G.R. No.

165133 April 19, 2010

SPOUSES JOSELINA ALCANTARA AND ANTONIO ALCANTARA, and SPOUSES JOSEFINO

RUBI AND ANNIE DISTOR- RUBI, Petitioners,
vs.
BRIGIDA L. NIDO, as attorney-in-fact of REVELEN N. SRIVASTAVA, Respondent.

RESOLUTION

CARPIO, J.:

The Case

Spouses Antonio and Joselina Alcantara and Spouses Josefino and Annie Rubi (petitioners) filed
this Petition for Review1 assailing the Court of Appeals’ (appellate court) Decision2 dated 10 June
2004 as well as the Resolution3 dated 17 August 2004 in CA-G.R. CV No. 78215. In the assailed
decision, the appellate court reversed the 17 June 2002 Decision4 of Branch 69 of the Regional
Trial Court of Binangonan, Rizal (RTC) by dismissing the case for recovery of possession with
damages and preliminary injunction filed by Brigida L. Nido (respondent), in her capacity as
administrator and attorney-in-fact of Revelen N. Srivastava (Revelen).

The Facts

Revelen, who is respondent’s daughter and of legal age, is the owner of an unregistered land
with an area of 1,939 square meters located in Cardona, Rizal. Sometime in March 1984,
respondent accepted the offer of petitioners to purchase a 200-square meter portion of
Revelen’s lot (lot) at ₱200 per square meter. Petitioners paid ₱3,000 as downpayment and the
balance was payable on installment. Petitioners constructed their houses in 1985. In 1986, with
respondent’s consent, petitioners occupied an additional 150 square meters of the lot. By 1987,
petitioners had already paid ₱17,5005 before petitioners defaulted on their installment
payments.

On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a

complaint for recovery of possession with damages and prayer for preliminary injunction against
petitioners with the RTC.

The RTC’s Ruling

The RTC stated that based on the evidence presented, Revelen owns the lot and respondent was
verbally authorized to sell 200 square meters to petitioners. The RTC ruled that since
respondent’s authority to sell the land was not in writing, the sale was void under Article
18746 of the Civil Code.7 The RTC ruled that rescission is the proper remedy.8

On 17 June 2002, the RTC rendered its decision, the dispositive portion reads:

WHEREFORE, judgment is rendered in favor of plaintiff and against the defendants, by -

1. Declaring the contract to sell orally agreed by the plaintiff Brigida Nido, in her capacity
as representative or agent of her daughter Revelen Nido Srivastava, VOID and
UNENFORCEABLE.

1
 2. Ordering the parties, upon finality of this judgment, to have mutual restitution – the
defendants and all persons claiming under them to peacefully vacate and surrender to the
plaintiff the possession of the subject lot covered by TD No. 09-0742 and its derivative
Tax Declarations, together with all permanent improvements introduced thereon, and all
improvements built or constructed during the pendency of this action, in bad faith; and
the plaintiff, to return the sum of ₱17,500.00, the total amount of the installment on the
land paid by defendant; the fruits and interests during the pendency of the condition shall
be deemed to have been mutually compensated.

3. Ordering the defendants to pay plaintiff the sum of ₱20,000.00 as attorney’s fees, plus
₱15,000.00 as actual litigation expenses, plus the costs of suit.

SO ORDERED.9

The Appellate Court’s Ruling

On 5 January 2004, petitioners appealed the trial court’s Decision to the appellate court. In its
decision dated 10 June 2004, the appellate court reversed the RTC decision and dismissed the
civil case.10

The appellate court explained that this is an unlawful detainer case. The prayer in the complaint
and amended complaint was for recovery of possession and the case was filed within one year
from the last demand letter. Even if the complaint involves a question of ownership, it does not
deprive the Municipal Trial Court (MTC) of its jurisdiction over the ejectment case. Petitioners
raised the issue of lack of jurisdiction in their Motion to Dismiss and Answer before the
RTC.11 The RTC denied the Motion to Dismiss and assumed jurisdiction over the case because
the issues pertain to a determination of the real agreement between the parties and rescission of
the contract to sell the property.12

The appellate court added that even if respondent’s complaint is for recovery of possession or
accion publiciana, the RTC still has no jurisdiction to decide the case. The appellate court
explained:

Note again that the complaint was filed on 11 May 1994. By that time, Republic Act No. 7691
was already in effect. Said law took effect on 15 April 1994, fifteen days after its publication in
the Malaya and in the Time Journal on 30 March 1994 pursuant to Sec. 8 of Republic Act No.
7691.

Accordingly, Sec. 33 of Batas Pambansa 129 was amended by Republic Act No. 7691 giving the
Municipal Trial Court the exclusive original jurisdiction over all civil actions involving title to, or
possession of, real property, or any interest therein where the assessed value of the property or
interest therein does not exceed ₱20,000 or, in civil actions in Metro Manila, where such
assessed value does not exceed ₱50,000, exclusive of interest, damages of whatever kind,
attorney’s fees, litigation expenses and costs.

At bench, the complaint alleges that the whole 1,939- square meter lot of Revelen N. Srivastava
is covered by Tax Declaration No. 09-0742 (Exh. "B", p. 100, Records) which gives its assessed
value of the whole lot of ₱4,890.00. Such assessed value falls within the exclusive original
prerogative or jurisdiction of the first level court and, therefore, the Regional Trial Court a quo
has no jurisdiction to try and decided the same.131avvphi1

2
The appellate court also held that respondent, as Revelen’s agent, did not have a written
authority to enter into such contract of sale; hence, the contract entered into between
petitioners and respondent is void. A void contract creates no rights or obligations or any
juridical relations. Therefore, the void contract cannot be the subject of rescission.14

Aggrieved by the appellate court’s Decision, petitioners elevated the case before this Court.

Issues

Petitioners raise the following arguments:

1. The appellate court gravely erred in ruling that the contract entered into by respondent,
in representation of her daughter, and former defendant Eduardo Rubi (deceased), is
void; and

2. The appellate court erred in not ruling that the petitioners are entitled to their
counterclaims, particularly specific performance.15

Ruling of the Court

We deny the petition.

Petitioners submit that the sale of land by an agent who has no written authority is not void but
merely voidable given the spirit and intent of the law. Being only voidable, the contract may be
ratified, expressly or impliedly. Petitioners argue that since the contract to sell was sufficiently
established through respondent’s admission during the pre-trial conference, the appellate court
should have ruled on the matter of the counterclaim for specific performance.16

Respondent argues that the appellate court cannot lawfully rule on petitioners’ counterclaim
because there is nothing in the records to sustain petitioners’ claim that they have fully paid the
price of the lot.17 Respondent points out that petitioners admitted the lack of written authority to
sell. Respondent also alleges that there was clearly no meeting of the minds between the parties
on the purported contract of sale.18

Sale of Land through an Agent

Articles 1874 and 1878 of the Civil Code provide:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.

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

xxx

(5) To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;

xxx

Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an
immovable property. Based on a review of the records, there is absolutely no proof of
3
respondent’s written authority to sell the lot to petitioners. In fact, during the pre-trial
conference, petitioners admitted that at the time of the negotiation for the sale of the lot,
petitioners were of the belief that respondent was the owner of lot.19 Petitioners only knew that
Revelen was the owner of the lot during the hearing of this case. Consequently, the sale of the
lot by respondent who did not have a written authority from Revelen is void. A void contract
produces no effect either against or in favor of anyone and cannot be ratified.20

A special power of attorney is also necessary to enter into any contract by which the ownership
of an immovable is transmitted or acquired for a valuable consideration. Without an authority in
writing, respondent cannot validly sell the lot to petitioners. Hence, any "sale" in favor of the
petitioners is void.

Our ruling in Dizon v. Court of Appeals21 is instructive:

When the sale of a piece of land or any interest thereon is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void. Thus the authority of an agent to
execute a contract for the sale of real estate must be conferred in writing and must give him
specific authority, either to conduct the general business of the principal or to execute a binding
contract containing terms and conditions which are in the contract he did execute. A special
power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable consideration. The
express mandate required by law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language so used conveys such power,
no such construction shall be given the document.

Further, Article 1318 of the Civil Code enumerates the requisites for a valid contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract;

3. cause of the obligation which is established.

Respondent did not have the written authority to enter into a contract to sell the lot. As the
consent of Revelen, the real owner of the lot, was not obtained in writing as required by law, no
contract was perfected. Consequently, petitioners failed to validly acquire the lot.

General Power of Attorney

On 25 March 1994, Revelen executed a General Power of Attorney constituting respondent as

her attorney-in-fact and authorizing her to enter into any and all contracts and agreements on
Revelen’s behalf. The General Power of Attorney was notarized by Larry A. Reid, Notary Public in
California, U.S.A.

Unfortunately, the General Power of Attorney presented as "Exhibit C"22 in the RTC cannot also
be the basis of respondent’s written authority to sell the lot.

Section 25, Rule 132 of the Rules of Court provides:

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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.

In Teoco v. Metropolitan Bank and Trust Company,23 quoting Lopez v. Court of Appeals,24 we
explained:

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.25

Since the General Power of Attorney was executed and acknowledged in the United States of
America, it cannot be admitted in evidence unless it is certified as such in accordance with the
Rules of Court by an officer in the foreign service of the Philippines stationed in the United States
of America. Hence, this document has no probative value.

Specific Performance

Petitioners are not entitled to claim for specific performance. It must be stressed that when
specific performance is sought of a contract made with an agent, the agency must be
established by clear, certain and specific proof.26 To reiterate, there is a clear absence of proof
that Revelen authorized respondent to sell her lot.

Jurisdiction of the RTC

Section 33 of Batas Pambansa Bilang 129,27 as amended by Republic Act No. 7691 provides:

Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in Civil Cases. – Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts shall exercise:

xxx

(3) Exclusive original jurisdiction in all civil actions which involve title to, possession of, real
property, or any interest therein where the assessed value of the property or interest therein
does not exceed Twenty thousand pesos (₱20,000.00) or, in civil actions in Metro Manila, where
such assessed value does not exceed Fifty thousand pesos (₱50,000.00) exclusive of interest,
damages of whatever kind, attorney’s fees, litigation expenses and costs: x x x

In Geonzon Vda. de Barrera v. Heirs of Vicente Legaspi,28 the Court explained:

Before the amendments introduced by Republic Act No. 7691, the plenary action of accion
publiciana was to be brought before the regional trial court. With the modifications introduced by
5
R.A. No. 7691 in 1994, the jurisdiction of the first level courts has been expanded to include
jurisdiction over other real actions where the assessed value does not exceed ₱20,000, ₱50,000
where the action is filed in Metro Manila. The first level courts thus have exclusive original
jurisdiction over accion publiciana and accion reivindicatoria where the assessed value of the real
property does not exceed the aforestated amounts. Accordingly, the jurisdictional element is the
assessed value of the property.

Assessed value is understood to be "the worth or value of property established by taxing

authorities on the basis of which the tax rate is applied. Commonly, however, it does not
represent the true or market value of the property."

The appellate court correctly ruled that even if the complaint filed with the RTC involves a
question of ownership, the MTC still has jurisdiction because the assessed value of the whole lot
as stated in Tax Declaration No. 09-0742 is ₱4,890.29 The MTC cannot be deprived of jurisdiction
over an ejectment case based merely on the assertion of ownership over the litigated property,
and the underlying reason for this rule is to prevent any party from trifling with the summary
nature of an ejectment suit.30

The general rule is that dismissal of a case for lack of jurisdiction may be raised at any stage of
the proceedings since jurisdiction is conferred by law. The lack of jurisdiction affects the very
authority of the court to take cognizance of and to render judgment on the action; otherwise,
the inevitable consequence would make the court’s decision a "lawless" thing.31 Since the RTC
has no jurisdiction over the complaint filed, all the proceedings as well as the Decision of 17
June 2002 are void. The complaint should perforce be dismissed.

WHEREFORE, we DENY the petition. We AFFIRM the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 78215.

SO ORDERED.

G.R. No. 129459 September 29, 1998

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,

vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:

May corporate treasurer, by herself and without any authorization from he board of directors,
validly sell a parcel of land owned by the corporation?. May the veil of corporate fiction be
pierced on the mere ground that almost all of the shares of stock of the corporation are owned
by said treasurer and her husband?

The Case

These questions are answered in the negative by this Court in resolving the Petition for Review
on Certiorari before us, assailing the March 18, 1997 Decision 1 of the Court of Appeals 2 in CA
GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court
6
of Makati, Metro Manila, Branch 633 in Civil Case No. 89-3511. The RTC dismissed both the
Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals
ruled:

WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH

MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or
return to plaintiff-appellant the downpayment of P100,000.00 which she received
from plaintiff-appellant. There is no pronouncement as to costs. 4

The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. 5

The Facts

The facts as found by the Court of Appeals are as follows:

Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended

complaint alleged that on 14 February 1989, plaintiff-appellant entered into an
agreement with defendant-appellee Motorich Sales Corporation for the transfer to it
of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens Subdivision
located in the District of Murphy, Quezon City. Metro Manila, containing an area of
Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876:
that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid
the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the
balance to be paid on or before March 2, 1989; that on March 1, 1989. Mr. Andres
T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-
appellee Motorich Sales Corporation requesting for a computation of the balance to
be paid: that said letter was coursed through defendant-appellee's broker. Linda
Aduca, who wrote the computation of the balance: that on March 2, 1989, plaintiff-
appellant was ready with the amount corresponding to the balance, covered by
Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich
Sales Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales
Corporation were supposed to meet in the office of plaintiff-appellant but
defendant-appellee's treasurer, Nenita Lee Gruenberg, did not appear; that
defendant-appellee Motorich Sales Corporation despite repeated demands and in
utter disregard of its commitments had refused to execute the Transfer of
Rights/Deed of Assignment which is necessary to transfer the certificate of title;
that defendant ACL Development Corp. is impleaded as a necessary party since
Transfer Certificate of Title No. (362909) 2876 is still in the name of said
defendant; while defendant JNM Realty & Development Corp. is likewise impleaded
as a necessary party in view of the fact that it is the transferor of right in favor of
defendant-appellee Motorich Sales Corporation: that on April 6, 1989, defendant
ACL Development Corporation and Motorich Sales Corporation entered into a Deed
of Absolute Sale whereby the former transferred to the latter the subject property;
that by reason of said transfer, the Registry of Deeds of Quezon City issued a new
title in the name of Motorich Sales Corporation, represented by defendant-appellee
Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of
Title No. 3571; that as a result of defendants-appellees Nenita Lee Gruenberg and
Motorich Sales Corporation's bad faith in refusing to execute a formal Transfer of
Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal damages
which may be assessed against defendants-appellees in the sum of Five Hundred
Thousand (500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee
Gruenberg and Motorich Sales Corporation's unjustified and unwarranted failure to
7
execute the required Transfer of Rights/Deed of Assignment or formal deed of sale
in favor of plaintiff-appellant, defendants-appellees should be assessed exemplary
damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by
reason of defendants-appellees' bad faith in refusing to execute a Transfer of
Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the
opportunity to construct a residential building in the sum of One Hundred Thousand
(P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita
Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a
deed of sale in favor of plaintiff-appellant, it has been constrained to obtain the
services of counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos
plus appearance fee for every appearance in court hearings.

In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee

Gruenberg interposed as affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to in par. 3 of the amended
complaint; that Mrs. Gruenberg's signature on the agreement (ref: par. 3 of
Amended Complaint) is inadequate to bind Motorich. The other signature, that of
Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required: that
plaintiff knew this from the very beginning as it was presented a copy of the
Transfer of Rights (Annex B of amended complaint) at the time the Agreement
(Annex B of amended complaint) was signed; that plaintiff-appellant itself drafted
the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest
money; that granting, without admitting, the enforceability of the agreement,
plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated
period (up to March 2, 1989); that it was the understanding between Mrs.
Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment
will be signed only upon receipt of cash payment; thus they agreed that if the
payment be in check, they will meet at a bank designated by plaintiff-appellant
where they will encash the check and sign the Transfer of Rights/Deed. However,
plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of the check,
by phone, only after banking hours.

On the basis of the evidence, the court a quo rendered the judgment appealed
from[,] dismissing plaintiff-appellant's complaint, ruling that:

The issue to be resolved is: whether plaintiff had the right to compel
defendants to execute a deed of absolute sale in accordance with the
agreement of February 14, 1989: and if so, whether plaintiff is entitled
to damage.

As to the first question, there is no evidence to show that defendant

Nenita Lee Gruenberg was indeed authorized by defendant
corporation. Motorich Sales, to dispose of that property covered by
T.C.T. No. (362909) 2876. Since the property is clearly owned by the
corporation. Motorich Sales, then its disposition should be governed by
the requirement laid down in Sec. 40. of the Corporation Code of the
Philippines, to wit:

Sec. 40, Sale or other disposition of assets. Subject to the

provisions of existing laws on illegal combination and
monopolies, a corporation may by a majority vote of its
board of directors . . . sell, lease, exchange, mortgage,
8
 pledge or otherwise dispose of all or substantially all of its
property and assets including its goodwill . . . when
authorized by the vote of the stockholders representing at
least two third (2/3) of the outstanding capital stock . . .

No such vote was obtained by defendant Nenita Lee Gruenberg for

that proposed sale[;] neither was there evidence to show that the
supposed transaction was ratified by the corporation. Plaintiff should
have been on the look out under these circumstances. More so,
plaintiff himself [owns] several corporations (tsn dated August 16,
1993, p. 3) which makes him knowledgeable on corporation matters.

Regarding the question of damages, the Court likewise, does not find
substantial evidence to hold defendant Nenita Lee Gruenberg liable
considering that she did not in anyway misrepresent herself to be
authorized by the corporation to sell the property to plaintiff (tsn dated
September 27, 1991, p. 8).

In the light of the foregoing, the Court hereby renders judgment

DISMISSING the complaint at instance for lack of merit.

"Defendants" counterclaim is also DISMISSED for lack of basis.

(Decision, pp. 7-8; Rollo, pp. 34-35)

For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:

AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into by and between:

MOTORICH SALES CORPORATION, a corporation duly organized and

existing under and by virtue of Philippine Laws, with principal office
address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar.
Makati, Metro Manila, represented herein by its Treasurer, NENITA LEE
GRUENBERG, hereinafter referred to as the TRANSFEROR;

— and —

SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly

organized and existing under and by virtue of the laws of the
Philippines, with principal office address at Sumulong Highway, Barrio
Mambungan, Antipolo, Rizal, represented herein by its President,
ANDRES T. CO, hereinafter referred to as the TRANSFEREE.

WITNESSETH, That:

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30

Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy,
Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414)

9
 SQUARE METERS, covered by a TRANSFER OF RIGHTS between JNM Realty & Dev.
Corp. as the Transferor and Motorich Sales Corp. as the Transferee;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties
have agreed as follows:

1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED

PESOS (P5,200.00) per square meter; subject to the following terms:

a. Earnest money amounting to ONE HUNDRED

THOUSAND PESOS (P100,000.00), will be paid upon the
execution of this agreement and shall form part of the
total purchase price;

b. Balance shall be payable on or before March 2, 1989;

2. That the monthly amortization for the month of February 1989 shall
be for the account of the Transferor; and that the monthly
amortization starting March 21, 1989 shall be for the account of the
Transferee;

The transferor warrants that he [sic] is the lawful owner of the above-described
property and that there [are] no existing liens and/or encumbrances of whatsoever
nature;

In case of failure by the Transferee to pay the balance on the date specified on 1,
(b), the earnest money shall be forfeited in favor of the Transferor.

That upon full payment of the balance, the TRANSFEROR agrees to execute a
TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of
February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.

MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS

TRANSFEROR TRANSFEREE

[SGD.] [SGD.]

By. NENITA LEE GRUENBERG By: ANDRES T. CO

Treasurer President

Signed In the presence of:

[SGD.] [SGD.]

————————————— ———————————6

In its recourse before the Court of Appeals, petitioner insisted:

10
 1. Appellant is entitled to compel the appellees to execute a Deed of
Absolute Sale in accordance with the Agreement of February 14, 1989,

2. Plaintiff is entitled to damages. 7

As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the
Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to
refund P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money."
Hence, this petition before us.8

The Issues

Before this Court, petitioner raises the following issues:

I. Whether or not the doctrine of piercing the veil of corporate fiction is

applicable in the instant case

II. Whether or not the appellate court may consider matters which the
parties failed to raise in the lower court

III. Whether or not there is a valid and enforceable contract between

the petitioner and the respondent corporation

IV. Whether or not the Court of Appeals erred in holding that there is a
valid correction/substitution of answer in the transcript of stenographic
note[s].

V. Whether or not respondents are liable for damages and attorney's

fees 9

The Court synthesized the foregoing and will thus discuss them seriatim as follows:

1. Was there a valid contract of sale between petitioner and Motorich?

2. May the doctrine of piercing the veil of corporate fiction be applied

to Motorich?

3. Is the alleged alteration of Gruenberg's testimony as recorded in the

transcript of stenographic notes material to the disposition of this
case?

4. Are respondents liable for damages and attorney's fees?

The Court's Ruling

The petition is devoid of merit.

First Issue: Validity of Agreement

Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it
entered through its president, Andres Co, into the disputed Agreement with Respondent
Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee
11
Gruenberg. Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the
contract they both consented to be bound by the terms thereof." Ergo, petitioner contends that
the contract is binding on the two corporations. We do not agree.

True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot
owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind
Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of its stockholders or members
and may not be sold by the stockholders or members without express authorization from the
corporation's board of directors. 10 Section 23 of BP 68, otherwise known as the Corporation
Code of the Philippines, provides;

Sec. 23. The Board of Directors or Trustees. — Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their successors are elected and
qualified.

Indubitably, a corporation may act only through its board of directors or, when authorized either
by its bylaws or by its board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of
law. 11 Thus, this Court has held that "a corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that the authority to do so has been
conferred upon him, and this includes powers which have been intentionally conferred, and also
such powers as, in the usual course of the particular business, are incidental to, or may be
implied from, the powers intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the corporation has
caused persons dealing with the officer or agent to believe that it has conferred." 12

Furthermore, the Court has also recognized the rule that "persons dealing with an assumed
agent, whether the assumed agency be a general or special one bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." 13 Unless duly authorized, a treasurer,
whose powers are limited, cannot bind the corporation in a sale of its assets. 14

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of land. 15 Consequently, petitioner had the
burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich
in the transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial
court contained no proof of such authority. 16 It has not shown any provision of said
respondent's articles of incorporation, bylaws or board resolution to prove that Nenita Gruenberg
possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the
responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner
cannot assume that she, by virtue of her position, was authorized to sell the property of the
12
corporation. Selling is obviously foreign to a corporate treasurer's function, which generally has
been described as "to receive and keep the funds of the corporation, and to disburse them in
accordance with the authority given him by the board or the properly authorized officers." 17

Neither was such real estate sale shown to be a normal business activity of Motorich. The
primary purpose of Motorich is marketing, distribution, export and import in relation to a general
merchandising business. 18 Unmistakably, its treasurer is not cloaked with actual or apparent
authority to buy or sell real property, an activity which falls way beyond the scope of her general
authority.

Art. 1874 and 1878 of the Civil Code of the Philippines provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing: otherwise, the sale shall be
void.

Art. 1878. Special powers of attorney are necessary in the following case:

xxx xxx xxx

(5) To enter any contract by which the ownership of an immovable is transmitted or

acquired either gratuitously or for a valuable consideration;

xxx xxx xxx.

Petitioner further contends that Respondent Motorich has ratified said contract of sale because of
its "acceptance of benefits," as evidenced by the receipt issued by Respondent
Gruenberg. 19 Petitioner is clutching at straws.

As a general rule, the acts of corporate officers within the scope of their authority are binding on
the corporation. But when these officers exceed their authority, their actions "cannot bind the
corporation, unless it has ratified such acts or is estopped from disclaiming them." 20

In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or
made it appear to any third person that she had the authority, to sell its land or to receive the
earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the
contract. Petitioner rests its argument on the receipt which, however, does not prove the fact of
ratification. The document is a hand-written one, not a corporate receipt, and it bears only
Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were
authorized or ratified by Motorich.

Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of
the contracting parties; (2) object certain which is the subject matter of the contract; (3) cause
of the obligation which is established." As found by the trial court 21 and affirmed by the Court of
Appeals, 22 there is no evidence that Gruenberg was authorized to enter into the contract of
sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is
binding on this Court. 23 As the consent of the seller was not obtained, no contract to bind the
obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and
Motorich.

Because Motorich had never given a written authorization to Respondent Gruenberg to sell its
parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with
13
petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified. 24

Second Issue:
Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because
the latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg
owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" 25 of
Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter into
the subject contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the
company can treated as a close corporation which can be bound by the acts of its principal
stockholder who needs no specific authority. The Court is not persuaded.

First, petitioner itself concedes having raised the issue belatedly, 27 not having done so during
the trial, but only when it filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court
cannot entertain said issue at this late stage of the proceedings. It is well-settled the points of
law, theories and arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time
on appeal. 29 Allowing petitioner to change horses in midstream, as it were, is to run roughshod
over the basic principles of fair play, justice and due process.

