A.

Definitions/Elements/Existence

G.R. No. 142293. February 27, 2003]

VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and

SBT TRUCKING CORPORATION, petitioners, vs. HON. COURT OF
APPEALS and JAIME SAHOT, respondents.
[1]

DECISION
QUISUMBING, J.:

This petition for review seeks the reversal of the decision of the Court of Appeals
dated February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the
decision of the National Labor Relations Commission promulgated on June 20, 1996 in
NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the
decision of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.
[2]

[3]

[4]

Culled from the records are the following facts of this case:
Sometime in 1958, private respondent Jaime Sahot started working as a truck helper
for petitioners family-owned trucking business named Vicente Sy Trucking. In 1965, he
became a truck driver of the same family business, renamed T. Paulino Trucking Service,
later 6Bs Trucking Corporation in 1985, and thereafter known as SBT Trucking
Corporation since 1994. Throughout all these changes in names and for 36 years, private
respondent continuously served the trucking business of petitioners.
[5]

In April 1994, Sahot was already 59 years old. He had been incurring absences as he
was suffering from various ailments. Particularly causing him pain was his left thigh, which
greatly affected the performance of his task as a driver. He inquired about his medical and
retirement benefits with the Social Security System (SSS) on April 25, 1994, but
discovered that his premium payments had not been remitted by his employer.
Sahot had filed a week-long leave sometime in May 1994. On May 27 , he was
medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II
(Annexes G-5 and G-3, pp. 48, 104, respectively), HPM, UTI, Osteoarthritis (Annex G-4,
p. 105), and heart enlargement (Annex G, p. 107). On said grounds, Belen Paulino of
the SBT Trucking Service management told him to file a formal request for extension of
his leave. At the end of his week-long absence, Sahot applied for extension of his leave
for the whole month of June, 1994. It was at this time when petitioners allegedly
threatened to terminate his employment should he refuse to go back to work.
th

[6]

[7]

[8]

At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused
to work, But he could not retire on pension because petitioners never paid his correct SSS
premiums. The fact remained he could no longer work as his left thigh hurt abominably.
Petitioners ended his dilemma. They carried out their threat and dismissed him from work,
effective June 30, 1994. He ended up sick, jobless and penniless.
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a
complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He
prayed for the recovery of separation pay and attorneys fees against Vicente Sy and
Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs
Trucking and SBT Trucking, herein petitioners.
For their part, petitioners admitted they had a trucking business in the 1950s but
denied employing helpers and drivers. They contend that private respondent was not
illegally dismissed as a driver because he was in fact petitioners industrial partner. They
add that it was not until the year 1994, when SBT Trucking Corporation was established,
and only then did respondent Sahot become an employee of the company, with a monthly
salary that reached P4,160.00 at the time of his separation.
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave
and was not able to report for work for almost seven days. On June 1, 1994, Sahot asked
permission to extend his leave of absence until June 30, 1994. It appeared that from the
expiration of his leave, private respondent never reported back to work nor did he file an
extension of his leave. Instead, he filed the complaint for illegal dismissal against the
trucking company and its owners.
Petitioners add that due to Sahots refusal to work after the expiration of his authorized
leave of absence, he should be deemed to have voluntarily resigned from his work.They
contended that Sahot had all the time to extend his leave or at least inform petitioners of
his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitledManuelito
Jimenez et al. vs. T. Paulino Trucking Service, as a defense in view of the alleged
similarity in the factual milieu and issues of said case to that of Sahots, hence they are
in pari material and Sahots complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled
that there was no illegal dismissal in Sahots case. Private respondent had failed to report
to work. Moreover, said the Labor Arbiter, petitioners and private respondent were
industrial partners before January 1994. The Labor Arbiter concluded by ordering
petitioners to pay financial assistance of P15,000 to Sahot for having served the company
as a regular employee since January 1994 only.

On appeal, the National Labor Relations Commission modified the judgment of the
Labor Arbiter. It declared that private respondent was an employee, not an industrial
partner, since the start. Private respondent Sahot did not abandon his job but his
employment was terminated on account of his illness, pursuant to Article 284 of the Labor
Code. Accordingly, the NLRC ordered petitioners to pay private respondent separation pay
in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years of service.
[9]

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its
decision dated February 29, 2000, the appellate court affirmed with modification the
judgment of the NLRC. It held that private respondent was indeed an employee of
petitioners since 1958. It also increased the amount of separation pay awarded to private
respondent to P74,880, computed at the rate of P2,080 per year for 36 years of service
from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking
Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR
THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.
[10]

Hence, the instant petition anchored on the following contentions:

