing to the present case, we hold that Edwin Cuizon
acted well-within his authority when he signed the Deed of
Assignment. To recall, petitioner refused to deliver the one unit of
sludge pump unless it received, in full, the payment for Impact
Systems indebtedness.[36] We may very well assume that Impact
Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (P50,000.00) as down
payment on 3 March 1995,[37] it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28
June 1995.[38] The significant amount of time spent on the negotiation
for the sale of the sludge pump underscores Impact Systems
perseverance to get hold of the said equipment. There is, therefore, no
doubt in our mind that respondent EDWINs participation in the Deed
of Assignment was reasonably necessary or was required in order for
him to protect the business of his principal. Had he not acted in the
way he did, the business of his principal would have been adversely
affected and he would have violated his fiduciary relation with his
principal.

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

As we declare that respondent EDWIN acted within his authority as an

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

WHEREFORE, premises considered, the present petition is DENIED

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

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

SO ORDERED.
SPOUSES RAUL and AMALIA PANLILIO, Petitioners,
- versus AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and
REYES, JJ.

G.R. No. 156335, November 28, 2007

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45

of the Rules of Court, seeking to reverse the Decision[1] of the Court
of Appeals (CA) dated May 28, 2002 in CA-G.R. CV No. 66649 and
its Resolution of December 11, 2002, which reversed and set aside the
Decision of the Regional Trial Court (RTC) of Makati City.

The case originated as a Complaint[2] for a sum of money and

damages, filed with the RTC of Makati City on March 2, 1999, by the
spouses Raul and Amalia Panlilio (petitioners) against Citibank N.A.
(respondent).

The factual antecedents are as follows:

On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited

respondent's Makati City office and deposited one million pesos (PhP1
million) in the bank's Citihi account, a fixed-term savings account with
a higher-than-average interest.[3] On the same day, Amalia also
opened a current or checking account with respondent, to which
interest earnings of the Citihi account were to be credited.[4]
Respondent assigned one of its employees, Jinky Suzara Lee (Lee), to
personally transact with Amalia and to handle the accounts.[5]

CITIBANK, N.A.,
Respondent.

Amalia opened the accounts as ITF or in trust for accounts, as they

were intended to benefit her minor children, Alejandro King Aguilar

and Fe Emanuelle C. Panlilio, in case she would meet an untimely

death.[6] To open these accounts, Amalia signed two documents: a
Relationship Opening Form (ROF)[7] and an Investor Profiling and
Suitability Questionnaire (Questionnaire).[8]

Amalia's initial intention was to invest the money in a Citibank

product called the Peso Repriceable Promissory Note (PRPN), a
product which had a higher interest. However, as the PRPN was not
available that day, Amalia put her money in the Citihi savings account.
[9]

More than a month later, or on November 28, 1997, Amalia phoned

Citibank saying she wanted to place an investment, this time in the
amount of three million pesos (PhP3 million). Again, she spoke with
Lee, the bank employee, who introduced her to Citibank's various
investment offerings. After the phone conversation, apparently decided
on where to invest the money, Amalia went to Citibank bringing a
PCIBank check in the amount of three million pesos (PhP3 million).
During the visit, Amalia instructed Lee on what to do with the PhP3
million. Later, she learned that out of the said amount,
PhP2,134,635.87 was placed by Citibank in a Long-Term Commercial
Paper (LTCP), a debt instrument that paid a high interest, issued by the
corporation Camella and Palmera Homes (C&P Homes).[10] The rest
of the money was placed in two PRPN accounts, in trust for each of
Amalia's two children.[11]

Allegations differ between petitioners and respondent as to whether

Amalia instructed Lee to place the money in the LTCP of C&P Homes.
[12]

An LTCP is an evidence of indebtedness, with a maturity period of

more than 365 days, issued by a corporation to any person or entity.
[13] It is in effect a loan obtained by a corporation (as borrower) from
the investing public (as lender)[14] and is one of many instruments
that investment banks can legally buy on behalf of their clients, upon
the latter's express instructions, for investment purposes.[15] LTCPs'
attraction is that they usually have higher yields than most investment
instruments. In the case of the LTCP issued by C&P Homes, the gross
interest rate was 16.25% per annum at the time Amalia made her
investment.[16]

On November 28, 1997, the day she made the PhP3million investment,
Amalia signed the following documents: a Directional Investment
Management Agreement (DIMA),[17] Term Investment Application
(TIA),[18] and Directional Letter/Specific Instructions.[19] Key
features of the DIMA and the Directional Letter are provisions that
essentially clear Citibank of any obligation to guarantee the principal
and interest of the investment, absent fraud or negligence on the
latter's part. The provisions likewise state that all risks are to be
assumed by the investor (petitioner).

As to the amount invested, only PhP2,134,635.87 out of the PhP3

million brought by Amalia was placed in the LTCP since, according to
Lee, this was the only amount of LTCP then available.[20] According
to Lee, the balance of the PhP3 million was placed in two PRPN
accounts, each one in trust for Amalia's two children, per her
instructions.[21]

Following this investment, respondent claims to have regularly sent

confirmations of investment (COIs) to petitioners.[22] A COI is a onepage, computer generated document informing the customer of the
investment earlier made with the bank. The first of these COIs was
received by petitioners on or about December 9, 1997, as admitted by

Amalia, which is around a week after the investment was made.[23]

Respondent claims that other succeeding COIs were sent to and
received by petitioners.

