G.R. No.

156335

November 28, 2007

SPOUSES RAUL and AMALIA PANLILIO, Petitioners, vs. CITIBANK, N.A., Respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse the Decision1 of the Court of Appeals (CA) dated May 28, 2002 in CA-G.R. CV No. 66649 and its Resolution of December 11, 2002, which reversed and set aside the Decision of the Regional Trial Court (RTC) of Makati City. The case originated as a Complaint2 for a sum of money and damages, filed with the RTC of Makati City on March 2, 1999, by the spouses Raul and Amalia Panlilio (petitioners) against Citibank N.A. (respondent). The factual antecedents are as follows: On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited respondent's Makati City office and deposited one million pesos (PhP1 million) in the bank's "Citihi" account, a fixed-term savings account with a higher-than-average interest.3 On the same day, Amalia also opened a current or checking account with respondent, to which interest earnings of the Citihi account were to be credited.4 Respondent assigned one of its employees, Jinky Suzara Lee (Lee), to personally transact with Amalia and to handle the accounts.5 Amalia opened the accounts as ITF or "in trust for" accounts, as they were intended to benefit her minor children, Alejandro King Aguilar and Fe Emanuelle C. Panlilio, in case she would meet an untimely death.6 To open these accounts, Amalia signed two documents: a Relationship Opening Form (ROF)7 and an Investor Profiling and Suitability Questionnaire (Questionnaire).8 Amalia's initial intention was to invest the money in a Citibank product called the Peso Repriceable Promissory Note (PRPN), a product which had a higher interest. However, as the PRPN was not available that day, Amalia put her money in the Citihi savings account.9 More than a month later, or on November 28, 1997, Amalia phoned Citibank saying she wanted to place an investment, this time in the amount of three million pesos (PhP3 million). Again, she spoke with Lee, the bank employee, who introduced her to Citibank's various investment offerings. After the phone conversation, apparently decided on where to invest the money, Amalia went to Citibank bringing a PCIBank check in the amount of three million pesos (PhP3 million). During the visit, Amalia instructed Lee on what to do with the PhP3 million. Later, she learned that out of the said amount, PhP2,134,635.87 was placed by Citibank in a Long-Term Commercial Paper (LTCP), a debt instrument that paid a high interest, issued by the corporation Camella and Palmera Homes (C&P Homes).10 The rest of the money was placed in two PRPN accounts, in trust for each of Amalia's two children.11 Allegations differ between petitioners and respondent as to whether Amalia instructed Lee to place the money in the LTCP of C&P Homes.12 An LTCP is an evidence of indebtedness, with a maturity period of more than 365 days, issued by a corporation to any person or entity.13 It is in effect a loan obtained by a corporation (as borrower) from the investing public (as lender)14 and is one of many instruments that investment banks can legally buy on behalf of their clients, upon the latter's express instructions, for investment purposes.15 LTCPs' attraction is that they usually have higher yields than most investment instruments. In the case of the LTCP issued by C&P Homes, the gross interest rate was 16.25% per annum at the time Amalia made her investment.16 On November 28, 1997, the day she made the PhP3million investment, Amalia signed the following documents: a Directional Investment Management Agreement (DIMA),17 Term Investment Application (TIA),18 and Directional Letter/Specific Instructions.19 Key features of the DIMA and the Directional Letter are provisions that essentially clear Citibank of any obligation to guarantee the principal and interest of the investment, absent fraud or negligence on the latter's part. The provisions likewise state that all risks are to be assumed by the investor (petitioner). As to the amount invested, only PhP2,134,635.87 out of the PhP3 million brought by Amalia was placed in the LTCP since, according to Lee, this was the only amount of LTCP then available.20 According to Lee, the balance of the PhP3 million was placed in two PRPN accounts, each one in trust for Amalia's two children, per her instructions.21 Following this investment, respondent claims to have regularly sent confirmations of investment (COIs) to petitioners.22 A COI is a onepage, computer generated document informing the customer of the investment earlier made with the bank. The first of these COIs was received by petitioners on or about December 9, 1997, as admitted by Amalia, which is around a week after the investment was made.23 Respondent claims that other succeeding COIs were sent to and received by petitioners.

Amalia claims to have called Lee as soon as she received the first COI in December 1997, and demanded that the investment in LTCP be withdrawn and placed in a PRPN.24 Respondent, however, denies this, claiming that Amalia merely called to clarify provisions in the COI and did not demand a withdrawal.25 On August 6, 1998, petitioners met with respondent's other employee, Lizza Colet, to preterminate the LTCP and their other investments. Petitioners were told that as to the LTCP, liquidation could be made only if there is a willing buyer, a prospect which could be difficult at that time because of the economic crisis. Still, petitioners signed three sets of Sales Order Slip to sell the LTCP and left these with Colet.26 On August 18, 1998, Amalia, through counsel, sent her first formal, written demand to respondent "for a withdrawal of her investment as soon as possible."27 The same was followed by another letter dated September 7, 1998, which reiterated the same demands.28 In answer to the letters, respondent noted that the investment had a 2003 maturity, was not a deposit, and thus, its return to the investor was not guaranteed by respondent; however, it added that the LTCP may be sold prior to maturity and had in fact been put up for sale, but such sale was "subject to the availability of buyers in the secondary market."29 At that time, respondent was not able to find a buyer for the LTCP. As this response did not satisfy petitioners, Amalia again wrote respondent, this time a final demand letter dated September 21, 1998, asking for a reconsideration and a return of the money she invested.30 In reply, respondent wrote a letter dated October 12, 1998 stating that despite efforts to sell the LTCP, no willing buyers were found and that even if a buyer would come later, the price would be lower than Amalia's original investment.31 Thus, petitioners filed with the RTC their complaint against respondent for a sum of money and damages. The Complaint32 essentially demanded a return of the investment, alleging that Amalia never instructed respondent's employee Lee to invest the money in an LTCP; and that far from what Lee executed, Amalia's instructions were to invest the money in a "trust account" with an "interest of around 16.25% with a term of 91 days." Further, petitioners alleged that it was only later, or on December 8, 1997, when Amalia received the first confirmation of investment (COI) from respondent, that she and her husband learned of Lee's infidelity to her orders. The COI allegedly informed petitioners that the money was placed in an LTCP of C&P Homes with a maturity in 2003, and that the investment was not guaranteed by respondent. Petitioners also claimed that as soon as Amalia received the COI, she immediately called Lee; however, the latter allegedly convinced her to ignore the COI, that C&P Homes was an Ayala company, that the investment was secure, and that it could be easily "withdrawn"; hence, Amalia decided not to immediately "withdraw" the investment. Several months later, or on August 6, 1998, petitioners allegedly wanted to "withdraw" the investment to buy a property; however, they failed to do so, since respondent told them the LTCP had not yet matured, and that no buyers were willing to buy it. Hence, they sent various demand letters to respondent, asking for a return of their money; and when these went unheeded, they filed the complaint. In its Answer,33 respondent admitted that, indeed, Amalia was its client and that she invested the amounts stated in the complaint. However, respondent disputed the claim that Amalia opened a "trust account" with a "request for an interest rate of around 16.25% with a term of 91 days;" instead, respondent presented documents stating that Amalia opened a "directional investment management account," with investments to be made in C&P Homes' LTCP with a 2003 maturity. Respondent disputed allegations that it violated petitioners' express instructions. Respondent likewise denied that Amalia, upon her receipt of the COI, immediately called respondent and protested the investment in LTCP, its 2003 maturity and Citibank's lack of guarantee. According to respondent, no such protest was made and petitioners actually decided to liquidate their investment only months later, after the newspapers reported that Ayala Land, Inc. was cancelling plans to invest in C&P Homes. The rest of respondent's Answer denied (1) that it convinced Amalia not to liquidate or "withdraw" her investment or to ignore the contents of the COI; (2) that it assured Amalia that the investment could be easily or quickly "withdrawn" or sold; (3) that it misrepresented that C&P was an Ayala company, implying that C&P had secure finances; and (4) that respondent had been unfaithful to and in breach of its contractual obligations. After trial, the RTC rendered its Decision,34 dated February 16, 2000, the dispositive portion of which states: The foregoing considered, the court hereby rules in favor of plaintiffs and order defendant to pay: 1. The sum of PhP2,134,635.87 representing the actual amount deposited by plaintiffs with defendant plus interest corresponding to time deposit during the time material to this action from date of filing of this case until fully paid; 2. The sum of PhP300,000.00 representing moral damages; 3. The sum of PhP100,000.00 representing attorney's fees; 4. Costs. SO ORDERED.35

The RTC upheld all the allegations of petitioners and concluded that Amalia never instructed Citibank to invest the money in an LTCP. Thus, the RTC found Citibank in violation of its contractual and fiduciary duties and held it liable to return the money invested by petitioners plus damages. Respondent appealed to the CA. On appeal, in its Decision promulgated on May 28, 2002, the CA reversed the Decision of the RTC, thus: WHEREFORE, premises considered, the assailed decision dated 16 February 2000 is REVERSED and SET ASIDE and a new one entered DISMISSING Civil Case No. 99-500.36 The CA held that with respect to the amount of PhP2,134,635.87, the account opened by Amalia was an investment management account; as a result, the money invested was the sole and exclusive obligation of C&P Homes, the issuer of the LTCP, and was not guaranteed or insured by herein respondent Citibank;37 that Amalia opened such an account as evidenced by the documents she executed with Citibank, namely, the Directional Investment Management Agreement (DIMA), Term Investment Application (TIA), and Directional Letter/Specific Instructions, which were all dated November 28, 1997, the day Amalia brought the money to Citibank. Further, the CA brushed aside petitioners' arguments that Amalia failed to understand the true nature of the LTCP investment, and that she failed to read the documents as they were written in fine print. The CA ruled that petitioners could not seek the court's aid to extricate them from their contractual obligations. Citing jurisprudence, the CA held that the courts protected only those who were innocent victims of fraud, and not those who simply made bad bargains or exercised unwise judgment. On petitioners' motion for reconsideration, the CA reiterated its ruling and denied the motion in a Resolution38dated December 11, 2002. Thus, the instant petition which raises issues, summarized as follows: (1) whether petitioners are bound by the terms and conditions of the Directional Investment Management Agreement (DIMA), Term Investment Application (TIA), Directional Letter/Specific Instructions, and Confirmations of Investment (COIs); (2) and whether petitioners are entitled to take back the money they invested from respondent bank; or stated differently, whether respondent is obliged to return the money to petitioners upon their demand prior to maturity. Petitioners contend that they are not bound by the terms and conditions of the DIMA, Directional Letter and COIs because these were inconsistent with the TIA and other documents they signed.39 Further, they claim that the DIMA and the Directional letter were signed in blank or contained unauthorized intercalations by Citibank.40Petitioners argue that contrary to the contents of the documents, they did not instruct Citibank to invest in an LTCP or to put their money in such high-risk, long-term instruments.41 The Court notes the factual nature of the questions raised in the petition. Although the general rule is that only questions of law are entertained by the Court in petitions for review on certiorari,42 as the Court is not tasked to repeat the lower courts' analysis or weighing of evidence,43 there are instances when the Court may resolve factual issues, such as (1) when the trial court misconstrued facts and circumstances of substance which if considered would alter the outcome of the case;44 and (2) when the findings of facts of the CA and the trial court differ.45 In the instant case, the CA completely reversed the findings of facts of the trial court on the ground that the RTC failed to appreciate certain facts and circumstances. Thus, applying the standing jurisprudence on the matter,46the Court proceeded to examine the evidence on record. The Court's Ruling The Court finds no merit in the petition. After a careful examination of the records, the Court affirms the CA's ruling for being more in accord with the facts and evidence on record. On the first issue of whether petitioners are bound by the terms and conditions of the DIMA, TIA, Directional Letter and COIs, the Court holds in the affirmative and finds for respondent. The DIMA, Directional Letter and COIs are evidence of the contract between the parties and are binding on them, following Article 1159 of the Civil Code which states that contracts have the force of law between the parties and must be complied with in good faith.47 In particular, petitioner Amalia affixed her signatures on the DIMA, Directional Letter and TIA, a clear evidence of her consent which, under Article 1330 of the same Code, she cannot deny absent any evidence of mistake, violence, intimidation, undue influence or fraud.48 As the documents have the effect of law, an examination is in order to reveal what underlies petitioners' zeal to exclude these from consideration. Under the DIMA, the following provisions appear:

4. Nature of Agreement THIS AGREEMENT IS AN AGENCY AND NOT A TRUST AGREEMENT. AS SUCH, THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL TITLE TO THE FUNDS AND PROPERTIES SUBJECT OF THE ARRANGEMENT. THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET CONDITIONS. IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. (Underscoring supplied.) xxxx 6. Exemption from Liability. - In the absence of fraud, bad faith, or gross or willful negligence on the part of the INVESTMENT MANAGER or any person acting in its behalf, the INVESTMENT MANAGER shall not be liable for any loss or damage to the Portfolio arising out of or in connection with any act done or omitted or caused to be done or omitted by the INVESTMENT MANAGER pursuant to the terms and conditions herein agreed upon, and pursuant to and in accordance with the written instructions of the PRINCIPAL to carry out the powers, duties and purposes for which this Agreement is executed. The PRINCIPAL will hold the INVESTMENT MANAGER free and harmless from any liability, claim, damage or fiduciary responsibility that may arise from any investment made pursuant to this Agreement and to such letters or instructions under Paragraph 3 hereof due to the default, bankruptcy or insolvency of the Borrower/Issuer or the Broker/Dealer handling the transaction and or their failure in any manner to comply with any of their obligations under the aforesaid transactions, it being the PRINCIPAL'S understanding and intention that the investments/reinvestments under this account shall be strictly for his/its account and risk except as indicated above. The INVESTMENT MANAGER shall manage the Portfolio with the skill, care, prudence, and diligence necessary under the prevailing circumstances that a good father of the family, acting in a like capacity and familiar with such matters, would exercise in the conduct of an enterprise of like character and with similar aims. (Underscoring supplied.) xxxx 11. Withdrawal of Income/Principal Subject to availability of funds and taking into consideration the commitment of this account to third parties, the PRINCIPAL may withdraw the income/principal of the Portfolio or portion thereof upon request or application thereof from the Bank. The INVESTMENT MANAGER shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment.49 (Underscoring supplied.) Under the Directional Letter, which constituted petitioners' instructions to respondent, the following provisions are found: In the absence of fraud, bad faith or gross or willful negligence on your part or any person acting in your behalf, you shall not be held liable for any loss or damage arising out of or in connection with any act done or performed or caused to be done or performed by you pursuant to the terms and conditions of our Agreement. I/We shall hold you free and harmless from any liability, claim, damage, or fiduciary responsibility that may arise from this investment made pursuant to the foregoing due to the default, bankruptcy or insolvency of the Borrower/Issuer, or the Broker/Dealer handling the aforesaid transactions/s, it being our intention and understanding that the investment/reinvestment under these transaction/s shall be strictly for my/our account and risk. In case of default of the Borrower/Issuers, we hereby authorize you at your sole option, to terminate the investment/s therein and deliver to us the securities/loan documents then constituting the assets of my/our DIMA/trust account with you for me/us to undertake the necessary legal action to collect and/or recover from the borrower/issuers.50 (Underscoring supplied.) The documents, characterized by the quoted provisions, generally extricate respondent from liability in case the investment is lost. Accordingly, petitioners assumed all risks and the task of collecting from the borrower/issuer C&P Homes. In addition to the DIMA and Directional Letter, respondent also sent petitioners the COIs on a regular basis, the first of which was received by petitioners on December 9, 1997. The COIs have the following provisions in common: xxxx NATURE OF TRANSACTION NAME OF BORROWER/ISSUER xxxx TENOR xxxx MATURITY DATE