I

RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION

AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS
COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE
402 OF THE CIVIL CODE.
[11]

II

RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE

NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS
OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE
THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE CASE OF
ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS NATIONAL
CAPITAL REGION (305 SCRA 233).
[12]

III

PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING

CORPORATION.
[13]

Three issues are to be resolved: (1) Whether or not an employer-employee

relationship existed between petitioners and respondent Sahot; (2) Whether or not there
was valid dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay.
Crucial to the resolution of this case is the determination of the first issue. Before a
case for illegal dismissal can prosper, an employer-employee relationship must first be
established.
[14]

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found
that respondent Sahot was not an employee but was in fact, petitioners industrial partner.
It is contended that it was the Labor Arbiter who heard the case and had the opportunity
to observe the demeanor and deportment of the parties. The same conclusion, aver
petitioners, is supported by substantial evidence. Moreover, it is argued that the findings
of fact of the Labor Arbiter was wrongly overturned by the NLRC when the latter made the
following pronouncement:
[15]

[16]

We agree with complainant that there was error committed by the Labor Arbiter when he concluded
that complainant was an industrial partner prior to 1994. A computation of the age of complainant
shows that he was only twenty-three (23) years when he started working with respondent as truck
helper. How can we entertain in our mind that a twenty-three (23) year old man, working as a truck
helper, be considered an industrial partner. Hence we rule that complainant was only an employee,
not a partner of respondents from the time complainant started working for respondent.
[17]

Because the Court of Appeals also found that an employer-employee relationship

existed, petitioners aver that the appellate courts decision gives an imprimatur to the
illegal finding and conclusion of the NLRC.
Private respondent, for his part, denies that he was ever an industrial partner of
petitioners. There was no written agreement, no proof that he received a share in
petitioners profits, nor was there anything to show he had any participation with respect to
the running of the business.
[18]

The elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employers power to control the employees conduct. The most
important element is the employers control of the employees conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish it.
[19]

As found by the appellate court, petitioners owned and operated a trucking business
since the 1950s and by their own allegations, they determined private respondents wages
and rest day. Records of the case show that private respondent actually engaged in work
[20]

as an employee. During the entire course of his employment he did not have the freedom
to determine where he would go, what he would do, and how he would do it. He merely
followed instructions of petitioners and was content to do so, as long as he was paid his
wages. Indeed, said the CA, private respondent had worked as a truck helper and driver
of petitioners not for his own pleasure but under the latters control.
Article 1767 of the Civil Code states that in a contract of partnership two or more
persons bind themselves to contribute money, property or industry to a common fund, with
the intention of dividing the profits among themselves. Not one of these circumstances is
present in this case. No written agreement exists to prove the partnership between the
parties. Private respondent did not contribute money, property or industry for the purpose
of engaging in the supposed business. There is no proof that he was receiving a share in
the profits as a matter of course, during the period when the trucking business was under
operation. Neither is there any proof that he had actively participated in the management,
administration and adoption of policies of the business. Thus, the NLRC and the CA did
not err in reversing the finding of the Labor Arbiter that private respondent was an
industrial partner from 1958 to 1994.
[21]

[22]

On this point, we affirm the findings of the appellate court and the NLRC. Private
respondent Jaime Sahot was not an industrial partner but an employee of petitioners from
1958 to 1994. The existence of an employer-employee relationship is ultimately a question
of fact and the findings thereon by the NLRC, as affirmed by the Court of Appeals,
deserve not only respect but finality when supported by substantial evidence. Substantial
evidence is such amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.
[23]

[24]

Time and again this Court has said that if doubt exists between the evidence
presented by the employer and the employee, the scales of justice must be tilted in favor
of the latter. Here, we entertain no doubt. Private respondent since the beginning was an
employee of, not an industrial partner in, the trucking business.
[25]

Coming now to the second issue, was private respondent validly dismissed by
petitioners?
Petitioners contend that it was private respondent who refused to go back to work. The
decision of the Labor Arbiter pointed out that during the conciliation proceedings,
petitioners requested respondent Sahot to report back for work. However, in the same
proceedings, Sahot stated that he was no longer fit to continue working, and instead he
demanded separation pay. Petitioners then retorted that if Sahot did not like to work as a
driver anymore, then he could be given a job that was less strenuous, such as working as
a checker. However, Sahot declined that suggestion. Based on the foregoing recitals,

petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition
that he did not report for work anymore.
In his decision, the Labor Arbiter concluded that:
While it may be true that respondents insisted that complainant continue working with respondents
despite his alleged illness, there is no direct evidence that will prove that complainants illness
prevents or incapacitates him from performing the function of a driver. The fact remains that
complainant suddenly stopped working due to boredom or otherwise when he refused to work as a
checker which certainly is a much less strenuous job than a driver.
[26]