Amalia claims to have called Lee as soon as she received the first COI
in December 1997, and demanded that the investment in LTCP be
withdrawn and placed in a PRPN.[24] Respondent, however, denies
this, claiming that Amalia merely called to clarify provisions in the
COI and did not demand a withdrawal.[25]

On August 6, 1998, petitioners met with respondent's other employee,

Lizza Colet, to preterminate the LTCP and their other investments.
Petitioners were told that as to the LTCP, liquidation could be made
only if there is a willing buyer, a prospect which could be difficult at
that time because of the economic crisis. Still, petitioners signed three
sets of Sales Order Slip to sell the LTCP and left these with Colet.[26]

On August 18, 1998, Amalia, through counsel, sent her first formal,
written demand to respondent for a withdrawal of her investment as
soon as possible.[27] The same was followed by another letter dated
September 7, 1998, which reiterated the same demands.[28] In answer
to the letters, respondent noted that the investment had a 2003
maturity, was not a deposit, and thus, its return to the investor was not
guaranteed by respondent; however, it added that the LTCP may be
sold prior to maturity and had in fact been put up for sale, but such sale
was subject to the availability of buyers in the secondary market.[29]
At that time, respondent was not able to find a buyer for the LTCP. As
this response did not satisfy petitioners, Amalia again wrote
respondent, this time a final demand letter dated September 21, 1998,
asking for a reconsideration and a return of the money she invested.
[30] In reply, respondent wrote a letter dated October 12, 1998 stating
that despite efforts to sell the LTCP, no willing buyers were found and

that even if a buyer would come later, the price would be lower than
Amalia's original investment.[31]

Thus, petitioners filed with the RTC their complaint against respondent
for a sum of money and damages.

The Complaint[32] essentially demanded a return of the investment,

alleging that Amalia never instructed respondent's employee Lee to
invest the money in an LTCP; and that far from what Lee executed,
Amalia's instructions were to invest the money in a trust account with
an interest of around 16.25% with a term of 91 days. Further,
petitioners alleged that it was only later, or on December 8, 1997,
when Amalia received the first confirmation of investment (COI) from
respondent, that she and her husband learned of Lee's infidelity to her
orders. The COI allegedly informed petitioners that the money was
placed in an LTCP of C&P Homes with a maturity in 2003, and that
the investment was not guaranteed by respondent. Petitioners also
claimed that as soon as Amalia received the COI, she immediately
called Lee; however, the latter allegedly convinced her to ignore the
COI, that C&P Homes was an Ayala company, that the investment was
secure, and that it could be easily withdrawn; hence, Amalia decided
not to immediately withdraw the investment. Several months later, or
on August 6, 1998, petitioners allegedly wanted to withdraw the
investment to buy a property; however, they failed to do so, since
respondent told them the LTCP had not yet matured, and that no
buyers were willing to buy it. Hence, they sent various demand letters
to respondent, asking for a return of their money; and when these went
unheeded, they filed the complaint.

In its Answer,[33] respondent admitted that, indeed, Amalia was its

client and that she invested the amounts stated in the complaint.
However, respondent disputed the claim that Amalia opened a trust
account with a request for an interest rate of around 16.25% with a

term of 91 days; instead, respondent presented documents stating that

Amalia opened a directional investment management account, with
investments to be made in C&P Homes' LTCP with a 2003 maturity.
Respondent disputed allegations that it violated petitioners' express
instructions. Respondent likewise denied that Amalia, upon her receipt
of the COI, immediately called respondent and protested the
investment in LTCP, its 2003 maturity and Citibank's lack of
guarantee. According to respondent, no such protest was made and
petitioners actually decided to liquidate their investment only months
later, after the newspapers reported that Ayala Land, Inc. was
cancelling plans to invest in C&P Homes.

The rest of respondent's Answer denied (1) that it convinced Amalia

not to liquidate or withdraw her investment or to ignore the contents of
the COI; (2) that it assured Amalia that the investment could be easily
or quickly withdrawn or sold; (3) that it misrepresented that C&P was
an Ayala company, implying that C&P had secure finances; and (4)
that respondent had been unfaithful to and in breach of its contractual
obligations.

2.

The sum of PhP300,000.00 representing moral damages;

3.

The sum of PhP100,000.00 representing attorney's fees;

4.

Costs.

SO ORDERED.[35]

The RTC upheld all the allegations of petitioners and concluded that
Amalia never instructed Citibank to invest the money in an LTCP.
Thus, the RTC found Citibank in violation of its contractual and
fiduciary duties and held it liable to return the money invested by
petitioners plus damages.

Respondent appealed to the CA.