INVESTMENT IN LTCP C&P HOMES 91 DAYS 11/05/03

xxxx OTHERS

REPRICEABLE EVERY 91 DAYS

PURSUANT TO THE BANGKO SENTRAL REGULATIONS, THE PRINCIPAL AND INTEREST OF YOUR INVESTMENT ARE OBLIGATIONS OF THE BORROWER AND NOT OF THE BANK. YOUR INVESTMENT IS NOT A DEPOSIT AND IS NOT GUARANTEED BY CITIBANK N.A. xxxx Please examine this Confirmation and notify us in writing within seven (7) days from receipt hereof of any deviation from your prior conformity to the investment. If no notice is received by us within this period, this Confirmation shall be deemed correct and approved by you, and we shall be released and discharged as to all items, particulars, matters and things set forth in this Confirmation.51 Petitioners admit receiving only the first COI on December 8, 1997.52 The evidence on record, however, supports respondent's contentions that petitioners received the three other COIs on February 12, 1998,53 May 14, 1998,54and August 14, 1998,55 before petitioners' first demand letter dated August 18, 1998.56 The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement between the parties as an investment management agreement, which created a principal-agent relationship between petitioners as principals and respondent as agent for investment purposes. The agreement is not a trust or an ordinary bank deposit; hence, no trustor-trustee-beneficiary or even borrower-lender relationship existed between petitioners and respondent with respect to the DIMA account. Respondent purchased the LTCPs only as agent of petitioners; thus, the latter assumed all obligations or inherent risks entailed by the transaction under Article 1910 of the Civil Code, which provides: Article 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. The transaction is perfectly legal, as investment management activities may be exercised by a banking institution, pursuant to Republic Act No. 337 or the General Banking Act of 1948, as amended, which was the law then in effect.1avvphi1 Section 72 of said Act provides: Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects; (b) Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; (c) Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business. (d) Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/ advisory/consultancy accounts. The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. Accordingly, they shall keep the funds, securities and other effects which they thus receive duly separated and apart from the bank's own assets and liabilities. The Monetary Board may regulate the operations authorized by this section in order to insure that said operations do not endanger the interests of the depositors and other creditors of the banks. (Emphasis supplied.) while Section 74 prohibits banks from guaranteeing obligations of any person, thus: Sec. 74. No bank or banking institution shall enter, directly, or indirectly into any contract of guaranty or suretyship, or shall guarantee the interest or principal of any obligation of any person, copartnership, association, corporation or other entity. The provisions of this section shall, however, not apply to the following: (a) borrowing of money by banking institution through the rediscounting of receivables; (b) acceptance of drafts or bills of exchange (c) certification of checks; (d) transactions involving the release of documents attached to items received for collection; (e) letters of credit transaction, including stand-by arrangements; (f) repurchase agreements; (g) shipside bonds; (h) ordinary guarantees or indorsements in favor of foreign creditors where the principal

obligation involves loans and credits extended directly by foreign investment purposes; and (i) other transactions which the Monetary Board may, by regulation, define or specify as not covered by the prohibition. (Emphasis supplied.) Nothing also taints the legality of the LTCP bought in behalf of petitioners. C&P Homes' LTCP was duly registered with the Securities and Exchange Commission while the issuer was accredited by the Philippine Trust Committee.57 The evidence also sustains respondent's claim that its trust department handled the account only because it was the department tasked to oversee the trust, and other fiduciary and investment management services of the bank.58 Contrary to petitioners' claim, this did not mean that petitioners opened a "trust account." This is consistent with Bangko Sentral ng Pilipinas (BSP) regulations, specifically the Manual of Regulations for Banks (MORB), which groups a bank's trust, and other fiduciary and investment management activities under the same set of regulations, to wit: PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT ACTIVITIES xxxx Sec. X402 Scope of Regulations. These regulations shall govern the grant of authority to and the management, administration and conduct of trust, other fiduciary business and investment management activities (as these terms are defined in Sec. X403) of banks. The regulations are divided into three (3) Sub-Parts where: A. Trust and Other Fiduciary Business shall apply to banks authorized to engage in trust and other fiduciary business including investment management activities; B. Investment Management Activities shall apply to banks without trust authority but with authority to engage in investment management activities; and C. General Provisions shall apply to both. xxxx Sec. X403 Definitions. For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated. a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called beneficiaries. b. Other fiduciary business shall refer to any activity of a trust-licensed bank resulting from a contract or agreement whereby the bank binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership, and other similar services which do not create or result in a trusteeship. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of said bank. Investment management activities, which are considered as among other fiduciary business, shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business. c. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the bank (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial or managing agent, adviser, consultant or administrator of financial or investment management, advisory, consultancy or any similar arrangement which does not create or result in a trusteeship. (Emphasis supplied.) The Court finds no proof to sustain petitioners' contention that the DIMA and Directional Letter contradict other papers on record, or were signed in blank, or had unauthorized intercalations.59 Petitioners themselves admit that Amalia signed the DIMA and the Directional Letter, which bars them from disowning the contract on the belated claim that she signed it in blank or did not read it first because of the "fine print."60 On the contrary, the evidence does not support these latter allegations, and it is highly improbable that someone fairly educated and with investment experience would sign a document in blank or without reading it first.61 Petitioners owned various businesses and were clients of other banks, which omits the possibility of such carelessness.62 Even more damning for petitioners is that, on record, Amalia admitted that it was not her habit to sign in blank and that the contents of the documents were explained to her before she signed.63

Testimonial evidence and the complaint itself contained allegations that petitioners' reason for transferring their money from local banks to respondent is because it is safer to do so,64 a clear indicia of their intelligence and keen business sense which they could not have easily surrendered upon meeting with respondent. Nothing irregular or illegal attends the execution or construction of the DIMA and the Directional Letter, as their provisions merely conform with BSP regulations governing these types of transactions. Specifically, the MORB mandates that investment managers act as agents, not as trustees, of the investor;65 that the investment manager is prohibited from guaranteeing returns on the funds or properties;66 that a written document should state that the account is not covered by the PDIC; and that losses are to be borne by clients.67 That these legal requirements were communicated to petitioners is evident in Amalia's signatures on the documents and in testimony to this effect.68 As to the allegation that the documents were in "fine print," the Court notes that although the print may have looked smaller than average, they were nevertheless of the same size throughout the documents, so that no part or provision is hidden from the reader. The Court also takes judicial notice that the print is no smaller than those found in similar contracts in common usage, such as insurance, mortgage, sales contracts and even ordinary bank deposit contracts. In the documents in question, the provisions hurtful to petitioners' cause were likewise in no smaller print than the rest of the document, as indeed they were even highlighted either in bold or in all caps. This disposes of the argument that they were designed to hide their damaging nature to the signatory.69 The conclusion is that the print is readable and should not have prevented petitioners from studying the papers before their signing. Considering petitioners' social stature, the nature of the transaction and the amount of money involved, the Court presumes that petitioners exercised adequate care and diligence in studying the contract prior to its execution.70 In Sweet Lines, Inc. v. Teves,71 the Court pronounced the general rule regarding contracts of adhesion, thus: x x x there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the signing of his signature or his adhesion thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category. x x x it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party x x x who cannot change the same and who are thus made to adhere hereto on the take it or leave it basis. x x x it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them with having consented to the conditions, so printed, especially if there are a number of such conditions in fine print, as in this case. However, Sweet Lines72 further expounded that the validity and/or enforceability of contracts of adhesion will have to be determined by the peculiar circumstances obtaining in each case and the nature of the conditions or terms sought to be enforced.73 Thus, while any ambiguity, obscurity or doubt in a contract of adhesion is construed or resolved strictly against the party who prepared it,74 it is also equally obvious that in a case where no such ambiguity, obscurity or doubt exists, no such construction is warranted. This was the case in the DIMA and the Directional Letter signed by Amalia in the instant controversy. The parties to this case only disagree on whether petitioners were properly informed of the contents of the documents. But as earlier stated, petitioners were free to read and study the contents of the papers before signing them, without compulsion to sign immediately or even days after, as indeed the parties were even free not to sign the documents at all. Unlike in Sweet Lines, where the plaintiffs had no choice but to take the services of monopolistic transport companies during rush hours, in the instant case, petitioners were under no such pressure; petitioners were free to invest anytime and through any of the dozens of local and foreign banks in the market. In addition, it has been held that contracts of adhesion are not necessarily voidable. The Court has consistently held that contracts of adhesion, wherein one party imposes a ready-made form of contract on the other, are contracts not entirely prohibited, since the one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.75 It is the rule that these contracts are upheld unless they are in the nature of a patently lopsided deal where blind adherence is not justified by other factual circumstances.76 Petitioners insist that other documents Amalia signed -- that is, the ROF,77 Questionnaire78 and TIA79 -- contradict the DIMA and Directional Letter. Specifically, they argue that under the ROF and the Questionnaire, they manifested an intent to invest only in a time deposit in the medium term of over a year to three years, with no risk on the capital, or with returns in line with a time deposit.80 However, this contention is belied by the evidence and testimony on record. Respondent explains that investors fill up the ROF and Questionnaire only when they first visit the bank and only for the account they first opened,81 as confirmed by the evidence on record and the fact that there were no subsequent ROFs and Questionnaires presented by petitioners. The ROF and Questionnaire were filled up when the PhP1 million "Citihi" savings account was opened by Amalia on October 10, 1997, during her first visit to the bank. When Amalia returned more than a month later on November 28, 1997, a change in her investment attitude occurred in that she wanted to invest an even bigger amount (PhP3 million) and her interest had shifted to high-yield but riskier long-term instruments like PRPNs and LTCPs. When Amalia proceeded to sign new documents like the DIMA and the Directional Letter for the LTCP investment, despite their obviously different contents from those she was used to signing for ordinary deposits, she essentially confirmed that she knew what she was agreeing to and that it was different from all her previous transactions.

In addition, even the ROF and Questionnaire signed by Amalia during the first visit contained provisions that clearly contradict petitioners' claims. The ROF contained the following: I/We declare the above information to be correct. I/We hereby acknowledge to have received, read, understood and agree to be bound by the general terms and conditions applicable and governing my/our account/s and/or investment/s which appear in a separate brochure/manual as well as separate documents relative to said account/s and/or investment/s. Said terms and conditions shall likewise apply to all our existing and future account/s and/or investment/s with Citibank. I/We hereby further authorize Citibank to open additional account/s and/or investment/s in the future with the same account title as contained in this relationship opening form subject to the rules governing the aforementioned account/s and/or investment/s and the terms and conditions therein or herein. I/We agree to notify you in writing of any change in the information supplied in this relationship opening form.82 (Emphasis supplied.) while the Questionnaire had the following provisions: I am aware that investment products are not bank deposits or other obligations of, or guaranteed or insured by Citibank N.A., Citicorp or their affiliates. I am aware that the principal and interest of my investments are obligations of the borrower/issuer. They are subject to risk and possible loss of principal. Past performance is not indicative of future performance. In addition, investments are not covered by the Philippine Deposit Insurance Corporation (PDIC) or the Federal Deposit Insurance Corporation (FDIC).83 which do not need further elaboration on the matter. Petitioners contend that the Term Investment Application (TIA), viz: TERM INVESTMENT APPLICATION MAKATI Branch and Service Area TITLE OF ACCOUNT ________________________________________ PANLILIO, AMALIA ITF ALEJANDRO KING AGUILAR & FE EMMANUELLE PANLILIO

Date

1/28/97

CIF Keys _________________ _________________ _________________ _________________

Address ______________________________________________________ For corporations, c/o _______________________ Tel. No. ____________ Dear Sir: THIS IS TO AUTHORIZE CITIBANK, N. A. TO: ( ) open ( ) rollover ( ) rollover w/ added funds ( ) rollover w/ payout Ref. No. ____ [ ] Confirmation of Sale [ ] CITIHI-Yielder TRUST for P/$ _______________ for P/$ _______________ for P/$ _______________

[ ] Peso Time Depositories [ ] NNPN

[ ] Dollar TD [ ] Multicurrency TD

NEW ADDED FUNDS WILL COME FROM: ( ) debit my/our account no. ________________ ( ) Check No. ____________________________ ( ) Cash deposit __________________________

IN THE AMOUNT AND TERMS SPECIFIED AS FOLLOWS: PRINCIPAL/Money In P/$ 3,000,000 Value 11/28/97

MATURITY AMOUNT/Par Value P/$____________ INTEREST RATE (Emphasis supplied.) clearly contradicts the DIMA, Directional Letter and COIs. around 16.25%