But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the
Court of Appeals, held that:
While it was very obvious that complainant did not have any intention to report back to work due to
his illness which incapacitated him to perform his job, such intention cannot be construed to be an
abandonment. Instead, the same should have been considered as one of those falling under the just
causes of terminating an employment. The insistence of respondent in making complainant work
did not change the scenario.
It is worthy to note that respondent is engaged in the trucking business where physical strength is of
utmost requirement (sic). Complainant started working with respondent as truck helper at age
twenty-three (23), then as truck driver since 1965. Complainant was already fifty-nine (59) when
the complaint was filed and suffering from various illness triggered by his work and age.
xxx

[27]

In termination cases, the burden is upon the employer to show by substantial evidence
that the termination was for lawful cause and validly made. Article 277(b) of the Labor
Code puts the burden of proving that the dismissal of an employee was for a valid or
authorized cause on the employer, without distinction whether the employer admits or
does not admit the dismissal. For an employees dismissal to be valid, (a) the dismissal
must be for a valid cause and (b) the employee must be afforded due process.
[28]

[29]

[30]

Article 284 of the Labor Code authorizes an employer to terminate an employee on the
ground of disease, viz:
Art. 284. Disease as a ground for termination- An employer may terminate the services of an
employee who has been found to be suffering from any disease and whose continued employment
is prohibited by law or prejudicial to his health as well as the health of his co-employees: xxx

However, in order to validly terminate employment on this ground, Book VI, Rule I,
Section 8 of the Omnibus Implementing Rules of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his
continued employment is prohibited by law or prejudicial to his health or to the health of his coemployees, the employer shall not terminate his employment unless there is a certification by
competent public health authority that the disease is of such nature or at such a stage that it cannot
be cured within a period of six (6) months even with proper medical treatment. If the disease or
ailment can be cured within the period, the employer shall not terminate the employee but shall ask
the employee to take a leave. The employer shall reinstate such employee to his former position
immediately upon the restoration of his normal health. (Italics supplied).
As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC, the
requirement for a medical certificate under Article 284 of the Labor Code cannot be
dispensed with; otherwise, it would sanction the unilateral and arbitrary determination by
the employer of the gravity or extent of the employees illness and thus defeat the public
policy in the protection of labor.
[31]

In the case at bar, the employer clearly did not comply with the medical certificate
requirement before Sahots dismissal was effected. In the same case of Sevillana vs. I.T.
(International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the employee rests on the employer, the
latter should likewise bear the burden of showing that the requisites for a valid dismissal due to a
disease have been complied with. In the absence of the required certification by a competent public
health authority, this Court has ruled against the validity of the employees dismissal. It is therefore
incumbent upon the private respondents to prove by the quantum of evidence required by law that
petitioner was not dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the
dismissal would be unjustified. This Court will not sanction a dismissal premised on mere
conjectures and suspicions, the evidence must be substantial and not arbitrary and must be founded
on clearly established facts sufficient to warrant his separation from work.
[32]

In addition, we must likewise determine if the procedural aspect of due process had
been complied with by the employer.
From the records, it clearly appears that procedural due process was not observed in
the separation of private respondent by the management of the trucking company. The
employer is required to furnish an employee with two written notices before the latter is
dismissed: (1) the notice to apprise the employee of the particular acts or omissions for
which his dismissal is sought, which is the equivalent of a charge; and (2) the notice
informing the employee of his dismissal, to be issued after the employee has been given

reasonable opportunity to answer and to be heard on his defense. These, the petitioners
failed to do, even only for record purposes. What management did was to threaten the
employee with dismissal, then actually implement the threat when the occasion presented
itself because of private respondents painful left thigh.
[33]

All told, both the substantive and procedural aspects of due process were violated.
Clearly, therefore, Sahots dismissal is tainted with invalidity.
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled
to separation pay. The law is clear on the matter. An employee who is terminated because
of disease is entitled to separation pay equivalent to at least one month salary or to onehalf month salary for every year of service, whichever is greater xxx. Following the
formula set in Art. 284 of the Labor Code, his separation pay was computed by the
appellate court at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the
computation, after noting that his last monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part
of appellate court, we are constrained to sustain its decision. To avoid further delay in the
payment due the separated worker, whose claim was filed way back in 1994, this decision
is immediately executory. Otherwise, six percent (6%) interest per annum should be
charged thereon, for any delay, pursuant to provisions of the Civil Code.
[34]