Second, even if the above mentioned argument were to be addressed at this time, the Court still
finds no reason to uphold it. True, one of the advantages of a corporate form of business
organization is the limitation of an investor's liability to the amount of the investment. 30 This
feature flows from the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil may be used only for
legitimate purposes. 31 On equitable considerations, the veil can be disregarded when it is
utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse
legitimate issues; or serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation. 32

Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of
perpetrating a fraud or an illegal act or as vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the corporation
from the members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals." 33

We stress that the corporate fiction should be set aside when it becomes a shield against liability
for fraud, illegality or inequity committed on third persons. The question of piercing the veil of
corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court
finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to
establish that said corporation was formed, or that it is operated, for the purpose of shielding
any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was
used to conceal fraud, illegality or inequity at the expense of third persons like petitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:

Sec. 96. Definition and Applicability of Title. — A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1) All of
14
 the corporation's issued stock of all classes, exclusive of treasury shares, shall be
held of record by not more than a specified number of persons, not exceeding
twenty (20); (2) All of the issued stock of all classes shall be subject to one or more
specified restrictions on transfer permitted by this Title; and (3) The corporation
shall not list in any stock exchange or make any public offering of any of its stock of
any class. Notwithstanding the foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is
owned or controlled by another corporation which is not a close corporation within
the meaning of this Code. . . . .

The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision
stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is
restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock
exchange or making a public offering of such stocks is prohibited. From its articles, it is clear
that Respondent Motorich is not a close corporation. 35 Motorich does not become one either,
just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital
stock. The "[m]ere ownership by a single stockholder or by another corporation of all or capital
stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personalities." 36 So, too, a narrow distribution of ownership does not, by itself, make a close
corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court ruled
that ". . . petitioner corporation is classified as a close corporation and, consequently, a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the
corporation for the action of its president." 38 But the factual milieu in Dulay is not on all fours
with the present case. In Dulay, the sale of real property was contracted by the president of a
close corporation with the knowledge and acquiescence of its board of directors. 39 In the
present case, Motorich is not a close corporation, as previously discussed, and the agreement
was entered into by the corporate treasurer without the knowledge of the board of directors.

The Court is not unaware that there are exceptional cases where "an action by a director, who
singly is the controlling stockholder, may be considered as a binding corporate act and a board
action as nothing more than a mere formality." 40 The present case, however, is not one of
them.

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of
Respondent Motorich. 41 Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply. Granting arguendo that the corporate veil of Motorich
is to be disregarded, the subject parcel of land would then be treated as conjugal property of
Spouses Gruenberg, because the same was acquired during their marriage. There being no
indication that said spouses, who appear to have been married before the effectivity of the
Family Code, have agreed to a different property regime, their property relations would be
governed by conjugal partnership of gains. 42 As a consequence, Nenita Gruenberg could not
have effected a sale of the subject lot because "[t]here is no co-ownership between the spouses
in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in
favor of another his or interest in the partnership or in any property belonging to it; neither
spouse can ask for a partition of the properties before the partnership has been legally
dissolved." 43

Assuming further, for the sake of argument, that the spouses' property regime is the absolute
community of property, the sale would still be invalid. Under this regime, "alienation of
community property must have the written consent of the other spouse or he authority of the
15
court without which the disposition or encumbrance is void." 44
Both requirements are manifestly
absent in the instant case.

Third Issue: Challenged Portion of TSN Immaterial

Petitioner calls our attention to the following excerpt of the transcript of stenographic notes
(TSN):

Q Did you ever represent to Mr. Co that you were authorized by the
corporation to sell the property?

A Yes, sir. 45

Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with
an initial scribbled above it. 46 This, however, is insufficient to prove that Nenita Gruenberg was
authorized to represent Respondent Motorich in the sale of its immovable property. Said excerpt
be understood in the context of her whole testimony. During her cross-examination. Respondent
Gruenberg testified:

Q So, you signed in your capacity as the treasurer?

[A] Yes, sir.

Q Even then you kn[e]w all along that you [were] not authorized?

A Yes, sir.

Q You stated on direct examination that you did not represent that you
were authorized to sell the property?

A Yes, sir.

Q But you also did not say that you were not authorized to sell the
property, you did not tell that to Mr. Co, is that correct?

A That was not asked of me.

Q Yes, just answer it.

A I just told them that I was the treasurer of the corporation and it
[was] also the president who [was] also authorized to sign on behalf of
the corporation.

Q You did not say that you were not authorized nor did you say that
you were authorized?

A Mr. Co was very interested to purchase the property and he offered

to put up a P100,000.00 earnest money at that time. That was our
first meeting. 47

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its
property. On the other hand, her testimony demonstrates that the president of Petitioner
16
Corporation, in his great desire to buy the property, threw caution to the wind by offering and
paying the earnest money without first verifying Gruenberg's authority to sell the lot.

Fourth Issue:
Damages and Attorney's Fees

Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of
malice and bad faith, respondents attempted and succeeded in impressing on the trial court and
[the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent
Motorich despite the receipt issued by the former specifically indicating that she was signing on
behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it
claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding,
[insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's
act." 48 Assuming that Respondent Motorich was not a party to the alleged fraud, petitioner
maintains that Respondent Gruenberg should be held liable because she "acted fraudulently and
in bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation." 49

As already stated, we sustain the findings of both the trial and the appellate courts that the
foregoing allegations lack factual bases. Hence, an award of damages or attorney's fees cannot
be justified. The amount paid as "earnest money" was not proven to have redounded to the
benefit of Respondent Motorich. Petitioner claims that said amount was deposited to the account
of Respondent Motorich, because "it was deposited with the account of Aren Commercial c/o
Motorich Sales Corporation." 50 Respondent Gruenberg, however, disputes the allegations of
petitioner. She testified as follows:

Q You voluntarily accepted the P100,000.00, as a matter of fact, that

was encashed, the check was encashed.

A Yes. sir, the check was paid in my name and I deposit[ed] it.

Q In your account?

A Yes, sir. 51

In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did
not push through." 52

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has
been the president of Petitioner Corporation for more than ten years and has also served as
chief executive of two other corporate entities. 53 Co cannot feign ignorance of the scope of the
authority of a corporate treasurer such as Gruenberg. Neither can he be oblivious to his duty to
ascertain the scope of Gruenberg's authorization to enter into a contract to sell a parcel of land
belonging to Motorich.

Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the
Court. Indubitably, petitioner appears to be the victim of its own officer's negligence in entering
into a contract with and paying an unauthorized officer of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to
return to petitioner the amount she received as earnest money, as "no one shall enrich himself
at the expense of another." 54 a principle embodied in Article 2154 of Civil Code. 55 Although
there was no binding relation between them, petitioner paid Gruenberg on the mistaken belief
17
that she had the authority to sell the property of Motorich. 56 Article 2155 of Civil Code provides
that "[p]ayment by reason of a mistake in the contruction or application of a difficult question of
law may come within the scope of the preceding article."

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.

SO ORDERED.

G.R. No. 156262 July 14, 2005

MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO

and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.

DECISION

PANGANIBAN, J.:

Stripped of nonessentials, the present case involves the collection of a sum of money.
Specifically, this case arose from the failure of petitioners to pay respondents’ predecessor-in-
interest. This fact was shown by the non-encashment of checks issued by a third person, but
indorsed by herein Petitioner Maria Tuazon in favor of the said predecessor. Under these
circumstances, to enable respondents to collect on the indebtedness, the check drawer need not
be impleaded in the Complaint. Thus, the suit is directed, not against the drawer, but against
the debtor who indorsed the checks in payment of the obligation.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the July 31,
2002 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the
assailed Decision reads:

"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."

On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court (RTC) of
Gapan, Nueva Ecija, disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as
follows:

"1. The sum of ₱1,750,050.00, with interests from the filing of the second amended complaint;

"2. The sum of ₱50,000.00, as attorney’s fees;

"3. The sum of ₱20,000.00, as moral damages

"4. And to pay the costs of suit.

x x x x x x x x x"4

18
The Facts

The facts are narrated by the CA as follows:

"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses
Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased
Bartolome] Ramos [predecessor-in-interest of respondents]. That of this [quantity,] x x x only
4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued at ₱1,211,919.00.
In payment therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks.

xxxxxxxxx

[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of
funds. [Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew
that they had no available fund to support the checks, and they failed to provide for the
payment of these despite repeated demands made on them.

"[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they
conspired with the other [defendants] to defraud them as creditors by executing x x x fictitious
sales of their properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x
x spouses Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all
located at Nueva Ecija, and another simulated deed of sale dated July 12, 1988 of a Stake
Toyota registered with the Land Transportation Office of Cabanatuan City on September 7, 1988.
[Co-petitioner] Melecio Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on
July 19, 1988 x x x over a residential lot located at Nueva Ecija. Another simulated sale of a
Toyota Willys was executed on January 25, 1988 in favor of their other son, [co-petitioner]
Alejandro Tuazon x x x. As a result of the said sales, the titles of these properties issued in the
names of spouses Tuazon were cancelled and new ones were issued in favor of the [co-
]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by the
said ante-dated and simulated sales and the corresponding transfers there was no more
property left registered in the names of spouses Tuazon answerable to creditors, to the damage
and prejudice of [respondents].

"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They
alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded the
merchandise and Maria Tuazon was merely her agent. They argued that it was Evangeline
Santos who was the buyer of the rice and issued the checks to Maria Tuazon as payments
therefor. In good faith[,] the checks were received [by petitioner] from Evangeline Santos and
turned over to Ramos without knowing that these were not funded. And it is for this reason that
[petitioners] have been insisting on the inclusion of Evangeline Santos as an indispensable party,
and her non-inclusion was a fatal error. Refuting that the sale of several properties were
fictitious or simulated, spouses Tuazon contended that these were sold because they were then
meeting financial difficulties but the disposals were made for value and in good faith and done
before the filing of the instant suit. To dispute the contention of plaintiffs that they were the
buyers of the rice, they argued that there was no sales invoice, official receipts or like evidence
to prove this. They assert that they were merely agents and should not be held answerable."5

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon.
Those cases were later consolidated and amended to include Spouses Anastacio and Mary
Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional defendants. Having
passed away before the pretrial, Bartolome Ramos was substituted by his heirs, herein
respondents.
19
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to
file a third-party complaint against her. Allegedly, she was primarily liable to respondents,
because she was the one who had purchased the merchandise from their predecessor, as
evidenced by the fact that the checks had been drawn in her name. The RTC, however, denied
petitioners’ Motion.

Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they
appealed only its decision finding them civilly liable to respondents.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency
between respondents and Spouses Tuazon. The appellate court disbelieved petitioners’
contention that Evangeline Santos should have been impleaded as an indispensable party.
Inasmuch as all the checks had been indorsed by Maria Tuazon, who thereby became liable to
subsequent holders for the amounts stated in those checks, there was no need to implead
Santos.

Hence, this Petition.6

Issues

Petitioners raise the following issues for our consideration:

"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents
of the respondents.

"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the
petitioners despite x x x the failure of the respondents to include in their action Evangeline
Santos, an indispensable party to the suit."7

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Agency

Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial
court, especially when affirmed by the CA, are conclusive on the parties and this
Court.8 Petitioners have not given us sufficient reasons to deviate from this rule.

In a contract of agency, one binds oneself to render some service or to do something in

representation or on behalf of another, with the latter’s consent or authority.9 The following are
the elements of agency: (1) the parties’ consent, express or implied, to establish the
relationship; (2) the object, which is the execution of a juridical act in relation to a third person;
(3) the representation, by which the one who acts as an agent does so, not for oneself, but as a
representative; (4) the limitation that the agent acts within the scope of his or her
authority.10 As the basis of agency is representation, there must be, on the part of the principal,
an actual intention to appoint, an intention naturally inferable from the principal’s words or
20
actions. In the same manner, there must be an intention on the part of the agent to accept the
appointment and act upon it. Absent such mutual intent, there is generally no agency.11

This Court finds no reversible error in the findings of the courts a quo that petitioners were the
rice buyers themselves; they were not mere agents of respondents in their rice dealership. The
question of whether a contract is one of sale or of agency depends on the intention of the
parties.12

The declarations of agents alone are generally insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of agency; proving its existence, nature and extent
is incumbent upon the person alleging it.14 In the present case, petitioners raise the fact of
agency as an affirmative defense, yet fail to prove its existence.

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of
the amounts represented by the bounced checks, in a separate civil case that they sought to be
consolidated with the current one. If, as they claim, they were mere agents of respondents,
petitioners should have brought the suit against Santos for and on behalf of their alleged
principal, in accordance with Section 2 of Rule 3 of the Rules on Civil Procedure.15 Their filing a
suit against her in their own names negates their claim that they acted as mere agents in selling
the rice obtained from Bartolome Ramos.

Second Issue:

Indispensable Party

Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded
as an indispensable party. They insist that respondents’ Complaint against them is based on the
bouncing checks she issued; hence, they point to her as the person primarily liable for the
obligation.

We hold that respondents’ cause of action is clearly founded on petitioners’ failure to pay the
purchase price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the
questioned checks in favor of respondents, in accordance with Sections 31 and 63 of the
Negotiable Instruments Law.16 That Santos was the drawer of the checks is thus immaterial to
the respondents’ cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to
be accepted or paid, or both, according to their tenor; and that in case they were dishonored,
she would pay the corresponding amount.17 After an instrument is dishonored by nonpayment,
indorsers cease to be merely secondarily liable; they become principal debtors whose liability
becomes identical to that of the original obligor. The holder of a negotiable instrument need not
even proceed against the maker before suing the indorser.18 Clearly, Evangeline Santos -- as the
drawer of the checks -- is not an indispensable party in an action against Maria Tuazon, the
indorser of the checks.

Indispensable parties are defined as "parties in interest without whom no final determination can
be had."19 The instant case was originally one for the collection of the purchase price of the rice
bought by Maria Tuazon from respondents’ predecessor. In this case, it is clear that there is no
privity of contract between respondents and Santos. Hence, a final determination of the rights
and interest of the parties may be made without any need to implead her.

21
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.

SO ORDERED.

G.R. No. 151319 November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,

vs.
PEDRO L. LINSANGAN, respondent.

DECISION

TINGA, J.:

For resolution in this case is a classic and interesting texbook question in the law on agency.

This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June 2001,
and its Resolution2 dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L.
Linsangan v. Manila Memorial Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery,
Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to respondent Atty. Pedro L.
Linsangan.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State
at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former
owner of a memorial lot under Contract No. 25012 was no longer interested in acquiring the lot
and had opted to sell his rights subject to reimbursement of the amounts he already paid. The
contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is
made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and
gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer and to
complete the down payment to MMPCI.3 Baluyot issued handwritten and typewritten receipts for
these payments.4

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract
No. 28660, a new contract covering the subject lot in the name of the latter instead of old
Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that he would still be
paying the old price of P95,000.00 with P19,838.00 credited as full down payment leaving a
balance of about P75,000.00.5

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83,
Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6
April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00.
Atty. Linsangan objected to the new contract price, as the same was not the amount previously
agreed upon. To convince Atty. Linsangan, Baluyot executed a document6 confirming that while
22
the contract price is P132,250.00, Atty. Linsangan would pay only the original price of
P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the
difference will be issued as discounted to conform to the previous price as previously
agreed upon. --- P95,000.00

Prepared by:

(Signed)

(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

This will confirm our agreement that while the offer to purchase under Contract No. 28660
states that the total price of P132,250.00 your undertaking is to pay only the total sum of
P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you
under O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price
thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including
interests (sic) charges for a period of five (5) years.

(Signed)

FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt
No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of
P1,800.00 each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again
issued twelve (12) postdated checks in favor of MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was
cancelled for reasons the latter could not explain, and presented to him another proposal for the
purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and
MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan
filed a Complaint7 for Breach of Contract and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was
cancelled conformably with the terms of the contract8 because of non-payment of
arrearages.9 MMPCI stated that Baluyot was not an agent but an independent contractor, and as
such was not authorized to represent MMPCI or to use its name except as to the extent
expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI was not aware of the
arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down
23
payment and monthly installments as indicated in the contract.11 Official receipts showing the
application of payment were turned over to Baluyot whom Atty. Linsangan had from the
beginning allowed to receive the same in his behalf. Furthermore, whatever misimpression that
Atty. Linsangan may have had must have been rectified by the Account Updating Arrangement
signed by Atty. Linsangan which states that he "expressly admits that Contract No. 28660 'on
account of serious delinquency…is now due for cancellation under its terms and conditions.'''12

The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot was an
agent of MMPCI and that the latter was estopped from denying this agency, having received and
enchased the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted
that Baluyot was authorized to receive only the down payment, it allowed her to continue to
receive postdated checks from Atty. Linsangan, which it in turn consistently encashed.14

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of

plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendants to
perform their undertakings thereof which covers burial lot No. A11 (15), Block 83, Section
Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. All payments
made by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO
ATTORNEY'S FEES but with costs against the defendants.

The cross claim of defendant Manila Memorial Cemetery Incorporated as against

defendant Baluyot is GRANTED up to the extent of the costs.

SO ORDERED.15

MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty.
Linsangan is bound by the written contract with MMPCI, the terms of which were clearly set forth
therein and read, understood, and signed by the former.17 It also alleged that Atty. Linsangan, a
practicing lawyer for over thirteen (13) years at the time he entered into the contract, is
presumed to know his contractual obligations and is fully aware that he cannot belatedly and
unilaterally change the terms of the contract without the consent, much less the knowledge of
the other contracting party, which was MMPCI. And in this case, MMPCI did not agree to a
change in the contract and in fact implemented the same pursuant to its clear terms. In view
thereof, because of Atty. Linsangan's delinquency, MMPCI validly cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter
exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It added that it
cannot be charged with making any misrepresentation, nor of having allowed Baluyot to act as
though she had full powers as the written contract expressly stated the terms and conditions
which Atty. Linsangan accepted and understood. In canceling the contract, MMPCI merely
enforced the terms and conditions imposed therein.18

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's
obligation, as a party knowingly dealing with an alleged agent, to determine the limitations of
such agent's authority, particularly when such alleged agent's actions were patently
questionable. According to MMPCI, Atty. Linsangan did not even bother to verify Baluyot's
authority or ask copies of official receipts for his payments.19

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding
that Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having
24
represented MMPCI's interest and acting on its behalf in the dealings with clients and customers.
Hence, MMPCI is considered estopped when it allowed Baluyot to act and represent MMPCI even
beyond her authority.20 The appellate court likewise found that the acts of Baluyot bound MMPCI
when the latter allowed the former to act for and in its behalf and stead. While Baluyot's
authority "may not have been expressly conferred upon her, the same may have been derived
impliedly by habit or custom, which may have been an accepted practice in the company for a
long period of time."21 Thus, the Court of Appeals noted, innocent third persons such as Atty.
Linsangan should not be prejudiced where the principal failed to adopt the needed measures to
prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the
principal accepts the benefits of such misrepresentation, he cannot at the same time deny
responsibility for such misrepresentation.22 Finally, the Court of Appeals declared:

There being absolutely nothing on the record that would show that the court a quo overlooked,
disregarded, or misinterpreted facts of weight and significance, its factual findings and
conclusions must be given great weight and should not be disturbed by this Court on appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed
decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial
Region, Branch 57 of Makati, is hereby AFFIRMED in toto.

SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25

In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract and Atty. Linsangan's failure to abide by the
terms thereof, which justified its cancellation. In addition, even assuming that Baluyot was an
agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan knew or should have
known about this considering his status as a long-practicing lawyer. MMPCI likewise claims that
the Court of Appeals erred in failing to consider that the facts and the applicable law do not
support a judgment against Baluyot only "up to the extent of costs."26

Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in
fact faithfully performed his contractual obligations and complied with them in good faith for at
least two years.27 He claims that contrary to MMPCI's position, his profession as a lawyer is
immaterial to the validity of the subject contract and the case at bar.28 According to him, MMPCI
had practically admitted in its Petition that Baluyot was its agent, and thus, the only issue left to
be resolved is whether MMPCI allowed Baluyot to act as though she had full powers to be held
solidarily liable with the latter.29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court
is limited to reviewing only errors of law, not fact, unless the factual findings complained of are
devoid of support by the evidence on record or the assailed judgment is based on
misapprehension of facts.30 In BPI Investment Corporation v. D.G. Carreon Commercial
Corporation,31 this Court ruled:

There are instances when the findings of fact of the trial court and/or Court of Appeals
may be reviewed by the Supreme Court, such as (1) when the conclusion is a finding
grounded entirely on speculation, surmises and conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of
25
 discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the petitioners'
main and reply briefs are not disputed by the respondents; and (10) the findings of fact of
the Court of Appeals are premised on the supposed absence of evidence and contradicted
by the evidence on record.32

In the case at bar, the Court of Appeals committed several errors in the apprehension of the
facts of the case, as well as made conclusions devoid of evidentiary support, hence we review its
findings of fact.

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.33 Thus, the
elements of agency are (i) consent, express or implied, of the parties to establish the
relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii) the
agent acts as a representative and not for himself; and (iv) the agent acts within the scope of
his authority.34

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as Baluyot is considered an independent
contractor and not an agent.35 However, in the same contract, Baluyot as agency manager was
authorized to solicit and remit to MMPCI offers to purchase interment spaces belonging to and
sold by the latter.36 Notwithstanding the claim of MMPCI that Baluyot was an independent
contractor, the fact remains that she was authorized to solicit solely for and in behalf of MMPCI.
As properly found both by the trial court and the Court of Appeals, Baluyot was an agent of
MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to
represent it in her dealings with its clients/prospective buyers.

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the
contract procured by Atty. Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces
obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are
contained in such forms and, when signed by the buyer and an authorized officer of MMPCI,
becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI
showed a total list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser
agrees that he has read or has had read to him this agreement, that he understands its terms
and conditions, and that there are no covenants, conditions, warranties or representations other
than those contained herein."37 By signing the Offer to Purchase, Atty. Linsangan signified that
he understood its contents. That he and Baluyot had an agreement different from that contained
in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously made
outside Baluyot's authority. To repeat, Baluyot's authority was limited only to soliciting
purchasers. She had no authority to alter the terms of the written contract provided by MMPCI.
The document/letter "confirming" the agreement that Atty. Linsangan would have to pay the old
price was executed by Baluyot alone. Nowhere is there any indication that the same came from
MMPCI or any of its officers.

26
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold
the principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to establish
it.38 The basis for agency is representation and a person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent.39 If he does not make such
an inquiry, he is chargeable with knowledge of the agent's authority and his ignorance of that
authority will not be any excuse.40

As noted by one author, the ignorance of a person dealing with an agent as to the scope of the
latter's authority is no excuse to such person and the fault cannot be thrown upon the
principal.41 A person dealing with an agent assumes the risk of lack of authority in the agent. He
cannot charge the principal by relying upon the agent's assumption of authority that proves to
be unfounded. The principal, on the other hand, may act on the presumption that third persons
dealing with his agent will not be negligent in failing to ascertain the extent of his authority as
well as the existence of his agency.42

In the instant case, it has not been established that Atty. Linsangan even bothered to inquire
whether Baluyot was authorized to agree to terms contrary to those indicated in the written
contract, much less bind MMPCI by her commitment with respect to such agreements. Even if
Baluyot was Atty. Linsangan's friend and known to be an agent of MMPCI, her declarations and
actions alone are not sufficient to establish the fact or extent of her authority.43 Atty. Linsangan
as a practicing lawyer for a relatively long period of time when he signed the contract should
have been put on guard when their agreement was not reflected in the contract. More
importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to effect
the transfer of rights earlier promised, and was unable to make good her written commitment,
nor convince MMPCI to assent thereto, as evidenced by several attempts to induce him to enter
into other contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a
greater degree of caution should be expected of Atty. Linsangan especially in dealings involving
legal documents. He did not even bother to ask for official receipts of his payments, nor inquire
from MMPCI directly to ascertain the real status of the contract, blindly relying on the
representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed
the written contract, knew the meaning and value of every word or phrase used in the contract,
and more importantly, knew the legal effects which said document produced. He is bound to
accept responsibility for his negligence.

The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial
court, MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as
allowing Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract
of agency. On the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures
to prevent misrepresentation, and declared that in view of MMPCI's acceptance of the benefits of
Baluyot's misrepresentation, it can no longer deny responsibility therefor.

The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the principal.
In this case, however, the agent is liable if he undertook to secure the principal's
ratification.

Art. 1910. The principal must comply with all the obligations that the agent may have
contracted within the scope of his authority.
27
 As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers.

Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he
ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his
own unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify.44

Ratification in agency is the adoption or confirmation by one person of an act performed on his
behalf by another without authority. The substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. Ordinarily, the principal must have full
knowledge at the time of ratification of all the material facts and circumstances relating to the
unauthorized act of the person who assumed to act as agent. Thus, if material facts were
suppressed or unknown, there can be no valid ratification and this regardless of the purpose or
lack thereof in concealing such facts and regardless of the parties between whom the question of
ratification may arise.45 Nevertheless, this principle does not apply if the principal's ignorance of
the material facts and circumstances was willful, or that the principal chooses to act in ignorance
of the facts.46 However, in the absence of circumstances putting a reasonably prudent man on
inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.47

No ratification can be implied in the instant case.