Maturity Date _______ Term 91 days

84

Petitioners insist that the amount PhP3 million in the TIA does not tally with the actual value of the investment which appeared on the first COI, which was PhP2,134,635.87. Petitioners add that the TIA's interest rate of "around 16.25%" with the term "91 days" contradicts the COI's interest rate of 16.95% with a tenor of 75 days repriceable after 91 days.85 Further, petitioners claim that the word "TRUST" inscribed on the TIA obviously meant that they opened a trust account, and not any other account.86 The explanation of respondent is plausible. Only PhP2,134,635.87 out of the PhP3 million was placed in the LTCP since this was the only amount of LTCP then available, while the balance was placed in two PRPN accounts, each one in trust for Amalia's two children, upon her instructions.87 The disparity in the interest rate is also explained by the fact that the 16.95% rate placed in the COI is gross and not net interest,88 and that it is subject to repricing every 91 days. The Court gives credence to respondent's explanation that the word "TRUST" appearing on the TIA simply means that the account is to be handled by the bank's trust department, which handles not only the trust business but also the other fiduciary business and investment management activities of the bank, while the "ITF" or "in trust for" appearing on the other documents only signifies that the money was invested by Amalia in trust for her two children, a device that she uses even in her ordinary deposit accounts with other banks.89 The ITF device allows the children to obtain the money without need of paying estate taxes in case Amalia meets a premature death.90However, it creates a trustee-beneficiary relationship only between Amalia and her children, and not between Amalia, her children, and Citibank. All the documents signed by Amalia, including the DIMA and Directional Letter, show that her agreement with respondent is one of agency, and not a trust. The DIMA, TIA, Directional Letter and COIs, viewed altogether, establish without doubt the transaction between the parties, that on November 28, 1997, with PhP3 million in tow, Amalia opened an investment management account with respondent, under which she instructed the latter as her agent to invest the bulk of the money in LTCP. Aside from their bare allegations, evidence that supports petitioners' contentions that no such deal took place, or that the agreement was different, simply does not exist in the records. Petitioners were experienced and intelligent enough to be able to demand and sign a different document to signify their real intention; but no such document exists. Thus, petitioners' acts and omissions negate their allegations that they were essentially defrauded by the bank. Petitioners had other chances to protest respondent's alleged disregard of their instructions. The COIs sent by respondent to petitioners encapsulate the spirit of the DIMA and Directional Letter, with the proviso that should there be any deviations from petitioners' instructions, they may inform respondent in writing within seven days. Assuming arguendo that respondent violated the instructions, petitioners did not file a single timely written protest, however, despite their admission that they received the first COI on December 8, 1997.91 It took eight months for petitioners to formally demand the return of their investment through their counsel in a letter dated August 18, 1998.92 The letter, however, did not even contest the placement of the money in an LTCP, but merely its maturity in the year 2003. Prior to the letter, it has been shown that petitioners had received COIs on February 12, 1998,93May 14, 1998,94 and August 14, 1998,95 and in between, petitioners never demanded a return of the money they invested. Petitioners' acts and omissions strongly indicate that they in fact conformed to the agreement in the months after the signing. In that period, they were receiving their bank statements and earning interest from the investment, as in fact, C&P Homes under the LTCP continuously paid interest even up to the time the instant case was already on trial.96 When petitioners finally contested the contract months after its signing, it was suspiciously during the time when newspaper reports came out that C&P Homes' stock had plunged in value and that Ayala Land was withdrawing its offer to invest in the company.97 The connection is too obvious to ignore. It is reasonable to conclude that petitioners' repudiation of the agreement was nothing more than an afterthought, a reaction to the negative events in the market and an effort to flee from a losing investment. Anent the second issue, whether petitioners are entitled to recover from respondent the amount of PhP2,134,635.87 invested under the LTCP, the Court agrees with the CA in dismissing the complaint filed by petitioners. Petitioners may not seek a return of their investment directly from respondent at or prior to maturity. As earlier explained, the investment is not a deposit and is not guaranteed by respondent. Absent any fraud or bad faith, the recourse of petitioners in the LTCP is solely against the issuer, C&P Homes, and only upon maturity. The DIMA states, thus: 11. Withdrawal of Income/Principal Subject to availability of funds and taking into consideration the commitment of this account to third parties, the PRINCIPAL may withdraw the income/principal of the Portfolio or portion thereof upon request or application thereof from the Bank. The INVESTMENT MANAGER shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment.98 (Emphasis supplied.) It is clear that since the money is committed to C&P Homes via LTCP for five years, or until 2003, petitioners may not seek its recovery from respondent prior to the lapse of this period. Petitioners must wait and meanwhile just be content with receiving their interest

regularly. If petitioners want the immediate return of their investment before the maturity date, their only way is to find a willing buyer to purchase the LTCP at an agreed price, or to go directly against the issuer C&P Homes, not against the respondent. The nature of the DIMA and the other documents signed by the parties calls for this condition. The DIMA states that respondent is a mere agent of petitioners and that losses from both the principal and interest of the investment are strictly on petitioners' account. Meanwhile, the Directional Letter clearly states that the investment is to be made in an LTCP which, by definition, has a term of more than 365 days.99 Prior to the expiry of the term, which in the case of the C&P Homes LTCP is five years, petitioners may not claim back their investment, especially not from respondent bank. Having bound themselves under the contract as earlier discussed, petitioners are governed by its provisions. Petitioners as principals in an agency relationship are solely obliged to observe the solemnity of the transaction entered into by the agent on their behalf, absent any proof that the latter acted beyond its authority.100Concomitant to this obligation is that the principal also assumes the risks that may arise from the transaction.101Indeed, as in the instant case, bank regulations prohibit banks from guaranteeing profits or the principal in an investment management account.102 Hence, the CA correctly dismissed petitioners complaint against respondent. WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision of the Court of Appeals dated dated May 28, 2002 and its Resolution of December 11, 2002, are AFFIRMED. Costs against the petitioners. SO ORDERED.

G.R. No. 148280

July 10, 2007

LORETA AGUSTIN CHONG, also known as LORETA GARCIA AGUSTIN, Petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES PEDRO and ROSITA DE GUZMAN and FORTUNE DEVELOPMENT CORPORATION, Respondents. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the September 14, 2000 Decision1 of the Court of Appeals in CA-G.R. CV No. 47487, which affirmed the August 8, 1994 Decision2 of the Regional Trial Court of Manila, Branch 7 in Civil Case No. 89-50138 dismissing petitioners complaint, and ordering her to pay P50,000.00 as moral damages,P10,000.00 as attorneys fees and costs of the suit, as well as the May 28, 2001 Resolution which denied petitioners motion for reconsideration. On August 25, 1989, petitioner Loreta Agustin Chong filed a Complaint3 for annulment of contracts and recovery of possession against respondent-spouses Pedro and Rosita de Guzman, and Fortune Development Corporation before the Regional Trial Court of Manila. Petitioner alleged that she is the common-law wife of Augusto Chong; that on February 13, 1980, she bought a parcel of land (subject lot) from respondent corporation as evidenced by Contract to Sell No. 195, particularly described as follows: "A parcel of land (Lot 1 Block 4, of the consolidation-subdivision plan (LRC) Pcs-18730, being a portion of the consolidation of Lot 4522 and 4524, Paraaque Cadastre, Lots 1 & 2 (LRC) Psd-169203) L.R.C. Rec. Nos. N-27442, N-27463, N-13960), situated in the Barrio of San Dionisio, Province of Rizal, containing an area of TWO HUNDRED SIXTY SIX (266) square meters, more or less." She further alleged that by virtue of a special power of attorney she executed in favor of Augusto, the latter sold the subject lot to respondent-spouses under the Transfer of Rights and Assumption of Obligation dated January 30, 1984 allegedly for P80,884.95 which petitioner or Augusto never received, thus, said sale is null and void for lack of consideration; and that despite repeated demands, respondent-spouses refused to turn over the possession of the subject lot to petitioner. Petitioner likewise denied selling the house constructed on the subject lot to respondent-spouses for P25,000.00, claiming that she could not have executed the Deed of Sale because at the time it was allegedly notarized on February 24, 1987, she was working in Hong Kong as a domestic helper. Thus, said sale is void for being a forgery. Petitioner alleged that despite repeated demands, respondent-spouses refused to surrender the possession of the aforesaid house. Petitioner also claimed that she is the owner of a house located at 1191 P. Zapanta, Singalong, Manila; that without her knowledge and consent, respondent-spouses rented said house to other persons and collected rent; and that despite repeated demands, respondentspouses refused to return the possession of the house as well as the rentals collected therefrom.

Petitioner prayed that the Transfer of Rights and Assumption of Obligation as well as the Deed of Sale be declared null and void; that respondent-spouses be ordered to turn over the possession of the houses and lots in Paraaque and Singalong to petitioner; and that respondents indemnify her for actual, moral and exemplary damages as well as attorneys fees. Respondent-spouses moved to dismiss4 the complaint for failure to state a cause of action but it was denied by the trial court. On December 11, 1989, respondent-spouses filed their Answer5 to the Complaint while respondent corporation failed to file its answer within the reglementary period hence, it was declared in default. During the pre-trial, respondent-spouses orally moved for leave of court to file an amended answer which was granted. On May 18, 1990, respondent-spouses filed their Amended Answer with Counterclaim.6 Petitioner filed a Motion to Strike Out Amended Answer7 alleging that no prior written motion for leave to file amended answer was filed in violation of Section 3, Rule 10 of the Rules of Court and that the amended answer contained substantial amendments, but same was denied by the trial court in an Order8 dated July 16, 1990. In their amended answer, respondent-spouses asserted that the Transfer of Rights and Assumption of Obligation was supported by sufficient consideration; that they paid P125,000.00, and not P25,000.00 as alleged by petitioner, for the house on the subject lot; that the Deed of Sale over the house constructed on the subject lot was signed by petitioner on February 22, 1987 while she was still in the country but it was notarized only on February 24, 1987 or after she had left to work abroad; that petitioner failed to allege or submit any actionable document to prove her claim of ownership; that the house located in Singalong is owned by respondent-spouses; and that petitioners complaint is malicious and baseless which entitles them to actual, moral, exemplary and nominal damages, as well as attorneys fees. After trial on the merits, the trial court rendered a Decision finding thus: The Court is convinced that the document entitled Transfer of Rights and Assumption of Obligation is sufficiently supported by valuable consideration. The evidence presented by the [respondent-spouses] has shown that for the house and lot [respondent-spouses] paid almost P480,000.00 and this definitely is more than sufficient compensation for the house and lot in question. The Court believes, considering the evidence on record, that [petitioner] on February 22, 1987 received the amount of P25,000.00 from Pedro de Guzman before she left for Hongkong. Unfortunately, the document was not notarized on that day but two days thereafter. The Court also believes that it was the [respondent- spouses] who paid the sum of P105,000.00, the obligation of Augusto Chong and [petitioner] to Rosario Cabelin and as a consequence, all the documents pertaining thereto were given to the [respondent-spouses] by Rosario Cabelin. The Court also notes that [petitioner] and Augusto Chong could not even agree as to who was indebted to Rosario Cabelin. [Petitioner] tried to deny that she was indebted to Rosario Cabelin while Augusto Chong claimed that it was [petitioner] who was indebted to Rosario. The Court, therefore, considering those inconsistencies of the [petitioner] and her paramour refuses to believe their testimonies. On the other hand, the Court finds the testimony of [respondent Pedro de Guzman] and his witnesses to be believable and consistent with the evidence received by it. It is clear from the aforementioned discussion that [petitioner] has failed to prove by a preponderance of evidence her causes of action against [respondents]. On the other hand, [respondents] have shown the baselessness of the complaint filed by [petitioner]. WHEREFORE, premises considered, judgment is rendered for [respondents] by dismissing the complaint and sentencing [petitioner] to pay the [respondents] P50,000.00 as moral damages plus P10,000.00 as attorneys fees, plus costs of suit.9 Petitioner appealed to the Court of Appeals which rendered the assailed Decision affirming in toto the decision of the trial court. Hence, the instant petition. Petitioner raises four issues, to wit: (1) whether the trial court erred in admitting respondent-spouses amended answer in violation of Section 3, Rule 10 of the Rules of Court, (2) whether petitioner was deprived of due process when during the pre-trial, respondentspouses failed and refused to furnish her copies of the documents that they intended to present, in violation of Section 6, Rule 18 of the Rules of Court, (3) whether the trial court erred in not finding that the Transfer of Rights and Assumption of Obligation dated January 30, 1984 was void or, in the alternative, unenforceable as against petitioner. Petitioner claims that the trial court erred in granting respondent-spouses oral manifestation or motion for leave to file an amended answer. She argues that respondent-spouses should have filed a written motion for leave to file an amended answer, pursuant to Section 3,10 Rule 10 of the Rules of Court. She argues that the purpose of the rule is to help the trial court determine whether the proposed amendments constitute substantial amendments to their original answer and whether the motion is intended to delay the proceedings, as well as to give the adverse party an opportunity to be heard. The contention lacks merit.