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated
February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot
his separation pay for 36 years of service at the rate of one-half monthly pay for every
year of service, amounting to P74,880.00, with interest of six per centum (6%) per annum
from finality of this decision until fully paid.
Costs against petitioners.
SO ORDERED.
[G.R. No. 144214. July 14, 2003]

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO

JOSE, petitioners, vs. DONALDO EFREN C. RAMIREZ and Spouses CESAR
G. RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.
DECISION
PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latters
dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000
Decision and the July 26, 2000 Resolution of the Court of Appeals (CA) in CA-GR CV
No. 41026. The assailed Decision disposed as follows:
[1]

[2]

[3]

WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the
Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu
thereof a new decision is rendered ordering the [petitioners] jointly and severally to pay and
reimburse to [respondents] the amount of P253,114.00. No pronouncement as to costs.
[4]

Reconsideration was denied in the impugned Resolution.

The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering
business under the name Aquarius Food House and Catering Services. Villareal was
appointed general manager and Carmelito Jose, operations manager.
[5]

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on

September 5, 1984. His capital contribution of P250,000 was paid by his parents,
Respondents Cesar and Carmelita Ramirez.
[6]

After Jesus Jose withdrew from the partnership in January 1987, his capital
contribution of P250,000 was refunded to him in cash by agreement of the partners.
[7]

In the same month, without prior knowledge of respondents, petitioners closed down
the restaurant, allegedly because of increased rental. The restaurant furniture and
equipment were deposited in the respondents house for storage.
[8]

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no
longer interested in continuing their partnership or in reopening the restaurant, and that
they were accepting the latters offer to return their capital contribution.
[9]

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of
the deterioration of the restaurant furniture and equipment stored in their house. She also
reiterated the request for the return of their one-third share in the equity of the
partnership. The repeated oral and written requests were, however, left unheeded.
[10]

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently
filed a Complaint dated November 10, 1987, for the collection of a sum of money from
petitioners.
[11]

In their Answer, petitioners contended that respondents had expressed a desire to

withdraw from the partnership and had called for its dissolution under Articles 1830 and
1831 of the Civil Code; that respondents had been paid, upon the turnover to them of
furniture and equipment worth over P400,000; and that the latter had no right to demand a
return of their equity because their share, together with the rest of the capital of the
partnership, had been spent as a result of irreversible business losses.
[12]

In their Reply, respondents alleged that they did not know of any loan encumbrance on
the restaurant. According to them, if such allegation were true, then the loans incurred by
petitioners should be regarded as purely personal and, as such, not chargeable to the
partnership. The former further averred that they had not received any regular report or
accounting from the latter, who had solely managed the business. Respondents also
alleged that they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the restaurant.
[13]

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of

Restaurant Furniture and Equipment on July 8, 1988. The furniture and the equipment
stored in their house were inventoried and appraised at P29,000. The display freezer
was sold for P5,000 and the proceeds were paid to them.
[14]

[15]

[16]

After trial, the RTC ruled that the parties had voluntarily entered into a partnership,
which could be dissolved at any time. Petitioners clearly intended to dissolve it when they
stopped operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held
them liable as follows:
[17]

[18]

WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners]
ordering the [petitioners] to pay jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had no right to demand the return of their
capital contribution, the partnership was nonetheless dissolved when petitioners lost

interest in continuing the restaurant business with them. Because petitioners never gave a
proper accounting of the partnership accounts for liquidation purposes, and because no
sufficient evidence was presented to show financial losses, the CA computed their liability
as follows:
Consequently, since what has been proven is only the outstanding obligation of the partnership in
the amount of P240,658.00, although contracted by the partnership before [respondents] have
joined the partnership but in accordance with Article 1826 of the New Civil Code, they are liable
which must have to be deducted from the remaining capitalization of the said partnership which is
in the amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the
share of [respondents], this amount of P759,342.00 must be divided into three (3) shares or in the
amount of P253,114.00 for each share and which is the only amount which [petitioner] will return
to [respondents] representing the contribution to the partnership minus the outstanding debt thereof.
[19]

Hence, this Petition.