A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty.
Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to
shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as
indicated in the contract. Thus, every time an installment falls due, payment was to be made
through a check from Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from
Baluyot.49 However, it appears that while Atty. Linsangan issued the post-dated checks, Baluyot
failed to come up with her part of the bargain. This was supported by Baluyot's statements in
her letter50 to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the
copy of the Complaint. In the letter, she admitted that she was remiss in her duties when she
consented to Atty. Linsangan's proposal that he will pay the old price while the difference will be
shouldered by her. She likewise admitted that the contract suffered arrearages because while
Atty. Linsangan issued the agreed checks, she was unable to give her share of P1,455.00 due to
her own financial difficulties. Baluyot even asked for compassion from MMPCI for the error she
committed.

Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI
is concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by
Atty. Linsangan and MMPCI's authorized officer. The down payment of P19,838.00 given by Atty.
Linsangan was in accordance with the contract as well. Payments of P3,235.00 for at least two
installments were likewise in accord with the contract, albeit made through a check and partly in
cash. In view of Baluyot's failure to give her share in the payment, MMPCI received only
P1,800.00 checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have
incurred arrearages that could have caused the earlier cancellation of the contract, if not for
MMPCI's application of some of the checks to his account. However, the checks alone were not
sufficient to cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter's check payments for
being insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the
28
fact that Baluyot had to practically explain to MMPCI's Sales Manager the details of her
"arrangement" with Atty. Linsangan and admit to having made an error in entering such
arrangement confirm that MMCPI had no knowledge of the said agreement. It was only when
Baluyot filed her Answer that she claimed that MMCPI was fully aware of the agreement.

Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct
of a party amounting to false representation or concealment of material facts or at least
calculated to convey the impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; (ii) intent, or at least expectation, that
this conduct shall be acted upon by, or at least influence, the other party; and (iii) knowledge,
actual or constructive, of the real facts.51

While there is no more question as to the agency relationship between Baluyot and MMPCI, there
is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot
had the authority to alter the standard contracts of the company. Neither is there any showing
that prior to signing Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to
Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he has been
misled by the representations of another must not have been misled through his own want of
reasonable care and circumspection.52 Even assuming that Atty. Linsangan was misled by
MMPCI's actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent
in his dealings with Baluyot, and could have easily determined, had he only been cautious and
prudent, whether said agent was clothed with the authority to change the terms of the
principal's written contract. Estoppel must be intentional and unequivocal, for when misapplied,
it can easily become a most convenient and effective means of injustice.53 In view of the lack of
sufficient proof showing estoppel, we refuse to hold MMPCI liable on this score.

Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of
defendant Baluyot may not have been expressly conferred upon her; however, the same may
have been derived impliedly by habit or custom which may have been an accepted practice in
their company in a long period of time." A perusal of the records of the case fails to show any
indication that there was such a habit or custom in MMPCI that allows its agents to enter into
agreements for lower prices of its interment spaces, nor to assume a portion of the purchase
price of the interment spaces sold at such lower price. No evidence was ever presented to this
effect.

As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's
cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to
shoulder the amount P1,455.00, or the difference between P95,000.00, the original price, and
P132,250.00, the actual contract price.

To repeat, the acts of the agent beyond the scope of his authority do not bind the principal
unless the latter ratifies the same. It also bears emphasis that when the third person knows that
the agent was acting beyond his power or authority, the principal cannot be held liable for the
acts of the agent. If the said third person was aware of such limits of authority, he is to blame
and is not entitled to recover damages from the agent, unless the latter undertook to secure the
principal's ratification.54

This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty.
Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and
conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely
enforced its rights under the said contract by canceling the same.
29
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims
to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price
is concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot
liable for damages under the same contract, since there is no evidence showing that Baluyot
undertook to secure MMPCI's ratification. At best, the "agreement" between Baluyot and Atty.
Linsangan bound only the two of them. As far as MMPCI is concerned, it bound itself to sell its
interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact
received several payments in accordance with the same contract. If the contract was cancelled
due to arrearages, Atty. Linsangan's recourse should only be against Baluyot who personally
undertook to pay the difference between the true contract price of P132,250.00 and the original
proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she
promised to shoulder the said difference would be to conclude that MMPCI undertook to pay
itself the difference, a conclusion that is very illogical, if not antithetical to its business interests.

However, this does not preclude Atty. Linsangan from instituting a separate action to recover
damages from Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their
separate agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty.
Linsangan's P1,800.00 to complete the monthly installment payment under the contract, which,
by her own admission, she was unable to do due to personal financial difficulties. It is
undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for
Baluyot's failure to provide the balance, Contract No. 28660 would not have been cancelled.
Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in another
case.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22
June 2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the
Decision in Civil Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby
REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of
cause of action. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-57339 December 29, 1983

AIR FRANCE, petitioner,

vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON
GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA,
CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.

Benjamin S. Valte for petitioner.

Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J.:

In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then
respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R,
entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's

30
judgment dismissing the Complaint of private respondents for damages arising from breach of
contract of carriage, and awarding instead P90,000.00 as moral damages.

Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the
GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized
travel agent, nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route.
The GANAS paid a total of US$2,528.85 for their economy and first class fares. Said tickets were
bought at the then prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid travel
taxes of P100.00 for each passenger.

On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other
tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka segment
on AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE
Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written
under the printed words "Non valuable apres de (meaning, "not valid after the").

The GANAS did not depart on 8 May 1970.

Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary
of the Sta. Clara Lumber Company where Jose Gana was the Director and Treasurer, for the
extension of the validity of their tickets, which were due to expire on 8 May 1971. Teresita
enlisted the help of Lee Ella Manager of the Philippine Travel Bureau, who used to handle travel
arrangements for the personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar
Rillo, Office Manager of AIR FRANCE. The tickets were returned to Ella who was informed that
extension was not possible unless the fare differentials resulting from the increase in fares
triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the
increased travel tax were first paid. Ella then returned the tickets to Teresita and informed her of
the impossibility of extension.

In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before
the expiry date. In the morning of the very day of their scheduled departure on the first leg of
their trip, Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave
the same negative answer and warned her that although the tickets could be used by the GANAS
if they left on 7 May 1971, the tickets would no longer be valid for the rest of their trip because
the tickets would then have expired on 8 May 1971. Teresita replied that it will be up to the
GANAS to make the arrangements. With that assurance, Ella on his own, attached to the tickets
validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS
(Scandinavian Airways System) sticker. The SAS sticker indicates thereon that it was
"Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown by a circular rubber
stamp) and signed "Ador", and the date is handwritten in the center of the circle. Then appear
under printed headings the notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status).
Apparently, Ella made no more attempt to contact AIR FRANCE as there was no more time.

Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971
on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg
of the trip.

However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets
because of their expiration, and the GANAS had to purchase new tickets. They encountered the
same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor
their tickets. They were able to return only after pre-payment in Manila, through their relatives,

31
of the readjusted rates. They finally flew back to Manila on separate Air France Frights on 19
May 1971 for Jose Gana and 26 May 1971 for the rest of the family.

On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila,
Branch III, Civil Case No. 84111 for damages arising from breach of contract of carriage.

AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS
brought upon themselves the predicament they found themselves in and assumed the
consequential risks; that travel agent Ella's affixing of validating stickers on the tickets without
the knowledge and consent of AIR FRANCE, violated airline tariff rules and regulations and was
beyond the scope of his authority as a travel agent; and that AIR FRANCE was not guilty of any
fraudulent conduct or bad faith.

On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional
Stipulations of Fact as wen as on the documentary and testimonial evidence.

The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose
Gana, the principal plaintiff, died.

On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's
judgment in a Decision, which decreed:

WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered
to pay appellants moral damages in the total sum of NINETY THOUSAND PESOS
(P90,000.00) plus costs.

SO ORDERED. 2

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this
instance, to which we gave due course.

The crucial issue is whether or not, under the environmental milieu the GANAS have made out a
case for breach of contract of carriage entitling them to an award of damages.

We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.

Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA),
included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial
Court, dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must
undertake the final portion of his journey by departing from the last point at which he has made
a voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a
passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be
used for travel if its validity has expired before the passenger completes his trip (parag. 3.5.1.)
... To complete the trip, the passenger must purchase a new ticket for the remaining portion of
the journey" (ibid.) 3

From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract
when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on
said date; nor when it required the GANAS to buy new tickets or have their tickets re-issued for
the Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the new
tickets, it imposed additional charges representing fare differentials, it was motivated by self-
interest or unjust enrichment considering that an increase of fares took effect, as authorized by
32
the Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in accord with the IATA
tariff rules which provide:

6. TARIFF RULES

7. APPLICABLE FARE ON THE DATE OF DEPARTURE

3.1 General Rule.

All journeys must be charged for at the fare (or charge) in effect on the date on
which transportation commences from the point of origin. Any ticket sold prior to a
change of fare or charge (increase or decrease) occurring between the date of
commencement of the journey, is subject to the above general rule and must be
adjusted accordingly. A new ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is necessary if the
increase or decrease in fare (or charge) occurs when the journey is already
commenced. 4

The GANAS cannot defend by contending lack of knowledge of those rules since the evidence
bears out that Teresita, who handled travel arrangements for the GANAS, was duly informed by
travel agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in
question could not be extended beyond the period of their validity without paying the fare
differentials and additional travel taxes brought about by the increased fare rate and travel
taxes.

ATTY. VALTE

Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr.
Rillo?

A I told her, because that is the reason why they accepted again the
tickets when we returned the tickets spin, that they could not be
extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.

Q You said so to Mrs. Manucdoc?

A Yes, sir." ... 5

The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65
SCRA 237 (1975), holding that it would be unfair to charge respondents therein with automatic
knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all legal intents
and purposes, Teresita was the agent of the GANAS and notice to her of the rejection of the
request for extension of the validity of the tickets was notice to the GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for
JAL. Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly because
of the imminent departure of the GANAS on the same day so that he could not get in touch with
Air France 6 was certainly in contravention of IATA rules although as he had explained, he did so
upon Teresita's assurance that for the onward flight from Osaka and return, the GANAS would
make other arrangements.

33
 Q Referring you to page 33 of the transcript of the last session, I had
this question which reads as follows: 'But did she say anything to you
when you said that the tickets were about to expire?' Your answer
was: 'I am the one who asked her. At that time I told her if the tickets
being used ... I was telling her what about their bookings on the
return. What about their travel on the return? She told me it is up for
the Ganas to make the arrangement.' May I know from you what did
you mean by this testimony of yours?

A That was on the day when they were asking me on May 7, 1971
when they were checking the tickets. I told Mrs. Manucdoc that I was
going to get the tickets. I asked her what about the tickets onward
from the return from Tokyo, and her answer was it is up for the Ganas
to make the arrangement, because I told her that they could leave on
the seventh, but they could take care of that when they arrived in
Osaka.

Q What do you mean?

A The Ganas will make the arrangement from Osaka, Tokyo and
Manila.

Q What arrangement?

A The arrangement for the airline because the tickets would expire on
May 7, and they insisted on leaving. I asked Mrs. Manucdoc what
about the return onward portion because they would be travelling to
Osaka, and her answer was, it is up to for the Ganas to make the
arrangement.

Q Exactly what were the words of Mrs. Manucdoc when you told her
that? If you can remember, what were her exact words?

A Her words only, it is up for the Ganas to make the arrangement.

Q This was in Tagalog or in English?

A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the
GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular
actuations. It should be recalled that the GANAS left in Manila the day before the expiry date of
their tickets and that "other arrangements" were to be made with respect to the remaining
segments. Besides, the validating stickers that Ella affixed on his own merely reflect the status
of reservations on the specified flight and could not legally serve to extend the validity of a ticket
or revive an expired one.

The conclusion is inevitable that the GANAS brought upon themselves the predicament they
were in for having insisted on using tickets that were due to expire in an effort, perhaps, to beat
the deadline and in the thought that by commencing the trip the day before the expiry date,
they could complete the trip even thereafter. It should be recalled that AIR FRANCE was even
unaware of the validating SAS and JAL. stickers that Ella had affixed spuriously. Consequently,
34
Japan Air Lines and AIR FRANCE merely acted within their contractual rights when they
dishonored the tickets on the remaining segments of the trip and when AIR FRANCE demanded
payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight.

WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended
Complaint filed by private respondents hereby dismissed.

No costs.

SO ORDERED.

G.R. No. 161757 January 25, 2006

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S.
DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon City
and DIVINA A. MONTEHERMOZO, Respondents.

DECISION

CARPIO MORALES, J.:

Petitioner, Sunace International Management Services (Sunace), a corporation duly organized

and existing under the laws of the Philippines, deployed to Taiwan Divina A. Montehermozo
(Divina) as a domestic helper under a 12-month contract effective February 1, 1997.1 The
deployment was with the assistance of a Taiwanese broker, Edmund Wang, President of Jet
Crown International Co., Ltd.

After her 12-month contract expired on February 1, 1998, Divina continued working for her
Taiwanese employer, Hang Rui Xiong, for two more years, after which she returned to the
Philippines on February 4, 2000.

Shortly after her return or on February 14, 2000, Divina filed a complaint2 before the National
Labor Relations Commission (NLRC) against Sunace, one Adelaide Perez, the Taiwanese broker,
and the employer-foreign principal alleging that she was jailed for three months and that she
was underpaid.

The following day or on February 15, 2000, Labor Arbitration Associate Regina T. Gavin issued
Summons3 to the Manager of Sunace, furnishing it with a copy of Divina’s complaint and
directing it to appear for mandatory conference on February 28, 2000.

The scheduled mandatory conference was reset. It appears to have been concluded, however.

On April 6, 2000, Divina filed her Position Paper4 claiming that under her original one-year
contract and the 2-year extended contract which was with the knowledge and consent of
Sunace, the following amounts representing income tax and savings were deducted:

Year Deduction for Income Tax Deduction for Savings

1997 NT10,450.00 NT23,100.00
1998 NT9,500.00 NT36,000.00

35
 1999 NT13,300.00 NT36,000.00;5

and while the amounts deducted in 1997 were refunded to her, those deducted in 1998 and
1999 were not. On even date, Sunace, by its Proprietor/General Manager Maria Luisa Olarte,
filed its Verified Answer and Position Paper,6 claiming as follows, quoted verbatim:

COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS SAVINGS

3. Complainant could not anymore claim nor entitled for the refund of her 24 months savings as
she already took back her saving already last year and the employer did not deduct any money
from her salary, in accordance with a Fascimile Message from the respondent SUNACE’s
employer, Jet Crown International Co. Ltd., a xerographic copy of which is herewith attached
as ANNEX "2" hereof;

COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX AND PAYMENT

OF ATTORNEY’S FEES

4. There is no basis for the grant of tax refund to the complainant as the she finished her one
year contract and hence, was not illegally dismissed by her employer. She could only lay claim
over the tax refund or much more be awarded of damages such as attorney’s fees as said reliefs
are available only when the dismissal of a migrant worker is without just valid or lawful cause as
defined by law or contract.

The rationales behind the award of tax refund and payment of attorney’s fees is not to enrich the
complainant but to compensate him for actual injury suffered. Complainant did not suffer injury,
hence, does not deserve to be compensated for whatever kind of damages.

Hence, the complainant has NO cause of action against respondent SUNACE for monetary
claims, considering that she has been totally paid of all the monetary benefits due her under her
Employment Contract to her full satisfaction.

6. Furthermore, the tax deducted from her salary is in compliance with the Taiwanese law, which
respondent SUNACE has no control and complainant has to obey and this Honorable Office has
no authority/jurisdiction to intervene because the power to tax is a sovereign power which the
Taiwanese Government is supreme in its own territory. The sovereign power of taxation of a
state is recognized under international law and among sovereign states.

7. That respondent SUNACE respectfully reserves the right to file supplemental Verified Answer
and/or Position Paper to substantiate its prayer for the dismissal of the above case against the
herein respondent. AND BY WAY OF -

x x x x (Emphasis and underscoring supplied)

Reacting to Divina’s Position Paper, Sunace filed on April 25, 2000 an ". . . answer to
complainant’s position paper"7 alleging that Divina’s 2-year extension of her contract was
without its knowledge and consent, hence, it had no liability attaching to any claim arising
therefrom, and Divina in fact executed a Waiver/Quitclaim and Release of Responsibility and an
Affidavit of Desistance, copy of each document was annexed to said ". . . answer to
complainant’s position paper."

36
To Sunace’s ". . . answer to complainant’s position paper," Divina filed a 2-page reply,8 without,
however, refuting Sunace’s disclaimer of knowledge of the extension of her contract and without
saying anything about the Release, Waiver and Quitclaim and Affidavit of Desistance.

The Labor Arbiter, rejected Sunace’s claim that the extension of Divina’s contract for two more
years was without its knowledge and consent in this wise:

We reject Sunace’s submission that it should not be held responsible for the amount withheld
because her contract was extended for 2 more years without its knowledge and consent
because as Annex "B"9 shows, Sunace and Edmund Wang have not stopped communicating with
each other and yet the matter of the contract’s extension and Sunace’s alleged non-consent
thereto has not been categorically established.

What Sunace should have done was to write to POEA about the extension and its objection
thereto, copy furnished the complainant herself, her foreign employer, Hang Rui Xiong and the
Taiwanese broker, Edmund Wang.

And because it did not, it is presumed to have consented to the extension and should be liable
for anything that resulted thereform (sic).10 (Underscoring supplied)

The Labor Arbiter rejected too Sunace’s argument that it is not liable on account of Divina’s
execution of a Waiver and Quitclaim and an Affidavit of Desistance. Observed the Labor Arbiter:

Should the parties arrive at any agreement as to the whole or any part of the dispute, the same
shall be reduced to writing and signed by the parties and their respective counsel (sic), if any,
before the Labor Arbiter.

The settlement shall be approved by the Labor Arbiter after being satisfied that it was voluntarily
entered into by the parties and after having explained to them the terms and consequences
thereof.

A compromise agreement entered into by the parties not in the presence of the Labor Arbiter
before whom the case is pending shall be approved by him, if after confronting the parties,
particularly the complainants, he is satisfied that they understand the terms and conditions of
the settlement and that it was entered into freely voluntarily (sic) by them and the agreement is
not contrary to law, morals, and public policy.

And because no consideration is indicated in the documents, we strike them down as contrary to
law, morals, and public policy.11

He accordingly decided in favor of Divina, by decision of October 9, 2000,12 the dispositive

portion of which reads:

Wherefore, judgment is hereby rendered ordering respondents SUNACE INTERNATIONAL

SERVICES and its owner ADELAIDA PERGE, both in their personal capacities and as agent of
Hang Rui Xiong/Edmund Wang to jointly and severally pay complainant DIVINA A.
MONTEHERMOZO the sum of NT91,950.00 in its peso equivalent at the date of payment, as
refund for the amounts which she is hereby adjudged entitled to as earlier discussed plus 10%
thereof as attorney’s fees since compelled to litigate, complainant had to engage the services of
counsel.

SO ORDERED.13 (Underescoring supplied)

37
On appeal of Sunace, the NLRC, by Resolution of April 30, 2002,14 affirmed the Labor Arbiter’s
decision.

Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals which dismissed it
outright by Resolution of November 12, 2002,16 the full text of which reads:

The petition for certiorari faces outright dismissal.

The petition failed to allege facts constitutive of grave abuse of discretion on the part of the
public respondent amounting to lack of jurisdiction when the NLRC affirmed the Labor Arbiter’s
finding that petitioner Sunace International Management Services impliedly consented to the
extension of the contract of private respondent Divina A. Montehermozo. It is undisputed
that petitioner was continually communicating with private respondent’s foreign
employer (sic). As agent of the foreign principal, "petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending complainant (sic) employment
contract necessarily bound it." Grave abuse of discretion is not present in the case at bar.

ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.17

SO ORDERED.

(Emphasis on words in capital letters in the original; emphasis on words in small letters and
underscoring supplied)

Its Motion for Reconsideration having been denied by the appellate court by Resolution of
January 14, 2004,18 Sunace filed the present petition for review on certiorari.

The Court of Appeals affirmed the Labor Arbiter and NLRC’s finding that Sunace knew of and
impliedly consented to the extension of Divina’s 2-year contract. It went on to state that "It is
undisputed that [Sunace] was continually communicating with [Divina’s] foreign employer." It
thus concluded that "[a]s agent of the foreign principal, ‘petitioner cannot profess ignorance of
such extension as obviously, the act of the principal extending complainant (sic) employment
contract necessarily bound it.’"

Contrary to the Court of Appeals finding, the alleged continuous communication was with the
Taiwanese broker Wang, not with the foreign employer Xiong.

The February 21, 2000 telefax message from the Taiwanese broker to Sunace, the only basis of
a finding of continuous communication, reads verbatim:

xxxx

Regarding to Divina, she did not say anything about her saving in police station. As
we contact with her employer, she took back her saving already last years. And they
did not deduct any money from her salary. Or she will call back her employer to check
it again. If her employer said yes! we will get it back for her.

Thank you and best regards.

38
 (Sgd.)
Edmund Wang
President19

The finding of the Court of Appeals solely on the basis of the above-quoted telefax message,
that Sunace continually communicated with the foreign "principal" (sic) and therefore was aware
of and had consented to the execution of the extension of the contract is misplaced. The
message does not provide evidence that Sunace was privy to the new contract executed after
the expiration on February 1, 1998 of the original contract. That Sunace and the
Taiwanese broker communicated regarding Divina’s allegedly withheld savings does not
necessarily mean that Sunace ratified the extension of the contract. As Sunace points out in its
Reply20 filed before the Court of Appeals,

As can be seen from that letter communication, it was just an information given to the petitioner
that the private respondent had t[aken] already her savings from her foreign employer and that
no deduction was made on her salary. It contains nothing about the extension or the petitioner’s
consent thereto.21

Parenthetically, since the telefax message is dated February 21, 2000, it is safe to assume that
it was sent to enlighten Sunace who had been directed, by Summons issued on February 15,
2000, to appear on February 28, 2000 for a mandatory conference following Divina’s filing of the
complaint on February 14, 2000.

Respecting the Court of Appeals following dictum:

As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as
obviously, the act of its principal extending [Divina’s] employment contract necessarily bound
it,22

it too is a misapplication, a misapplication of the theory of imputed knowledge.

The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal,
employer Xiong, not the other way around.23 The knowledge of the principal-foreign employer
cannot, therefore, be imputed to its agent Sunace.

There being no substantial proof that Sunace knew of and consented to be bound under the 2-
year employment contract extension, it cannot be said to be privy thereto. As such, it and its
"owner" cannot be held solidarily liable for any of Divina’s claims arising from the 2-year
employment extension. As the New Civil Code provides,

Contracts take effect only between the parties, their assigns, and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law.24

Furthermore, as Sunace correctly points out, there was an implied revocation of its agency
relationship with its foreign principal when, after the termination of the original employment
contract, the foreign principal directly negotiated with Divina and entered into a new and
separate employment contract in Taiwan. Article 1924 of the New Civil Code reading

The agency is revoked if the principal directly manages the business entrusted to the agent,
dealing directly with third persons.

39
thus applies.

In light of the foregoing discussions, consideration of the validity of the Waiver and Affidavit of
Desistance which Divina executed in favor of Sunace is rendered unnecessary.

WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court of Appeals are
hereby REVERSED and SET ASIDE. The complaint of respondent Divina A. Montehermozo
against petitioner is DISMISSED.

SO ORDERED.

G.R. No. L-24833 September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner,

vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents.

Jose S. Suarez for petitioner.

Eligio G. Lagman for respondents.

FERNANDO, J.:

An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability
under a common carrier insurance policy on the pretext that what was insured, not once but
twice, was a private vehicle and not a common carrier, the policy being issued upon the
insistence of its agent who discounted fears of the insured that his privately owned vehicle might
not fall within its terms, the insured moreover being "a man of scant education," finishing only
the first grade. So it was held in a decision of the lower court thereafter affirmed by respondent
Court of Appeals. Petitioner in seeking the review of the above decision of respondent Court of
Appeals cannot be so sanguine as to entertain the belief that a different outcome could be
expected. To be more explicit, we sustain the Court of Appeals.

The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar
case. Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first
grader ..., owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15,
1960, as such private vehicle owner, he was induced by Fieldmen's Insurance Company
Pampanga agent Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy
covering his motor vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's
Insurance Company, Inc. issued on September 19, 1960, Common Carriers Accident Insurance
Policy No. 45-HO- 4254 ... the duration of which will be for one (1) year, effective September
15, 1960 to September 15, 1961. On September 22, 1961, the defendant company, upon
payment of the corresponding premium, renewed the policy by extending the coverage from
October 15, 1961 to October 15, 1962. This time Federico Songco's private jeepney carried Plate
No. J-68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of the renewed
policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son
of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of
Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died,
Carlos Songco (another son), the latter's wife, Angelita Songco, and a family friend by the name
of Jose Manuel sustained physical injuries of varying degree." 1
40
It was further shown according to the decision of respondent Court of Appeals: "Amor Songco,
42-year-old son of deceased Federico Songco, testifying as witness, declared that when
insurance agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in
saying: 'That cannot be, Mr. Sambat, because our vehicle is an "owner" private vehicle and not
for passengers,' to which agent Sambat replied: 'whether our vehicle was an "owner" type or for
passengers it could be insured because their company is not owned by the Government and the
Government has nothing to do with their company. So they could do what they please whenever
they believe a vehicle is insurable' ... In spite of the fact that the present case was filed and tried
in the CFI of Pampanga, the defendant company did not even care to rebut Amor Songco's
testimony by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field
Representative." 2

The plaintiffs in the lower court, likewise respondents here, were the surviving widow and
children of the deceased Federico Songco as well as the injured passenger Jose Manuel. On the
above facts they prevailed, as had been mentioned, in the lower court and in the respondent
Court of Appeals.1awphîl.nèt

The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union
and Rock Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now
beyond question that where inequitable conduct is shown by an insurance firm, it is "estopped
from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured." 4

As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine
of estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had
led the insured Federico Songco to believe that he could qualify under the common carrier
liability insurance policy, and to enter into contract of insurance paying the premiums due, it
could not, thereafter, in any litigation arising out of such representation, be permitted to change
its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the
doctrine of good faith and the avoidance of harm that will befall the innocent party due to its
injurious reliance, the failure to apply it in this case would result in a gross travesty of justice.