The trial court allowed respondent-spouses to amend their answer after it observed that their original answer merely contained specific denials without clearly setting forth, as far as practicable, the truth of the matter upon which they rely to support such denial as required under Section 10,11 Rule 8 of the Rules of Court. Further, after denying the material allegations in the Complaint, respondent-spouses merely stated in their original answer that "[a]ll other arguments embodied in [their prior] motion to dismiss are reiterated as part of the special and affirmative defenses herein."12 Under these conditions, the trial court justifiably deemed it necessary for respondentspouses to amend their answer in order to sufficiently clarify the issues to be tried and thereby expedite the proceedings. In granting respondent-spouses motion to file an amended answer, the trial court acted within its discretion pursuant to Section 2, Rule 18 of the Rules of Court: SEC. 2. Nature and purpose. The pre-trial is mandatory. The court shall consider: xxxx (c) The necessity or desirability of amendments to the pleadings; Trial court allowed the filing of an amended answer to avoid multiplicity of suits, to determine the real controversies between the parties and to decide the case on the merits without unnecessary delay, all of which form the bases for the liberality of the rule in allowing amendments to pleadings.13 This was in consonance with the basic tenet that the Rules of Court shall be liberally construed to promote the just, speedy and inexpensive disposition of every action.14 Petitioner next asserts that during the pre-trial, respondent-spouses did not furnish her with copies of the documents that they intended to present, in violation of Section 6,15 Rule 18 of the Rules of Court. Petitioner claims that she was denied due process and that the trial court gave respondent- spouses undue advantage during the trial of this case. Petitioners contention lacks merit. The records show that respondent-spouses Pre-Trial Brief16 dated April 10, 1990 enumerated the documents to be presented during the trial as well as the purposes of their presentation. Although copies of the documents enumerated therein were not attached to the Pre-Trial Brief, they were nonetheless previously attached to respondent-spouses Motion To Dismiss17 dated September 8, 1989, Reply18 to petitioners opposition to the motion to dismiss dated September 25, 1989, and Amended Answer With Counterclaim19 dated May 11, 1990, all of which were copy furnished to petitioner. During trial, petitioner was afforded every opportunity to examine respondent-spouses documentary evidence, and to controvert the same. Petitioner even cross-examined respondent-spouses on these documents at length and challenged their validity during the presentation of both her evidence-in-chief and rebuttal evidence. Consequently, petitioner can not now claim that she was denied due process and that she was unable to adequately prosecute her case. Petitioners main contention rests on the alleged nullity or, in the alternative, unenforceability of the Transfer of Rights and Assumption of Obligation dated January 30, 1984. We agree with the findings of the lower courts that the parties voluntarily executed the Transfer of Rights and Assumption of Obligation dated January 30, 1984 and that the same was supported by valuable consideration. The evidence on record sufficiently established that on February 13, 1980, petitioner bought the subject lot from respondent corporation under Contract to Sell No. 195 and thereafter, began paying the stipulated monthly installments thereon. On April 18, 1983, she executed a Special Power of Attorney20 in favor of Augusto Chong, granting the latter the power to "mortgage, encumber, sell and dispose the property (subject lot) under such terms and conditions which my said attorney (Augusto) may deem acceptable x x x" and "pay any/all my valid obligations to the proper person/s x x x."21 On July 1, 1983, one Rosario Cabelin filed a complaint for sum of money against petitioner and Augusto with the Regional Trial Court of Pasay City which was docketed as Civil Case No. 1102-P. Under threat of preliminary attachment, petitioner, who was then working as a domestic helper in Hong Kong, sought the assistance of respondent-spouses to settle the case. Subsequently, Rosario, Augusto and petitioner, with Augusto acting as petitioners attorney-in-fact, entered into a Compromise Agreement22 dated July 25, 1983 wherein petitioner and Augusto agreed to pay the amount of P55,000.00 to Rosario. To guarantee the payment of the remaining balance of the debt in the amount of P105,000.00, Augusto, again acting as petitioners attorney-in-fact, executed a Deed of Sale with Right to Repurchase23 dated July 25, 1983 over the subject lot in favor of Rosario in consideration of the aforesaid sum. In addition, Augusto, respondent-spouses, Gualberto and Fe Arceta jointly and severally promised to pay the aforesaid sum on or before July 24, 1984 under a Promissory Note24 dated July 24, 1983. Sometime in December 1983, Rosario demanded payment of the remaining balance of the debt. Respondent-spouses agreed to pay Rosario the amount of P105,000.00 provided petitioner will transfer her rights over the subject lot to them. Thus, after respondentspouses had paid Rosario, Augusto, acting under the aforementioned Special Power of Attorney, executed a Transfer of Rights and Assumption of Obligation25 dated January 30, 1984 in favor of respondent-spouses and with the conformity of respondent corporation. Correspondingly, Rosario executed a Quitclaim26 in favor of Augusto releasing him from the aforementioned Deed of Sale with Right to Repurchase and Promissory Note. Thereafter, respondent-spouses paid the remaining monthly installments and transferred the title over the subject lot in their names as evidenced by Transfer Certificate of Title No. 129227issued on January 21, 1988. Petitioner asserts, however, that the Transfer of Rights and Assumption of Obligation is null and void because it lacked valuable consideration. She claims that she executed the Special Power of Attorney in favor of Augusto with the understanding that the

subsequent transfer of the subject lot to respondent-spouses would be merely simulated ("kunwarian").28 She claims that respondentspouses and her nieces enticed her into executing the Special Power of Attorney because Augusto might sell the subject lot while petitioner is abroad and use the proceeds thereof to support his children with his legal wife.29 Thus, petitioner agreed to execute the Special Power of Attorney in favor of Augusto for the sole purpose of transferring the subject lot in the name of respondent-spouses through a simulated sale. We are not persuaded. If petitioner believes that Augusto would appropriate the property during her absence, then she should not have executed the Special Power of Attorney in his favor authorizing him to dispose of the subject lot. If it was truly her intention to prevent Augusto from disposing the subject lot, then she could have simply retained the rights over the subject lot in her name or directly transferred the same to the name of respondent- spouses before she left for Hong Kong. Notably, when petitioner was presented as a witness during the presentation of her rebuttal evidence, she claimed that she executed the Special Power of Attorney to help her nieces, Gualberto and Fe Arceta, secure a loan for the purported repair of the latters duplex house.30 Augusto was allegedly appointed as petitioners attorney-in-fact so that the former could act as a co-maker of the loan.31 Unfortunately for petitioner, these inconsistencies cast doubt on her credibility. Petitioners claim that Augusto was not empowered to dispose of the subject lot in order to pay off an alleged debt she owed to Rosario, is not worthy of belief. The clear and unmistakable tenor of the Special Power of Attorney reveals that petitioner specifically authorized Augusto to sell the subject lot and to settle her obligations to third persons. The Special Power of Attorney is a duly notarized document and, as such, is entitled, by law, to full faith and credit upon its face.32 Notarization vests upon the document the presumption of regularity unless it is impugned by strong, complete and conclusive proof.33 Rather than challenging its validity, petitioner admitted in open court that she signed the Special Power of Attorney with a full appreciation of its contents34 and without reservation.35 Petitioner likewise admitted that Rosario was her creditor when she was first presented as a witness during the reception of evidence.36 Even petitioners own witness, Augusto, testified that petitioner was indebted to Rosario due to a failed business venture involving a store in Baclaran, Manila.37 In her Letter38 dated February 6, 1984 to respondent- spouses, petitioner, likewise, admitted that she was indebted to Rosario and sought the assistance of respondent-spouses to help pay off her debts. In fine, the evidence on record sufficiently established that petitioners rights over the subject lot were validly transferred to respondentspouses in consideration of the latters payment of petitioners debts to Rosario. When Augusto executed the Transfer of Rights and Assumption of Obligations on behalf of petitioner, he was acting within his powers under the Special Power of Attorney for valuable consideration. In a contract of agency, the agent acts in representation or in behalf of another with the consent of the latter,39 and the principal is bound by the acts of his agent for as long as the latter acts within the scope of his authority.40 Hence, the Transfer of Rights and Assumption of Obligations is valid and binding between the parties. Lastly, petitioner impugns the jurisdiction of the Pasay City RTC in Civil Case No. 1102-P on the ground that it never acquired jurisdiction over her person because summons were allegedly not properly served on her, and that she never authorized Augusto to enter into the compromise agreement in said case on her behalf. According to petitioner, she was in Hong Kong when the collection suit was filed by Rosario against her and Augusto. In short, she assails the validity of the judgment based on compromise agreement since the proceedings in Civil Case No. 1102-P were presumably terminated after the parties entered into a Compromise Agreement dated July 25, 1983. She posits that all the documents signed by Augusto on her behalf, specifically, the Compromise Agreement dated July 25, 1983, Deed of Sale with Right to Repurchase dated July 25, 1983, and Transfer of Rights and Assumption of Obligation dated January 30, 1984, are unenforceable as against her. Petitioners contention must likewise fail. A judgment based on a compromise agreement is a judgment on the merits wherein the parties have validly entered into stipulations and the evidence was duly considered by the trial court that approved the agreement.41 It is immediately executory and not appealable unless set aside on grounds of nullity under Article 203842 of the Civil Code,43 and has the effect of a judgment of the court.44 Further, well-entrenched is the rule that a party may attack the validity of a final and executory judgment through three ways: The first is by petition for relief from judgment under Rule 38 of the Revised Rules of Court, when judgment has been taken against the party through fraud, accident, mistake or excusable negligence, in which case the petition must be filed within sixty (60) days after the petitioner learns of the judgment, but not more than six (6) months after such judgment was entered. The second is by direct action to annul and enjoin the enforcement of the judgment. This remedy presupposes that the challenged judgment is not void upon its face, but is entirely regular in form, and the alleged defect is one which is not apparent upon its face or from the recitals contained in the judgment. x x x under accepted principles of law and practice, long recognized in American courts, the proper remedy in such case, after the time for appeal or review has passed, is for the aggrieved party to bring an action enjoining the judgment, if not already carried into effect; or if the property has already been disposed of, he may institute suit to recover it. The third is either a direct action, as certiorari, or by a collateral attack against the challenged judgment (which is) void upon its face, or that the nullity of the judgment is apparent by virtue of its own recitals. As aptly explained by Justice Malcolm in his dissent in Banco Espaol-Filipino v. Palanca, supra, A judgment which is void upon its face, and which requires only an inspection of the judgment roll to demonstrate its want of vitality is a dead limb upon the judicial tree, which should be lopped off, if the power so to do exists.

In the case at bar, the want of jurisdiction of the Pasay RTC in Civil Case No. 1102-P due to the alleged non-service of summons has not been established by petitioner. The judgment based on compromise agreement made therein was likewise not established as being void upon its face. Except for the self-serving allegation that she was in Hong Kong when the collection suit was filed, petitioner did not present competent proof to prove that she was not properly served with summons. Even if it were true that she was abroad when the collection suit was filed against her, summons could still be served through extraterritorial service under Section 1645 in relation to Section 15,46 of Rule 14 of the Rules of Court. Undeniably, the Pasay City RTC in Civil Case No. 1102-P enjoys the presumption of regularity in the conduct of its official duties which was not fully rebutted by petitioner. Petitioner bewails that the records of Civil Case No. 1102-P was destroyed due to a fire that gutted the Pasay City Hall Building on January 18, 1992 as evidenced by a Certification47 dated November 6, 2001 issued by the Office of the Clerk of Court, RTC, Pasay City. However, petitioner was not without recourse considering that she could have filed a petition for the reconstitution of the records of said case, and thereafter, sought the annulment of the judgment therein, if warranted. The procedure for the reconstitution of records could have been done either under Act No. 3110,48 which is the general law that governs the reconstitution of judicial records, or under Section 5(h)49of Rule 135 of the Rules of Court which recognizes the inherent power of the courts to reconstitute at any time the records of their finished cases.50 Since petitioner failed to avail of the proper remedies before the proper forum, we cannot rule on, much less disturb, the validity of the proceedings before the Pasay City RTC in Civil Case No. 1102-P. At any rate, whether or not petitioner was properly served with summons in Civil Case No. 1102-P, and that Augusto was not authorized to enter into the Compromise Agreement dated July 25, 1983 on her behalf, will not affect the outcome of this case. There is sufficient evidence on record to establish that petitioner impliedly ratified the compromise agreement as well as the other documents executed pursuant thereto. Implied ratification may take various forms such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.51 In the instant case, petitioner claimed that she learned of the transfer of the subject lot to respondent-spouses as part of the settlement in the collection suit in May 1985;52 however, she did not take steps to immediately assail the alleged unauthorized transfer of the same. She failed to adequately explain why she waited four years later or until 1989 to file the subject complaint to annul the aforesaid documents. More importantly, instead of asserting her rights over the subject lot after discovering the alleged fraudulent and unauthorized transfer of the same to respondent-spouses in May 1985, petitioner subsequently sold the house constructed on the subject lot also to respondent-spouses on February 22, 1987 for the sum of P25,000.00. This act runs counter to the reaction of one who discovers that his or her property has been fraudulently conveyed in favor of another. Indubitably, this act only fortifies the previous finding that petitioner has authorized and consented to, or, at the very least, ratified the sale of the subject lot to respondent-spouses to pay off her debts to Rosario. Petitioner alleges that the Deed of Sale53 dated February 24, 1987 is a forgery. She denies having signed the aforesaid deed and claims that on February 24, 1987, the date when the deed was allegedly notarized, she was in Hong Kong working as a domestic helper. The trial court and the Court of Appeals found otherwise. They gave credence to the claim of respondent Pedro de Guzman that petitioner signed the Deed of Sale and received the P25,000.00 consideration therefor on February 22, 1987 or two days before she left for Hong Kong. However, the deed was notarized only on February 24, 1987 as admitted by respondent Pedro de Guzman. The Court of Appeals noted that even a cursory examination of the signature appearing on the Deed of Sale would show that it was written by one and the same hand that signed the Contract to Sell which petitioner admits contained her signature.54 In addition, Augusto admitted that he signed the deed as evidenced by the signature in the portion of the deed where he gave his marital consent to the sale.55 Further, as per the request of petitioner in a Letter56 dated February 22, 1987, respondent- spouses gave petitioners son and sister the sum of P122,000.00 as additional consideration for the house built on the subject lot. Thereafter, petitioners son and sister signed an Annotation57 dated March 20, 1987 in said Letter acknowledging receipt of the aforesaid sum.1avvphi1 It was established that petitioner received valuable consideration for the sale of the house on the subject lot. Concededly, the notarization of the deed was defective as respondent Pedro de Guzman himself admitted that the deed was notarized only two days after petitioner had signed the deed and at which time she was already in Hong Kong. In short, petitioner did not appear before the notary public in violation of the Notarial Law58 which requires that the party acknowledging must appear before the notary public or any other person authorized to take acknowledgments of instruments or documents.59 Nevertheless, the defective notarization of the deed does not affect the validity of the sale of the house. Although Article 135860 of the Civil Code states that the sale of real property must appear in a public instrument, the formalities required by this article is not essential for the validity of the contract but is simply for its greater efficacy or convenience, or to bind third persons,61 and is merely a coercive means granted to the contracting parties to enable them to reciprocally compel the observance of the prescribed form.62 Consequently, the private conveyance of the house is valid between the parties.63 Based on the foregoing, we are satisfied that the sale of the subject lot and the house built thereon was made for valuable consideration and with the consent of petitioner. Consequently, we affirm the findings of the lower courts which upheld the validity of the transfer of petitioners rights over the subject lot as well as the sale of the house built thereon in favor of respondent-spouses. Anent petitioners claim that she is the owner of another house located at 1191 P. Zapanta, Singalong, Manila, the same must similarly fail. Aside from the self-serving statement that she owns the house, petitioner merely presented a Metropolitan Waterworks and Sewerage System Official Water Receipt64 dated December 7, 1979, a water installation Receipt65 dated August 22, 1979, and a Manila Electric Company (Meralco) Warrant66 to purchase a stock of Meralco Securities Corporation dated December 24, 1975, all in her