[20]

Issues
In their Memorandum, petitioners submit the following issues for our consideration:
[21]

9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the capital
contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby
treating the capital contribution like a loan, is in accordance with law and jurisprudence;
9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to jointly and
severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record;
and
9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to
costs.
[22]

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to
respondents for the latters share in the partnership; (2) whether the CAs computation
ofP253,114 as respondents share is correct; and (3) whether the CA was likewise correct
in not assessing costs.
This Courts Ruling
The Petition has merit.
First Issue:

Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and
that it was dissolved on March 1, 1987. They found that the dissolution took place when
respondents informed petitioners of the intention to discontinue it because of the formers
dissatisfaction with, and loss of trust in, the latters management of the partnership
affairs. These findings were amply supported by the evidence on record. Respondents
consequently demanded from petitioners the return of their one-third equity in the
partnership.
We hold that respondents have no right to demand from petitioners the return of their
equity share. Except as managers of the partnership, petitioners did not personally hold its
equity or assets. The partnership has a juridical personality separate and distinct from that
of each of the partners. Since the capital was contributed to the partnership, not to
petitioners, it is the partnership that must refund the equity of the retiring partners.
[23]

[24]

Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has in its coffers, which consists of all
its assets. However, before the partners can be paid their shares, the creditors of the
partnership must first be compensated. After all the creditors have been paid, whatever
is left of the partnership assets becomes available for the payment of the partners shares.
[25]

Evidently, in the present case, the exact amount of refund equivalent to respondents
one-third share in the partnership cannot be determined until all the partnership assets will
have been liquidated -- in other words, sold and converted to cash -- and all partnership
creditors, if any, paid. The CAs computation of the amount to be refunded to respondents
as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total
capital contribution was equivalent to the gross assets to be distributed to the partners at
the time of the dissolution of the partnership. We cannot sustain the underlying idea that
the capital contribution at the beginning of the partnership remains intact, unimpaired and
available for distribution or return to the partners. Such idea is speculative, conjectural and
totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by
profits earned or decreased by losses sustained. It does not remain static and unaffected

by the changing fortunes of the business. In the present case, the financial statements
presented before the trial court showed that the business had made meager profits.
However, notable therefrom is the omission of any provision for the depreciation of the
furniture and the equipment. The amortization of the goodwill (initially valued
atP500,000) is not reflected either. Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses, which consequently
decreased the capital of the partnership. Both the trial and the appellate courts in fact
recognized the decrease of the partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the capital.
[26]

[27]

[28]

Second, the CAs finding that the partnership had an outstanding obligation in the
amount of P240,658 was not supported by evidence. We sustain the contrary finding of
the RTC, which had rejected the contention that the obligation belonged to the partnership
for the following reason:
x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. 4) does not reveal the total loan. The Agreement (Exh. A) par. 6
shows an outstanding obligation of P240,055.00 which the partnership owes to different creditors,
while the Certification issued by Mercator Finance (Exh. 8) shows that it was Sps. Diogenes P.
Villareal and Luzviminda J. Villareal, the former being the nominal party defendant in the instant
case, who obtained a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet
formed.
Third, the CA failed to reduce the capitalization by P250,000, which was the amount
paid by the partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually
reduced. When petitioners and respondents ventured into business together, they should
have prepared for the fact that their investment would either grow or shrink. In the present
case, the investment of respondents substantially dwindled. The original amount
ofP250,000 which they had invested could no longer be returned to them, because one
third of the partnership properties at the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of
unwise, foolish or disastrous contracts they have entered into with all the required
formalities and with full awareness of what they were doing. Courts have no power to
relieve them from obligations they have voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments.
[29]

Petitioners further argue that respondents acted negligently by permitting the

partnership assets in their custody to deteriorate to the point of being almost

worthless.Supposedly, the latter should have liquidated these sole tangible assets of the
partnership and considered the proceeds as payment of their net capital. Hence,
petitioners argue that the turnover of the remaining partnership assets to respondents was
precisely the manner of liquidating the partnership and fully settling the latters share in the
partnership.
We disagree. The delivery of the store furniture and equipment to private respondents
was for the purpose of storage. They were unaware that the restaurant would no longer be
reopened by petitioners. Hence, the former cannot be faulted for not disposing of the
stored items to recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course, but the court shall have power, for
special reasons, to adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines
unless otherwise provided by law.
Although, as a rule, costs are adjudged against the losing party, courts have discretion,
for special reasons, to decree otherwise. When a lower court is reversed, the higher court
normally does not award costs, because the losing party relied on the lower courts
judgment which is presumed to have been issued in good faith, even if found later on to
be erroneous. Unless shown to be patently capricious, the award shall not be disturbed by
a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and
Resolution SET ASIDE. This disposition is without prejudice to proper proceedings for the
accounting, the liquidation and the distribution of the remaining partnership assets, if
any. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 135813. October 25, 2001]

FERNANDO
SANTOS, petitioner, vs. Spouses
REYES, respondents.