That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is
concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be
invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in
the policy. lt would now rely on the fact that the insured owned a private vehicle, not a common
carrier, something which it knew all along when not once but twice its agent, no doubt without
any objection in its part, exerted the utmost pressure on the insured, a man of scant education,
to enter into such a contract.

Nor is there any merit to the second alleged error of respondent Court that no legal liability was
incurred under the policy by petitioner. Why liability under the terms of the policy 5 was
inescapable was set forth in the decision of respondent Court of Appeals. Thus: "Since some of
the conditions contained in the policy issued by the defendant-appellant were impossible to
comply with under the existing conditions at the time and 'inconsistent with the known facts,'
the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence, we
find no valid reason to deviate and consequently hold that the decision appealed from should be
affirmed. The injured parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose
hospital and medical expenses the defendant company was being made liable, were passengers
of the jeepney at the time of the occurrence, and Rodolfo Songco, for whose burial expenses the
defendant company was also being made liable was the driver of the vehicle in question. Except
for the fact, that they were not fare paying passengers, their status as beneficiaries under the
policy is recognized therein." 6
41
Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision
would reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account
the well known rule that ambiguities or obscurities must be strictly interpreted against the party
that caused them, the 'memo of warranty' invoked by appellant bars the latter from questioning
the existence of the appliances called for in the insured premises, since its initial expression, 'the
undernoted appliances for the extinction of fire being kept on the premises insured hereby, ... it
is hereby warranted ...,' admits of interpretation as an admission of the existence of such
appliances which appellant cannot now contradict, should the parol evidence rule apply." 7

To the same effect is the following citation from the same leading case: "This rigid application of
the rule on ambiguities has become necessary in view of current business practices. The courts
cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing with them cunningly
prepared 'agreements' that the weaker party may not change one whit, his participation in the
'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond
Saleilles 'contracts by adherence' (contrats d'adhesion), in contrast to those entered into by
parties bargaining on an equal footing, such contracts (of which policies of insurance and
international bills of lading are prime examples) obviously call for greater strictness and
vigilance on the part of courts of justice with a view to protecting the weaker party from abuses
and imposition, and prevent their becoming traps for the unwary (New Civil Code. Article 24;
Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." 8

The last error assigned which would find fault with the decision of respondent Court of Appeals
insofar as it affirmed the lower court award for exemplary damages as well as attorney's fees is,
on its face, of no persuasive force at all.

The conclusion that inescapably emerges from the above is the correctness of the decision of
respondent Court of Appeals sought to be reviewed. For, to borrow once again from the
language of the Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith
(uberima fides) not for the insured alone,but equally so for the insurer; in fact, it is more so for
the latter, since its dominant bargaining position carries with it stricter responsibility." 9

This is merely to stress that while the morality of the business world is not the morality of
institutions of rectitude like the pulpit and the academe, it cannot descend so low as to be
another name for guile or deception. Moreover, should it happen thus, no court of justice should
allow itself to lend its approval and support.1awphîl.nèt

We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's

Insurance Co., Inc. It did not succeed in its persistent effort to avoid complying with its
obligation in the lower court and the Court of Appeals. Much less should it find any receptivity
from us for its unwarranted and unjustified plea to escape from its liability.

WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its
entirety. Costs against petitioner Fieldmen's Insurance Co., Inc.

G.R. No. 94071 March 31, 1992

NEW LIFE ENTERPRISES and JULIAN SY, petitioners,

vs.

42
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY
AND INSURANCE CO., INC. and WESTERN GUARANTY CORPORATION, respondents.

REGALADO, J.:

This appeal by certiorari seeks the nullification of the decision 1 of respondent Court of Appeals
in CA-G.R. CV No. 13866 which reversed the decision of the Regional Trial Court, Branch LVII at
Lucena City, jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84 thereof and consequently
ordered the dismissal of the aforesaid actions filed by herein petitioners.

The undisputed background of this case as found by the court a quo and adopted by respondent
court, being sustained by the evidence on record, we hereby reproduce the same with
approval. 2

The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a
business partnership in the City of Lucena. Under the business name of New Life
Enterprises, the partnership engaged in the sale of construction
materials at its place of business, a two storey building situated at Iyam,
Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life
Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance.
Co., Inc., and Equitable Insurance Corporation.

On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No.
37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982.

On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 in the amount of P300,000.00 (Renewed under Renewal
Certificate No. 41997) An additional insurance was issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of
P700,000.00.

On February 8, 1982, Equitable Insurance

Corporation issued Fire Insurance Policy No. 39328 in the amount of P200,000.00.

Thus when the building occupied by the New Life Enterprises

was gutted by fire at about 2:00 o'clock in the morning of October 19, 1982, the
stocks in the trade inside said building were insured against
fire in the total amount of P1,550,000.00.
According to the certification issued by the Headquarters, Philippine Constabulary
/Integrated National Police, Camp Crame, the cause of fire was
electrical in nature. According to the plaintiffs,
the building and the stocks inside were burned.
After the fire, Julian Sy went to the agent of
Reliance Insurance whom he asked to accompany him to the
office of the company so that he can file his claim. He averred that in support of his
claim, he submitted the fire clearance, the insurance policies and inventory
of stocks. He further testified that the three insurance companies are sister
companies, and as a matter of fact when he was following-up his claim with
Equitable Insurance, the Claims Manager told him to go first to Reliance
Insurance and if said company agrees to pay, they would also pay. The same
43
 treatment was given him by the other insurance
companies. Ultimately, the three insurance companies denied plaintiffs' claim for
payment.

In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-

84) Western Guaranty Corporation through Claims Manager Bernard S. Razon told t
he plaintiff that his claim "is
denied for breach of policy conditions." Reliance Insurance purveyed the same
message in its letter dated November 23, 1982 and signed by Executive Vice-
President Mary Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's
claim is denied for breach of policy conditions." The letter of denial received by the
plaintiff from Equitable Insurance Corporation (Exhibit "C" No. 6-84) was of the
same tenor, as said letter dated February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find that certain
policy conditions were violated, therefore, we regret, we have to deny your claim,
as it is hereby denied in its entirety."

In relation to the case against Reliance

Surety and Insurance Company, a certain Atty. Serafin D. Dator, acting in behalf of
the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 7-
84) to Executive Vice-President Mary Dee Co asking that he be informed as to
the specific policy conditions allegedly violated by the plaintiff. In her reply-letter
dated March 30, 1983, Executive Vice-President Mary Dee Co informed Atty.
Dator that Julian Sy violated Policy Condition No. "3" which requires the insured
to give notice of any insurance or insurances already effected covering the stocks in
trade. 3

Because of the denial of their claims for payment by the three (3) insurance
companies, petitioner filed separate civil actions against the former before the Regional Trial
Court of Lucena City, which cases were consolidated for trial,
and thereafter the court below rendered its decision on December 19, l986 with the following
disposition:

WHEREFORE, judgment in the above-entitled cases is rendered in the following

manner, viz:

1. In Civil Case No. 6-84, judgment is rendered for the

plaintiff New Life Enterprises and against the defendant Equitable Insurance
Corporation ordering the latter to pay the former the sum of
Two Hundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insured has been unreasonably denied,
pursuant to Sec. 244 of the Insurance Code, defendant is further ordered to pay th
e plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00)
Pesos. All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from
February 14, 1983, (91st day from November 16, 1982, when Sworn Statement of
Fire Claim was received from the insured) until they are fully paid;

2. In Civil Case No. 7-

84, judgment is rendered for the plaintiff Julian Sy and against
the defendant Reliance Surety and Insurance Co.,
Inc., ordering the latter to pay the former the sum
44
 of P1,000,000.00 (P300,000.00 under Policy
No. 69135 and P700,000.00 under Policy No. 71547)
and considering that payment of the claim of the
insured has been unreasonably denied, pursuant to
Sec. 244 of the Insurance Code, defendant is further ordered
to pay the plaintiff the amount of P100,000.00 as attorney's fees.

All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 14, 1983,
(91st day from November 16,
1982 when Sworn Statement of Fire Claim was received from the insured) until
they are fully paid;

3. In Civil Case No. 8-84, judgment is rendered for

the plaintiff New Life Enterprises and against the defendant Western Guaranty Corp
oration ordering the latter to pay the sum of P350,000.00
to the Consolidated Bank and Trust Corporation,
Lucena Branch, Lucena City, as stipulated on the
face of Policy No. 37201, and considering that payment of the
aforementioned sum of money has been
unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
defendant is further ordered to pay the plaintiff attorney's fees in the amount of
P35,000.00.

All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 5, 1982, (91st
day from 1st week of November 1983 when
insured filed formal claim for full indemnity according to adjuster
Vetremar Dela Merced) until they are fully paid. 4

As aforestated, respondent Court of Appeals reversed said judgment of the trial court, hence
this petition the crux wherein is whether or not Conditions Nos. 3 and 27 of
the insurance contracts were violated by petitioners thereby resulting in
their forfeiture of all the benefits thereunder.

Condition No. 3 of said insurance policies, otherwise known as

the "Other Insurance Clause," is uniformly contained in all the aforestated
insurance contracts of herein petitioners, as follows:

3. The insured shall give notice to the Company

of any insurance or insurances already effected, or which
may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process
and/or inventories only hereby insured, and unless
such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed on this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this policy shall be
deemed forfeited, provided however, that this condition shall not apply when the
total insurance or insurances in force at the time of loss or damage not more than
P200,000.00. 5

45
Petitioners admit that the respective insurance policies
issued by private respondents did not state or endorse thereon
the other insurance coverage obtained or subsequently effected on the same stocks in trade for
the loss of which compensation is claimed by petitioners. 6 The policy
issued by respondent Western Guaranty Corporation (Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable
Insurance Corporation (Equitable) as co-insurers on the same stocks,
while Reliance's Policies covering the same stocks did not
likewise declare Western and Equitable as such co-insurers. It is
further admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring
indication of any co-insurance although there were three (3) policies subsisting on the same
stocks in trade at the time of the loss, namely, that of Western in the amount of P350,000.00
and two (2) policies of Reliance in the total amount of P1,000,000.00. 7

In other words, the coverage by other insurance or co-insurance effected

or subsequently arranged by petitioners were neither stated nor endorsed in the policies of the
three (3) private respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the aforequoted Policy Condition No. 3.

Petitioners contend that they are not to be blamed for the omissions,
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for
Reliance and Equitable) knew about the existence of the additional insurance coverage and that
they were not informed about the requirement that such other or additional insurance
should be stated in the policy, as they have not even read policies.8 These contentions cannot
pass judicial muster.

The terms of the contract are clear and unambiguous.

The insured is specifically required to disclose to the insurer any other insurance and its
particulars which he may have effected on the same subject matter. The knowledge of such
insurance by the insurer's agents, even assuming the acquisition thereof by the former,
is not the "notice" that would estop the insurers from denying the claim. Besides, the so-called
theory of imputed knowledge, that is, knowledge of the agent is
knowledge of the principal, aside from being
of dubious applicability here has likewise been roundly
refuted by respondent court whose factual findings we find acceptable.

Thus, it points out that while petitioner Julian Sy

claimed that he had informed insurance agent Alvarez regarding the co-insurance on the
property, he contradicted himself by inexplicably claiming that he had not read the terms of the
policies; that Yap Dam Chuan could not likewise have obtained such
knowledge for the same reason, aside from the fact that
the insurance with Western was obtained before those of
Reliance and Equitable; and that the conclusion of
the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawn from the mere fact that Yap Kam Chuan was
an agent for both companies which also had the same insurance claims adjuster. Availment of
the services of the same agents and adjusters by different companies is a
common practice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.

Furthermore, when the words and language of documents are clear and plain
or readily understandable by an ordinary reader thereof, there is absolutely no room for
46
interpretation or construction anymore.9 Courts are not allowed to make contracts
for the parties; rather, they will intervene only when the terms of the policy are ambiguous,
equivocal, or uncertain. 10 The parties must abide by the
terms of the contract because such terms constitute the
measure of the insurer's liability and compliance therewith is a
condition precedent to the insured's right of recovery from the insurer. 11

While it is a cardinal principle of insurance law that a policy or contract

of insurance is to be construed liberally in favor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense. 12 Moreover, obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith. 13

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the
ordinary care and prudence that would be exacted in relation to other contracts. The conformity
of the insured to the terms of the policy is implied from his failure to express any disagreement
with what is provided for.14 It may be true that the majority rule, as cited
by petitioners, is that injured persons may accept policies without reading them, and that this is
not negligence per se. 15 But, this is not without any exception. It is and was incumbent
upon petitioner Sy to read the insurance contracts, and this can be reasonably expected
of him considering that he has been a businessman since 196516 and the contract concerns
indemnity in case of loss in his money-making trade of which important
consideration he could not have been unaware as it was pre-in case of loss in his money-making
trade of which important consideration he could not have been unaware as it was precisely the
reason for his procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap: 17

...
And considering the terms of the policy which required the insured to declare other
insurances, the statement in question must be deemed to be a statement
(warranty) binding on both insurer and insured, that there were no other insurance
on the property. . . .

The annotation then, must be deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitled the insurer to rescind (Sec.
69, Insurance Act). Such misrepresentation is fatal in the light of our views in Santa
Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329.
The materiality of non-disclosure of other insurance policies is not open to doubt.

xxx xxx xxx

The obvious purpose of the aforesaid requirement in the policy is to prevent over-
insurance and thus avert the perpetration of fraud. The public, as well as the
insurer, is interested in preventing the situation in which a fire would be profitable
to the insured. According to Justice Story: "The insured has
no right to complain, for he assents to comply with all the stipulations on
his side, in order to entitle himself to the
benefit of the contract, which, upon reason or principle, he
has no right to ask the court to dispense with the
47
 performance of his own part of the agreement, and yet to bind the other party to
obligations, which, but for those stipulations, would not have been entered into."

Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., 18
we held:

It is not disputed that the insured failed to reveal before the

loss three other insurances. As found by the Court
of Appeals, by reason of said unrevealed insurances, the insured had been guilty of
a false declaration; a clear misrepresentation and a vital one because where
the insured had been asked to reveal but did not, that was deception. Otherwise
stated, had the insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from entering into such contract.
Hence, the insured was guilty of clear fraud (Rollo, p. 25).

Petitioner's contention that the allegation of fraud is but

a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or
false declaration by the insured was furnished by the petitioner itself when the facts
alleged in the policy under clauses "Co-Insurances Declared" and
"Other Insurance Clause" are materially different from the actual number of co-
insurances taken over the subject property. Consequently, "the whole foundation of
the contract fails, the risk does not attach and the policy never becomes a contract
between the parties." Representations of facts are the
foundation of the contract and if the foundation does not
exist, the superstructure does not arise. Falsehood in such representations is not
shown to vary or add to the contract, or to terminate a contract which has
once been made, but to show that no contract has ever
existed (Tolentino, Commercial Laws of the Philippines, p.
991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no
force and effect from the very beginning, as if it had never been entered into, and
which cannot be validated either by time or by ratification
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).

As the insurance policy against fire expressly required that notice should be given
by the insured of other insurance upon the same property, the total absence of
such notice nullifies the policy.

To further warrant and justify the forfeiture of the

benefits under the insurance contracts involved, we need
merely to turn to Policy Condition No. 15 thereof, which reads in part:

15. . . . if any false declaration be made or used in support thereof, . .

. all benefits under this Policy shall be forfeited . . . . 19

Additionally, insofar as the liability of respondent

Reliance is concerned, it is not denied that the complaint for recovery was filed in court by
petitioners only on January 31, 1984, or after more than one (1) year had
elapsed from petitioners' receipt of the insurers' letter of
denial on November 29, 1982. Policy Condition No. 27 of their insurance contract with Reliance
provides:

27. Action or suit

clause. — If a claim be made and rejected and an action or suit be not commenced
48
 either in the Insurance Commission or any court of competent jurisdiction of notice
of such rejection, or in case of arbitration taking place
as provided herein, within twelve (12) months after due
notice of the award made by the arbitrator or arbitrators
or umpire, then the claim shall for all purposes be
deemed to have been abandoned and shall not thereafter be recoverable
hereunder. 20

On this point, the trial court ruled:

. . . However, because of the peculiar circumstances of this case, we hesitate

in concluding that plaintiff's right to ventilate his claim in court has been barred by r
eason of the time constraint provided in the insurance contract. It is
evident that after the plaintiff had received
the letter of denial, he still found it necessary to be informed of the specific causes
or reasons for the denial of his claim, reason for which his lawyer, Atty. Dator
deemed it wise to send a letter of inquiry to the defendant which was answered by
defendant's Executive Vice-President in a letter dated March 30, 1983, . . .
. Assuming, gratuitously, that the letter of Executive Vice-President Mary Dee Co
dated March 30, 1983, was received by plaintiff on the same date, the period
of limitation should start to run only from said date in the spirit of fair play and
equity. . . . 21

We have perforce to reject this theory of the court below for being contrary to what we have
heretofore declared:

It is important to note the principle laid down by this Court in the case of Ang vs.
Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:

The condition contained in an insurance policy that claims must be pre

sented within one year
after rejection is not merely a procedural requirement but an importan
t matter essential to a prompt settlement of claims against insurance
companies as it demands that insurance suits be brought by
the insured while the evidence as to the
origin and cause of destruction have not yet disappeared.

In enunciating the above-cited principle, this Court had definitely

settled the rationale for the necessity of bringing suits against the Insurer
within one year from the rejection of the claim. The contention
of the respondents that the one-year prescriptive period does
not start to run until the petition for reconsideration had been resolved by the insur
er, runs counter to the declared purpose for requiring that an
action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would
contradict and defeat the very principle which this Court had laid down. Moreover,
it can easily be used by insured persons as a scheme or device to waste time
until any evidence which may be considered against them is destroyed.

xxx xxx xxx

49
 While in the Eagle Star case (96 Phil. 701),
this Court uses the phrase "final rejection", the
same cannot be taken to mean the rejection of a petition for reconsideration as
insisted by respondents.
Such was clearly not the meaning contemplated by this Court. The insurance policy
in said case provides that the insured should file his claim first, with
the carrier and then with the insurer. The "final rejection" being referred to in said
case is the rejection by the insurance company. 22

Furthermore, assuming arguendo that petitioners felt the

legitimate need to be clarified as to the policy condition violated, there was a considerable lapse
of time from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to the
time the complaint was filed in court on January 31, 1984. The one-
year prescriptive period was yet to expire on November 29, 1983, or about eight (8) months
from the receipt of the clarificatory letter, but petitioners let the
period lapse without bringing their action in court.
We accordingly find no "peculiar circumstances" sufficient to relax the enforcement of the one-
year prescriptive period and we, therefore, hold that petitioners' claim was definitely filed out of
time.

WHEREFORE, finding no cogent reason to disturb the judgment

of respondent Court of Appeals, the same is hereby AFFIRMED.

SO ORDERED.

[G.R. No. 82978. November 22, 1990.]

THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE COURT OF APPEALS
and OSCAR VENTANILLA, JR. and CARMEN GLORIA DIAZ, Respondents.

Bede S. Talingcos, for Petitioners.

Augusto Gatmaytan for Private Respondent.

SYLLABUS

1. CIVIL LAW; AGENCY; FAILURE OF THE PRINCIPAL TO CORRECT AN IRREGULARITY DESPITE

KOWLEDGE THEREOF, DEEMED A RATIFICATION OF THE ACT OF THE AGENT. — In the case at
bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent — and
for that matter, even the law — when it undertook the double sale of the disputed lots. Such
being the case, the principal, Manila Remnant, would have been in the clear pursuant to Article
1897 of the Civil Code which states that" (t)he agent who acts as such is not personally liable to
that 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." However, the unique
relationship existing between the principal and the agent at the time of the dual sale must be
underscored. Bear in mind that the president then of both firms was Artemio U. Valencia, the
individual directly responsible for the sale scam. Hence, despite the fact that the double sale was
beyond the power of the agent, Manila Remnant as principal was chargeable with the knowledge
or constructive notice of that fact and not having done anything to correct such an irregularity
was deemed to have ratified the same. (See Art. 1910, Civil Code.)
50
2. ID.; ID.; PRINCIPLE OF ESTOPPEL; REASON AND EFFECT THEREOF; CASE AT BAR. — More in
point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its
agent to act as though it had plenary powers. Article 1911 of the Civil Code provides: "Even
when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers." The above-quoted article is new.
It is intended to protect the rights of innocent persons. In such a situation, both the principal
and the agent may be considered as joint feasors whose liability is joint and solidary (Verzosa v.
Lim, 45 Phil. 416). Authority by estoppel has arisen in the instant case because by its
negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to
exercise powers not granted to it. That the principal might not have had actual knowledge of the
agent’s misdeed is of no moment.

DECISION

FERNAN, J.:

Like any other couple, Oscar Ventanilla and his wife Carmen, both faculty members of the
University of the Philippines and renting a faculty unit, dreamed of someday owning a house and
lot. Instead of attaining this dream, they became innocent victims of deceit and found
themselves in the midst of an ensuing squabble between a subdivision owner and its real estate
agent.

The facts as found by the trial court and adopted by the Appellate Court are as
follows:chanrob1es virtual 1aw library

Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land situated in Quezon City
covered by Transfer Certificates of Title Nos. 26400, 26401, 30783 and 31986 and constituting
the subdivision known as Capital Homes Subdivision Nos. I and II. On July 25, 1972, Manila
Remnant and A.U. Valencia & Co. Inc. entered into a written agreement entitled "Confirmation of
Land Development and Sales Contract" to formalize an earlier verbal agreement whereby for a
consideration of 17 and 1/2% fee, including sales commission and management fee, A.U.
Valencia and Co., Inc. was to develop the aforesaid subdivision with authority to manage the
sales thereof, execute contracts to sell to lot buyers and issue official receipts. 1

At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co., Inc. was
Artemio U. Valencia.cralawnad

On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two "contracts to sell"
covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen Gloria Diaz for the
combined contract price of P66,571.00 payable monthly for ten years. 2 As thus agreed in the
contracts to sell, the Ventanillas paid the down payments on the two lots even before the formal
contract was signed on March 3, 1970.

Ten (10) days after the signing of the contracts with the Ventanillas or on March 13, 1970,
Artemio U. Valencia, as President of Manila Remnant, and without the knowledge of the
Ventanilla couple, sold Lots 1 and 2 of Block 17 again, this time in favor of Carlos Crisostomo,
one of his sales agents without any consideration. 3 Artemio Valencia then transmitted the
fictitious Crisostomo contracts to Manila Remnant while he kept in his files the contracts to sell in

51
favor of the Ventanillas. All the amounts paid by the Ventanillas were deposited in Valencia’s
bank account.