After trial, the RTC rendered its Decision,[34] dated February 16,
2000, the dispositive portion of which states:

On appeal, in its Decision promulgated on May 28, 2002, the CA

reversed the Decision of the RTC, thus:

The foregoing considered, the court hereby rules in favor of plaintiffs

and order defendant to pay:

WHEREFORE, premises considered, the assailed decision dated 16

February 2000 is REVERSED and SET ASIDE and a new one entered
DISMISSING Civil Case No. 99-500.[36]

1.
The sum of PhP2,134,635.87 representing the actual amount
deposited by plaintiffs with defendant plus interest corresponding to
time deposit during the time material to this action from date of filing
of this case until fully paid;

The CA held that with respect to the amount of PhP2,134,635.87, the

account opened by Amalia was an investment management account; as
a result, the money invested was the sole and exclusive obligation of
C&P Homes, the issuer of the LTCP, and was not guaranteed or

insured by herein respondent Citibank;[37] that Amalia opened such

an account as evidenced by the documents she executed with Citibank,
namely, the Directional Investment Management Agreement (DIMA),
Term Investment Application (TIA), and Directional Letter/Specific
Instructions, which were all dated November 28, 1997, the day Amalia
brought the money to Citibank. Further, the CA brushed aside
petitioners' arguments that Amalia failed to understand the true nature
of the LTCP investment, and that she failed to read the documents as
they were written in fine print. The CA ruled that petitioners could not
seek the court's aid to extricate them from their contractual obligations.
Citing jurisprudence, the CA held that the courts protected only those
who were innocent victims of fraud, and not those who simply made
bad bargains or exercised unwise judgment.

On petitioners' motion for reconsideration, the CA reiterated its ruling

and denied the motion in a Resolution[38] dated December 11, 2002.

Thus, the instant petition which raises issues, summarized as follows:

(1) whether petitioners are bound by the terms and conditions of the
Directional Investment Management Agreement (DIMA), Term
Investment Application (TIA), Directional Letter/Specific Instructions,
and Confirmations of Investment (COIs); (2) and whether petitioners
are entitled to take back the money they invested from respondent
bank; or stated differently, whether respondent is obliged to return the
money to petitioners upon their demand prior to maturity.

Petitioners contend that they are not bound by the terms and conditions
of the DIMA, Directional Letter and COIs because these were
inconsistent with the TIA and other documents they signed.[39]
Further, they claim that the DIMA and the Directional letter were
signed in blank or contained unauthorized intercalations by Citibank.
[40] Petitioners argue that contrary to the contents of the documents,

they did not instruct Citibank to invest in an LTCP or to put their

money in such high-risk, long-term instruments.[41]

The Court notes the factual nature of the questions raised in the
petition. Although the general rule is that only questions of law are
entertained by the Court in petitions for review on certiorari,[42] as the
Court is not tasked to repeat the lower courts' analysis or weighing of
evidence,[43] there are instances when the Court may resolve factual
issues, such as (1) when the trial court misconstrued facts and
circumstances of substance which if considered would alter the
outcome of the case;[44] and (2) when the findings of facts of the CA
and the trial court differ.[45]

In the instant case, the CA completely reversed the findings of facts of

the trial court on the ground that the RTC failed to appreciate certain
facts and circumstances. Thus, applying the standing jurisprudence on
the matter,[46] the Court proceeded to examine the evidence on
record.

The Court's Ruling

The Court finds no merit in the petition. After a careful examination of

the records, the Court affirms the CA's ruling for being more in accord
with the facts and evidence on record.
On the first issue of whether petitioners are bound by the terms and
conditions of the DIMA, TIA, Directional Letter and COIs, the Court
holds in the affirmative and finds for respondent.

The DIMA, Directional Letter and COIs are evidence of the contract
between the parties and are binding on them, following Article 1159 of
the Civil Code which states that contracts have the force of law
between the parties and must be complied with in good faith.[47] In
particular, petitioner Amalia affixed her signatures on the DIMA,
Directional Letter and TIA, a clear evidence of her consent which,
under Article 1330 of the same Code, she cannot deny absent any
evidence of mistake, violence, intimidation, undue influence or fraud.
[48]

IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT

AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF
ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL.
(Underscoring supplied.)

As the documents have the effect of law, an examination is in order to

reveal what underlies petitioners' zeal to exclude these from
consideration.

6. Exemption from Liability. - In the absence of fraud, bad faith, or

gross or willful negligence on the part of the INVESTMENT
MANAGER or any person acting in its behalf, the INVESTMENT
MANAGER shall not be liable for any loss or damage to the Portfolio
arising out of or in connection with any act done or omitted or caused
to be done or omitted by the INVESTMENT MANAGER pursuant to
the terms and conditions herein agreed upon, and pursuant to and in
accordance with the written instructions of the PRINCIPAL to carry
out the powers, duties and purposes for which this Agreement is
executed. The PRINCIPAL will hold the INVESTMENT MANAGER
free and harmless from any liability, claim, damage or fiduciary
responsibility that may arise from any investment made pursuant to
this Agreement and to such letters or instructions under Paragraph 3
hereof due to the default, bankruptcy or insolvency of the
Borrower/Issuer or the Broker/Dealer handling the transaction and or
their failure in any manner to comply with any of their obligations
under the aforesaid transactions, it being the PRINCIPAL'S
understanding and intention that the investments/reinvestments under
this account shall be strictly for his/its account and risk except as
indicated above.