name, to establish her claim. Suffice it to state, petitioners evidence does not meet the quantum of proof necessary to establish that she is the rightful owner of the aforesaid house. At best, they prove that she resided in the aforesaid house sometime in the 1970s or long before she filed the subject complaint on August 25, 1989. Basic is the rule that in civil cases, the burden of proof is on the plaintiff to establish her case by a preponderance of evidence. If she claims a right granted or created by law, she must prove her claim by competent evidence. She must rely on the strength of her own evidence and not on the weakness of that of her opponent.67 This, petitioner failed to do. WHEREFORE, the petition is DENIED. The September 14, 2000 Decision of the Court of Appeals in CA-G.R. CV No. 47487 which affirmed the August 8, 1994 Decision of the Regional Court of Manila, Branch 7, in Civil Case No. 89-50138, dismissing the complaint, and ordering petitioner to pay P50,000.00 as moral damages, P10,000.00 as attorneys fees and costs of the suit, and its May 28, 2001 Resolution denying petitioners motion for reconsideration, are AFFIRMED. Costs against petitioner. SO ORDERED G.R. No. 167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs. EDWIN CUIZON and ERWIN CUIZON, Respondents. DECISION CHICO-NAZARIO, J.: Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672. The generative facts of the case are as follows: Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said capacity. From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent part of which states: 1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump; 2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient; 3.) That the ASSIGNEE does hereby accept this assignment.7 Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.8 Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 09339prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents total obligations

stood at P295,000.00 excluding interests and attorneys fees.11 Because of respondents failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City.12 On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary attachment.13 On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners allegations with respect to the sale transactions entered into by Impact Systems and petitioner between January and April 1995.15 He, however, disputed the total amount of Impact Systems indebtedness to petitioner which, according to him, amounted to only P220,000.00.16 By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating 1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served summons and other processes of the Honorable Court. 1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in such capacity.17 On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.19However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.20 After the filing of respondent EDWINs Memorandum21 in support of his special and affirmative defenses and petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later. In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant.23 Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed Decision of the Court of Appeals states: WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24 Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following: THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25 To support its argument, petitioner points to Article 1897 of the New Civil Code which states: Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally liable for the obligations of his principal.26 Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the attention of this Court to the fact that respondents are bound not only by their principal and agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy to defraud petitioner.27 In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction. We do not find merit in the petition. In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latters consent.29 The underlying principle of the contract of agency is to accomplish results by using the services of others to do a great variety of things like selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality of the principal or the party for whom another acts and from whom he or she derives the authority to act.31 It is said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence qui facit per alium facit per se.33 The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.34 In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code. We disagree. Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision. The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal, thus: The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. x x x.35 Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems indebtedness.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWINs participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the situations when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of authority by the agent, like what petitioner claims exists here, the law does not say that a third person can recover from both the principal and the agent.40 As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a defendant in the suit before the court a quo. WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED. Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of the proceedings against respondent Erwin Cuizon. SO ORDERED. G.R. No. 157493 February 5, 2007

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed OESMER, Petitioners, vs. PARAISO DEVELOPMENT CORPORATION, Respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as modified by its Resolution2 dated 4 March 2003, declaring the Contract to Sell valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to execute the Deed of Absolute Sale concerning their 6/8 share over the subject parcels of land in favor of herein respondent Paraiso Development Corporation, and to pay the latter the attorneys fees plus costs of the suit. The assailed Decision, as modified, likewise ordered the respondent to tender payment to the petitioners in the amount of P3,216,560.00 representing the balance of the purchase price of the subject parcels of land. The facts of the case are as follows: Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided shares of two parcels of agricultural and tenanted land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for taxation purposes under Tax Declaration No. 34383(cancelled by I.D. No. 6064-A) for Lot 720 and Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. When the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs of the former by right of succession. Respondent Paraiso Development Corporation is known to be engaged in the real estate business. Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona, Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale of petitioners properties to respondent corporation. Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the amount of P100,000.00, payable to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document.

On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21 April 1989, respondent brought the same to a notary public for notarization. In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners informed the former of their intention to rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as option money. Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together with Adolfo and Jesus, filed a Complaint7 for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with Damages before the Regional Trial Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil Case No. BCV-91-49. During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,8 dated 16 September 1992, to the effect that the deceased petitioner be substituted by his surviving spouse, Josefina O. Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer. However, the name of Rizalino was retained in the title of the case both in the RTC and the Court of Appeals. After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in favor of the respondent, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding only to the undivided proportionate share of the signatory of this document and recipient of the check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter the attorneys fees in the sum of Ten Thousand (P10,000.00) Pesos plus costs of suit. The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10 Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002, the appellate court rendered a Decision modifying the Decision of the court a quo by declaring that the Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The decretal portion of the said Decision states that: WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate share of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land and in favor of herein [respondent] corporation, and to pay the latter the attorneys fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit.11 Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the same on 2 July 2002. Acting on petitioners Motion for Reconsideration, the Court of Appeals issued a Resolution dated 4 March 2003, maintaining its Decision dated 26 April 2002, with the modification that respondent tender payment to petitioners in the amount of P3,216,560.00, representing the balance of the purchase price of the subject parcels of land. The dispositive portion of the said Resolution reads: WHEREFORE, premises considered, the assailed Decision is hereby modified.1awphi1.net Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter attorneys fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit. Respondent is likewise ordered to tender payment to the above-named [petitioners] in the amount of Three Million Two Hundred Sixteen Thousand Five Hundred Sixty Pesos (P3,216,560.00) representing the balance of the purchase price of the subject two parcels of land. 12 Hence, this Petition for Review on Certiorari. Petitioners come before this Court arguing that the Court of Appeals erred: I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not binding upon petitioner Ernesto Oesmers co-owners (herein petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora). II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms. Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct from the price, and hence, void. Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the supposed Contract to Sell did not confer authority on petitioner Ernesto as agent to sell their respective shares in the questioned

properties, and hence, for lack of written authority from the above-named petitioners to sell their respective shares in the subject parcels of land, the supposed Contract to Sell is void as to them. Neither do their signatures signify their consent to directly sell their shares in the questioned properties. Assuming that the signatures indicate consent, such consent was merely conditional. The effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval of the sale by all the co-owners. Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the Court of Appeals, is not couched in simple language. They further claim that the supposed Contract to Sell does not bind the respondent because the latter did not sign the said contract as to indicate its consent to be bound by its terms. Furthermore, they maintain that the supposed Contract to Sell is really a unilateral promise to sell and the option money does not bind petitioners for lack of cause or consideration distinct from the purchase price. The Petition is bereft of merit. It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did not confer authority on petitioner Ernesto as agent authorized to sell their respective shares in the questioned properties because of Article 1874 of the Civil Code, which expressly provides that: 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. The law itself explicitly requires a written authority before an agent can sell an immovable. The conferment of such an authority should be in writing, in as clear and precise terms as possible. It is worth noting that petitioners signatures are found in the Contract to Sell. The Contract is absolutely silent on the establishment of any principal-agent relationship between the five petitioners and their brother and co-petitioner Ernesto as to the sale of the subject parcels of land. Thus, the Contract to Sell, although signed on the margin by the five petitioners, is not sufficient to confer authority on petitioner Ernesto to act as their agent in selling their shares in the properties in question. However, despite petitioner Ernestos lack of written authority from the five petitioners to sell their shares in the subject parcels of land, the supposed Contract to Sell remains valid and binding upon the latter. As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed the said Contract to Sell; the other five petitioners also personally affixed their signatures thereon. Therefore, a written authority is no longer necessary in order to sell their shares in the subject parcels of land because, by affixing their signatures on the Contract to Sell, they were not selling their shares through an agent but, rather, they were selling the same directly and in their own right. The Court also finds untenable the following arguments raised by petitioners to the effect that the Contract to Sell is not binding upon them, except to Ernesto, because: (1) the signatures of five of the petitioners do not signify their consent to sell their shares in the questioned properties since petitioner Enriqueta merely signed as a witness to the said Contract to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did not understand the importance and consequences of their action because of their low degree of education and the contents of the aforesaid contract were not read nor explained to them; and (2) assuming that the signatures indicate consent, such consent was merely conditional, thus, the effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval by all the co-owners of the sale. It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.13 In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to the respondent of their shares in the subject parcels of land by affixing their signatures on the said contract. Such signatures show their acceptance of what has been stipulated in the Contract to Sell and such acceptance was made known to respondent corporation when the duplicate copy of the Contract to Sell was returned to the latter bearing petitioners signatures. As to petitioner Enriquetas claim that she merely signed as a witness to the said contract, the contract itself does not say so. There was no single indication in the said contract that she signed the same merely as a witness. The fact that her signature appears on the right-hand margin of the Contract to Sell is insignificant. The contract indisputably referred to the "Heirs of Bibiano and Encarnacion Oesmer," and since there is no showing that Enriqueta signed the document in some other capacity, it can be safely assumed that she did so as one of the parties to the sale. Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently signed the Contract to Sell. As the Court of Appeals mentioned in its Decision,14 the records of the case speak of the fact that petitioner Ernesto, together with petitioner

Enriqueta, met with the representatives of the respondent in order to finalize the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the said contract when the same was drafted. She even admitted that she understood the undertaking that she and petitioner Ernesto made in connection with the contract. She likewise disclosed that pursuant to the terms embodied in the Contract to Sell, she updated the payment of the real property taxes and transferred the Tax Declarations of the questioned properties in her name.15 Hence, it cannot be gainsaid that she merely signed the Contract to Sell as a witness because she did not only actively participate in the negotiation and execution of the same, but her subsequent actions also reveal an attempt to comply with the conditions in the said contract. With respect to the other petitioners assertion that they did not understand the importance and consequences of their action because of their low degree of education and because the contents of the aforesaid contract were not read nor explained to them, the same cannot be sustained. We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to dispose of this issue. Thus, First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read and understand. The terms of the Contract, specifically the amount of P100,000.00 representing the option money paid by [respondent] corporation, the purchase price of P60.00 per square meter or the total amount ofP3,316,560.00 and a brief description of the subject properties are well-indicated thereon that any prudent and mature man would have known the nature and extent of the transaction encapsulated in the document that he was signing. Second, the following circumstances, as testified by the witnesses and as can be gleaned from the records of the case clearly indicate the [petitioners] intention to be bound by the stipulations chronicled in the said Contract to Sell. As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the subject property as he in fact was the one who initiated the negotiation process and culminated the same by affixing his signature on the Contract to Sell and by taking receipt of the amount of P100,000.00 which formed part of the purchase price. xxxx As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his signature on a document written in a language (English) that he purportedly does not understand. He testified that the document was just brought to him by an 18 year old niece named Baby and he was told that the document was for a check to be paid to him. He readily signed the Contract to Sell without consulting his other siblings. Thereafter, he exerted no effort in communicating with his brothers and sisters regarding the document which he had signed, did not inquire what the check was for and did not thereafter ask for the check which is purportedly due to him as a result of his signing the said Contract to Sell. (TSN, 28 September 1993, pp. 22-23) The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993, p. 19). As such, he is expected to act with that ordinary degree of care and prudence expected of a good father of a family. His unwitting testimony is just divinely disbelieving. The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said Contract to Sell. The theory adopted by the [petitioners] that because of their low degree of education, they did not understand the contents of the said Contract to Sell is devoid of merit. The [appellate court] also notes that Adolfo (one of the co-heirs who did not sign) also possess the same degree of education as that of the signing co-heirs (TSN, 15 October 1991, p. 19). He, however, is employed at the Provincial Treasury Office at Trece Martirez, Cavite and has even accompanied Rogelio Paular to the Assessors Office to locate certain missing documents which were needed to transfer the titles of the subject properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners], like Adolfo, are far from ignorant, more so, illiterate that they can be extricated from their obligations under the Contract to Sell which they voluntarily and knowingly entered into with the [respondent] corporation. The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as follows: "The Court does not accept the petitioners claim that she did not understand the terms and conditions of the transactions because she only reached Grade Three and was already 63 years of age when she signed the documents. She was literate, to begin with, and her age did not make her senile or incompetent. x x x. At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere has it been proven that she is unable to read or that the contracts were written in a language not known to her. It was her responsibility to inform herself of the meaning and consequence of the contracts she was signing and, if she found them difficult to comprehend, to consult other persons, preferably lawyers, to explain them to her. After all, the transactions involved not only a few hundred or thousand pesos but, indeed, hundreds of thousands of pesos. As the Court has held:

x x x The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable persons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do and his failure to obtain a reading and explanation of it is such gross negligence as will estop from avoiding it on the ground that he was ignorant of its contents."16 That the petitioners really had the intention to dispose of their shares in the subject parcels of land, irrespective of whether or not all of the heirs consented to the said Contract to Sell, was unveiled by Adolfos testimony as follows: ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless everybody will agree, the properties would not be sold, was that agreement in writing? WITNESS: No sir. ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did not sign that agreement which had been marked as [Exhibit] "D", your brothers and sisters were grossly violating your agreement. WITNESS: Yes, sir, they violated what we have agreed upon.17 We also cannot sustain the allegation of the petitioners that assuming the signatures indicate consent, such consent was merely conditional, and that, the effectivity of the alleged Contract to Sell was subject to the suspensive condition that the sale be approved by all the co-owners. The Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.18 The terms of the Contract to Sell made no mention of the condition that before it can become valid and binding, a unanimous consent of all the heirs is necessary. Thus, when the language of the contract is explicit, as in the present case, leaving no doubt as to the intention of the parties thereto, the literal meaning of its stipulation is controlling. In addition, the petitioners, being owners of their respective undivided shares in the subject properties, can dispose of their shares even without the consent of all the co-heirs. Article 493 of the Civil Code expressly provides: Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. [Emphases supplied.] Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is still valid and binding with respect to the 6/8 proportionate shares of the petitioners, as properly held by the appellate court. Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners who were signatories in the Contract to Sell are bound thereby. The final arguments of petitioners state that the Contract to Sell is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms; and moreover, the Contract to Sell is really a unilateral promise to sell without consideration distinct from the price, and hence, again, void. Said arguments must necessarily fail. The Contract to Sell is not void merely because it does not bear the signature of the respondent corporation. Respondent corporations consent to be bound by the terms of the contract is shown in the uncontroverted facts which established that there was partial performance by respondent of its obligation in the said Contract to Sell when it tendered the amount of P100,000.00 to form part of the purchase price, which was accepted and acknowledged expressly by petitioners. Therefore, by force of law, respondent is required to complete the payment to enforce the terms of the contract. Accordingly, despite the absence of respondents signature in the Contract to Sell, the former cannot evade its obligation to pay the balance of the purchase price. As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell merely because it used the word option money when it referred to the amount of P100,000.00, which also form part of the purchase price. Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking to the words they used to project that intention in their contract, all the words, not just a particular word or two, and words in context, not words standing alone.19 In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as "option money." However, a careful examination of the words used in the contract indicates that the money is not option money but earnest money. "Earnest money" and "option money" are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the

balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.20 The sum of P100,000.00 was part of the purchase price. Although the same was denominated as "option money," it is actually in the nature of earnest money or down payment when considered with the other terms of the contract. Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the appellate court declared in their Decisions. WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the Court of Appeals dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell isDECLARED valid and binding with respect to the undivided proportionate shares in the subject parcels of land of the six signatories of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the amount ofP3,216,560.00 representing the balance of the purchase price for the latters shares in the subject parcels of land; and (c) petitioners are further ORDERED to execute in favor of respondent the Deed of Absolute Sale covering their shares in the subject parcels of land after receipt of the balance of the purchase price, and to pay respondent attorneys fees plus costs of the suit. Costs against petitioners. SO ORDERED. G.R. No. 111924 January 27, 1997 ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK,respondents.