Beginning March 13, 1970, upon orders of Artemio Valencia, the monthly payments of the
Ventanillas were remitted to Manila Remnant as payments of Crisostomo for which the former
issued receipts in favor of Crisostomo. Since Valencia kept the receipts in his files and never
transmitted the same to Crisostomo, the latter and the Ventanillas remained ignorant of
Valencia’s scheme. Thus, the Ventanillas continued paying their monthly installments.chanrobles
virtual lawlibrary

Subsequently, the harmonious business relationship between Artemio Valencia and Manila
Remnant ended. On May 30, 1973, Manila Remnant, through its General Manager Karl Landahl,
wrote Artemio Valencia informing him that Manila Remnant was terminating its existing
collection agreement with his firm on account of the considerable amount of discrepancies and
irregularities discovered in its collections and remittances by virtue of confirmations received
from lot buyers. 4 As a consequence, on June 6, 1973, Artemio Valencia was removed as
President by the Board of Directors of Manila Remnant. Therefore, from May of 1973, Valencia
stopped transmitting Ventanilla’s monthly installments which at that time had already amounted
to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which appeared in Manila Remnant’s record
as credited in the name of Crisostomo). 5

On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the then
Court of First Instance of Manila 6 to impugn the abrogation of their agency agreement. On June
10 and July 10, 1973, said court ordered all lot buyers to deposit their monthly amortizations
with the court. 7 But on July 17, 1973, A.U. Valencia and Co. wrote the Ventanillas that it was
still authorized by the court to collect the monthly amortizations and requested them to continue
remitting their amortizations with the assurance that said payments would be deposited later in
court. 8 On May 22, 1974, the trial court issued an order prohibiting A.U. Valencia and Co. from
collecting the monthly installments. 9 On July 22, 1974 and February 6, 1976 the same court
ordered the Valencia firm to furnish the court with a complete list of all lot buyers who had
already made down payments to Manila Remnant before December 1972. 10 Valencia complied
with the court’s order on August 6, 1974 by submitting a list which excluded the name of the
Ventanillas. 11

Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila Remnant
caused on August 20, 1976 the publication in the Times Journal of a notice cancelling the
contracts to sell of some lot buyers including that of Carlos Crisostomo in whose name the
payments of the Ventanillas had been credited. 12

To prevent the effective cancellation of their contracts, Artemio Valencia instigated on

September 22, 1976 the filing by Carlos Crisostomo and seventeen (17) other lot vendees of a
complaint for specific performance with damages against Manila Remnant before the Court of
First Instance of Quezon City. The complaint alleged that Crisostomo had already paid a total of
P17,922.40 and P18,136.85 on Lots 1 and 2, respectively. 13

It was not until March 1978 when the Ventanillas, after learning of the termination of the agency
agreement between Manila Remnant and A.U. Valencia & Co., decided to stop paying their
amortizations to the latter. The Ventanillas, believing that they had already remitted P37,007.00
for Lot 1 and P36,911.00 for Lot 2 or a grand total, inclusive of interest, of P73,122.35 for the
two lots, thereby leaving a balance of P13,531.58 for Lot 1 and P13,540.22 for Lot 2, went
directly to Manila Remnant and offered to pay the entire outstanding balance of the purchase
price. 14 To their shock and utter consternation, they discovered from Gloria Caballes, an

52
accountant of Manila Remnant, that their names did not appear in the records of A.U. Valencia
and Co. as lot buyers. Caballes showed the Ventanillas copies of the contracts to sell in favor of
Carlos Crisostomo, duly signed by Artemio U. Valencia as President of Manila Remnant. 15
Whereupon, Manila Remnant refused the offer of the Ventanillas to pay for the remainder of the
contract price because they did not have the personality to do so. Furthermore, they were shown
the published Notice of Cancellation in the January 29, 1978 issue of the Times Journal
rescinding the contracts of delinquent buyers including Crisostomo.

Thus, on November 21, 1978, the Ventanillas commenced an action for specific performance,
annulment of deeds and damages against Manila Remnant, A.U. Valencia and Co. and Carlos
Crisostomo before the Court of First Instance of Quezon City, Branch 17-B. 16 Crisostomo was
declared in default for failure to file an answer.chanrobles.com:cralaw:red

On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to sell
issued in favor of the Ventanillas valid and subsisting and annulling the contracts to sell in
Crisostomo’s favor; 2) ordering Manila Remnant to execute in favor of the Ventanillas an
Absolute Deed of Sale free from all liens and encumbrances; and 3) condemning defendants A.U.
Valencia and Co. Inc., Manila Remnant and Carlos Crisostomo jointly and severally to pay the
Ventanillas the amount of P100,000.00 as moral damages, P100,000.00 as exemplary damages,
and P100,000.00 as attorney’s fees. The lower court also added that if, for any legal reason, the
transfer of the lots could no longer be effected, the defendants should reimburse jointly and
severally to the Ventanillas the total amount of P73,122.35 representing the total amount paid
for the two lots plus legal interest thereon from March 1970 plus damages as aforestated. With
regard to the cross claim of Manila Remnant against Valencia, the court found that Manila
Remnant could have not been dragged into this suit without the fraudulent manipulations of
Valencia. Hence, it adjudged A.U. Valencia and Co. to pay the Manila Remnant P5,000.00 as
moral damages and exemplary damages and P5,000.00 as attorney’s fees. 17

Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower court’s decision to
the Court of Appeals through separate appeals. On October 13, 1987, the Appellate Court
affirmed in toto the decision of the lower court. Reconsideration sought by petitioner Manila
Remnant was denied, hence the instant petition.

There is no question that the contracts to sell in favor of the Ventanilla spouses are valid and
subsisting. The only issue remaining is whether or not petitioner Manila Remnant should be held
solidarily liable together with A.U. Valencia and Co. and Carlos Crisostomo for the payment of
moral, exemplary damages and attorney’s fees in favor of the Ventanillas. 18

While petitioner Manila Remnant has not refuted the legality of the award of damages per se, it
believes that it cannot be made jointly and severally liable with its agent A.U. Valencia and Co.
since it was not aware of the illegal acts perpetrated nor did it consent or ratify said acts of its
agent.

The argument is devoid of merit.

In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as
agent — and for that matter, even the law — when it undertook the double sale of the disputed
lots. Such being the case, the principal, Manila Remnant, would have been in the clear pursuant
to Article 1897 of the Civil Code which states that" (t)he agent who acts as such is not
personally liable to that 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." chanrobles.com.ph : virtual law library

53
However, the unique relationship existing between the principal and the agent at the time of the
dual sale must be underscored. Bear in mind that the president then of both firms was Artemio
U. Valencia, the individual directly responsible for the sale scam. Hence, despite the fact that the
double sale was beyond the power of the agent, Manila Remnant as principal was chargeable
with the knowledge or constructive notice of that fact and not having done anything to correct
such an irregularity was deemed to have ratified the same. 19

More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have
allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code
provides:jgc:chanrobles.com.ph

"Even when the agent has exceeded his authority, the principal is solidarily liable with the agent
if the former allowed the latter to act as though he had full powers." (Emphasis supplied)

The above-quoted article is new. It is intended to protect the rights of innocent persons. In such
a situation, both the principal and the agent may be considered as joint feasors whose liability is
joint and solidary. 20

Authority by estoppel has arisen in the instant case because by its negligence, the principal,
Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted
to it. That the principal might not have had actual knowledge of the agent’s misdeed is of no
moment. Consider the following circumstances:chanrob1es virtual 1aw library

Firstly, Manila Remnant literally gave carte blanche to its agent A.U. Valencia and Co. in the sale
and disposition of the subdivision lots. As a disclosed principal in the contracts to sell in favor of
the Ventanilla couple, there was no doubt that they were in fact contracting with the principal.
Section 7 of the Ventanillas’ contracts to sell states:jgc:chanrobles.com.ph

"7. That all payments whether deposits, down payment and monthly installment agreed to be
made by the vendee shall be payable to A.U. Valencia and Co., Inc. It is hereby expressly
understood that unauthorized payments made to real estate brokers or agents shall be the sole
and exclusive responsibility and at the risk of the vendee and any and all such payments shall
not be recognized by the vendors unless the official receipts therefor shall have been duly signed
by the vendors’ duly authorized agent, A.U. Valencia and Co., Inc." (Emphasis supplied)

Indeed, once Manila Remnant had been furnished with the usual copies of the contracts to sell,
its only participation then was to accept the collections and pay the commissions to the agent.
The latter had complete control of the business arrangement. 21

Secondly, it is evident from the records that Manila Remnant was less than prudent in the
conduct of its business as a subdivision owner. For instance, Manila Remnant failed to take
immediate steps to avert any damage that might be incurred by the lot buyers as a result of its
unilateral abrogation of the agency contract. The publication of the cancelled contracts to sell in
the Times Journal came three years after Manila Remnant had revoked its agreement with A.U.
Valencia and Co.chanrobles virtual lawlibrary

Moreover, Manila Remnant also failed to check the records of its agent immediately after the
revocation of the agency contract despite the fact that such revocation was due to reported
anomalies in Valencia’s collections. Altogether, as pointed out by the counsel for the Ventanillas,
Manila Remnant could and should have devised a system whereby it could monitor and require a
regular accounting from A.U. Valencia and Co., its agent. Not having done so, Manila Remnant

54
has made itself liable to those who have relied on its agent and the representation that such
agent was clothed with sufficient powers to act on behalf of the principal.

Even assuming that Manila Remnant was as much a victim as the other innocent lot buyers, it
cannot be gainsaid that it was precisely its negligence and laxity in the day to day operations of
the real estate business which made it possible for the agent to deceive unsuspecting vendees
like the Ventanillas.

In essence, therefore, the basis for Manila Remnant’s solidary liability is estoppel which, in turn,
is rooted in the principal’s neglectfulness in failing to properly supervise and control the affairs of
its agent and to adopt the needed measures to prevent further misrepresentation. As a
consequence, Manila Remnant is considered estopped from pleading the truth that it had no
direct hand in the deception employed by its agent. 22

A final word. The Court cannot help but be alarmed over the reported practice of supposedly
reputable real estate brokers of manipulating prices by allowing their own agents to "buy" lots in
their names in the hope of reselling the same at a higher price to the prejudice of bona fide lot
buyers, as precisely what the agent had intended to happen in the present case. This is a serious
matter that must be looked into by the appropriate government housing
authority.chanrobles.com.ph : virtual law library

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated
October 13, 1987 sustaining the decision of the Quezon City trial court dated November 17,
1980 is AFFIRMED. This judgment is immediately executory. Costs against petitioner.

SO ORDERED.

G.R. No. L-55963 December 1, 1989

SPOUSES JOSE FONTANILLA AND VIRGINIA FONTANILLA, petitioners,

vs.
HONORABLE INOCENCIO D. MALIAMAN and NATIONAL IRRIGATION
ADMINISTRATION, respondents.

G.R. No. L-61045 December 1, 1989

NATIONAL IRRIGATION ADMINISTRATION, appellant,

vs.
SPOUSES JOSE FONTANILLA and VIRGINIA FONTANILLA, appellees.

Cecilio V. Suarez, Jr. for Spouses Fontanilla.

Felicisimo C. Villaflor for NIA.

PARAS, J.:

In G.R. No. L-55963, the petition for review on certiorari seeks the affirmance of the decision
dated March 20, 1980 of the then Court of First Instance of Nueva Ecija, Branch VIII, at San
Jose City and its modification with respect to the denial of petitioner's claim for moral and
exemplary damages and attorneys fees.
55
In G.R. No. 61045, respondent National Irrigation Administration seeks the reversal of the
aforesaid decision of the lower court. The original appeal of this case before the Court of Appeals
was certified to this Court and in the resolution of July 7, 1982, it was docketed with the
aforecited number. And in the resolution of April 3, this case was consolidated with G.R. No.
55963.

It appears that on August 21, 1976 at about 6:30 P.M., a pickup owned and operated by
respondent National Irrigation Administration, a government agency bearing Plate No. IN-651,
then driven officially by Hugo Garcia, an employee of said agency as its regular driver, bumped a
bicycle ridden by Francisco Fontanilla, son of herein petitioners, and Restituto Deligo, at Maasin,
San Jose City along the Maharlika Highway. As a result of the impact, Francisco Fontanilla and
Restituto Deligo were injured and brought to the San Jose City Emergency Hospital for
treatment. Fontanilla was later transferred to the Cabanatuan Provincial Hospital where he died.

Garcia was then a regular driver of respondent National Irrigation Administration who, at the
time of the accident, was a licensed professional driver and who qualified for employment as
such regular driver of respondent after having passed the written and oral examinations on
traffic rules and maintenance of vehicles given by National Irrigation Administration authorities.

The within petition is thus an off-shot of the action (Civil Case No. SJC-56) instituted by
petitioners-spouses on April 17, 1978 against respondent NIA before the then Court of First
Instance of Nueva Ecija, Branch VIII at San Jose City, for damages in connection with the death
of their son resulting from the aforestated accident.

After trial, the trial court rendered judgment on March 20, 1980 which directed respondent
National Irrigation Administration to pay damages (death benefits) and actual expenses to
petitioners. The dispositive portion of the decision reads thus:

. . . . . Judgment is here rendered ordering the defendant National Irrigation

Administration to pay to the heirs of the deceased P12,000.00 for the death of
Francisco Fontanilla; P3,389.00 which the parents of the deceased had spent for
the hospitalization and burial of the deceased Francisco Fontanilla; and to pay the
costs. (Brief for the petitioners spouses Fontanilla, p. 4; Rollo, p. 132)

Respondent National Irrigation Administration filed on April 21, 1980, its motion for
reconsideration of the aforesaid decision which respondent trial court denied in its Order of June
13, 1980. Respondent National Irrigation Administration thus appealed said decision to the Court
of Appeals (C.A.-G.R. No. 67237- R) where it filed its brief for appellant in support of its position.

Instead of filing the required brief in the aforecited Court of Appeals case, petitioners filed the
instant petition with this Court.

The sole issue for the resolution of the Court is: Whether or not the award of moral damages,
exemplary damages and attorney's fees is legally proper in a complaint for damages based on
quasi-delict which resulted in the death of the son of herein petitioners.

Petitioners allege:

1. The award of moral damages is specifically allowable. under paragraph 3 of

Article 2206 of the New Civil Code which provides that the spouse, legitimate and
illegitimate descendants and ascendants of the deceased may demand moral
damages for mental anguish by reason of the death of the deceased. Should moral
56
 damages be granted, the award should be made to each of petitioners-
spouses individually and in varying amounts depending upon proof of mental and
depth of intensity of the same, which should not be less than P50,000.00 for each
of them.

2. The decision of the trial court had made an impression that respondent National
Irrigation Administration acted with gross negligence because of the accident and
the subsequent failure of the National Irrigation Administration personnel including
the driver to stop in order to give assistance to the, victims. Thus, by reason of the
gross negligence of respondent, petitioners become entitled to exemplary damages
under Arts. 2231 and 2229 of the New Civil Code.

3. Petitioners are entitled to an award of attorney's fees, the amount of which

(20%) had been sufficiently established in the hearing of May 23, 1979.

4. This petition has been filed only for the purpose of reviewing the findings of the
lower court upon which the disallowance of moral damages, exemplary damages
and attorney's fees was based and not for the purpose of disturbing the other
findings of fact and conclusions of law.

The Solicitor General, taking up the cudgels for public respondent National Irrigation
Administration, contends thus:

1. The filing of the instant petition is rot proper in view of the appeal taken by
respondent National Irrigation Administration to the Court of Appeals against the
judgment sought to be reviewed. The focal issue raised in respondent's appeal to
the Court of Appeals involves the question as to whether or not the driver of the
vehicle that bumped the victims was negligent in his operation of said vehicle. It
thus becomes necessary that before petitioners' claim for moral and exemplary
damages could be resolved, there should first be a finding of negligence on the part
of respondent's employee-driver. In this regard, the Solicitor General alleges that
the trial court decision does not categorically contain such finding.

2. The filing of the "Appearance and Urgent Motion For Leave to File Plaintiff-
Appellee's Brief" dated December 28, 1981 by petitioners in the appeal (CA-G.R.
No. 67237-R; and G. R. No.61045) of the respondent National Irrigation
Administration before the Court of Appeals, is an explicit admission of said
petitioners that the herein petition, is not proper. Inconsistent procedures are
manifest because while petitioners question the findings of fact in the Court of
Appeals, they present only the questions of law before this Court which posture
confirms their admission of the facts.

3. The fact that the parties failed to agree on whether or not negligence caused the
vehicular accident involves a question of fact which petitioners should have brought
to the Court of Appeals within the reglementary period. Hence, the decision of the
trial court has become final as to the petitioners and for this reason alone, the
petition should be dismissed.

4. Respondent Judge acted within his jurisdiction, sound discretion and in

conformity with the law.

57
 5. Respondents do not assail petitioners' claim to moral and exemplary damages by
reason of the shock and subsequent illness they suffered because of the death of
their son. Respondent National Irrigation Administration, however, avers that it
cannot be held liable for the damages because it is an agency of the State
performing governmental functions and driver Hugo Garcia was a regular driver of
the vehicle, not a special agent who was performing a job or act foreign to his usual
duties. Hence, the liability for the tortious act should. not be borne by respondent
government agency but by driver Garcia who should answer for the consequences
of his act.

6. Even as the trial court touched on the failure or laxity of respondent National
Irrigation Administration in exercising due diligence in the selection and supervision
of its employee, the matter of due diligence is not an issue in this case since driver
Garcia was not its special agent but a regular driver of the vehicle.

The sole legal question on whether or not petitioners may be entitled to an award of moral and
exemplary damages and attorney's fees can very well be answered with the application of Arts.
2176 and 2180 of theNew Civil Code.

Art. 2176 thus provides:

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

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

Paragraphs 5 and 6 of Art. 21 80 read as follows:

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even the though
the former are not engaged in any business or industry.

The State is responsible in like manner when it acts through a special agent.; but
not when the damage has been caused by the official to whom the task done
properly pertains, in which case what is provided in Art. 2176 shall be applicable.

The liability of the State has two aspects. namely:

1. Its public or governmental aspects where it is liable for the tortious acts of
special agents only.

2. Its private or business aspects (as when it engages in private enterprises) where
it becomes liable as an ordinary employer. (p. 961, Civil Code of the Philippines;
Annotated, Paras; 1986 Ed. ).

In this jurisdiction, the State assumes a limited liability for the damage caused by the tortious
acts or conduct of its special agent.

Under the aforequoted paragrah 6 of Art. 2180, the State has voluntarily assumed liability for
acts done through special agents. The State's agent, if a public official, must not only be
specially commissioned to do a particular task but that such task must be foreign to said
official's usual governmental functions. If the State's agent is not a public official, and is
58
commissioned to perform non-governmental functions, then the State assumes the role of an
ordinary employer and will be held liable as such for its agent's tort. Where the government
commissions a private individual for a special governmental task, it is acting through a special
agent within the meaning of the provision. (Torts and Damages, Sangco, p. 347, 1984 Ed.)

Certain functions and activities, which can be performed only by the government, are more or
less generally agreed to be "governmental" in character, and so the State is immune from tort
liability. On the other hand, a service which might as well be provided by a private corporation,
and particularly when it collects revenues from it, the function is considered a "proprietary" one,
as to which there may be liability for the torts of agents within the scope of their employment.

The National Irrigation Administration is an agency of the government exercising proprietary

functions, by express provision of Rep. Act No. 3601. Section 1 of said Act provides:

Section 1. Name and domicile.-A body corporate is hereby created which shall be
known as the National Irrigation Administration, hereinafter called the NIA for
short, which shall be organized immediately after the approval of this Act. It shall
have its principal seat of business in the City of Manila and shall have
representatives in all provinces for the proper conduct of its business.

Section 2 of said law spells out some of the NIA's proprietary functions. Thus-

Sec. 2. Powers and objectives.-The NIA shall have the following powers and
objectives:

(a) x x x x x x x x x x x x x x x x x x

(b) x x x x x x x x x x x x x x x x x x

(c) To collect from the users of each irrigation system constructed by it such fees as
may be necessary to finance the continuous operation of the system and reimburse
within a certain period not less than twenty-five years cost of construction thereof;
and

(d) To do all such other tthings and to transact all such business as are directly or
indirectly necessary, incidental or conducive to the attainment of the above
objectives.

Indubitably, the NIA is a government corporation with juridical personality and not a mere
agency of the government. Since it is a corporate body performing non-governmental functions,
it now becomes liable for the damage caused by the accident resulting from the tortious act of
its driver-employee. In this particular case, the NIA assumes the responsibility of an ordinary
employer and as such, it becomes answerable for damages.

This assumption of liability, however, is predicated upon the existence of negligence on the part
of respondent NIA. The negligence referred to here is the negligence of supervision.

At this juncture, the matter of due diligence on the part of respondent NIA becomes a crucial
issue in determining its liability since it has been established that respondent is a government
agency performing proprietary functions and as such, it assumes the posture of an ordinary
employer which, under Par. 5 of Art. 2180, is responsible for the damages caused by its

59
employees provided that it has failed to observe or exercise due diligence in the selection and
supervision of the driver.

It will be noted from the assailed decision of the trial court that "as a result of the impact,
Francisco Fontanilla was thrown to a distance 50 meters away from the point of impact while
Restituto Deligo was thrown a little bit further away. The impact took place almost at the edge of
the cemented portion of the road." (Emphasis supplied,) [page 26, Rollo]

The lower court further declared that "a speeding vehicle coming in contact with a person causes
force and impact upon the vehicle that anyone in the vehicle cannot fail to notice. As a matter of
fact, the impact was so strong as shown by the fact that the vehicle suffered dents on the right
side of the radiator guard, the hood, the fender and a crack on the radiator as shown by the
investigation report (Exhibit "E"). (Emphasis supplied) [page 29, Rollo]

It should be emphasized that the accident happened along the Maharlika National Road within
the city limits of San Jose City, an urban area. Considering the fact that the victim was thrown
50 meters away from the point of impact, there is a strong indication that driver Garcia was
driving at a high speed. This is confirmed by the fact that the pick-up suffered substantial and
heavy damage as above-described and the fact that the NIA group was then "in a hurry to reach
the campsite as early as possible", as shown by their not stopping to find out what they bumped
as would have been their normal and initial reaction.

Evidently, there was negligence in the supervision of the driver for the reason that they were
travelling at a high speed within the city limits and yet the supervisor of the group, Ely Salonga,
failed to caution and make the driver observe the proper and allowed speed limit within the city.
Under the situation, such negligence is further aggravated by their desire to reach their
destination without even checking whether or not the vehicle suffered damage from the object it
bumped, thus showing imprudence and reckelessness on the part of both the driver and the
supervisor in the group.

Significantly, this Court has ruled that even if the employer can prove the diligence in the
selection and supervision (the latter aspect has not been established herein) of the employee,
still if he ratifies the wrongful acts, or take no step to avert further damage, the employer would
still be liable. (Maxion vs. Manila Railroad Co., 44 Phil. 597).

Thus, too, in the case of Vda. de Bonifacio vs. B.L.T. Bus Co. (L-26810, August 31, 1970, 34
SCRA 618), this Court held that a driver should be especially watchful in anticipation of others
who may be using the highway, and his failure to keep a proper look out for reasons and objects
in the line to be traversed constitutes negligence.

Considering the foregoing, respondent NIA is hereby directed to pay herein petitioners-spouses
the amounts of P12,000.00 for the death of Francisco Fontanilla; P3,389.00 for hospitalization
and burial expenses of the aforenamed deceased; P30,000.00 as moral damages; P8,000.00 as
exemplary damages and attorney's fees of 20% of the total award.

SO ORDERED.

G.R. No. 129577-80 February 15, 2000

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
BULU CHOWDURY, accused-appellant.
60
PUNO, J.:

In November 1995, Bulu Chowduly and Josephine Ong were charged before the Regional Trial
Court of Manila with the crime of illegal recruitment in large scale committed as follows:

That sometime between the period from August 1994 to October 1994 in the City of
Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused, representing themselves to have the capacity to contract, enlist and transport
workers for employment abroad, conspiring, confederating and mutually helping one
another, did then and there willfully, unlawfully and feloniously recruit the herein
complainants: Estrella B. Calleja, Melvin C. Miranda and Aser S. Sasis, individually or as a
group for employment in Korea without first obtaining the required license and/or
authority from the Philippine Overseas Employment Administration.1

They were likewise charged with three counts of estafa committed against private
complainants.2 The State Prosecutor, however, later dismissed the estafa charges against
Chowdury3 and filed an amended information indicting only Ong for the offense.4

Chowdury was arraigned on April 16, 1996 while Ong remained at large. He pleaded "not guilty"
to the charge of illegal recruitment in large scale.5

Trial ensued.

The prosecution presented four witnesses: private complainants Aser Sasis, Estrella Calleja and
Melvin Miranda, and Labor Employment Officer Abbelyn Caguitla.