ARSENIO

and

NIEVES

DECISION
PANGANIBAN, J.:

As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are binding
on the Supreme Court. However, there are several exceptions to this principle. In the present case, we find
occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision, as well as the
August 17, 1998 and the October 9, 1998 Resolutions, issued by the Court of Appeals (CA) in CA-GR CV No.
34742. The Assailed Decision disposed as follows:
[1]

[2]

WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is
hereby DISMISSED. Costs against [petitioner].
[3]

Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows:

WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the courts

decision dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is
AFFIRMED in toto, with costs against [petitioner].
[4]

The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration of the
August 17, 1998 Resolution.
[5]

The Facts
The events that led to this case are summarized by the CA as follows:

Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were
introduced to each other by one Meliton Zabat regarding a lending business venture proposed by
Nieves. It was verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat
[would] take charge of solicitation of members and collection of loan payments. The venture was
launched on June 13, 1986, with the understanding that [petitioner] would receive 70% of the
profits while x x x Nieves and Zabat would earn 15% each.
In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the
Monte Maria Development Corporation (Monte Maria, for brevity), sought short-term loans for
members of the corporation. [Petitioner] and Gragera executed an agreement providing funds for
Monte Marias members. Under the agreement, Monte Maria, represented by Gragera, was entitled
to P1.31 commission per thousand paid daily to [petitioner] (Exh. A). x x x Nieves kept the books
as representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.
[6]

On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the Article of Agreement which
formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending
business in competition with their partnership[.] Zabat was thereby expelled from the
partnership.The operations with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and
damages. [Petitioner] charged [respondents], allegedly in their capacities as employees of
[petitioner], with having misappropriated funds intended for Gragera for the period July 8, 1986 up
to March 31, 1987. Upon Grageras complaint that his commissions were inadequately remitted,
[petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragera. x x x Nieves allegedly
failed to account for the amount. [Petitioner] asserted that after examination of the records, he
found that of the total amount of P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was
remitted to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from claiming
their rightful share to the profits of the partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner]
learned of Zabats activities. Arsenio resigned from his job at the Asian Development Bank to join
the partnership.
For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending
activity with Monte Maria originated from her initiative. Except for the limited period of July 8,
1986 through August 20, 1986, she did not handle sums intended for Gragera. Collections were
turned over to Gragera because he guaranteed 100% payment of all sums loaned by Monte
Maria.Entries she made on worksheets were based on this assumptive 100% collection of all
loans. The loan releases were made less Grageras agreed commission. Because of this arrangement,
she neither received payments from borrowers nor remitted any amount to Gragera. Her job was
merely to make worksheets (Exhs. 15 to 15-DDDDDDDDDD) to convey to [petitioner] how much
he would earn if all the sums guaranteed by Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners
with respect to the agreement with Gragera. He claimed that after he discovered Zabats activities,
he ceased infusing funds, thereby causing the extinguishment of the partnership. The agreement
with Gragera was a distinct partnership [from] that of [respondent] and Zabat.[Petitioner] asserted
that [respondents] were hired as salaried employees with respect to the partnership between
[petitioner] and Gragera.

[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all payments from
which Nieves deducted Grageras commission. The commission would then be remitted to
Gragera. She likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the following points: whether [respondents]
were employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents]
for delivery to Gragera, whether the P1,555,068.70 claimed under the complaint was actually
remitted to Gragera and whether [respondents] were entitled to their counterclaim for share in the
profits.
[7]

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere employees, of
petitioner. It further ruled that Gragera was only a commission agent of petitioner, not his partner. Petitioner
moreover failed to prove that he had entrusted any money to Nieves. Thus, respondents counterclaim for their
share in the partnership and for damages was granted. The trial court disposed as follows:
39. WHEREFORE, the Court hereby renders judgment as follows:
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the
following:
39.2.1. P3,064,428.00 - The 15 percent share of the [respondent] NIEVES S. REYES in the
profits of her joint venture with the [petitioner].
39.2.2. Six (6) percent of - As damages from P3,064,428.00 August 3, 1987 until
the P3,064,428.00 is fully paid.
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the
following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the [respondent] ARSENIO
REYES in the profits of his joint venture with the
[petitioner].
39.3.2. Six (6) percent of - As damages from P2,899,739.50 August 3, 1987 until
the P2,899,739.50 is fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages

39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:

39.4.1. P50,000.00 - As attorneys fees; and
39.4.2 The cost of the suit.[8]

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latters Motion for Reconsideration, however, the trial courts Decision was reinstated in
toto. Subsequently, petitioners own Motion for Reconsideration was denied in the CA Resolution of October 9,
1998.
The CA ruled that the following circumstances indicated the existence of a partnership among the parties:
(1) it was Nieves who broached to petitioner the idea of starting a money-lending business and introduced him
to Gragera; (2) Arsenio received dividends or profit-shares covering the period July 15 to August 7, 1986 (Exh.
6); and (3) the partnership contract was executed after the Agreement with Gragera and petitioner and thus
showed the parties intention to consider it as a transaction of the partnership. In their common venture,
petitioner invested capital while respondents contributed industry or services, with the intention of sharing in
the profits of the business.
The CA disbelieved petitioners claim that Nieves had misappropriated a total of P200,000 which was
supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the amounts due,
while hers was merely to prepare the daily cash flow reports (Exhs. 15-15DDDDDDDDDD) to keep track of his
collections.
Hence, this Petition.

[9]

Issue
Petitioner asks this Court to rule on the following issues:

[10]

Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to
excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not employees of Santos in connection
with the agreement between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase Received by on documents signed by Nieves Reyes
signified receipt of copies of the documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit E was a forgery;
4. Finding that Exhibit H [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to Gragera;
5. Affirming the dismissal of Santos [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private respondents counterclaim;

7. Denying Santos motion for reconsideration dated September 11, 1998.

Succinctly put, the following were the issues raised by petitioner: (1) whether the parties relationship was
one of partnership or of employer-employee; (2) whether Nieves misappropriated the sums of money allegedly
entrusted to her for delivery to Gragera as his commissions; and (3) whether respondents were entitled to the
partnership profits as determined by the trial court.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending venture
with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves introduced Gragera to
Santos did not make her a partner. She was only a witness to the Agreement between the two. Separate from the
partnership between petitioner and Gragera was that which existed among petitioner, Nieves and Zabat, a
partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners contentions and ruled that the
business relationship was one of partnership. We quote from the CA Decision, as follows:

[Respondents] were industrial partners of [petitioner]. x x x Nieves herself provided the initiative in
the lending activities with Monte Maria. In consonance with the agreement between appellant,
Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to the common
fund with the intention of sharing in the profits of the partnership. [Respondents] provided services
without which the partnership would not have [had] the wherewithal to carry on the purpose for
which it was organized and as such [were] considered industrial partners (Evangelista v. Abad
Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved
by the expulsion of Zabat therefrom, the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio
to participate as a partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and
continued the business of the former partnership with Zabat, one of the incidents of which was the
lending operations with Monte Maria.
xxxxxxxxx
Gragera and [petitioner] were not partners. The money-lending activities undertaken with Monte Maria was
done in pursuit of the business for which the partnership between [petitioner], Nieves and Zabat (later Arsenio)
was organized. Gragera who represented Monte Maria was merely paid commissions in exchange for the

collection of loans. The commissions were fixed on gross returns, regardless of the expenses incurred in the
operation of the business. The sharing of gross returns does not in itself establish a partnership.
[11]

We agree with both courts on this point. By the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing the
profits among themselves. The Articles of Agreement stipulated that the signatories shall share the profits of
the business in a 70-15-15 manner, with petitioner getting the lions share. This stipulation clearly proved the
establishment of a partnership.
[12]

[13]

We find no cogent reason to disagree with the lower courts that the partnership continued lending money to
the members of the Monte Maria Community Development Group, Inc., which later on changed its business
name to Private Association for Community Development, Inc. (PACDI). Nieves was not merely petitioners
employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement,
which states as follows:

2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be responsible in handling the collection of the loan
payments of the borrowers that they each solicited.
3. That the bookkeeping and daily balancing of account of the business operation shall be handled
by the SECOND PARTY.
[14]

The Second Party named in the Agreement was none other than Nieves Reyes. On the other hand, Arsenios
duties as credit investigator are subsumed under the phrase screening of prospective borrowers. Because of this
Agreement and the disbursement of monthly allowances and profit shares or dividends (Exh. 6) to Arsenio, we
uphold the factual finding of both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact that it was
formalized only after the Memorandum of Agreement had been signed by petitioner and Gragera. Contrary to
petitioners contention, there is no evidence to show that a different business venture is referred to in this
Agreement, which was executed on August 6, 1986, or about a month after the Memorandum had been signed
by petitioner and Gragera on July 14, 1986. The Agreement itself attests to this fact:

WHEREAS, the parties have decided to formalize the terms of their business relationship in order
that their respective interests may be properly defined and established for their mutual benefit and
understanding.
[15]