FRANCISCO, J.: Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale 2 in favor of Parangan which was superseded by the Deed of Definite Sale 3 dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former. For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos. Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows: WHEREFORE and in view of the foregoing, a decision is rendered as follows: 1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794; 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage; 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount; 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit. SO ORDERED. 4 Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors: IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE; IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT; IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT. Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual findings thus necessitating a review of the evidence on record. 5 After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA. The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. 6 We agree. A contract is perfected by mere consent. 7 More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. 8 This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 9 In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract. 10 Articles 1602 and 1604 of the Civil Code respectively provide: The contract shall be presumed to be an equitable mortgage in any of the following cases: 1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessor or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage.11 Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth: Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. 13 Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him. 14 To our mind, this burden has not been satisfactorily discharged. We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying. 15 The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land 16, the latter categorically denied the allegation. 17 This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted. On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified: Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir. Q: Who invited you to go there? A: Parangan. Q: You mean Nicolas Parangan? A: Yes, sir. Q: What did Nicolas tell you why he invited you to go there? A: He told me that I will witness on the indebtedness of Adoracion to Parangan. Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her? A: No, sir. Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir.

xxx xxx xxx Q: What did you have in mind when you were signing this document, Exh. "4"? A: To show that Adoracion Lustan has debts with Nicolas Parangan. 18 Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary. The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement it was one executed to secure some loans. Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative. Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. 20So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and respond for the performance of the principal obligation. 21 It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides: Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understanding between the principal and the agent. 22 The Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-infact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23 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 (Article 1911, Civil Code). 24 The mortgage directly and immediately subjects the property upon which it is imposed. 25The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an unquestionable right to demand proportional indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to satisfy the unpaid debts. WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS: 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE; 2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION; 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE. 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED. G.R. No. 103737 December 15, 1994

NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners, vs. HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., respondents. Public Attorney's Office for petitioners. Romualdo M. Jubay for private respondent.

REGALADO, J.: Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business of manufacturing, making bottling and selling soft drinks and beverages to the general public. Petitioner Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation. Although she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio had a regular charge account in both the Quezon City plant (under the name "Abigail Minimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of private respondent in its Quezon City plant. On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of First Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners purchased and received on credit various products from its Quezon City plant. As of December 31, 1980, petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various occasions in 1980, petitioners also purchased and received on credit various products from respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11, 1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint alleged, they failed to pay despite oral and written demands. 1 In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and received by them from private respondent's Route Manager Jovencio Estrada of its Malate Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store. Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not be indebted to Pepsi-Cola. The details of said receipts are as follows: TPR No. Date of Issue Amount 500320 600 Fulls returned 5/6/80 P23,520.00 500326 600 Fulls returned 5/10/80 23,520.00 500344 600 Fulls returned 5/14/80 23,520.00 500346 Cash 5/15/80 10,000.00 2 Total P80,560.00 Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00, 3 which was included in the computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned amounts were credited in their favor, it would be respondent corporation which would be indebted to them in the sum of P3,546.02 representing overpayment. After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering petitioners, as defendants therein to jointly and severally pay private respondent the amount of P74,849.00, plus 12% interestper annum until the principal amount shall have been fully paid, as well as P20,000.00 as attorney's fees. 4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of the 1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law on which they are based. The Court of Appeals accordingly remanded the records of the case to the trial court, directing it to render another decision in accordance with the requirements of the Constitution. 5 In compliance with the directive of the Court of Appeals, the lower court rendered a second decision on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of the action until full payment of the amount adjudged. 6 On appeal therefrom, the Court of Appeals affirmed the judgment of the trial court in a decision promulgated on September 27, 1991. 7 A motion for the reconsideration of said judgment of respondent court was subsequently denied in a resolution dated January 23, 1992. 8 We agree with petitioners and respondent court that the crux of the dispute in the case at bar is whether or not the amounts in the aforementioned trade provisional receipts should be credited in favor of herein petitioner spouses.

In a so-called encyclopedic sense, however, our course of action in this case and the denouement of the controversy therein takes into account the jurisprudential rule that in the present recourse we would normally have restricted ourselves to questions of law and eschewed questions of fact were it not for our perception that the lower courts manifestly overlooked certain relevant factual considerations resulting in a misapprehension thereof. Consequentially, that position shall necessarily affect our analysis of the rules on the burden of proof and the burden of evidence, and ultimately, whether the proponent of the corresponding claim has preponderated or rested on an equipoise or fallen short of preponderance. First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its Legal Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-payment of debts to the company, inefficiency, and loss of trust and confidence." 9 The interview was reset to August 4, 1981 to enable said petitioner to bring along with him their union president, Luis Isip. On said date, a statement of overdue accounts were prepared showing that petitioners owed respondent corporation the following amounts: Muntinlupa Plant Nora's Store Trade Account P38,357.20 (as of 12/3/80) 10 Loaned Empties P35,856.40 (as of 7/11/81) 11 Quezon City Plant Abigail Minimart Regular Account P20,437.40 (as of 1980) 12 Total P94,651.00 A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the value of the loaned empties.13 Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a spurious document, was deducted from their liability in their trade account with the Muntinlupa plant. 14 Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items: Muntinlupa Plant Nora Store Trade Account P32,726.20 15 Loaned Empties P21,686.00 16 Quezon City Plant Abigail Minimart Trade Account P20,437.20 17 Total P74,849.40 After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be allowed to retire and the existing accounts be deducted from his retirement pay, but that he later withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently filed a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme Court, showed that this petitioner was indeed illegally dismissed, and that he never filed an application for retirement. In fact, this Court made a finding that the retirement papers allegedly filed in the name of this petitioner were forged. 18 This makes two falsified documents to be foisted against petitioners. With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during the investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the aforesaid TPRs. 19 He also presented a supposed affidavit which Estrada allegedly executed during that investigation to affirm his verbal statements therein. Surprisingly, however, said supposed affidavit is inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never testified thereafter in court and what he is supposed to have done or said was merely related by Azurin. Now, on this point, respondent court disagreed with herein petitioners that the testimony on the alleged denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his affidavit dated February 5, 198221 wherein he affirmed his denial, are hearsay evidence because Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the terse statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation categorically denying that he issued and signed the disputed TPRs is, therefore, not hearsay," 22 there was no further explanation on this unusual doctrinal departure. The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in the Rules. 23 In the present case, Estrada failed to appear as a witness at the trial. It was only Azurin who testified that during the investigation he conducted, Estrada supposedly denied having signed the TPRs. It is elementary that under the measure on hearsay evidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada's denial. For that matter, it is not admissible in evidence, petitioners' counsel having

seasonably objected at the trial to such testimony of Azurin as hearsay. And, even if not objected to and thereby admissible, such hearsay evidence has no probative value whatsoever. 24 It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former case or proceeding, judicial or administrative, involving the same parties and subject matter, may be given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule. Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an administrative hearing under statutory regulations and safeguards. It was merely an inter-office interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of the alleged stenographic notes, assumingarguendo that these notes are admissible in evidence, would show that the "investigation" was more of a free-flowing question and answer type of discussion wherein Estrada was asked some questions, after which Eugenio was likewise asked other questions. Indeed, there was no opportunity for Eugenio to object, much less to crossexamine Estrada. Even in a formal prior trial itself, if the opportunity for cross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-examine the witness when the testimony was offered, evidence relating to the testimony given therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the accused amounting to a waiver of his right to cross-examine. 26 Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted to the trial court. A copy of the stenographic report of the entire testimony at the former trial must be supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony of the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed stenographic notes on which respondent corporation relies is unauthenticated and necessarily inadmissible for the purpose intended. Lastly, although herein private respondent insinuated that Estrada was not presented as a witness because he had disappeared, no evidence whatsoever was offered to show or even intimate that this was due to any machination or instigation of petitioners. There is no showing that his absence was procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar, except for the self-serving statement that Estrada had disappeared, no plausible explanation was given by respondent corporation. Estrada was an employee of private respondent, hence it can be assumed that it could easily trace or ascertain his whereabouts. It had the resources to do so, in contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to defend them here. Private respondent could not have been unaware of the importance of Estrada's testimony and the consequent legal necessity for presenting him in the trial court, through coercive process if necessary. Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the hearsay evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not prepared by the affiants themselves but by another who uses his own language in writing the affiant's statements, which may thus be either omitted or misunderstood by the one writing them. 29 The dubiety of that affidavit, as earlier explained, is further underscored by the fact that it was executed more than two months after the investigation, presumably for curative purposes as it were. Now, the authenticity of a handwriting may be proven, among other means, by its comparison made by the witness or the court with writings admitted or treated as genuine by the party against whom the evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged affidavit of Estrada states". . . that the comparison that was made as to the authenticity of the signature appearing in the TPRs and that of my signature showed that there was an apparent dissimilarity between the two signatures, xerox copy of my 201 File is attached hereto as Annex 'F' of this affidavit. 31 However, a search of the Folder of Exhibits in this case does not reveal that private respondent ever submitted any document, not even the aforementioned 201 File, containing a specimen of the signature of Estrada which the Court can use as a basis for comparison. Neither was any document containing a specimen of Estrada's signature presented by private respondent in the formal offer of its exhibits. 32 Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said investigation to sign three times to provide specimens of his genuine signature." 33 There is, however, no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still be unable to make the necessary comparison because two signatures appear on the right margin of each and every page of the stenographic notes, without any indication whatsoever as to which of the signatures is Estrada's. The whole document was marked for identification but the signatures were not. In fact, although formally offered, it was merely introduced by the private respondent "in order to show that Jovencio Estrada had been investigated and categorically denied having collected from Abigail Minimart and denying having signed the receipts claimed by Alfredo Eugenio to be his payment," 34 and not for the purpose of presenting any alleged signature of Estrada on the document as a basis for comparison. This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not be found, and necessarily aware that his alleged denial of his signatures on said TPRs and his affidavit rendered the same vulnerable to the challenge that they are hearsay and inadmissible, respondent corporation did nothing more. In fact, Estrada's disappearance has not been explained up to the present. The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used in the day-to-day business transactions of the company. These trade provisional receipts are bound and given in booklets to the company sales representatives,

under proper acknowledgment by them and with a record of the distribution thereof. After every transaction, when a collection is made the customer is given by the sales representative a copy of the trade provisional receipt, that is, the triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused TPRs, as well as the collections made, are turned over by the sales representative to the appropriate company officer. 35 According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed at the bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by delivering the original copy thereof stamped paid and signed by its cashier to the customer. . . . Defendants-appellants (herein petitioners) failed to present the original copies of the TPRs in question, showing that they were never confirmed by the plaintiff, nor did they demand from plaintiff the confirmed original copies thereof." 36 We do not agree with the strained implication intended to be adverse to petitioners. The TPRs presented in evidence by petitioners are disputably presumed as evidentiary of payments made on account of petitioners. There are presumptions juris tantum in law that private transactions have been fair and regular and that the ordinary course of business has been followed. 37 The role of presumptions in the law on evidence is to relieve the party enjoying the same of the evidential burden to prove the proposition that he contends for, and to shift the burden of evidence to the adverse party. Private respondent having failed to rebut the aforestated presumptions in favor of valid payment by petitioners, these would necessarily continue to stand in their favor in this case. Besides, even assuming arguendo that herein private respondent's cashier never received the amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly authorized agent with respect to petitioners, did not receive those amounts from the latter. As correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for as long as they pay their obligations to the sales representative of the private respondent using the latter's official receipt, said payment extinguishes their obligations." 38 Otherwise, it would unreasonably cast the burden of supervision over its employees from respondent corporation to its customers. The substantive law is that payment shall be made to the person in whose favor the obligation has been constituted, or his successorin-interest or any person authorized to receive it. 39 As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and his agent. 40 In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the responsibility of the collector to turn over the collection." 41 Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following observation: . . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10, and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800 cases of soft drinks from plaintiff before those dates. Yet the Statement of Overdue Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-husband and his representative Luis Isip signed on August 3, 1981 does now show more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1980 or the month before." 42 We regret the inaccuracy in said theory of respondent court which was impelled by its sole and limited reliance on a mere statement of overdue amounts. Unlike a statement of account which truly reflects the day-to-day movement of an account, a statement of an overdue amount is only a summary of the account, simply reflecting the balance due thereon. A statement of account, being more specific and detailed in nature, allows one to readily see and verify if indeed deliveries were made during a specific period of time, unlike a bare statement of overdue payments. Respondent court cannot make its aforequoted categorical deduction unless supporting documents accompanying the statement of overdue amounts were submitted to enable easy and accurate verification of the facts. A perusal of the statement of overdue accounts shows that, except for a reference number given for each entry, no further details were volunteered nor offered. It is entirely possible that the statement of overdue account merely reflects the outstanding debt of a particular client, and not the specific particulars, such as deliveries made, particularly since the entries therein were surprisingly entered irrespective of their chronological order. Obviously, therefore, one can not use the statement of overdue amounts as conclusive proof of deliveries done within a particular time frame. Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank forms of the TPRs because he was a former route manager no evidence whatsoever was presented by private respondent in support of that theory. We are accordingly intrigued by such an unkind assertion of respondent corporation since Azurin himself admitted that their accounting department could not even inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is significant that respondent corporation did not take proper action if indeed some receipts were actually lost, such as the publication of the fact of loss of the receipts, with the corresponding investigation into the matter. We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y. Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store, had eloped and she had possession of the TPRs. 45 It was only in November, 1981 when petitioners were able to talk to Nanette that they were able to find and retrieve said TPRs. He added that during the reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be credited in his favor, hence he signed the reconciliation documents. Accordingly, when he presented the TPRs to private respondent, Atty.