Sasis testified that he first met Chowdury in August 1994 when he applied with Craftrade
Overseas Developers (Craftrade) for employment as factory worker in South Korea. Chowdury, a
consultant of Craftrade, conducted the interview. During the interview, Chowdury informed him
about the requirements for employment. He told him to submit his passport, NBI clearance,
passport size picture and medical certificate. He also required him to undergo a seminar. He
advised him that placement would be on a first-come-first-serve basis and urged him to
complete the requirements immediately. Sasis was also charged a processing fee of P25,000.00.
Sasis completed all the requirements in September 1994. He also paid a total amount of
P16,000.00 to Craftrade as processing fee. All payments were received by Ong for which she
issued three receipts.6 Chowdury then processed his papers and convinced him to complete his
payment.7

Sasis further said that he went to the office of Craftrade three times to follow up his application
but he was always told to return some other day. In one of his visits to Craftrade's office, he was
informed that he would no longer be deployed for employment abroad. This prompted him to
withdraw his payment but he could no longer find Chowdury. After two unsuccessful attempts to
contact him, he decided to file with the Philippine Overseas Employment Administration (POEA) a
case for illegal recruitment against Chowdury. Upon verification with the POEA, he learned that
Craftrade's license had already expired and has not been renewed and that Chowdury, in his
personal capacity, was not a licensed recruiter.8

Calleja testified that in June 1994, she applied with Craftrade for employment as factory worker
in South Korea. She was interviewed by Chowdury. During the interview, he asked questions
regarding her marital status, her age and her province. Toward the end of the interview,
Chowdury told her that she would be working in a factory in Korea. He required her to submit
her passport, NBI clearance, ID pictures, medical certificate and birth certificate. He also obliged
61
her to attend a seminar on overseas employment. After she submitted all the documentary
requirements, Chowdury required her to pay P20,000.00 as placement fee. Calleja made the
payment on August 11, 1994 to Ong for which she was issued a receipt.9 Chowdury assured her
that she would be able to leave on the first week of September but it proved to be an empty
promise. Calleja was not able to leave despite several follow-ups. Thus, she went to the POEA
where she discovered that Craftrade's license had already expired. She tried to withdraw her
money from Craftrade to no avail. Calleja filed a complaint for illegal recruitment against
Chowdury upon advice of POEA's legal counsel.10

Miranda testified that in September 1994, his cousin accompanied him to the office of Craftrade
in Ermita, Manila and introduced him to Chowdury who presented himself as consultant and
interviewer. Chowdury required him to fill out a bio-data sheet before conducting the interview.
Chowdury told Miranda during the interview that he would send him to Korea for employment as
factory worker. Then he asked him to submit the following documents: passport, passport size
picture, NBI clearance and medical certificate. After he complied with the requirements, he was
advised to wait for his visa and to pay P25,000.00 as processing fee. He paid the amount of
P25,000.00 to Ong who issued receipts therefor.11 Craftrade, however, failed to deploy him.
Hence, Miranda filed or complaint with the POEA against Chowdury for illegal recruitment.12

Labor Employment Officer Abbelyn Caguitla of the Licensing Branch of the POEA testified that
she prepared a certification on June 9, 1996 that Chowdury and his co-accused, Ong, were not,
in their personal capacities, licensed recruiters nor were they connected with any licensed
agency. She nonetheless stated that Craftrade was previously licensed to recruit workers for
abroad which expired on December 15, 1993. It applied for renewal of its license but was only
granted a temporary license effective December 16, 1993 until September 11, 1994. From
September 11, 1994, the POEA granted Craftrade another temporary authority to process the
expiring visas of overseas workers who have already been deployed. The POEA suspended
Craftrade's temporary license on December 6, 1994.13

For his defense, Chowdury testified that he worked as interviewer at Craftrade from 1990 until
1994. His primary duty was to interview job applicants for abroad. As a mere employee, he only
followed the instructions given by his superiors, Mr. Emmanuel Geslani, the agency's President
and General Manager, and Mr. Utkal Chowdury, the agency's Managing Director. Chowdury
admitted that he interviewed private complainants on different dates. Their office secretary
handed him their bio-data and thereafter he led them to his room where he conducted the
interviews. During the interviews, he had with him a form containing the qualifications for the
job and he filled out this form based on the applicant's responses to his questions. He then
submitted them to Mr. Utkal Chowdury who in turn evaluated his findings. He never received
money from the applicants. He resigned from Craftrade on November 12, 1994.14

Another defense witness, Emelita Masangkay who worked at the Accreditation Branch of the
POEA presented a list of the accredited principals of Craftrade Overseas Developers15 and a list
of processed workers of Craftrade Overseas Developers from 1988 to 1994.16

The trial court found Chowdury guilty beyond reasonable doubt of the crime of illegal
recruitment in large scale. It sentenced him to life imprisonment and to pay a fine of
P100,000.00. It further ordered him to pay Aser Sasis the amount of P16,000.00, Estrella
Calleja, P20,000.00 and Melvin Miranda, P25,000.00. The dispositive portion of the decision
reads:

WHEREFORE, in view of the foregoing considerations, the prosecution having proved the
guilt of the accused Bulu Chowdury beyond reasonable doubt of the crime of Illegal
62
 Recruitment in large scale, he is hereby sentenced to suffer the penalty of life
imprisonment and a fine of P100,000.00 under Art. 39 (b) of the New Labor Code of the
Philippines. The accused is ordered to pay the complainants Aser Sasis the amount of
P16,000.00; Estrella Calleja the amount of P20,000.00; Melvin Miranda the amount of
P25,000.00.17

Chowdury appealed.

The elements of illegal recruitment in large scale are:

(1) The accused undertook any recruitment activity defined under Article 13 (b) or any
prohibited practice enumerated under Article 34 of the Labor Code;

(2) He did not have the license or authority to lawfully engage in the recruitment and
placement of workers; and

(3) He committed the same against three or more persons, individually or as a group.18

The last paragraph of Section 6 of Republic Act (RA) 804219 states who shall be held liable for
the offense, thus:

The persons criminally liable for the above offenses are the principals, accomplices and
accessories. In case of juridical persons, the officers having control, management or
direction of their business shall be liable.

The Revised Penal Code which supplements the law on illegal recruitment20 defines who are the
principals, accomplices and accessories. The principals are: (1) those who take a direct part in
the execution of the act; (2) those who directly force or induce others to commit it; and (3)
those who cooperate in the commission of the offense by another act without which it would not
have been accomplished.21 The accomplices are those persons who may not be considered as
principal as defined in Section 17 of the Revised Penal Code but cooperate in the execution of
the offense by previous or simultaneous act.22 The accessories are those who, having knowledge
of the commission of the crime, and without having participated therein, either as principals or
accomplices, take part subsequent to its commission in any of the following manner: (1) by
profiting themselves or assisting the offenders to profit by the effects of the crime; (2) by
concealing or destroying the body of the crime, or the effects or instruments thereof, in order to
prevent its discovery; and (3) by harboring, concealing, or assisting in the escape of the
principal of the crime, provided the accessory acts with abuse of his public functions or
whenever the author of the crime is guilty of treason, parricide, murder, or an attempt at the life
of the chief executive, or is known to be habitually guilty of some other crime.23

Citing the second sentence of the last paragraph of Section 6 of RA 8042, accused-appellant
contends that he may not be held liable for the offense as he was merely an employee of
Craftrade and he only performed the tasks assigned to him by his superiors. He argues that the
ones who should be held liable for the offense are the officers having control, management and
direction of the agency.

As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for
illegal recruitment are the principals, accomplices and accessories. An employee of a company or
corporation engaged in illegal recruitment may be held liable as principal, together with his
employer,24 if it is shown that he actively and consciously participated in illegal recruitment.25 It
has been held that the existence of the corporate entity does not shield from prosecution the
63
corporate agent who knowingly and intentionally causes the corporation to commit a crime. The
corporation obviously acts, and can act, only by and through its human agents, and it is their
conduct which the law must deter, The employee or agent of a corporation engaged in unlawful
business naturally aids and abets in the carrying on of such business and will be prosecuted as
principal if with knowledge of the business, its purpose and effect, he consciously contributes his
efforts to its conduct and promotion, however slight his contribution may be.26 The law of
agency, as applied in civil cases, has no application in criminal cases, and no man can escape
punishment when he participates in the commission of a crime upon the ground that he simply
acted as an agent of any party.27 The culpability of the employee therefore hinges on his
knowledge of the offense and his active participation in its commission. Where it is shown that
the employee was merely acting under the direction of his superiors and was unaware that his
acts constituted a crime, he may not be held criminally liable for an act done for and in behalf of
his employer.28

The fundamental issue in this case, therefore, is whether accused-appellant knowingly and
intentionally participated in the commission of the crime charged.

We find that he did not.

Evidence shows that accused-appellant interviewed private complainants in the months of June,
August and September in 1994 at Craftrade's office. At that time, he was employed as
interviewer of Craftrade which was then operating under a temporary authority given by the
POEA pending renewal of its license.29 The temporary license included the authority to recruit
workers.30 He was convicted based on the fact that he was not registered with the POEA as
employee of Craftrade. Neither was he, in his personal capacity, licensed to recruit overseas
workers. Section 10 Rule II Book II of the Rules and Regulation Governing Overseas
Employment (1991) requires that every change, termination or appointment of officers,
representatives and personnel of licensed agencies be registered with the POEA. Agents or
representatives appointed by a licensed recruitment agency whose appointments are not
previously approved by the POEA are considered "non-licensee" or "non-holder of authority" and
therefore not authorized to engage in recruitment activity.31

Upon examination of the records, however, we find that the prosecution failed to prove that
accused-appellant was aware of Craftrade's failure to register his name with the POEA and that
he actively engaged in recruitment despite this knowledge. The obligation to register its
personnel with the POEA belongs to the officers of the agency.32 A mere employee of the agency
cannot be expected to know the legal requirements for its operation. The evidence at hand
shows that accused-appellant carried out his duties as interviewer of Craftrade believing that the
agency was duly licensed by the POEA and he, in turn, was duly authorized by his agency to deal
with the applicants in its behalf. Accused-appellant in fact confined his actions to his job
description. He merely interviewed the applicants and informed them of the requirements for
deployment but he never received money from them. Their payments were received by the
agency's cashier, Josephine Ong. Furthermore, he performed his tasks under the supervision of
its president and managing director. Hence, we hold that the prosecution failed to prove beyond
reasonable doubt accused-appellant's conscious and active participation in the commission of the
crime of illegal recruitment. His conviction, therefore, is without basis.

This is not to say that private complainants are left with no remedy for the wrong committed
against them. The Department of Justice may still file a complaint against the officers having
control, management or direction of the business of Craftrade Overseas Developers (Craftrade),
so long as the offense has not yet prescribed. Illegal recruitment is a crime of economic
sabotage which need to be curbed by the strong arm of the law. It is important, however, to
64
stress that the government's action must be directed to the real offenders, those who perpetrate
the crime and benefit from it.

IN VIEW WHEREOF, the assailed decision of the Regional Trial Court is REVERSED and SET
ASIDE. Accused-appellant is hereby ACQUITTED. The Director of the Bureau of Corrections is
ordered to RELEASE accused-appellant unless he is being held for some other cause, and to
REPORT to this Court compliance with this order within ten (10) days from receipt of this
decision. Let a copy of this Decision be furnished the Secretary of the Department of Justice for
his information and appropriate action.1âwphi1.nêt

SO ORDERED.

G.R. No. 115849 January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the

Philippines) and MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and
JOSE JANOLO, respondents.

DECISION

PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank officers in an
exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable
contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent
authority" apply in this case? If so, may the Central Bank-appointed conservator of Producers
Bank (now First Philippine International Bank) repudiate such "apparent authority" after said
contract has been deemed perfected? During the pendency of a suit for specific performance,
does the filing of a "derivative suit" by the majority shareholders and directors of the distressed
bank to prevent the enforcement or implementation of the sale violate the ban against forum-
shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for
review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated
January 14, 1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the
Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive
portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the
damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction
of the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant
bank. In all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are
deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.

Costs against appellant bank.

The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as
follows:
65
 WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs
and against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels
of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or
less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-
106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and
the defendant Producers Bank for an agreed price of Five and One Half Million
(P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and
receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs
a deed of absolute sale over the aforementioned six (6) parcels of land, and to
immediately deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T-
106937, inclusive, for purposes of registration of the same deed and transfer of the six
(6) titles in the names of the plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P200,000.00 each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00
as exemplary damages ;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorney's fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate
damages in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder,
the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties
filed their respective memoranda and reply memoranda. The First Division transferred this case
to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the
aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing of
this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines;
petitioner Bank, for brevity) is a banking institution organized and existing under the laws of the
Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal
age and was, at all times material to this case, Head-Manager of the Property Management
Department of the petitioner Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee
of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.

Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be
set aside through this petition.

66
 The Facts

The facts of this case are summarized in the respondent Court's Decision3 as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines
acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta.
Rose, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937.
The property used to be owned by BYME Investment and Development Corporation which
had them mortgaged with the bank as collateral for a loan. The original plaintiffs,
Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated
negotiations for that purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME
investment's legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of
the Property Management Department of the defendant bank. The meeting was held
pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the
meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal
purchase offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows:

August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera

Manager, Property Management Dept.

Gentleman:

I have the honor to submit my formal offer to purchase your properties covered by titles
listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or
less.

TCT NO. AREA

T- 113,580
106932 sq. m.
T- 70,899 sq.
106933 m.
T- 52,246 sq.
106934 m.
T- 96,768 sq.
106935 m.
T- 187,114
106936 sq. m.
T- 481,481
106937 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00)

PESOS, in cash.

67
Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply
by letter which is hereunder quoted (Exh. "C"):

September 1, 1987

JP M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doña Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa,
Laguna (formerly owned by Byme Industrial Corp.). Please be informed however that the
bank's counter-offer is at P5.5 million for more than 101 hectares on lot basis.

We shall be very glad to hear your position on the on the matter.

Best regards.

(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply,
wrote (Exh. "D"):

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at
Sta. Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the
said lot at P4.250 million in CASH..

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took
place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the
Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer,
attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to
the bank, through Rivera, the following letter (Exh. "E"):

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila
68
Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land

in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we
are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly
owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED
THOUSAND (P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator
in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant
Rivera wrote plaintiff Demetria the following letter (Exh. "F"):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme investment Corp.
located at Sta. Rosa, Laguna is under study yet as of this time by the newly created
committee for submission to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by
the bank with what plaintiff considered as a perfected contract of sale, which demands
were in one form or another refused by the bank. As detailed by the trial court in its
decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit
"G") tendered payment of the amount of P5.5 million "pursuant to (our) perfected sale
agreement." Defendants refused to receive both the payment and the letter. Instead, the
parcels of land involved in the transaction were advertised by the bank for sale to any
interested buyer (Exh, "H" and "H-1"). Plaintiffs demanded the execution by the bank of
the documents on what was considered as a "perfected agreement." Thus:

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-
hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to
106937.

69
From the documents at hand, it appears that your counter-offer dated September 1, 1987
of this same lot in the amount of P5.5 million was accepted by our client thru a letter
dated September 30, 1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected.
We were also informed that despite repeated follow-up to consummate the purchase, you
now refuse to honor your commitment. Instead, you have advertised for sale the same lot
to others.

In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days from
your receipt hereof. We are ready to remit the agreed amount of P5.5 million at your
advice. Otherwise, we shall be constrained to file the necessary court action to protect the
interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing
letter and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter
has been "referred . . . to the office of our Conservator for proper disposition" However,
no response came from the Acting Conservator. On December 14, 1987, the plaintiffs
made a second tender of payment (Exh. "L" and "L-1"), this time through the Acting
Conservator, defendant Encarnacion. Plaintiffs' letter reads:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION

Central Bank Conservator

We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check
No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare
lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and
registered under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5
Million as the purchase price of the said lots. Please inform us of the date of
documentation of the sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3,
1988, plaintiff, through counsel, made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by
the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4"
of defendant's answer to amended complaint), the defendants through Acting Conservator
Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings
with the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal.
On that basis, the defendants justified the refusal of the tenders of payment and the non-

70
 compliance with the obligations under what the plaintiffs considered to be a perfected
contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against
the bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit
was that the transaction had with the bank resulted in a perfected contract of sale, The
defendants took the position that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was no meeting of the minds
as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as
owner of 80% of the Bank's outstanding shares of stock, he had a substantial interest in
resisting the complaint. On July 8, 1991, the trial court issued an order denying the
motion to intervene on the ground that it was filed after trial had already been concluded.
It also denied a motion for reconsideration filed thereafter. From the trial court's decision,
the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals
which subsequently affirmed with modification the said judgment. Henry Co did not appeal
the denial of his motion for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in
place of Demetria and Janolo, in view of the assignment of the latters' rights in the matter in
litigation to said private respondent.

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and
several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and
Cruz, filed an action (hereafter, the "Second Case") — purportedly a "derivative suit" — with the
Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against
Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as
unenforceable and to stop Ejercito from enforcing or implementing the sale"4 In his answer,
Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then
pending in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs
filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent
opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies
the dismissal of both cases, with prejudice."5 Private respondent, in his memorandum, averred
that this motion is still pending in the Makati RTC.

In their Petition6 and Memorandum7 , petitioners summarized their position as follows:

I.

The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.

II.

The Court of Appeals erred in declaring the existence of an enforceable contract of sale
between the parties.

III.

71
 The Court of Appeals erred in declaring that the conservator does not have the power to
overrule or revoke acts of previous management.

IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence on
record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:

I.

Petitioners have engaged in forum shopping.

II.

The factual findings and conclusions of the Court of Appeals are supported by the
evidence on record and may no longer be questioned in this case.

III.

The Court of Appeals correctly held that there was a perfected contract between Demetria
and Janolo (substituted by; respondent Ejercito) and the bank.

IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped
from repudiating the agency and the contract, has no authority to revoke the contract of
sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as
follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?

3) Assuming there was, was the said contract enforceable under the statute of frauds?

4) Did the bank conservator have the unilateral power to repudiate the authority of the
bank officers and/or to revoke the said contract?

5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court
promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . .
[that] (a) he has not (t)heretofore commenced any other action or proceeding involving the

72
same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to
the best of his knowledge, no such action or proceeding is pending" in said courts or agencies. A
violation of the said circular entails sanctions that include the summary dismissal of the multiple
petitions or complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION
in their Petition stating "for the record(,) the pendency of Civil Case No. 92-1606 before the
Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of
petitioner Bank against the conservator and other defendants but which is the subject of a
pending Motion to Dismiss Without Prejudice.9

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are
guilty of actual forum shopping because the instant petition pending before this Court involves
"identical parties or interests represented, rights asserted and reliefs sought (as that) currently
pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the
issues in the two cases are so interwined that a judgement or resolution in either case will
constitute res judicata in the other." 10

On the other hand, petitioners explain 11

that there is no forum-shopping because:

1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded
as a defendant, whereas in the "Second Case" (assuming the Bank is the real party in
interest in a derivative suit), it was plaintiff;

2) "The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances";

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and

attached to the Petition identifies the action as a "derivative suit," it "does not mean that
it is one" and "(t)hat is a legal question for the courts to decide";

4) Petitioners did not hide the Second Case at they mentioned it in the said
VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law.12 , where

non-resident litigants are given the option to choose the forum or place wherein to bring their
suit for various reasons or excuses, including to secure procedural advantages, to annoy and
harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To
combat these less than honorable excuses, the principle of forum non conveniens was developed
whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is
not the most "convenient" or available forum and the parties are not precluded from seeking
remedies elsewhere.

In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts
to have his action tried in a particular court or jurisdiction where he feels he will receive the
most favorable judgment or verdict." Hence, according to Words and Phrases14 , "a litigant is
open to the charge of "forum shopping" whenever he chooses a forum with slight connection to
factual circumstances surrounding his suit, and litigants should be encouraged to attempt to
settle their differences without imposing undue expenses and vexatious situations on the
courts".

73
In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of
venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As
to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence
personal actions "where the defendant or any of the defendants resides or may be found, or
where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2
[b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil
liabilities independently of the criminal, arising from the same set of facts. A passenger of a
public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa
aquiliana or culpa criminal — each remedy being available independently of the others —
although he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant

actually shops for a forum of his action, This was the original concept of the term forum
shopping.

Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available
courts, or invoke all relevant remedies simultaneously. This practice had not only resulted
to (sic) conflicting adjudications among different courts and consequent confusion
enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.

Thus, "forum shopping" had acquired a different concept — which is unethical professional
legal practice. And this necessitated or had given rise to the formulation of rules and
canons discouraging or altogether prohibiting the practice. 15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate
device for solving problems has been abused and mis-used to assure scheming litigants of
dubious reliefs.

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already
mentioned, promulgated Circular 28-91. And even before that, the Court had prescribed it in the
Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several
cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of
repetitious suits in different courts" has been condemned by Justice Andres R. Narvasa (now
Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a
reprehensible manipulation of court processes and proceedings . . ." 17 when does forum
shopping take place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a

party seeks a favorable opinion (other than by appeal or certiorari) in another. The
principle applies not only with respect to suits filed in the courts but also in connection
with litigations commenced in the courts while an administrative proceeding is pending, as
in this case, in order to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling. This is specially so, as in
this case, where the court in which the second suit was brought, has no jurisdiction.18

The test for determining whether a party violated the rule against forum shopping has been laid
dawn in the 1986 case of Buan vs. Lopez 19 , also by Chief Justice Narvasa, and that is, forum
shopping exists where the elements of litis pendentia are present or where a final judgment in
one case will amount to res judicata in the other, as follows:

74
 There thus exists between the action before this Court and RTC Case No. 86-36563
identity of parties, or at least such parties as represent the same interests in both actions,
as well as identity of rights asserted and relief prayed for, the relief being founded on the
same facts, and the identity on the two preceding particulars is such that any judgment
rendered in the other action, will, regardless of which party is successful, amount to res
adjudicata in the action under consideration: all the requisites, in fine, of auter action
pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an
identity as regards parties, or interests represented, rights asserted and relief sought, as
well as basis thereof, to a degree sufficient to give rise to the ground for dismissal known
as auter action pendant or lis pendens. That same identity puts into operation the
sanction of twin dismissals just mentioned. The application of this sanction will prevent
any further delay in the settlement of the controversy which might ensue from attempts
to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil
Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon
grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the same
party against whom another action or actions for the alleged violation of the same right and the
enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is
bar to the others; and, a final judgment in one would constitute res judicata and thus would
cause the dismissal of the rest. In either case, forum shopping could be cited by the other party
as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and for
imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and
disciplinary action against the erring lawyer.

Applying the foregoing principles in the case before us and comparing it with the Second Case, it
is obvious that there exist identity of parties or interests represented, identity of rights or causes
and identity of reliefs sought.

Very simply stated, the original complaint in the court a quo which gave rise to the instant
petition was filed by the buyer (herein private respondent and his predecessors-in-interest)
against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the
other hand, the complaint 21 in the Second Case seeks to declare such purported sale involving
the same real property "as unenforceable as against the Bank", which is the petitioner herein. In
other words, in the Second Case, the majority stockholders, in representation of the Bank, are
seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In
brief, the objective or the relief being sought, though worded differently, is the same, namely, to
enable the petitioner Bank to escape from the obligation to sell the property to respondent. In
Danville Maritime, Inc. vs. Commission on Audit. 22 , this Court ruled that the filing by a party of
two apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded
different respondents therein — PNOC in the case before the lower court and the COA in
the case before this Court and sought what seems to be different reliefs. Petitioner asks
this Court to set aside the questioned letter-directive of the COA dated October 10, 1988
and to direct said body to approve the Memorandum of Agreement entered into by and
between the PNOC and petitioner, while in the complaint before the lower court petitioner
seeks to enjoin the PNOC from conducting a rebidding and from selling to other parties
75
 the vessel "T/T Andres Bonifacio", and for an extension of time for it to comply with the
paragraph 1 of the memorandum of agreement and damages. One can see that although
the relief prayed for in the two (2) actions are ostensibly different, the ultimate objective
in both actions is the same, that is, approval of the sale of vessel in favor of petitioner and
to overturn the letter-directive of the COA of October 10, 1988 disapproving the
sale. (emphasis supplied).

In an earlier case 23
but with the same logic and vigor, we held:

In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their action in the
Makati Regional Trial Court, is a species of forum-shopping. Both actions unquestionably
involve the same transactions, the same essential facts and circumstances. The
petitioners' claim of absence of identity simply because the PCGG had not been impleaded
in the RTC suit, and the suit did not involve certain acts which transpired after its
commencement, is specious. In the RTC action, as in the action before this Court, the
validity of the contract to purchase and sell of September 1, 1986, i.e., whether or not it
had been efficaciously rescinded, and the propriety of implementing the same (by paying
the pledgee banks the amount of their loans, obtaining the release of the pledged shares,
etc.) were the basic issues. So, too, the relief was the same: the prevention of such
implementation and/or the restoration of the status quo ante. When the acts sought to be
restrained took place anyway despite the issuance by the Trial Court of a temporary
restraining order, the RTC suit did not become functus oficio. It remained an effective
vehicle for obtention of relief; and petitioners' remedy in the premises was plain and
patent: the filing of an amended and supplemental pleading in the RTC suit, so as to
include the PCGG as defendant and seek nullification of the acts sought to be enjoined but
nonetheless done. The remedy was certainly not the institution of another action in
another forum based on essentially the same facts, The adoption of this latter recourse
renders the petitioners amenable to disciplinary action and both their actions, in this Court
as well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests
represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name
parties in the First Case, they represent the same interest and entity, namely, petitioner Bank,
because:

Firstly, they are not suing in their personal capacities, for they have no direct personal interest
in the matter in controversy. They are not principally or even subsidiarily liable; much less are
they direct parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the stockholders are
bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and
in behalf of the Producers Bank of the Philippines" 24 . Indeed, this is the very essence of a
derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the

corporation wherein he holdsstock in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued
or hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

76
In the face of the damaging admissions taken from the complaint in the Second Case,
petitioners, quite strangely, sought to deny that the Second Case was a derivative suit,
reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who not
only own, hold or control over 80% of the outstanding capital stock, but also constitute the
majority in the Board of Directors of petitioner Bank. That being so, then they really represent
the Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity of
interests/entity represented.

Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is
separate and distinct from its shareholders. But the rulings of this Court are consistent: "When
the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of
a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be lifted to
allow for its consideration merely as an aggregation of individuals." 25

In addition to the many cases 26 where the corporate fiction has been disregarded, we now add
the instant case, and declare herewith that the corporate veil cannot be used to shield an
otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether
suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed
to trifle with court processes, particularly where, as in this case, the corporation itself has not
been remiss in vigorously prosecuting or defending corporate causes and in using and applying
remedies available to it. To rule otherwise would be to encourage corporate litigants to use their
shareholders as fronts to circumvent the stringent rules against forum shopping.

Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs sought, "because
it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second
Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63,
Makati, etc. et al., 27 where Court held:

The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff — instead of filing a responsive pleading in
the other case — setting forth therein, as causes of action, specific denials, special and
affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did
not exist in the first place. (emphasis supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not
have chosen the forum in said case.

Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the above-quoted
Court ruling, the defendants did not file any responsive pleading in the first case. In other words,
they did not make any denial or raise any defense or counter-claim therein In the case before us
however, petitioners filed a responsive pleading to the complaint — as a result of which, the
issues were joined.

Indeed, by praying for affirmative reliefs and interposing counter–claims in their responsive
pleadings, the petitioners became plaintiffs themselves in the original case, giving unto
themselves the very remedies they repeated in the Second Case.

77
Ultimately, what is truly important to consider in determining whether forum-shopping exists or
not is the vexation caused the courts and parties-litigant by a party who asks different courts
and/or administrative agencies to rule on the same or related causes and/or to grant the same
or substantially the same reliefs, in the process creating the possibility of conflicting decisions
being rendered by the different fora upon the same issue. In this case, this is exactly the
problem: a decision recognizing the perfection and directing the enforcement of the contract of
sale will directly conflict with a possible decision in the Second Case barring the parties front
enforcing or implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other 28 .

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only
sanction possible now is the dismissal of both cases with prejudice, as the other sanctions
cannot be imposed because petitioners' present counsel entered their appearance only during
the proceedings in this Court, and the Petition's VERIFICATION/CERTIFICATION contained
sufficient allegations as to the pendency of the Second Case to show good faith in observing
Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the rudiments of
due process prevent us from motu propio imposing disciplinary measures against them in this
Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are
admonished to strictly follow the rules against forum-shopping and not to trifle with court
proceedings and processes They are warned that a repetition of the same will be dealt with more
severely.

Having said that, let it be emphasized that this petition should be dismissed not merely because
of forum-shopping but also because of the substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of
the facts established, a perfected contract of sale as the ultimate issue. Holding that a valid
contract has been established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the
defendant bank as acquired assets consisting of six (6) parcels of land specifically
identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise
beyond cavil that the bank intended to sell the property. As testified to by the Bank's
Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is
definite that the plaintiffs wanted to purchase the property and it was precisely for this
purpose that they met with defendant Rivera, Manager of the Property Management
Department of the defendant bank, in early August 1987. The procedure in the sale of
acquired assets as well as the nature and scope of the authority of Rivera on the matter is
clearly delineated in the testimony of Rivera himself, which testimony was relied upon by
both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-
20):

A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches
that these are acquired assets for sale. I was instructed to advertise acquired
assets for sale so on that basis, I have to entertain offer; to accept offer, formal
offer and upon having been offered, I present it to the Committee. I provide the
Committee with necessary information about the property such as original loan of
the borrower, bid price during the foreclosure, total claim of the bank, the
appraised value at the time the property is being offered for sale and then the
78
 information which are relative to the evaluation of the bank to buy which the
Committee considers and it is the Committee that evaluate as against the exposure
of the bank and it is also the Committee that submit to the Conservator for final
approval and once approved, we have to execute the deed of sale and it is the
Conservator that sign the deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying
the property, dealt with and talked to the right person. Necessarily, the agenda was the
price of the property, and plaintiffs were dealing with the bank official authorized to
entertain offers, to accept offers and to present the offer to the Committee before which
the said official is authorized to discuss information relative to price determination.
Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official
information regarding the price, as determined by the Committee and approved by the
Conservator, can be had. And Rivera confirmed his authority when he talked with the
plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point (TSN of
May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did
you ask him point-blank his authority to sell any property?

A: No, sir. Not point blank although it came from him, (W)hen I asked him how
long it would take because he was saying that the matter of pricing will be passed
upon by the committee. And when I asked him how long it will take for the
committee to decide and he said the committee meets every week. If I am not
mistaken Wednesday and in about two week's (sic) time, in effect what he was
saying he was not the one who was to decide. But he would refer it to the
committee and he would relay the decision of the committee to me.

Q — Please answer the question.

A — He did not say that he had the authority (.) But he said he would refer the
matter to the committee and he would relay the decision to me and he did just like
that.

"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co
was the Head, with Jose Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent with the authority
and the duties of Rivera and the bank's internal procedure in the matter of the sale of
bank's assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated
August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter
was for the attention of Mercurio Rivera who was tasked to convey and accept such offers.
Considering an aspect of the official duty of Rivera as some sort of intermediary between
the plaintiffs-buyers with their proposed buying price on one hand, and the bank
Committee, the Conservator and ultimately the bank itself with the set price on the other,
and considering further the discussion of price at the meeting of August resulting in a
formal offer of P3.5 Million in cash, there can be no other logical conclusion than that
when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-
offer is at P5.5 Million for more than 101 hectares on lot basis," such counter-offer price
had been determined by the Past Due Committee and approved by the Conservator after
Rivera had duly presented plaintiffs' offer for discussion by the Committee of such matters
as original loan of borrower, bid price during foreclosure, total claim of the bank, and
79
 market value. Tersely put, under the established facts, the price of P5.5 Million was, as
clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the
bank was selling the property.

There were averments by defendants below, as well as before this Court, that the P5.5
Million price was not discussed by the Committee and that price. As correctly
characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose
Entereso on this point are at best equivocal and considering the gratuitous and self-
serving character of these declarations, the bank's submission on this point does not
inspire belief. Both Co ad Entereso, as members of the Past Due Committee of the bank,
claim that the offer of the plaintiff was never discussed by the Committee. In the same
vein, both Co and Entereso openly admit that they seldom attend the meetings of the
Committee. It is important to note that negotiations on the price had started in early
August and the plaintiffs had already offered an amount as purchase price, having been
made to understand by Rivera, the official in charge of the negotiation, that the price will
be submitted for approval by the bank and that the bank's decision will be relayed to
plaintiffs. From the facts, the official bank price. At any rate, the bank placed its official,
Rivera, in a position of authority to accept offers to buy and negotiate the sale by having
the offer officially acted upon by the bank. The bank cannot turn around and later say, as
it now does, that what Rivera states as the bank's action on the matter is not in fact so. It
is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing power to do those acts, the
corporation will, as against any one who has in good faith dealt with the corporation
through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA
577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court
of Appeals, G.R. No. 103957, June 14, 1993). 29

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as
follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject matter of
the contract; (3) Cause of the obligation which is established."

There is no dispute on requisite no. 2. The object of the questioned contract consists of the six
(6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or
less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is,
however, a dispute on the first and third requisites.

Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-
offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by
the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to
accept." 30 They disputed the factual basis of the respondent Court's findings that there was an
offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have
perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a
petition under Rule 45 such as this, errors of fact — if there be any - are, as a rule, not
reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe
the evidence presented by respondent more than that presented by petitioners is not by itself a
reversible error. In fact, such findings merit serious consideration by this Court, particularly
where, as in this case, said courts carefully and meticulously discussed their findings. This is
basic.

Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us
review the question of Rivera's authority to act and petitioner's allegations that the P5.5 million
80
counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are
questions of law which could be drawn from the factual findings of the respondent Court. They
also delve into the contractual elements of consent and cause.

The authority of a corporate officer in dealing with third persons may be actual or apparent. The
doctrine of "apparent authority", with special reference to banks, was laid out in Prudential Bank
vs. Court of Appeals31 , where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agent's apparent representation yields to the
principal's true representation and the contract is considered as entered into between the
principal and the third person (citing National Food Authority vs. Intermediate Appellate
Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or
in the course of dealings of the officers in their representative capacity but not for
acts outside the scape of their authority (9 C.J.S., p. 417). A bank holding out its
officers and agents as worthy of confidence will not be permitted to profit by the
frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds even
though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit (McIntosh v. Dakota
Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary

relationship with the public and their stability depends on the confidence of the people in
their honesty and efficiency. Such faith will be eroded where banks do not exercise strict
care in the selection and supervision of its employees, resulting in prejudice to their
depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent
or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence
includes the following:

(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this
case, Manager of the Property Management Department of the Bank". By his own
admission, Rivera was already the person in charge of the Bank's acquired assets (TSN,
August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank. And
during the initial meeting between the buyers and Rivera, the latter suggested that the
buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30
July 1990, p.11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5
million (TSN, July 30, p. 11);
81
 (e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal
to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price
of the Bank (TSN, January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994,
during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26,
1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank,
confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million
(TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as
the officer acting for the Bank in relation to parties interested in buying assets
owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Bank's
advertisements offering for sale the property in question (cf. Exhs. "S" and "S-1").

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32 , the Court,
through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the
apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by
similar circumstances surrounding his dealings with buyers.

To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents

and testimony which seek to establish Rivera's actual authority. These pieces of evidence,
however, are inherently weak as they consist of Rivera's self-serving testimony and various
inter-office memoranda that purport to show his limited actual authority, of which private
respondent cannot be charged with knowledge. In any event, since the issue is apparent
authority, the existence of which is borne out by the respondent Court's findings, the evidence of
actual authority is immaterial insofar as the liability of a corporation is concerned 33 .

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law
firm" had once acted for the Bank in three criminal cases, they should be charged with actual
knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had
already made a factual finding that the buyers had no notice of Rivera's actual authority prior to
the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any
acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely
associated with a loose aggrupation of lawyers (not a professional partnership), one of whose
members (Atty. Susana Parker) acted in said criminal cases.

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter
dated September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the
respondent Court's finding that "there was a meeting of minds when on 30 September 1987
Demetria and Janolo through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's
counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)", citing the late
Justice Paras35 , Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with
Beaumont vs. Prieto 37 .

However, the above-cited authorities and precedents cannot apply in the instant case because,
as found by the respondent Court which reviewed the testimonies on this point, what was
"accepted" by Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million
as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their

82
meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins
with"(p)ursuant to our discussion last 28 September 1987 . . .

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and
Co that the September 28, 1987 meeting "was meant to have the offerors improve on their
position of P5.5. million."38 However, both the trial court and the Court of Appeals found
petitioners' testimonial evidence "not credible", and we find no basis for changing this finding of
fact.

Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common
finding that private respondents' evidence is more in keeping with truth and logic — that during
the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price
has been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990,
pp. 34-35)"39 . Hence, assuming arguendo that the counter-offer of P4.25 million extinguished
the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September
28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter
accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter
was absolute and unqualified.

We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and
action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal"
came only on May 12, 1988 or more than seven (7) months after Janolo' acceptance. Such
delay, and the absence of any circumstance which might have justifiably prevented the Bank
from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute
attempt on the Bank's part to get out of a binding contractual obligation.

Taken together, the factual findings of the respondent Court point to an implied admission on
the part of the petitioners that the written offer made on September 1, 1987 was carried
through during the meeting of September 28, 1987. This is the conclusion consistent with
human experience, truth and good faith.

It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was
raised for the first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law,
theories, issues of fact and arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a reviewing court, as they
cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14,
1986, 145 SCRA 592).40

. . . It is settled jurisprudence that an issue which was neither averred in the complaint
nor raised during the trial in the court below cannot be raised for the first time on appeal
as it would be offensive to the basic rules of fair play, justice and due process (Dihiansan
vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty &
Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989];
Gevero vs. IAC, G.R. 77029, August 30, 1990).41

Since the issue was not raised in the pleadings as an affirmative defense, private respondent
was not given an opportunity in the trial court to controvert the same through opposing
evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only
to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the

83
evidence already in the record and as appreciated by the lower courts, the inevitable conclusion
is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged42 :

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during
the meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract produced thereby would be
unenforceable by action — there being no note, memorandum or writing subscribed by
the Bank to evidence such contract. (Please see article 1403[2], Civil Code.)

Upon the other hand, the respondent Court in its Decision (p, 14) stated:

. . . Of course, the bank's letter of September 1, 1987 on the official price and the
plaintiffs' acceptance of the price on September 30, 1987, are not, in themselves, formal
contracts of sale. They are however clear embodiments of the fact that a contract of sale
was perfected between the parties, such contract being binding in whatever form it may
have been entered into (case citations omitted). Stated simply, the banks' letter of
September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987,
constitute in law a sufficient memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not only
from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken
together, these letters constitute sufficient memoranda — since they include the names of the
parties, the terms and conditions of the contract, the price and a description of the property as
the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28,
1987 did constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still,
the statute of frauds will not apply by reason of the failure of petitioners to object to oral
testimony proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners — by such
utter failure to object — are deemed to have waived any defects of the contract under the
statute of frauds, pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403,
are ratified by the failure to object to the presentation of oral evidence to prove the same,
or by the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of
the counter-offer of P5.5 million is a plenty — and the silence of petitioners all throughout the
presentation makes the evidence binding on them thus;

A Yes, sir, I think it was September 28, 1987 and I was again present because Atty.
Demetria told me to accompany him we were able to meet Luis Co at the Bank.

xxx xxx xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?

A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
84
 Q What price?

A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera
is the final price and that is the price they intends (sic) to have, sir.

Q What do you mean?.

A That is the amount they want, sir.

Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the
defendant Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?

A He said in a day or two, he will make final acceptance, sir.

Q What is the response of Mr. Luis Co?.

A He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

Q What transpired during that meeting between you and Mr. Luis Co of the defendant
Bank?

A We went straight to the point because he being a busy person, I told him if the amount
of P5.5 million could still be reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to what Mr. Rivera stated. And he
told me that is the final offer of the bank P5.5 million and we should indicate our position
as soon as possible.

Q What was your response to the answer of Mr. Luis Co?

A I said that we are going to give him our answer in a few days and he said that was it.
Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.

Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his
Office in Producers Bank Building during this meeting?

A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Q By Mr. Co you are referring to?

A Mr. Luis Co.

Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the
counter offer by the bank?

A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer
we accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

85
 Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the
Committee and it is not within his power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the Committee?

A It was not discussed by the Committee but it was discussed initially by Luis Co and the
group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987
meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract.

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of
the Philippines during the time that the negotiation and perfection of the contract of sale took
place. Petitioners energetically contended that the conservator has the power to revoke or
overrule actions of the management or the board of directors of a bank, under Section 28-A of
Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining

department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator to take charge of the assets,
liabilities, and the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the
bank or non-bank financial intermediary performing quasi-banking functions, any
provision of law to the contrary notwithstanding, and such other powers as the Monetary
Board shall deem necessary.

In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the
perfected contract of sale was raised for the first time in this Petition — as this was not litigated
in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or
ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the first time
on appeal as it would be offensive to the basic rules of fair play, justice and due process."43

In the second place, there is absolutely no evidence that the Conservator, at the time the
contract was perfected, actually repudiated or overruled said contract of sale. The Bank's acting
conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria
and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who
took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition)
which unilaterally repudiated — not the contract — but the authority of Rivera to make a binding
offer — and which unarguably came months after the perfection of the contract. Said letter
dated May 12, 1988 is reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.

86
 Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your clients
nor perfected a "contract to sell and buy" with any of them for the following reasons.

In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by
former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto
M. Pascua detailed the functions of Property Management Department (PMD) staff and
officers (Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of
his subordinates has no authority, power or right to make any alleged counter-offer. In
short, your lawyer-clients did not deal with the authorized officers of the bank.

Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates
Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as
amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corportion/bank..

Our records do not show that Mr. Rivera was authorized by the old board or by any of the
bank conservators (starting January, 1984) to sell the aforesaid property to any of your
clients. Apparently, what took place were just preliminary discussions/consultations
between him and your clients, which everyone knows cannot bind the Bank's Board or
Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the
same is patently violative of corporate and banking laws. We believe that this is more
than sufficient legal justification for refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our acts are official,
legal and in accordance with law. We also have no personal interest in any of the
properties of the Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. EDCARNACION
Acting Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to
the conservator of a bank, it must be pointed out that such powers must be related to the
"(preservation of) the assets of the bank, (the reorganization of) the management thereof and
(the restoration of) its viability." Such powers, enormous and extensive as they are, cannot
extend to the post-facto repudiation of perfected transactions, otherwise they would infringe
against the non-impairment clause of the Constitution 44 . If the legislature itself cannot revoke

87
an existing valid contract, how can it delegate such non-existent powers to the conservator
under Section 28-A of said law?

Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that
are, under existing law, deemed to be defective — i.e., void, voidable, unenforceable or
rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What
the said board cannot do — such as repudiating a contract validly entered into under the
doctrine of implied authority — the conservator cannot do either. Ineluctably, his power is not
unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be
only to bring court actions to assail such contracts — as he has already done so in the instant
case. A contrary understanding of the law would simply not be permitted by the Constitution.
Neither by common sense. To rule otherwise would be to enable a failing bank to become
solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke
all previous dealings which had one way or another or come to be considered unfavorable to the
Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties
who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Facts?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of
fact by the Court of Appeals are not reviewable by the Supreme Court. In Andres
vs. Manufacturers Hanover & Trust Corporation, 45 , we held:

. . . The rule regarding questions of fact being raised with this Court in a petition
for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante
vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and revising
the errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court
of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of
decisions]. This Court has emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court"
(Tiongco v. De la Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs.
Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of
Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a
showing that the findings complained of are totally devoid of support in the record, or that
they are so glaringly erroneous as to constitute serious abuse of discretion, such findings
must stand, for this Court is not expected or required to examine or contrast the oral and
documentary evidence submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No.
L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals 46

, we held:

The resolution of this petition invites us to closely scrutinize the facts of the case, relating
to the sufficiency of evidence and the credibility of witnesses presented. This Court so held
that it is not the function of the Supreme Court to analyze or weigh such evidence all over
again. The Supreme Court's jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not a trier of facts. . . .

88
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp. 47 :

The Court has consistently held that the factual findings of the trial court, as well as the
Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts found by the lower courts is
allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when
there is grave abuse of discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings went beyond the issues of the
case and the same are contrary to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above grounds present to justify
the re-evaluation of the findings of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance
Company Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is
not the function of this Court to assess and evaluate all over again the evidence,
testimonial and documentary, adduced by the parties, particularly where, such as here,
the findings of both the trial court and the appellate court on the matter coincide.
(emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and
conclusions which were not only contrary to the evidence on record but have no bases at all,"
specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been
determined by the past due committee and approved by conservator Romey, after Rivera
presented the same for discussion" and (2) "the meeting with Co was not to scale down the
price and start negotiations anew, but a meeting on the already determined price of P5.5
million" Hence, citing Philippine National Bank vs. Court of Appeals 49 , petitioners are asking us
to review and reverse such factual findings.

The first point was clearly passed upon by the Court of Appeals 50
, thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than
101 hectares on lot basis, "such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs'
offer for discussion by the Committee . . . Tersely put, under the established fact, the
price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and
definitive price at which the bank was selling the property. (p. 11, CA Decision)

xxx xxx xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the
meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior
vice-president of the bank, where the topic was the possible lowering of the price, the
bank official refused it and confirmed that the P5.5 Million price had been passed upon by
the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15,
CA Decision).

89
The respondent Court did not believe the evidence of the petitioners on this point, characterizing
it as "not credible" and "at best equivocal and considering the gratuitous and self-serving
character of these declarations, the bank's submissions on this point do not inspire belief."

To become credible and unequivocal, petitioners should have presented then Conservator
Rodolfo Romey to testify on their behalf, as he would have been in the best position to establish
their thesis. Under the rules on evidence 51 , such suppression gives rise to the presumption that
his testimony would have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but petitioners' evidence was
deemed insufficient by both the trial court and the respondent Court, and instead, it was
respondent's submissions that were believed and became bases of the conclusions arrived at.

In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the
lower courts are valid and correct. But the petitioners are now asking this Court to disturb these
findings to fit the conclusion they are espousing, This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact
by the Court of Appeals 52 . We have studied both the records and the CA Decision and we find
no such exceptions in this case. On the contrary, the findings of the said Court are supported by
a preponderance of competent and credible evidence. The inferences and conclusions are
seasonably based on evidence duly identified in the Decision. Indeed, the appellate court
patiently traversed and dissected the issues presented before it, lending credibility and
dependability to its findings. The best that can be said in favor of petitioners on this point is that
the factual findings of respondent Court did not correspond to petitioners' claims, but were
closer to the evidence as presented in the trial court by private respondent. But this alone is no
reason to reverse or ignore such factual findings, particularly where, as in this case, the trial
court and the appellate court were in common agreement thereon. Indeed, conclusions of fact of
a trial judge — as affirmed by the Court of Appeals — are conclusive upon this Court, absent any
serious abuse or evident lack of basis or capriciousness of any kind, because the trial court is in
a better position to observe the demeanor of the witnesses and their courtroom manner as well
as to examine the real evidence presented.

Epilogue.

In summary, there are two procedural issues involved forum-shopping and the raising of issues
for the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the
conservator's powers to repudiate contracts entered into by the Bank's officers] — which per
se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved
as well into the substantive issues — the perfection of the contract of sale and its enforceability,
which required the determination of questions of fact. While the Supreme Court is not a trier of
facts and as a rule we are not required to look into the factual bases of respondent Court's
decisions and resolutions, we did so just the same, if only to find out whether there is reason to
disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor
by which the parties through their respective eloquent counsel, argued their positions before this
Court.

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally
under a government-appointed conservator and "there is need to rehabilitate the Bank in order
to get it back on its feet . . . as many people depend on (it) for investments, deposits and well
as employment. As of June 1987, the Bank's overdraft with the Central Bank had already

90
reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a
substantial amount of money." 53

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot
emotionally close its eyes to overriding considerations of substantive and procedural law, like
respect for perfected contracts, non-impairment of obligations and sanctions against forum-
shopping, which must be upheld under the rule of law and blind justice.

This Court cannot just gloss over private respondent's submission that, while the subject
properties may currently command a much higher price, it is equally true that at the time of the
transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the
Bank acquired these properties at a foreclosure sale for no more than P3.5 million 54 . That the
Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to
promote its own advantage, to enable it to escape its binding obligation and to reap the benefits
of the increase in land values. To rule in favor of the Bank simply because the property in
question has algebraically accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp
its imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court
hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is
REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or
similar acts will be dealt with more severely. Costs against petitioners.

SO ORDERED.

G.R. No. 167812 December 19, 2006

JESUS M. GOZUN, petitioner,

vs.
JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO MERCADO, respondent.

DECISION

CARPIO MORALES, J.:

On challenge via petition for review on certiorari is the Court of Appeals’ Decision of December
8, 2004 and Resolution of April 14, 2005 in CA-G.R. CV No. 763091 reversing the trial court’s
decision2 against Jose Teofilo T. Mercado a.k.a. Don Pepito Mercado (respondent) and
accordingly dismissing the complaint of Jesus M. Gozun (petitioner).

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon
respondent’s request, petitioner, owner of JMG Publishing House, a printing shop located in San
Fernando, Pampanga, submitted to respondent draft samples and price quotation of campaign
materials.

91
By petitioner’s claim, respondent’s wife had told him that respondent already approved his price
quotation and that he could start printing the campaign materials, hence, he did print campaign
materials like posters bearing respondent’s photograph,3 leaflets containing the slate of party
candidates,4 sample ballots,5 poll watcher identification cards,6 and stickers.

Given the urgency and limited time to do the job order, petitioner availed of the services and
facilities of Metro Angeles Printing and of St. Joseph Printing Press, owned by his daughter
Jennifer Gozun and mother Epifania Macalino Gozun, respectively.7

Petitioner delivered the campaign materials to respondent’s headquarters along Gapan-Olongapo

Road in San Fernando, Pampanga.8

Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian) obtained from
petitioner "cash advance" of P253,000 allegedly for the allowances of poll watchers who were
attending a seminar and for other related expenses. Lilian acknowledged on petitioner’s 1995
diary9 receipt of the amount.10

Petitioner later sent respondent a Statement of Account11 in the total amount of P2,177,906
itemized as follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles
Printing; P446,900 for St. Joseph Printing Press; and P253,000, the "cash advance" obtained by
Lilian.

On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who issued a
receipt12 therefor.

Despite repeated demands and respondent’s promise to pay, respondent failed to settle the
balance of his account to petitioner.

Petitioner and respondent being compadres, they having been principal sponsors at the
weddings of their respective daughters, waited for more than three (3) years for respondent to
honor his promise but to no avail, compelling petitioner to endorse the matter to his counsel who
sent respondent a demand letter.13 Respondent, however, failed to heed the demand.14

Petitioner thus filed with the Regional Trial Court of Angeles City on November 25, 1998 a
complaint15 against respondent to collect the remaining amount of P1,177,906 plus "inflationary
adjustment" and attorney’s fees.

In his Answer with Compulsory Counterclaim,16 respondent denied having transacted with
petitioner or entering into any contract for the printing of campaign materials. He alleged that
the various campaign materials delivered to him were represented as donations from his family,
friends and political supporters. He added that all contracts involving his personal expenses were
coursed through and signed by him to ensure compliance with pertinent election laws.

On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from him a cash
advance of P253,000, respondent denied having given her authority to do so and having
received the same.