Under the DIMA, the following provisions appear:

4. Nature of Agreement THIS AGREEMENT IS AN AGENCY AND

NOT A TRUST AGREEMENT. AS SUCH, THE PRINCIPAL SHALL
AT ALL TIMES RETAIN LEGAL TITLE TO THE FUNDS AND
PROPERTIES SUBJECT OF THE ARRANGEMENT.
THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE
APPRECIATION OF ASSETS OF THE ACCOUNT. THIS
AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR
INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST
PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF
FUTURE
PERFORMANCE
AND
THE
INCOME
OF
INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON
PREVAILING MARKET CONDITIONS.

xxxx

The INVESTMENT MANAGER shall manage the Portfolio with the

skill, care, prudence, and diligence necessary under the prevailing
circumstances that a good father of the family, acting in a like capacity
and familiar with such matters, would exercise in the conduct of an

enterprise of like character and with similar aims. (Underscoring

supplied.)

xxxx

11. Withdrawal of Income/Principal Subject to availability of funds

and taking into consideration the commitment of this account to third
parties, the PRINCIPAL may withdraw the income/principal of the
Portfolio or portion thereof upon request or application thereof from
the Bank. The INVESTMENT MANAGER shall not be required to
inquire as to the income/principal so withdrawn from the Portfolio.
Any income of the Portfolio not withdrawn shall be accumulated and
added to the principal of the Portfolio for further investment and
reinvestment.[49] (Underscoring supplied.)

Under the Directional Letter, which constituted petitioners' instructions

to respondent, the following provisions are found:

In case of default of the Borrower/Issuers, we hereby authorize you at

your sole option, to terminate the investment/s therein and deliver to us
the securities/loan documents then constituting the assets of my/our
DIMA/trust account with you for me/us to undertake the necessary
legal action to collect and/or recover from the borrower/issuers.[50]
(Underscoring supplied.)

The documents, characterized by the quoted provisions, generally

extricate respondent from liability in case the investment is lost.
Accordingly, petitioners assumed all risks and the task of collecting
from the borrower/issuer C&P Homes.

In addition to the DIMA and Directional Letter, respondent also sent

petitioners the COIs on a regular basis, the first of which was received
by petitioners on December 9, 1997. The COIs have the following
provisions in common:

xxxx
In the absence of fraud, bad faith or gross or willful negligence on
your part or any person acting in your behalf, you shall not be held
liable for any loss or damage arising out of or in connection with any
act done or performed or caused to be done or performed by you
pursuant to the terms and conditions of our Agreement. I/We shall hold
you free and harmless from any liability, claim, damage, or fiduciary
responsibility that may arise from this investment made pursuant to the
foregoing due to the default, bankruptcy or insolvency of the
Borrower/Issuer, or the Broker/Dealer handling the aforesaid
transactions/s, it being our intention and understanding that the
investment/reinvestment under these transaction/s shall be strictly for
my/our account and risk.

NATURE OF TRANSACTION INVESTMENT IN LTCP

NAME OF BORROWER/ISSUER C&P HOMES
xxxx
TENOR 91 DAYS
xxxx
MATURITY DATE 11/05/03

xxxx
OTHERS REPRICEABLE EVERY 91 DAYS

PURSUANT TO THE BANGKO SENTRAL REGULATIONS, THE

PRINCIPAL AND INTEREST OF YOUR INVESTMENT ARE
OBLIGATIONS OF THE BORROWER AND NOT OF THE BANK.
YOUR INVESTMENT IS NOT A DEPOSIT AND IS NOT
GUARANTEED BY CITIBANK N.A.

relationship existed between petitioners and respondent with respect to

the DIMA account. Respondent purchased the LTCPs only as agent of
petitioners; thus, the latter assumed all obligations or inherent risks
entailed by the transaction under Article 1910 of the Civil Code, which
provides:

Article 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.

xxxx

As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.

Please examine this Confirmation and notify us in writing within seven

(7) days from receipt hereof of any deviation from your prior
conformity to the investment. If no notice is received by us within this
period, this Confirmation shall be deemed correct and approved by
you, and we shall be released and discharged as to all items,
particulars, matters and things set forth in this Confirmation.[51]

The transaction is perfectly legal, as investment management activities

may be exercised by a banking institution, pursuant to Republic Act
No. 337 or the General Banking Act of 1948, as amended, which was
the law then in effect. Section 72 of said Act provides:

Petitioners admit receiving only the first COI on December 8, 1997.