Rosario directed Mr. Azurin to verify the TPRs. Thus, the amount stated in the reconciliation sheet was not final, as it was still subject to such receipts as may thereafter be presented by petitioners. On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount had already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola , Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a payment of P80,560.00, there was consequently an overpayment of P5,710.60. All told, we are constrained to hold that respondent corporation has dismally failed to comply with the pertinent rules for the admission of the evidence by which it sought to prove its contentions. Furthermore, there are questions left unanswered and begging for cogent explanations why said respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in this case. WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora and Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former. SO ORDERED. G.R. No. 95641 September 22, 1994 SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees. Gutierrez, Cortes & Gonzales for petitioners. Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.: On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitioner-insured failed to pay his premiums. On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch manager. These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-insured before Branch 40 RTC, Dagupan City against respondent insurance company. There are two issues for resolution in this case: (1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages? (2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom? From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, through the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1 Under the terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly printed:

This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon payment of this account. If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is (sic) not received by you within 7 days please notify us. If payment is made to our office, demand for an OFFICIAL RECEIPT. On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitioner-insured for the amount of P1,609.65 3 On the lower portion of the receipt the following is written in capital letters: Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not received by you within 7 days, please notify us. 4 On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitioner-insured Endorsement No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax" to the account of the insured. Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company, and demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake but he would personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential. Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current commercial rate of increase on the payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola also warned that should his demands be unsatisfied, he would sue for damages. On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail to pay the balance, the company's liability would cease to operate. 7 In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether the payment had in fact been issued therefor. Ampil emphasized that the official receipt should have been issued seven days from the issuance of the provisional receipt but because no official receipt had been issued in Areola's name, there was reason to believe that no payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this matter is cleared." 8 On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided for in the letter. 9 The letter was personally delivered by Carlito Ang to Areola on August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of contract with damages before the lower court. In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation. The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company to pay the former the following: a) P1,703.65 as actual damages; b) P200,000.00 as moral damages; and

c) P50,000.00 as exemplary damages; 2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and 3. To pay the costs. In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling subject insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks insured against was never extended by respondent insurance company. Had the insured met an accident at the time, the insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured. Consequently, the trial court held that there was breach of contract on the part of respondent insurance company, entitling petitioner-insured to an award of the damages prayed for. This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancelling subject insurance policy. After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on petitioner-insured: (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17, 1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign. Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for review on certiorari anchored on these arguments: I Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was admittedly caused by the fraudulent acts and bad faith of its own officers. II Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and evident bad faith. III Respondent Court of Appeals committed a reversible error in not finding that even without considering the fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad faith, because among others, it was Mr. Malapit the person who committed the fraud who sent and signed the notice of cancellation. IV Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision of the Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants. It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitioner-insured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct from that of respondentinsurance company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences of the erroneous

cancellation of subject insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company from liability, there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no amount of rectification could remedy the same. Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might have been against it, no longer exists and the consequent award of damages ordered by the lower court in unsustainable. We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to account. 11 The facts are clear as to the relationship between private respondent insurance company and Malapit. As admitted by private respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent. Article 1910 thus reads: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does not free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling in McIntosh v. Dakota Trust Co.: 14 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 scope of their authority. A bank holding out its officers and agent 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. 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. Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. 15 Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to extend protection to petitioner-insured against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts. The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to that granted by the court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. 18

WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final payment thereof. SO ORDERED. G.R. No. 114091 June 29, 1995 BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DAVIDE, JR., J.: Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB-8187 2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally liable to private respondent San Miguel Corporation under a Trip Charter Party. The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which read as follows: I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows: (1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES; (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; (3) To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON; (4) To extend to any person or company by substitution the same extent of authority that is granted to Rene Savellon; (5) In connection with the preceeding paragraphs to execute and sign documents, contracts, and other pertinent papers. Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes as I might or would lawfully do if personally present, with full power of substitution and revocation. The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao." As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES with the address at No 376-R Osmea Blvd., Cebu City (Exhibit "B-1"). 6 The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7 the

petitioners alleged that Savellon was not their Chief Operating Officer and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it should have issued the check in their favor. They setup counterclaims for moral and exemplary damages and attorney's fees. Savellon did not file his Answer and was declared in default on 17 July 1990. 8 At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for resolution: Plaintiff 1. Whether or not defendants are jointly liable to plaintiff for damages on account of breach of contract; 2. Whether or not the defendants acted in good faith in its representations to the plaintiff; 3. Whether or not defendant Bacaltos was duly enriched on the payment made by the plaintiff for the use of the vessel; 4. Whether or not defendant Bacaltos is estopped to deny the authorization given to defendant Savellon; Defendants 1. Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM [SHIP] II before entering into any contract with defendant Savellon; 2. Whether or not defendant Savellon was authorized to enter into a shipping contract with the [plaintiff] corporation; 3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines; 4. Whether or not the plaintiff is liable on defendants' counterclaim. 9 After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon as follows: WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay to plaintiff: 1. The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus 12% interest to start from date of written demand, which is June 14, 1989; 2. The amount of P20,000.00 by way of exemplary damages; 3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation expenses. Plus costs. 10 It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the Trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners denial that they caused the printing of such official receipt is "lame" because they submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A-1") is written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and, (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon should have "bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim" against him.

In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11 As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality. Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition wherein they raise the following errors: I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION; II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12 After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment thereto and reply to the comment, the Court resolved to give due course to the petition. Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows: A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to the extent of his powers, or his mere assumption of authority without foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound to ascertain not only the fact of agency, but the nature and extent of the authority. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency. Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting Mechem on Agency: The person dealing with the agent must also act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party dealing

with him may not shut his eyes to the real estate of the case, but should either refuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs. [emphasis supplied]. In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows . . . [emphasis supplied]. There is only one express power granted to Savellon, viz., to use the coal operating contract for anylegitimate purpose it may serve. The enumerated "five prerogatives" to employ the term used by the Court of Appeals are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause "but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated. The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein. 17 In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not. Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the Authorization. Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit: (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-examination, thus: Atty. Zosa (to witness ON CROSS) Q You said that in your office Mr. Rene Savellon presented to you this authorization marked Exhibit "C" and Exhibit "1" for the defendant? A Yes, sir. Q Did you read in the first part[y] of this authorization Mr. Valdescona that Mr. Rene Savellon was authorized as the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q Did it not occur to you that you should have examined further the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to enter into a trip charter party?

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

(h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board; (i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes. Section 11 thereof provides for the minimum terms and conditions of a coal operating contract. From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same. SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination as follows: A In October, a certain Rene Savellon called our office offering us shipping services. So I told him to give us a formal proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer. Q Did Mr. Rene Savellon go to your office? A Few days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo. Q Did he mention the owner of that vessel? A Yes, sir. That it is Bacaltos. Q Did he present a document to you? A Yes, sir. He presented to us the authorization. Q When Mr. Rene Savellon presented to you the authorization what did you do?. A On the strength of that authorization we initially asked him for us to check the vessel to see its sea worthiness, and we assigned our in-house surveyor to check the sea worthiness of the vessel which was on dry dock that time in Danao. Q What was the result of your inspection? A We found out the vessel's sea worthiness to be our cargo carrier. Q After that what did you do? A After that we were discussing the condition of the contract. Q Were you able to execute that contract? A Yes, sir . 21 He further declared as follows: Q When you entered into a trip charter contract did you check the ownership of M/V Premship? A The representation made by Mr. Rene Savellon was that Bacaltos Coal Mines operates the vessel and on the strength of the authorization he showed us we were made to believe that it was Bacaltos Coal Mines that owned it.

COURT: (to witness) Q In other words, you just believed Rene Savellon? A Yes, sir. COURT: (to witness) Q You did not check with Bacaltos Coal Mines? A That is the representation he made. Q Did he show you document regarding this M/V Premship II? A No document shown. 22 The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel while drydocked in Danao and thereafter conducted a sea worthiness test could not have failed to ascertain the registered owner of the vessel. The petitioners themselves declared in open court that they have not leased any vessel for they do not need it in their coal operations 23 thereby implying that they do not even own one. The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy. We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the next hearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel. There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. 27 The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril. Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from German Bacaltos. WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners. SO ORDERED. G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.: At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

4 June 19 AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. 1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June. 2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989. 3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

Very truly yours, (Sgd.) POPONG BERNARDO. Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari. The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows: a) b) c) downpayment insurance BLT registration fee CHMO fee service fee accessories P 53,148.00 P 13,970.00 P 1,067.00 P 2,715.00 P 500.00 P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions: CONDITIONS OF SALES 1. This sale is subject to availability of unit. 2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . . Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages." Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that: 9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10 In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims. After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows: WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant: 1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages; 2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages; 3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case; 4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and 5. ordering the defendant to pay the cost of suit. SO ORDERED. Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision. Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages. We find merit in the petition. Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale. Article 1458 of the Civil Code defines a contract of sale as follows: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. and Article 1475 specifically provides when it is deemed perfected: Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19 Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21 At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22 The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP. Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23 Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states: On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied). 25 The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED. No pronouncement as to costs. SO ORDERED. G.R. No. 122544 January 28, 1999 REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents. G.R. No. 124741 January 28, 1999 REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners, vs. COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES, INC., respondents.

MARTINEZ, J.: Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural intricacies which finally found its way to this Court. G.R. No. 122544: On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease with Option to Buy with petitioners 1 (lessors) involving a 1,755.80 square meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was granted an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00. For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court rendered judgment 2 ordering private respondent to vacate the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable compensation for the use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until private respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's fees. Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court. On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals) rendered a decision 4stating that: . . ., the alleged question of whether petitioner was granted an extension of the option to buy the property; whether such option, if any, extended the lease or whether petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of private respondents in consideration of the option and, whether petitioner thereafter offered to pay the balance of the supposed purchase price, are all merely incidental and do not remove the unlawful detainer case

from the jurisdiction or respondent court. In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the principle prohibiting multiplicity of suits. (Original Records, pp. 38-39). The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in a resolution dated September 9, 1985. 5 On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of preliminary injunction on the ground that the decision of the then City Court for the ejectment of the private respondent, having been affirmed by the then Intermediate Appellate Court and the Supreme Court, has become final and executory. Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with injunction and damages. In its decision 6 dated May 12, 1986, the trial court dismissed the complaint for annulment on the ground of res judicata, and the writ of preliminary injunction previously issued was dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby restraining the execution of the City Court's judgment on the ejectment case. The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989, a decision 7 was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the ejectment case). The motion for reconsideration of said decision was likewise denied. On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the City Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale between the parties on the leased premises and that pursuant to the option to buy agreement, private respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it has fully paid the purchase price. Since private respondent did not consign to the court the balance of the purchase price and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads: WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-appellees are ordered to execute the deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever, in favor of the plaintiffappellant, and to deliver to the latter the said deed of sale, as well as the owner's duplicate of the certificate of title to said property upon payment of the balance of the purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June 1976, plus 6% interest per annum, until payment of the balance of the purchase price, as previously agreed upon by the parties. SO ORDERED. Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of Appeals, 10petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in receiving private respondent's partial payment amounting to P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioner also assail the propriety of private respondent's exercise of the option when it tendered the said amount on June 20, 1975 which purportedly resulted in a perfected contract of sale. G.R. No. 124741: Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution of the judgment 11 dated November 22, 1982 which was granted in a resolution dated June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied. Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack of merit. On November 26, 1992, entry of judgment was issued by this Court.

On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the issuance of a third alias writ of execution. In denying private respondent's motion for reconsideration, it ordered the immediate implementation of the third writ of execution without delay. On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the order for its execution. On January 11, 1994, RTC of Quezon City, Branch 104 issued an order 12 granting the issuance of a writ of preliminary injunction upon private respondent's' posting of an injunction bond of P50,000.00. Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a petition 13for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary injunction with the Court of Appeals. In its decision, 14 the Court of Appeals dismissed the petition and ruled that: The avowed purpose of this petition is to enjoin the public respondent from restraining the ejectment of the private respondent. To grant the petition would be to allow the ejectment of the private respondent. We cannot do that now in view of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private respondent has been demonstrated to be without basis in the said civil case. The petitioners have been shown, after all, to have no right to eject private respondents. WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED. SO ORDERED. 15 Petitioners' motion for reconsideration was denied in a resolution 16 by the Court of Appeals stating that: This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-appellant (private respondent herein) acquired the rights of a vendee in a contract of sale, in effect, recognizing the right of the private respondent to possess the subject premises. Considering said decision, we should not allow ejectment; to do so would disturb the status quo of the parties since the petitioners are not in possession of the subject property. It would be unfair and unjust to deprive the private respondent of its possession of the subject property after its rights have been established in a subsequent ruling. WHEREFORE, the motion for reconsideration is DENIED for lack of merit. SO ORDERED. 17 Hence, this instant petition. We find both petitions impressed with merit. First. Petitioners have established a right to evict private respondent from the subject premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property at P3,000.00 square meter. After the expiration thereof, the lease was for P3,000.00 per month. Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from month to month in accordance with Article 1687 of the New Civil Code. 18 Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code. 19 In such case, a demand to vacate is not even necessary for judicial action after the expiration of every month. 20 When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court. Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New Civil Code. 21

In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Code 22 are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. 23 Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired with the termination of the original contract of lease for one year. The rationale of this Court is that: This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. 24 Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further contended that petitioners' filing of the ejectment case against it based on the contract of lease with option to buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to buy. Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts." Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof. 25 In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 26 As provided in Article 1868 of the New Civil Code,27 there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with regard to her transaction with private respondent. The most prudent thing private respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency. In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent: Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case would really attain finality. WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE. Let the records of this case be remanded to the trial court for immediate execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court. However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.1wphi1.nt SO ORDERED.