At the witness stand, respondent, reiterating his allegations in his Answer, claimed that
petitioner was his over-all coordinator in charge of the conduct of seminars for volunteers and
the monitoring of other matters bearing on his candidacy; and that while his campaign manager,
Juanito "Johnny" Cabalu (Cabalu), who was authorized to approve details with regard to printing
materials, presented him some campaign materials, those were partly donated.17
92
When confronted with the official receipt issued to his wife acknowledging her payment to JMG
Publishing House of the amount of P1,000,000, respondent claimed that it was his first time to
see the receipt, albeit he belatedly came to know from his wife and Cabalu that the P1,000,000
represented "compensation [to petitioner] who helped a lot in the campaign as a gesture of
goodwill."18

Acknowledging that petitioner is engaged in the printing business, respondent explained that he
sometimes discussed with petitioner strategies relating to his candidacy, he (petitioner) having
actively volunteered to help in his campaign; that his wife was not authorized to enter into a
contract with petitioner regarding campaign materials as she knew her limitations; that he no
longer questioned the P1,000,000 his wife gave petitioner as he thought that it was just proper
to compensate him for a job well done; and that he came to know about petitioner’s claim
against him only after receiving a copy of the complaint, which surprised him because he knew
fully well that the campaign materials were donations.19

Upon questioning by the trial court, respondent could not, however, confirm if it was his
understanding that the campaign materials delivered by petitioner were donations from third
parties.20

Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is
donated, it must be so stated on its face, acknowledged that nothing of that sort was written on
all the materials made by petitioner.21

As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive
portion of which reads:

WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of
evidence, the Court hereby renders a decision in favor of the plaintiff ordering the
defendant as follows:

1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the
filing of this complaint until fully paid;

2. To pay the sum of P50,000.00 as attorney’s fees and the costs of suit.

SO ORDERED.22

Also as earlier adverted to, the Court of Appeals reversed the trial court’s decision and dismissed
the complaint for lack of cause of action.

In reversing the trial court’s decision, the Court of Appeals held that other than petitioner’s
testimony, there was no evidence to support his claim that Lilian was authorized by respondent
to borrow money on his behalf. It noted that the acknowledgment receipt23 signed by Lilian did
not specify in what capacity she received the money. Thus, applying Article 131724 of the Civil
Code, it held that petitioner’s claim for P253,000 is unenforceable.

On the accounts claimed to be due JMG Publishing House – P640,310, Metro Angeles Printing
– P837,696, and St. Joseph Printing Press – P446,900, the appellate court, noting that since the
owners of the last two printing presses were not impleaded as parties to the case and it was not
shown that petitioner was authorized to prosecute the same in their behalf, held that petitioner
could not collect the amounts due them.

93
Finally, the appellate court, noting that respondent’s wife had paid P1,000,000 to petitioner, the
latter’s claim of P640,310 (after excluding the P253,000) had already been settled.

Hence, the present petition, faulting the appellate court to have erred:

1. . . . when it dismissed the complaint on the ground that there is no evidence, other
than petitioner’s own testimony, to prove that Lilian R. Soriano was authorized by the
respondent to receive the cash advance from the petitioner in the amount of P253,000.00.

xxxx

2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro
Angeles Press and St. Joseph Printing Press on the ground that the complaint was not
brought by the real party in interest.

x x x x25

By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.26 Contracts
entered into in the name of another person by one who has been given no authority or legal
representation or who has acted beyond his powers are classified as unauthorized contracts and
are declared unenforceable, unless they are ratified.27

Generally, the agency may be oral, unless the law requires a specific form.28 However, a special
power of attorney is necessary for an agent to, as in this case, borrow money, unless it be
urgent and indispensable for the preservation of the things which are under
administration.29 Since nothing in this case involves the preservation of things under
administration, a determination of whether Soriano had the special authority to borrow money
on behalf of respondent is in order.

Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of attorney refers to
the nature of the authorization and not to its form.

. . . The requirements are met if there is a clear mandate from the principal specifically
authorizing the performance of the act. As early as 1906, this Court in Strong v.
Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or written.
The one thing vital being that it shall be express. And more recently, We stated that, if
the special authority is not written, then it must be duly established by evidence:

"…the Rules require, for attorneys to compromise the litigation of their clients, a special
authority. And while the same does not state that the special authority be in writing the
Court has every reason to expect that, if not in writing, the same be duly established by
evidence other than the self-serving assertion of counsel himself that such authority was
verbally given him."31 (Emphasis and underscoring supplied)

Petitioner submits that his following testimony suffices to establish that respondent had
authorized Lilian to obtain a loan from him, viz:

Q : Another caption appearing on Exhibit "A" is cash advance, it states given on 3-31-95
received by Mrs. Lilian Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00,
will you kindly tell the Court and explain what does that caption means?

94
 A : It is the amount representing the money borrowed from me by the defendant
when one morning they came very early and talked to me and told me that they
were not able to go to the bank to get money for the allowances of Poll Watchers who
were having a seminar at the headquarters plus other election related expenses during
that day, sir.

Q : Considering that this is a substantial amount which according to you was taken by
Lilian Soriano, did you happen to make her acknowledge the amount at that time?

A : Yes, sir.32 (Emphasis supplied)

Petitioner’s testimony failed to categorically state, however, whether the loan was made on
behalf of respondent or of his wife. While petitioner claims that Lilian was authorized by
respondent, the statement of account marked as Exhibit "A" states that the amount was
received by Lilian "in behalf of Mrs. Annie Mercado."

Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that
he had authorized Lilian to obtain the loan, hence, following Macke v. Camps34 which holds
that one who clothes another with apparent authority as his agent, and holds him out
to the public as such, respondent cannot be permitted to deny the authority.

Petitioner’s submission does not persuade. As the appellate court observed:

. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support

his claim unfortunately only indicates the Two Hundred Fifty Three Thousand Pesos
(P253,0000.00) was received by one Lilian R. Soriano on 31 March 1995, but without
specifying for what reason the said amount was delivered and in what capacity did Lilian
R. Soriano received [sic] the money. The note reads:

"3-31-95

261,120 ADVANCE MONEY FOR TRAINEE –

RECEIVED BY

RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO HUNDRED FIFTY THREE
THOUSAND PESOS

(SIGNED)

LILIAN R. SORIANO

3-31-95"

Nowhere in the note can it be inferred that defendant-appellant was connected with the
said transaction. Under Article 1317 of the New Civil Code, a person cannot be bound by
contracts he did not authorize to be entered into his behalf.35 (Underscoring supplied)

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that
she was acting for and in behalf of respondent. She thus bound herself in her personal capacity
and not as an agent of respondent or anyone for that matter.

95
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in
the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the
agent was in fact authorized to make the mortgage, if he has not acted in the name of the
principal. x x x36 (Emphasis and underscoring supplied)

On the amount due him and the other two printing presses, petitioner explains that he was the
one who personally and directly contracted with respondent and he merely sub-contracted the
two printing establishments in order to deliver on time the campaign materials ordered by
respondent.

Respondent counters that the claim of sub-contracting is a change in petitioner’s theory of the
case which is not allowed on appeal.

In Oco v. Limbaring,37 this Court ruled:

The parties to a contract are the real parties in interest in an action upon it, as
consistently held by the Court. Only the contracting parties are bound by the stipulations
in the contract; they are the ones who would benefit from and could violate it. Thus, one
who is not a party to a contract, and for whose benefit it was not expressly made, cannot
maintain an action on it. One cannot do so, even if the contract performed by the
contracting parties would incidentally inure to one's benefit.38 (Underscoring supplied)

In light thereof, petitioner is the real party in interest in this case. The trial court’s findings on
the matter were affirmed by the appellate court.39 It erred, however, in not declaring petitioner
as a real party in interest insofar as recovery of the cost of campaign materials made by
petitioner’s mother and sister are concerned, upon the wrong notion that they should have been,
but were not, impleaded as plaintiffs.

In sum, respondent has the obligation to pay the total cost of printing his campaign materials
delivered by petitioner in the total of P1,924,906, less the partial payment of P1,000,000,
or P924,906.

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the
Resolution dated April 14, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.

The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is
REINSTATED mutatis mutandis, in light of the foregoing discussions. The trial court’s decision is
modified in that the amount payable by respondent to petitioner is reduced to P924,906.

SO ORDERED.

G.R. No. 156015. August 11, 2005

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his

capacity as former Chief of the Intelligence Service, Armed Forces of the Philippines
(ISAFP), and former Commanding General, Presidential Security Group (PSG), and
MAJ. DAVID B. DICIANO, in his capacity as an Officer of ISAFP and former member of
the PSG, Petitioners,
vs.
HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional Trial

96
Court, Branch 223, Quezon City, and DANTE LEGASPI, represented by his attorney-in-
fact, Paul Gutierrez, Respondent.

DECISION

PUNO, J.:

The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of
preliminary injunction, filed by private respondent Dante Legaspi, through his attorney-in-fact
Paul Gutierrez, against petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano
before the Regional Trial Court (RTC) of Quezon City.1

The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte,
Norzagaray, Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the
Philippines, and as then head of the Intelligence Service of the Armed Forces of the Philippines
and the Presidential Security Group, entered into a Memorandum of Agreement (MOA) with one
Ciriaco Reyes. The MOA granted Reyes a permit to hunt for treasure in a land in Bigte,
Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a witness.2 It was further alleged that
thereafter, Reyes, together with petitioners, started, digging, tunneling and blasting works on
the said land of Legaspi. The complaint also alleged that petitioner Calimlim assigned about 80
military personnel to guard the area and encamp thereon to intimidate Legaspi and other
occupants of the area from going near the subject land.

On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his
nephew, private respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power to
deal with the treasure hunting activities on Legaspi’s land and to file charges against those who
may enter it without the latter’s authority.3 Legaspi agreed to give Gutierrez 40% of the treasure
that may be found in the land.

On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners for
illegally entering Legaspi’s land. He hired the legal services of Atty. Homobono Adaza. Their
contract provided that as legal fees, Atty. Adaza shall be entitled to 30% of Legaspi’s share in
whatever treasure may be found in the land. In addition, Gutierrez agreed to pay Atty. Adaza
₱5,000.00 as appearance fee per court hearing and defray all expenses for the cost of the
litigation.4 Upon the filing of the complaint, then Executive Judge Perlita J. Tria Tirona issued a
72-hour temporary restraining order (TRO) against petitioners.

The case5 was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by
public respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued
another 72-hour TRO and a summary hearing for its extension was set on March 7, 2000.

On March 14, 2000, petitioners filed a Motion to Dismiss6 contending: first, there is no real
party-in-interest as the SPA of Gutierrez to bring the suit was already revoked by Legaspi on
March 7, 2000, as evidenced by a Deed of Revocation,7 and, second, Gutierrez failed to establish
that the alleged armed men guarding the area were acting on orders of petitioners. On March
17, 2000, petitioners also filed a Motion for Inhibition8 of the respondent judge on the ground of
alleged partiality in favor of private respondent.

On March 23, 2000, the trial court granted private respondent’s application for a writ of
preliminary injunction on the following grounds: (1) the diggings and blastings appear to have
been made on the land of Legaspi, hence, there is an urgent need to maintain the status quo to

97
prevent serious damage to Legaspi’s land; and, (2) the SPA granted to Gutierrez continues to be
valid.9 The trial court ordered thus:

WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT plaintiff’s
application for a writ of preliminary injunction. Upon plaintiff’s filing of an injunction bond in the
amount of ONE HUNDRED THOUSAND PESOS (₱100,000.00), let a Writ of Preliminary Injunction
issue enjoining the defendants as well as their associates, agents or representatives from
continuing to occupy and encamp on the land of the plaintiff LEGASPI as well as the vicinity
thereof; from digging, tunneling and blasting the said land of plaintiff LEGASPI; from removing
whatever treasure may be found on the said land; from preventing and threatening the plaintiffs
and their representatives from entering the said land and performing acts of ownership; from
threatening the plaintiffs and their representatives as well as plaintiffs’ lawyer.

On even date, the trial court issued another Order10 denying petitioners’ motion to dismiss and
requiring petitioners to answer the complaint. On April 4, 2000, it likewise denied petitioners’
motion for inhibition.11

On appeal, the Court of Appeals affirmed the decision of the trial court.12

Hence this petition, with the following assigned errors:

WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT

GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.

II

WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.

III

WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM FURTHER

PROCEEDING WITH THE CASE.

We find no merit in the petition.

On the first issue, petitioners claim that the special power of attorney of Gutierrez to represent
Legaspi has already been revoked by the latter. Private respondent Gutierrez, however,
contends that the unilateral revocation is invalid as his agency is coupled with interest.

We agree with private respondent.

Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to
render some service or do something in representation or on behalf of another, known as the
principal, with the consent or authority of the latter.13

A contract of agency is generally revocable as it is a personal contract of representation based

on trust and confidence reposed by the principal on his agent. As the power of the agent to act
depends on the will and license of the principal he represents, the power of the agent ceases
when the will or permission is withdrawn by the principal. Thus, generally, the agency may be
revoked by the principal at will.14
98
However, an exception to the revocability of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon the agency.15 The reason for its irrevocability is
because the agency becomes part of another obligation or agreement. It is not solely the rights
of the principal but also that of the agent and third persons which are affected. Hence, the law
provides that in such cases, the agency cannot be revoked at the sole will of the principal.

In the case at bar, we agree with the finding of the trial and appellate courts that the agency
granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It
is clear from the records that Gutierrez was given by Legaspi, inter alia, the power to
manage the treasure hunting activities in the subject land; to file any case against
anyone who enters the land without authority from Legaspi; to engage the services of
lawyers to carry out the agency; and, to dig for any treasure within the land and enter
into agreements relative thereto. It was likewise agreed upon that Gutierrez shall be
entitled to 40% of whatever treasure may be found in the land. Pursuant to this authority
and to protect Legaspi’s land from the alleged illegal entry of petitioners, agent Gutierrez hired
the services of Atty. Adaza to prosecute the case for damages and injunction against
petitioners. As payment for legal services, Gutierrez agreed to assign to Atty. Adaza
30% of Legaspi’s share in whatever treasure may be recovered in the subject land. It
is clear that the treasure that may be found in the land is the subject matter of the agency; that
under the SPA, Gutierrez can enter into contract for the legal services of Atty. Adaza; and, thus
Gutierrez and Atty. Adaza have an interest in the subject matter of the agency, i.e., in the
treasures that may be found in the land. This bilateral contract depends on the agency and thus
renders it as one coupled with interest, irrevocable at the sole will of the principal
Legaspi.16 When an agency is constituted as a clause in a bilateral contract, that is, when the
agency is inserted in another agreement, the agency ceases to be revocable at the pleasure of
the principal as the agency shall now follow the condition of the bilateral
agreement.17 Consequently, the Deed of Revocation executed by Legaspi has no effect. The
authority of Gutierrez to file and continue with the prosecution of the case at bar is unaffected.

On the second issue, we hold that the issuance of the writ of preliminary injunction is justified. A
writ of preliminary injunction is an ancilliary or preventive remedy that is resorted to by a litigant
to protect or preserve his rights or interests and for no other purpose during the pendency of the
principal action.18 It is issued by the court to prevent threatened or continuous irremediable
injury to the applicant before his claim can be thoroughly studied and adjudicated.19 Its aim is to
preserve the status quo ante until the merits of the case can be heard fully, upon the applicant’s
showing of two important conditions, viz.: (1) the right to be protected prima facie exists; and,
(2) the acts sought to be enjoined are violative of that right.20

Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary
injunction may be issued when it is established:

(a) that the applicant is entitled to the relief demanded, the whole or part of such relief consists
in restraining the commission or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or perpetually;

(b) that the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or

(c) that a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the judgment
ineffectual.
99
It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction,
mere prima facie evidence is needed to establish the applicant’s rights or interests in the subject
matter of the main action.21 It is not required that the applicant should conclusively show that
there was a violation of his rights as this issue will still be fully litigated in the main
case.22 Thus, an applicant for a writ is required only to show that he has an ostensible
right to the final relief prayed for in his complaint. 23

In the case at bar, we find that respondent judge had sufficient basis to issue the writ of
preliminary injunction. It was established, prima facie, that Legaspi has a right to peaceful
possession of his land, pendente lite. Legaspi had title to the subject land. It was likewise
established that the diggings were conducted by petitioners in the enclosed area of Legaspi’s
land. Whether the land fenced by Gutierrez and claimed to be included in the land of
Legaspi covered an area beyond that which is included in the title of Legaspi is a
factual issue still subject to litigation and proof by the parties in the main case for
damages. It was necessary for the trial court to issue the writ of preliminary injunction during
the pendency of the main case in order to preserve the rights and interests of private
respondents Legaspi and Gutierrez.

On the third issue, petitioners charge that the respondent judge lacked the neutrality of an
impartial judge. They fault the respondent judge for not giving credence to the testimony of
their surveyor that the diggings were conducted outside the land of Legaspi. They also claim that
respondent judge’s rulings on objections raised by the parties were biased against them.

We have carefully examined the records and we find no sufficient basis to hold that respondent
judge should have recused himself from hearing the case. There is no discernible pattern of bias
on the rulings of the respondent judge. Bias and partiality can never be presumed. Bare
allegations of partiality will not suffice in an absence of a clear showing that will overcome the
presumption that the judge dispensed justice without fear or favor.24 It bears to stress again that
a judge’s appreciation or misappreciation of the sufficiency of evidence adduced by the parties,
or the correctness of a judge’s orders or rulings on the objections of counsels during the hearing,
without proof of malice on the part of respondent judge, is not sufficient to show bias or
partiality. As we held in the case of Webb vs. People,25 the adverse and erroneous rulings of a
judge on the various motions of a party do not sufficiently prove bias and prejudice to disqualify
him. To be disqualifying, it must be shown that the bias and prejudice stemmed from an
extrajudicial source and result in an opinion on the merits on some basis other than what the
judge learned from his participation in the case. Opinions formed in the course of judicial
proceedings, although erroneous, as long as based on the evidence adduced, do not prove bias
or prejudice. We also emphasized that repeated rulings against a litigant, no matter how
erroneously, vigorously and consistently expressed, do not amount to bias and prejudice which
can be a bases for the disqualification of a judge.

Finally, the inhibition of respondent judge in hearing the case for damages has become moot
and academic in view of the latter’s death during the pendency of the case. The main case for
damages shall now be heard and tried before another judge.

IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115,
dated March 23 and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial Court
of Quezon City to whom Civil Case No. Q-00-40115 was assigned is directed to proceed with
dispatch in hearing the main case for damages. No pronouncement as to costs.

SO ORDERED.

100
G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,

vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the
appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera,
party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo
Canilao as party of the second part, and hereinafter referred to as appellants, the
Tourist World Service, Inc. leased the premises belonging to the party of the first
part at Mabini St., Manila for the former-s use as a branch office. In the said
contract the party of the third part held herself solidarily liable with the party of the
part for the prompt payment of the monthly rental agreed on. When the branch
office was opened, the same was run by the herein appellant Una 0. Sevilla payable
to Tourist World Service Inc. by any airline for any fare brought in on the efforts of
Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc.
appears to have been informed that Lina Sevilla was connected with a rival firm,
the Philippine Travel Bureau, and, since the branch office was anyhow losing, the
Tourist World Service considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2,
1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-
president of the Tourist World Service, Inc., Ermita Branch, and the
second,authorizing the corporate secretary to receive the properties of the Tourist
World Service then located at the said branch office. It further appears that on Jan.
3, 1962, the contract with the appellees for the use of the Branch Office premises
was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees
no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of
this, and to comply with the mandate of the Tourist World Service, the corporate
secretary Gabino Canilao went over to the branch office, and, finding the premises
locked, and, being unable to contact Lina Sevilla, he padlocked the premises on
June 4, 1962 to protect the interests of the Tourist World Service. When neither the
appellant Lina Sevilla nor any of her employees could enter the locked premises, a
complaint wall filed by the herein appellants against the appellees with a prayer for
the issuance of mandatory preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein, the trial court
ordered the dismissal of the case without prejudice.

101
 The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein
appellees and after the issues were joined, the reinstated counterclaim of
Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly
heard following which the court a quo ordered both cases dismiss for lack of merit,
on the basis of which was elevated the instant appeal on the following assignment
of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-

APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.
SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS
ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT
THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA
O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF
DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE
LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT
TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY
TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE

NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS.
LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line
at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was
entered into by and between her and appellee TWS with offices at the Ermita
branch office and that she was not an employee of the TWS to the end that her
relationship with TWS was one of a joint business venture appellant made
declarations showing:

102
 1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an
eminent eye, ear and nose specialist as well as a imediately columnist
had been in the travel business prior to the establishment of the joint
business venture with appellee Tourist World Service, Inc. and
appellee Eliseo Canilao, her compadre, she being the godmother of
one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19

October 1960 (Exh. 'A') covering the premises at A. Mabini St., she
expressly warranting and holding [sic] herself 'solidarily' liable with
appellee Tourist World Service, Inc. for the prompt payment of the
monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15,
tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office located
at the Trade & Commerce Building; nor was she an employee thereof,
having no participation in nor connection with said business at the
Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers,

her own bookings her own business (and not for any of the business of
appellee Tourist World Service, Inc.) obtained from the airline
companies. She shared the 7% commissions given by the airline
companies giving appellee Tourist World Service, Lic. 3% thereof aid
retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of

maintaining the A. Mabini St. office, paying for the salary of an office
secretary, Miss Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of fice furnishings (pp.
15,18 tsn. April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla

would be given the title of branch manager for appearance's sake only
(p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for
dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao
pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino
Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager.1

xxx xxx xxx

The trial court2 held for the private respondent on the premise that the private respondent,
Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the
lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere
103
employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her
employer. 4 The respondent Court of Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
Specifically, they state:

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD
SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ...
WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT
INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE
PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST
WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR
ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE
TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES"
(ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES
TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH
APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS
CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM
THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS
AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC.6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between
Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the
question, the crucial issue, in its opinion being "whether or not the padlocking of the premises
by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina
Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for
the said appellant supports the contention that the appellee Tourist World Service, Inc.
unilaterally and without the consent of the appellant disconnected the telephone lines of the
Ermita branch office of the appellee Tourist World Service, Inc.7 Tourist World Service, Inc.,
insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of
its Ermita "branch" office and that inferentially, she had no say on the lease executed with the
private respondent, Segundina Noguera. The petitioners contend, however, that relation
104
between the between parties was one of joint venture, but concede that "whatever might have
been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined
Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the
padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist
World Service, Inc., maintains, that the relation between the parties was in the character of
employer and employee, the courts would have been without jurisdiction to try the case, labor
disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of
Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-
employee relation. In general, we have relied on the so-called right of control test, "where the
person for whom the services are performed reserves a right to control not only the end to be
achieved but also the means to be used in reaching such end." 10 Subsequently, however, we
have considered, in addition to the standard of right-of control, the existing economic conditions
prevailing between the parties, like the inclusion of the employee in the payrolls, in determining
the existence of an employer-employee relationship.11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the
means used in connection therewith. In the first place, under the contract of lease covering the
Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an
arrangement that would be like claims of a master-servant relationship. True the respondent
Court would later minimize her participation in the lease as one of mere guaranty, 12 that does
not make her an employee of Tourist World, since in any case, a true employee cannot be made
to part with his own money in pursuance of his employer's business, or otherwise, assume any
liability thereof. In that event, the parties must be bound by some other relation, but certainly
not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened,
the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc.
by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these
circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc.
"as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and
capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained
4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually, she earned compensation in fluctuating
amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or
otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such
a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World
Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist
World Service, Inc.'s control over the manner in which the business was run. A joint venture,
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including a partnership, presupposes generally a of standing between the joint co-venturers or
partners, in which each party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the conduct of the
business.16 furthermore, the parties did not hold themselves out as partners, and the building
itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man
the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so
pursuant to a contract of agency. It is the essence of this contract that the agent renders
services "in representation or on behalf of another.18 In the case at bar, Sevilla solicited airline
fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of commissions. And as we said,
Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority
as owner of the business undertaking. We are convinced, considering the circumstances and
from the respondent Court's recital of facts, that the ties had contemplated a principal agent
relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one
coupled with an interest, the agency having been created for mutual interest, of the agent and
the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she
had acquired an interest in the business entrusted to her. Moreover, she had assumed a
personal obligation for the operation thereof, holding herself solidarily liable for the payment of
rentals. She continued the business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not to the commissions she earned as a result of
her business transactions, but one that extends to the very subject matter of the power of
management delegated to her. It is an agency that, as we said, cannot be revoked at the
pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner,
Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20 Yet, what cannot be denied is the fact
that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming,
therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it,
and as owner of the telephone lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident.
For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not
accord it any authority to terminate that contract without notice to its actual occupant, and to
padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had
acquired a personal stake in the business itself, and necessarily, in the equipment pertaining
thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named
therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She
could not be ousted from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent
design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked
for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the
closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained
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such reverses, let alone, the fact that Sevilla had moonlit for another company. What the
evidence discloses, on the other hand, is that following such an information (that Sevilla was
working for another company), Tourist World's board of directors adopted two resolutions
abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo
Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private
respondents ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was
padlocked, personally by the respondent Canilao, on the pretext that it was necessary to Protect
the interests of the Tourist World Service. " 22 It is strange indeed that Tourist World Service,
Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World
Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but
surely, it was aware that after office hours, she could not have been anywhere near the
premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing
completely its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa
it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms
of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil
Code, moral damages may be awarded for "breaches of contract where the defendant acted ...
in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury
done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of
attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219
(10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter for
the damage.24

ART. 2219. Moral damages25 may be recovered in the following and analogous
cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for
the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has
been shown that she had connived with Tourist World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages, 25 and P5,000.00 as nominal 26 and/or temperate27 damages, to be just,
fair, and reasonable under the circumstances.

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WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on
July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and
severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral
damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as
and for nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.

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