[52] The evidence on record, however, supports respondent's
contentions that petitioners received the three other COIs on February
12, 1998,[53] May 14, 1998,[54] and August 14, 1998,[55] before
petitioners' first demand letter dated August 18, 1998.[56]

Sec. 72. In addition to the operations specifically authorized elsewhere

in this Act, banking institutions other than building and loan
associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and

rent safety deposit boxes for the safeguarding of such effects;
The DIMA, Directional Letter, TIA and COIs, read together, establish
the agreement between the parties as an investment management
agreement, which created a principal-agent relationship between
petitioners as principals and respondent as agent for investment
purposes. The agreement is not a trust or an ordinary bank deposit;
hence, no trustor-trustee-beneficiary or even borrower-lender

(b) Act as financial agent and buy and sell, by order of and for the
account of their customers, shares, evidences of indebtedness and all
types of securities;

(c) Make collections and payments for the account of others and
perform such other services for their customers as are not incompatible
with banking business.
(d) Upon prior approval of the Monetary Board, act as managing
agent, adviser, consultant or administrator of investment management/
advisory/consultancy accounts.

The banks shall perform the services permitted under subsections (a),
(b) and (c) of this section as depositories or as agents. Accordingly,
they shall keep the funds, securities and other effects which they thus
receive duly separated and apart from the bank's own assets and
liabilities.

The Monetary Board may regulate the operations authorized by this

section in order to insure that said operations do not endanger the
interests of the depositors and other creditors of the banks. (Emphasis
supplied.)

while Section 74 prohibits banks from guaranteeing obligations of any

person, thus:

Sec. 74. No bank or banking institution shall enter, directly, or

indirectly into any contract of guaranty or suretyship, or shall
guarantee the interest or principal of any obligation of any person,
copartnership, association, corporation or other entity. The provisions
of this section shall, however, not apply to the following: (a)
borrowing of money by banking institution through the rediscounting
of receivables; (b) acceptance of drafts or bills of exchange (c)
certification of checks; (d) transactions involving the release of
documents attached to items received for collection; (e) letters of

credit transaction, including stand-by arrangements; (f) repurchase

agreements; (g) shipside bonds; (h) ordinary guarantees or
indorsements in favor of foreign creditors where the principal
obligation involves loans and credits extended directly by foreign
investment purposes; and (i) other transactions which the Monetary
Board may, by regulation, define or specify as not covered by the
prohibition. (Emphasis supplied.)

Nothing also taints the legality of the LTCP bought in behalf of

petitioners. C&P Homes' LTCP was duly registered with the Securities
and Exchange Commission while the issuer was accredited by the
Philippine Trust Committee.[57]

The evidence also sustains respondent's claim that its trust department
handled the account only because it was the department tasked to
oversee the trust, and other fiduciary and investment management
services of the bank.[58] Contrary to petitioners' claim, this did not
mean that petitioners opened a trust account. This is consistent with
Bangko Sentral ng Pilipinas (BSP) regulations, specifically the Manual
of Regulations for Banks (MORB), which groups a bank's trust, and
other fiduciary and investment management activities under the same
set of regulations, to wit:

PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND

INVESTMENT MANAGEMENT ACTIVITIES

xxxx
Sec. X402 Scope of Regulations. These regulations shall govern the
grant of authority to and the management, administration and conduct
of trust, other fiduciary business and investment management activities

(as these terms are defined in Sec. X403) of banks. The regulations are
divided into three (3)

as among other fiduciary business, shall be separately defined in the

succeeding item to highlight its being a major source of fiduciary
business.

Sub-Parts where:
A. Trust and Other Fiduciary Business shall apply to banks authorized
to engage in trust and other fiduciary business including investment
management activities;
B. Investment Management Activities shall apply to banks without
trust authority but with authority to engage in investment management
activities; and

c. Investment management activity shall refer to any activity resulting

from a contract or agreement primarily for financial return whereby
the bank (the investment manager) binds itself to handle or manage
investible funds or any investment portfolio in a representative
capacity as financial or managing agent, adviser, consultant or
administrator of financial or investment management, advisory,
consultancy or any similar arrangement which does not create or result
in a trusteeship. (Emphasis supplied.)

C. General Provisions shall apply to both.

xxxx
Sec. X403 Definitions. For purposes of regulating the operations of
trust and other fiduciary business and investment management
activities, unless the context clearly connotes otherwise, the following
shall have the meaning indicated.
a. Trust business shall refer to any activity resulting from a trustortrustee relationship (trusteeship) involving the appointment of a trustee
by a trustor for the administration, holding, management of funds
and/or properties of the trustor by the trustee for the use, benefit or
advantage of the trustor or of others called beneficiaries.
b. Other fiduciary business shall refer to any activity of a trust-licensed
bank resulting from a contract or agreement whereby the bank binds
itself to render services or to act in a representative capacity such as in
an agency, guardianship, administratorship of wills, properties and
estates, executorship, receivership, and other similar services which do
not create or result in a trusteeship. It shall exclude collecting or
paying agency arrangements and similar fiduciary services which are
inherent in the use of the facilities of the other operating departments
of said bank. Investment management activities, which are considered

The Court finds no proof to sustain petitioners' contention that the

DIMA and Directional Letter contradict other papers on record, or
were signed in blank, or had unauthorized intercalations.[59]
Petitioners themselves admit that Amalia signed the DIMA and the
Directional Letter, which bars them from disowning the contract on the
belated claim that she signed it in blank or did not read it first because
of the fine print.[60] On the contrary, the evidence does not support
these latter allegations, and it is highly improbable that someone fairly
educated and with investment experience would sign a document in
blank or without reading it first.[61] Petitioners owned various
businesses and were clients of other banks, which omits the possibility
of such carelessness.[62] Even more damning for petitioners is that, on
record, Amalia admitted that it was not her habit to sign in blank and
that the contents of the documents were explained to her before she
signed.[63]

Testimonial evidence and the complaint itself contained allegations

that petitioners' reason for transferring their money from local banks to
respondent is because it is safer to do so,[64] a clear indicia of their
intelligence and keen business sense which they could not have easily
surrendered upon meeting with respondent.