G.R. No. 75640 April 5, 1990 NATIONAL FOOD AUTHORITY, (NFA), petitioner, vs. INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING CORPORATION, respondents. Zapanta, Gloton & Ulejorada for petitioner. Sison, Ortiz & Associates for private respondents.

PARAS, J.: This is a petition for review on certiorari made by National Food Authority (NFA for brevity) then known as the National Grains Authority or NGA from the decision 1 of the Intermediate Appellate Court affirming the decision 2 of the trial court, the decretal portion of which reads: WHEREFORE, defendants Gil Medalla and National Food Authority are ordered to pay jointly and severally the plaintiff: a. the sum of P25,974.90, with interest at the legal rate from October 17, 1979 until the same is fully paid; and, b. the sum of P10,000.00 as and for attorney's fees. Costs against both defendants. SO ORDERED. (p. 22, Rollo) Hereunder are the undisputed facts as established by the then Intermediate Appellate Court (now Court of Appeals), viz: On September 6, 1979 Gil Medalla, as commission agent of the plaintiff Superior Shipping Corporation, entered into a contract for hire of ship known as "MV Sea Runner" with defendant National Grains Authority. Under the said contract Medalla obligated to transport on the "MV Sea Runner" 8,550 sacks of rice belonging to defendant National Grains Authority from the port of San Jose, Occidental Mindoro, to Malabon, Metro Manila. Upon completion of the delivery of rice at its destination, plaintiff on October 17, 1979, wrote a letter requesting defendant NGA that it be allowed to collect the amount stated in its statement of account (Exhibit "D"). The statement of account included not only a claim for freightage but also claims for demurrage and stevedoring charges amounting to P93,538.70. On November 5, 1979, plaintiff wrote again defendant NGA, this time specifically requesting that the payment for freightage and other charges be made to it and not to defendant Medalla because plaintiff was the owner of the vessel "MV Sea Runner" (Exhibit "E"). In reply, defendant NGA on November 16, 1979 informed plaintiff that it could not grant its request because the contract to transport the rice was entered into by defendant NGA and defendant Medalla who did not disclose that he was acting as a mere agent of plaintiff (Exhibit "F"). Thereupon on November 19, 1979, defendant NGA paid defendant Medalla the sum of P25,974.90, for freight services in connection with the shipment of 8,550 sacks of rice (Exhibit "A"). On December 4, 1979, plaintiff wrote defendant Medalla demanding that he turn over to plaintiff the amount of P27,000.00 paid to him by defendant NFA. Defendant Medalla, however, "ignored the demand." Plaintiff was therefore constrained to file the instant complaint. Defendant-appellant National Food Authority admitted that it entered into a contract with Gil Medalla whereby plaintiffs vessel "MV Sea Runner" transported 8,550 sacks of rice of said defendant from San Jose, Mindoro to Manila. For services rendered, the National Food Authority paid Gil Medalla P27,000.00 for freightage. Judgment was rendered in favor of the plaintiff. Defendant National Food Authority appealed to this court on the sole issue as to whether it is jointly and severally liable with defendant Gil Medalla for freightage. (pp. 61-62, Rollo)

The appellate court affirmed the judgment of the lower court, hence, this appeal by way of certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant case falls within the exception of the general rule provided for in Art. 1883 of the Civil Code of the Philippines. It is contended by petitioner NFA that it is not liable under the exception to the rule (Art. 1883) since it had no knowledge of the fact of agency between respondent Superior Shipping and Medalla at the time when the contract was entered into between them (NFA and Medalla). Petitioner submits that "(A)n undisclosed principal cannot maintain an action upon a contract made by his agent unless such principal was disclosed in such contract. One who deals with an agent acquires no right against the undisclosed principal." Petitioner NFA's contention holds no water. It is an undisputed fact that Gil Medalla was a commission agent of respondent Superior Shipping Corporation which owned the vessel "MV Sea Runner" that transported the sacks of rice belonging to petitioner NFA. The context of the law is clear. Art. 1883, which is the applicable law in the case at bar provides: Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provision of this article shall be understood to be without prejudice to the actions between the principal and agent. Consequently, when things belonging to the principal (in this case, Superior Shipping Corporation) are dealt with, the agent is bound to the principal although he does not assume the character of such agent and appears acting in his own name. In other words, the agent's apparent representation yields to the principal's true representation and that, in reality and in effect, the contract must be considered as entered into between the principal and the third person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the principal can be obliged to perform his duties under the contract, then it can also demand the enforcement of its rights arising from the contract. WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the appealed decision is hereby AFFIRMED. SO ORDERED. G.R. No. 95703 August 3, 1992 RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner, vs. HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S. AQUINO,respondents. L.M. Maggay & Associates for petitioner.

GRIO-AQUINO, J.: This petition for review seeks reversal of the decision dated September 18, 1990 of the Court of Appeals, reversing the decision of the Regional Trial Court of Makati, Branch 150, which dismissed the private respondents' complaint and awarded damages to the petitioner, Rural Bank of Bombon. On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special power of attorney in favor of Rufina S. Aquino authorizing him: 1. To secure a loan from any bank or lending institution for any amount or otherwise mortgage the property covered by Transfer Certificate of Title No. S-79238 situated at Las Pias, Rizal, the same being my paraphernal property, and in that connection, to sign, or execute any deed of mortgage and sign other document requisite and necessary in securing said loan and to receive the proceeds thereof in cash or in check and to sign the receipt therefor and thereafter endorse the check representing the proceeds of loan. (p. 10, Rollo.) Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of Transfer Certificate of Title No. S79238 (19963-A). On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the three parcels of land covered by TCT No. S-79238. The deed stated that the property was being given as security for the payment of "certain loans, advances, or other accommodations obtained by the

mortgagor from the mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of fourteen (14%) per annum . . ." (p. 11, Rollo). On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against Rufino Aquino and the Bank because Aquino allegedly left his residence at San Pascual, Hagonoy, Bulacan, and transferred to an unknown place in Bicol. She discovered that Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and then later, at San Vicente, Calabanga, Camarines Sur, and that they (plaintiffs) were allegedly surprised to discover that the property was mortgaged to pay personal loans obtained by Aquino from the Bank solely for personal use and benefit of Aquino; that the mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo whose address up to now is Manuyo, Las Pias, M.M., per the title (TCT No. S-79238) and in the deed vesting power of attorney to Aquino; that correspondence relative to the mortgage was sent to Aquino's address at "Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address at Las Pias, Metro Manila; and that defendant Aquino, in the real estate mortgage, appointed defendant Rural Bank as attorney in fact, and in case of judicial foreclosure as receiver with corresponding power to sell and that although without any express authority from Gallardo, defendant Aquino waived Gallardo's rights under Section 12, Rule 39, of the Rules of Court and the proper venue of the foreclosure suit. On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily restrained the Rural Bank "from enforcing the real estate mortgage and from foreclosing it either judicially or extrajudicially until further orders from the court" (p.36, Rollo). Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a bank so that he could use the proceeds to liquidate her obligation of P350,000 to him. The obligation to pay the Rural Bank devolved on Gallardo. Of late, however, she asked him to pay the Bank but defendant Aquino set terms and conditions which plaintiff did not agree to. Aquino asked for payment to him of moral damages in the sum of P50,000 and lawyer's fees of P35,000. The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses, exemplary damages, and attorney's fees. It also filed a crossclaim against Aquino for P350,000 with interest, other bank charges and damages if the mortgage be declared unauthorized. Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Rufino Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On motion of the plaintiff, the foreclosure case and the annulment case (Civil Case No. 6062) were consolidated. On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062, dismissing the complaint for annulment of mortgage and declaring the Rural Bank entitled to damages the amount of which will be determined in appropriate proceedings. The court lifted the writ of preliminary injunction it previously issued. On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure proceedings until after the decision in the annulment case (Civil Case No. 6062) shall have become final and executory. The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September 18, 1990, reversed the trial court. The dispositive portion of the decision reads: UPON ALL THESE, the summary judgment entered by the lower court is hereby REVERSED and in lieu thereof, judgment is hereby RENDERED, declaring the deed of real estate mortgage dated August 26, 1981, executed between Rufino S. Aquino with the marital consent of his wife Bibiana Aquino with the appellee Rural Bank of Bombon, Camarines Sur, unauthorized, void and unenforceable against plaintiff Ederlinda Gallardo; ordering the reinstatement of the preliminary injunction issued at the onset of the case and at the same time, ordering said injunction made permanent. Appellee Rural Bank to pay the costs. (p. 46, Rollo.) Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court of Appeals erred: 1. in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and unenforceable against the private respondent Ederlinda Gallardo; and 2. in not upholding the validity of the Real Estate Mortgage executed by Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam. Sur), Inc. Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-fact of Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc. The Rural Bank contends that the real estate mortgage executed by respondent Aquino is valid because he was expressly authorized by Gallardo to mortgage her property under the special power of attorney she made in his favor which was duly registered and

annotated on Gallardo's title. Since the Special Power of Attorney did not specify or indicate that the loan would be for Gallardo's benefit, then it could be for the use and benefit of the attorney-in-fact, Aquino. However, the Court of Appeals ruled otherwise. It held: The Special Power of Attorney above quoted shows the extent of authority given by the plaintiff to defendant Aquino. But defendant Aquino in executing the deed of Real Estate Mortgage in favor of the rural bank over the three parcels of land covered by Gallardo's title named himself as the mortgagor without stating that his signature on the deed was for and in behalf of Ederlinda Gallardo in his capacity as her attorney-in-fact. At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by Rufino S. Aquino attorney in fact of Ederlinda H. Gallardo, of legal age, Filipino, married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but which of itself, was merely descriptive of the person of defendant Aquino. Defendant Aquino even signed it plainly as mortgagor with the marital consent yet of his wife Bibiana P. Aquino who signed the deed as "wife of mortgagor." xxx xxx xxx The three (3) promissory notes respectively dated August 31, 1981, September 23, 1981 and October 26, 1981, were each signed by Rufino Aquino on top of a line beneath which is written "signature of mortgagor" and by Bibiana P. Aquino on top of a line under which is written "signature of spouse," without any mention that execution thereof was for and in behalf of the plaintiff as mortgagor. It results, borne out from what were written on the deed, that the amounts were the personal loans of defendant Aquino. As pointed out by the appellant, Aquino's wife has not been appointed co-agent of defendant Aquino and her signature on the deed and on the promissory notes can only mean that the obligation was personally incurred by them and for their own personal account. The deed of mortgage stipulated that the amount obtained from the loans shall be used or applied only for "fishpond (bangus and sugpo production)." As pointed out by the plaintiff, the defendant Rural Bank in its Answer had not categorically denied the allegation in the complaint that defendant Aquino in the deed of mortgage was the intended user and beneficiary of the loans and not the plaintiff. And the special power of attorney could not be stretched to include the authority to obtain a loan in said defendant Aquino's own benefit. (pp. 40-41, Rollo.) The decision of the Court of Appeals is correct. This case is governed by the general rule in the law of agency which this Court, applied in "Philippine Sugar Estates Development Co. vs. Poizat," 48 Phil. 536, 538: 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. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal. In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, without any indication that he was signing for and in behalf of the property owner, Ederlinda Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo. The Court of Appeals further observed: It will also be observed that the deed of mortgage was executed on August 26, 1981 therein clearly stipulating that it was being executed "as security for the payment of certain loans, advances or other accommodation obtained by the Mortgagor from the Mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00)" although at the time no such loan or advance had been obtained. The promissory notes were dated August 31, September 23 and October 26, 1981 which were subsequent to the execution of the deed of mortgage. The appellant is correct in claiming that the defendant Rural Bank should not have agreed to extend or constitute the mortgage on the properties of Gallardo who had no existing indebtedness with it at the time. Under the facts the defendant Rural Bank appeared to have ignored the representative capacity of Aquino and dealt with him and his wife in their personal capacities. Said appellee Rural Bank also did not conduct an inquiry on whether the subject loans were to benefit the interest of the principal (plaintiff Gallardo) rather than that of the agent although the deed of mortgage was explicit that the loan was for purpose of the bangus and sugpo production of defendant Aquino. In effect, with the execution of the mortgage under the circumstances and assuming it to be valid but because the loan taken was to be used exclusively for Aquino's business in the "bangus" and "sugpo" production, Gallardo in effect becomes a surety who is made primarily answerable for loans taken by Aquino in his personal capacity in the

event Aquino defaults in such payment. Under Art. 1878 of the Civil Code, to obligate the principal as a guarantor or surety, a special power of attorney is required. No such special power of attorney for Gallardo to be a surety of Aquino had been executed. (pp. 42-43, Rollo.) Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since it was executed in accordance with Article 1883 which provides: Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to the case at bar. Herein respondent Aquino acted purportedly as an agent of Gallardo, but actually acted in his personal capacity. Involved herein are properties titled in the name of respondent Gallardo against which the Bank proposes to foreclose the mortgage constituted by an agent (Aquino) acting in his personal capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates Development Co. vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage: There is no principle of law by which a person can become liable on a real mortgage which she never executed either in person or by attorney in fact. It should be noted that this is a mortgage upon real property, the title to which cannot be divested except by sale on execution or the formalities of a will or deed. For such reasons, the law requires that a power of attorney to mortgage or sell real property should be executed with all of the formalities required in a deed. For the same reason that the personal signature of Poizat, standing alone, would not convey the title of his wife in her own real property, such a signature would not bind her as a mortgagor in real property, the title to which was in her name. (p. 548.) WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in toto. Costs against the petitioner. SO ORDERED.