Nothing irregular or illegal attends the execution or construction of the

DIMA and the Directional Letter, as their provisions merely conform
with BSP regulations governing these types of transactions.
Specifically, the MORB mandates that investment managers act as
agents, not as trustees, of the investor;[65] that the investment manager
is prohibited from guaranteeing returns on the funds or properties;[66]
that a written document should state that the account is not covered by
the PDIC; and that losses are to be borne by clients.[67] That these
legal requirements were communicated to petitioners is evident in
Amalia's signatures on the documents and in testimony to this effect.
[68]

As to the allegation that the documents were in fine print, the Court
notes that although the print may have looked smaller than average,
they were nevertheless of the same size throughout the documents, so
that no part or provision is hidden from the reader. The Court also
takes judicial notice that the print is no smaller than those found in
similar contracts in common usage, such as insurance, mortgage, sales
contracts and even ordinary bank deposit contracts. In the documents
in question, the provisions hurtful to petitioners' cause were likewise in
no smaller print than the rest of the document, as indeed they were
even highlighted either in bold or in all caps. This disposes of the
argument that they were designed to hide their damaging nature to the
signatory.[69] The conclusion is that the print is readable and should
not have prevented petitioners from studying the papers before their
signing. Considering petitioners' social stature, the nature of the
transaction and the amount of money involved, the Court presumes
that petitioners exercised adequate care and diligence in studying the
contract prior to its execution.[70]

In Sweet Lines, Inc. v. Teves,[71] the Court pronounced the general

rule regarding contracts of adhesion, thus:

x x x there are certain contracts almost all the provisions of which

have been drafted only by one party, usually a corporation. Such
contracts are called contracts of adhesion, because the only
participation of the other party is the signing of his signature or his
adhesion thereto. Insurance contracts, bills of lading, contracts of sale
of lots on the installment plan fall into this category.
x x x it is drafted only by one party, usually the corporation, and is
sought to be accepted or adhered to by the other party x x x who
cannot change the same and who are thus made to adhere hereto on the
take it or leave it basis.
x x x it is hardly just and proper to expect the passengers to examine
their tickets received from crowded/congested counters, more often
than not during rush hours, for conditions that may be printed thereon,
much less charge them with having consented to the conditions, so
printed, especially if there are a number of such conditions in fine
print, as in this case.

However, Sweet Lines[72] further expounded that the validity and/or

enforceability of contracts of adhesion will have to be determined by
the peculiar circumstances obtaining in each case and the nature of the
conditions or terms sought to be enforced.[73] Thus, while any
ambiguity, obscurity or doubt in a contract of adhesion is construed or
resolved strictly against the party who prepared it,[74] it is also equally
obvious that in a case where no such ambiguity, obscurity or doubt
exists, no such construction is warranted. This was the case in the
DIMA and the Directional Letter signed by Amalia in the instant
controversy.

The parties to this case only disagree on whether petitioners were

properly informed of the contents of the documents. But as earlier
stated, petitioners were free to read and study the contents of the

papers before signing them, without compulsion to sign immediately

or even days after, as indeed the parties were even free not to sign the
documents at all. Unlike in Sweet Lines, where the plaintiffs had no
choice but to take the services of monopolistic transport companies
during rush hours, in the instant case, petitioners were under no such
pressure; petitioners were free to invest anytime and through any of
the dozens of local and foreign banks in the market.

In addition, it has been held that contracts of adhesion are not

necessarily voidable. The Court has consistently held that contracts of
adhesion, wherein one party imposes a ready-made form of contract on
the other, are contracts not entirely prohibited, since the one who
adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his
consent.[75] It is the rule that these contracts are upheld unless they
are in the nature of a patently lopsided deal where blind adherence is
not justified by other factual circumstances.[76]

Petitioners insist that other documents Amalia signed -- that is, the
ROF,[77] Questionnaire[78] and TIA[79] -- contradict the DIMA and
Directional Letter. Specifically, they argue that under the ROF and the
Questionnaire, they manifested an intent to invest only in a time
deposit in the medium term of over a year to three years, with no risk
on the capital, or with returns in line with a time deposit.[80] However,
this contention is belied by the evidence and testimony on record.
Respondent explains that investors fill up the ROF and Questionnaire
only when they first visit the bank and only for the account they first
opened,[81] as confirmed by the evidence on record and the fact that
there were no subsequent ROFs and Questionnaires presented by
petitioners.

The ROF and Questionnaire were filled up when the PhP1 million
Citihi savings account was opened by Amalia on October 10, 1997,
during her first visit to the bank. When Amalia returned more than a
month later on November 28, 1997, a change in her investment
attitude occurred in that she wanted to invest an even bigger amount
(PhP3 million) and her interest had shifted to high-yield but riskier
long-term instruments like PRPNs and LTCPs. When Amalia
proceeded to sign new documents like the DIMA and the Directional
Letter for the LTCP investment, despite their obviously different
contents from those she was used to signing for ordinary deposits, she
essentially confirmed that she knew what she was agreeing to and that
it was different from all her previous transactions.

In addition, even the ROF and Questionnaire signed by Amalia during

the first visit contained provisions that clearly contradict petitioners'
claims. The ROF contained the following:

I/We declare the above information to be correct. I/We hereby

acknowledge to have received, read, understood and agree to be bound
by the general terms and conditions applicable and governing my/our
account/s and/or investment/s which appear in a separate
brochure/manual as well as separate documents relative to said
account/s and/or investment/s. Said terms and conditions shall likewise
apply to all our existing and future account/s and/or investment/s with
Citibank. I/We hereby further authorize Citibank to open additional
account/s and/or investment/s in the future with the same account title
as contained in this relationship opening form subject to the rules
governing the aforementioned account/s and/or investment/s and the
terms and conditions therein or herein. I/We agree to notify you in
writing of any change in the information supplied in this relationship
opening form.[82] (Emphasis supplied.)

while the Questionnaire had the following provisions:

I am aware that investment products are not bank deposits or other

obligations of, or guaranteed or insured by Citibank N.A., Citicorp or
their affiliates. I am aware that the principal and interest of my
investments are obligations of the borrower/issuer. They are subject to
risk and possible loss of principal. Past performance is not indicative
of future performance. In addition, investments are not covered by the
Philippine Deposit Insurance Corporation (PDIC) or the Federal
Deposit Insurance Corporation (FDIC).[83]

For
corporations,
____________

c/o

_______________________Tel.

No.

Dear Sir:

THIS IS TO AUTHORIZE CITIBANK, N. A. TO: ( ) open ( ) rollover

( ) rollover w/

which do not need further elaboration on the matter.

added funds
( ) rollover w/

Petitioners contend that the Term Investment Application (TIA), viz:

payout
Ref. No. ____

TERM INVESTMENT APPLICATION

MAKATI Date 1/28/97

[ ] Peso Time Depositories [ ] Dollar TD [ ] Confirmation of Sale

Branch and Service Area

[ ] NNPN [ ] Multicurrency TD [ ] CITIHI-Yielder

TITLE OF ACCOUNT

TRUST

__________________________________ CIF Keys

PANLILIO, AMALIA ITF __________________

NEW ADDED FUNDS WILL COME FROM:

ALEJANDRO KING AGUILAR & FE __________________

( ) debit my/our
_______________

account

no.

______________

for

P/$

EMMANUELLE PANLILIO __________________

Address ______________________________________________

( ) Check No.
_______________

_________________________

for

P/$

( ) Cash deposit
_______________

_______________________

for

P/$

PRPN accounts, each one in trust for Amalia's two children, upon her
instructions.[87] The disparity in the interest rate is also explained by
the fact that the 16.95% rate placed in the COI is gross and not net
interest,[88] and that it is subject to repricing every 91 days.

IN THE AMOUNT AND TERMS SPECIFIED AS FOLLOWS:

PRINCIPAL/Money In P/$ 3,000,000 Value 11/28/97

MATURITY AMOUNT/Par Value P/$_________ Maturity Date
_____
INTEREST RATE around 16.25% Term 91 days [84]
(Emphasis supplied.)

clearly contradicts the DIMA, Directional Letter and COIs.

Petitioners insist that the amount PhP3 million in the TIA does not
tally with the actual value of the investment which appeared on the
first COI, which was PhP2,134,635.87. Petitioners add that the TIA's
interest rate of around 16.25% with the term 91 days contradicts the
COI's interest rate of 16.95% with a tenor of 75 days repriceable after
91 days.[85] Further, petitioners claim that the word TRUST inscribed
on the TIA obviously meant that they opened a trust account, and not
any other account.[86]

The explanation of respondent is plausible. Only PhP2,134,635.87 out

of the PhP3 million was placed in the LTCP since this was the only
amount of LTCP then available, while the balance was placed in two

The Court gives credence to respondent's explanation that the word

TRUST appearing on the TIA simply means that the account is to be
handled by the bank's trust department, which handles not only the
trust business but also the other fiduciary business and investment
management activities of the bank, while the ITF or in trust for
appearing on the other documents only signifies that the money was
invested by Amalia in trust for her two children, a device that she uses
even in her ordinary deposit accounts with other banks.[89] The ITF
device allows the children to obtain the money without need of paying
estate taxes in case Amalia meets a premature death.[90] However, it
creates a trustee-beneficiary relationship only between Amalia and her
children, and not between Amalia, her children, and Citibank.
All the documents signed by Amalia, including the DIMA and
Directional Letter, show that her agreement with respondent is one of
agency, and not a trust.
The DIMA, TIA, Directional Letter and COIs, viewed altogether,
establish without doubt the transaction between the parties, that on
November 28, 1997, with PhP3 million in tow, Amalia opened an
investment management account with respondent, under which she
instructed the latter as her agent to invest the bulk of the money in
LTCP.

Aside from their bare allegations, evidence that supports petitioners'

contentions that no such deal took place, or that the agreement was
different, simply does not exist in the records.

Petitioners were experienced and intelligent enough to be able to

demand and sign a different document to signify their real intention;
but no such document exists. Thus, petitioners' acts and omissions
negate their allegations that they were essentially defrauded by the
bank.

Petitioners had other chances to protest respondent's alleged disregard

of their instructions. The COIs sent by respondent to petitioners
encapsulate the spirit of the DIMA and Directional Letter, with the
proviso that should there be any deviations from petitioners'
instructions, they may inform respondent in writing within seven days.
Assuming arguendo that respondent violated the instructions,
petitioners did not file a single timely written protest, however, despite
their admission that they received the first COI on December 8, 1997.
[91] It took eight months for petitioners to formally demand the return
of their investment through their counsel in a letter dated August 18,
1998.[92] The letter, however, did not even contest the placement of
the money in an LTCP, but merely its maturity in the year 2003. Prior
to the letter, it has been shown that petitioners had received COIs on
February 12, 1998,[93] May 14, 1998,[94] and August 14, 1998,[95]
and in between, petitioners never demanded a return of the money they
invested.

Petitioners' acts and omissions strongly indicate that they in fact

conformed to the agreement in the months after the signing. In that
period, they were receiving their bank statements and earning interest
from the investment, as in fact, C&P Homes under the LTCP
continuously paid interest even up to the time the instant case was
already on trial.[96] When petitioners finally contested the contract
months after its signing, it was suspiciously during the time when
newspaper reports came out that C&P Homes' stock had plunged in
value and that Ayala Land was withdrawing its offer to invest in the
company.[97] The connection is too obvious to ignore. It is reasonable
to conclude that petitioners' repudiation of the agreement was nothing

more than an afterthought, a reaction to the negative events in the

market and an effort to flee from a losing investment.

Anent the second issue, whether petitioners are entitled to recover

from respondent the amount of PhP2,134,635.87 invested under the
LTCP, the Court agrees with the CA in dismissing the complaint filed
by petitioners.

Petitioners may not seek a return of their investment directly from

respondent at or prior to maturity. As earlier explained, the investment
is not a deposit and is not guaranteed by respondent. Absent any fraud
or bad faith, the recourse of petitioners in the LTCP is solely against
the issuer, C&P Homes, and only upon maturity. The DIMA states,
thus:

11. Withdrawal of Income/Principal Subject to availability of funds

and taking into consideration the commitment of this account to third
parties, the PRINCIPAL may withdraw the income/principal of the
Portfolio or portion thereof upon request or application thereof from
the Bank. The INVESTMENT MANAGER shall not be required to
inquire as to the income/principal so withdrawn from the Portfolio.
Any income of the Portfolio not withdrawn shall be accumulated and
added to the principal of the Portfolio for further investment and
reinvestment.[98] (Emphasis supplied.)

It is clear that since the money is committed to C&P Homes via LTCP
for five years, or until 2003, petitioners may not seek its recovery from
respondent prior to the lapse of this period. Petitioners must wait and
meanwhile just be content with receiving their interest regularly. If
petitioners want the immediate return of their investment before the
maturity date, their only way is to find a willing buyer to purchase the

LTCP at an agreed price, or to go directly against the issuer C&P

Homes, not against the respondent.

The nature of the DIMA and the other documents signed by the parties
calls for this condition. The DIMA states that respondent is a mere
agent of petitioners and that losses from both the principal and interest
of the investment are strictly on petitioners' account. Meanwhile, the
Directional Letter clearly states that the investment is to be made in an
LTCP which, by definition, has a term of more than 365 days.[99]
Prior to the expiry of the term, which in the case of the C&P Homes
LTCP is five years, petitioners may not claim back their investment,
especially not from respondent bank.

proof that the latter acted beyond its authority.[100] Concomitant to

this obligation is that the principal also assumes the risks that may
arise from the transaction.[101] Indeed, as in the instant case, bank
regulations prohibit banks from guaranteeing profits or the principal in
an investment management account.[102] Hence, the CA correctly
dismissed petitioners complaint against respondent.

WHEREFORE, the Petition is DENIED. For lack of evidence, the

Decision of the Court of Appeals dated dated May 28, 2002 and its
Resolution of December 11, 2002, are AFFIRMED.

Costs against the petitioners.

Having bound themselves under the contract as earlier discussed,
petitioners are governed by its provisions. Petitioners as principals in
an agency relationship are solely obliged to observe the solemnity of
the transaction entered into by the agent on their behalf, absent any

SO ORDERED.