Second Issue:
No Proof of Misappropriation of Grageras Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by Exhibit B (the
Schedule of Daily Payments), which bears her signature under the words received by. For the period July 1986
to March 1987, Gragera should have earned a total commission of P4,282,429.30. However, only P3,068,133.20

was received by him. Thus, petitioner infers that she misappropriated the difference of P1,214,296.10, which
represented the unpaid commissions. Exhibit H is an untitled tabulation which, according to him, shows that
Gragera was also entitled to a commission of P200,000, an amount that was never delivered by Nieves.
[16]

On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves received for delivery to
Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to come, and that such
exhibits were insufficient proof that she had embezzled P200,000. Said the CA:

The presentation of Exhibit D vaguely denominated as members ledger does not clearly establish
that Nieves received amounts from Monte Marias members. The document does not clearly state
what amounts the entries thereon represent. More importantly, Nieves made the entries for the
limited period of January 11, 1987 to February 17, 1987 only while the rest were made by Grageras
own staff.
Neither can we give probative value to Exhibit E which allegedly shows acknowledgment of the
remittance of commissions to Verona Gonzales. The document is a private one and its due
execution and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the
Rules of Court which states:
Sec. 20. Proof of Private Document Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it found that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The initial
stroke of Exh. E-1 starts from up and goes downward. The initial stroke of the genuine signatures
of NIEVES (Exhs. A-3, B-1, F-1, among others) starts from below and goes upward. This
difference in the start of the initial stroke of the signatures Exhs. E-1 and of the genuine signatures
lends credence to Nieves claim that the signature Exh. E-1 is a forgery.
xxxxxxxxx

Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the
predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord with the
evidence. A perusal of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the
entries were indeed based on the 100% assumptive collection guaranteed by Gragera. Thus, the

total amount recorded on Exh. B is exactly the number of borrowers multiplied by the projected
collection of P150.00 per borrower. This holds true for Exh. F.
Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to
signify that she collected the amounts but that she received the documents themselves is more
believable than [petitioners] assertion that she actually handled the amounts.
Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that x x x Nieves
received P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the
document showed a liquidation of P240,000.00 and not P200,000.00.
Accordingly, we find Nieves testimony that after August 20, 1986, all collections were made by
Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of the
loans, he took charge of the collections. As [petitioners] representative, Nieves merely prepared the
daily cash flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner] to keep track of
Grageras operations. Gragera on the other hand devised the schedule of daily payment (Exhs. B and
F) to record the projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA
[were] paid to him[,] that of NIEVES is more logical and practical and therefore, more
believable. SANTOS version would have given rise to this improbable situation: GRAGERA
would collect the daily amortizations and then give them to NIEVES; NIEVES would get
GRAGERAs commissions from the amortizations and then give such commission to GRAGERA.

[17]

These findings are in harmony with the trial courts ruling, which we quote below:

21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00 for
delivery to GRAGERA. Exh. H shows under its sixth column ADDITIONAL CASH that the
additional cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by
SANTOS, then his claim is not true. This is so because it is a liquidation of the sum ofP240,000.00.
21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to GRAGERA
when he received the latters letter complaining of its delayed release. Assuming as true SANTOS
claim that he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did
not give it to GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS
did not even present the letter in evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions of the money-lending business of SANTOS
were covered by petty cash vouchers. It is therefore strange why SANTOS did not present any
voucher or receipt covering the P200,000.00.
[18]

In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his commissions before
remitting his collections. Exhibits B and F are merely computations of what Gragera should collect for the day;
they do not show that Nieves received the amounts stated therein. Neither is there sufficient proof that she
misappropriated P200,000, because Exhibit H does not indicate that such amount was received by her; in fact, it
shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Wellentrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial court are
binding and conclusive on the Supreme Court. Although there are exceptions to this rule, petitioner has not
satisfactorily shown that any of them is applicable to this issue.
[19]

Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents claims on the profits of the partnership. He maintains that
both business propositions were flops, as his investments were consumed and eaten up by the commissions
orchestrated to be due Gragera a situation that could not have been rendered possible without complicity
between Nieves and Gragera.
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid
payment of the demands of Nieves, because sometime in March 1987, she signified to petitioner that it was
about time to get her share of the profits which had already accumulated to some P3 million. Respondents add
that while the partnership has not declared dividends or liquidated its earnings, the profits are already reflected
on paper. To prove the counterclaim of Nieves, the spouses show that from June 13, 1986 up to April 19, 1987,
the profit totaledP20,429,520 (Exhs. 10 et seq. and 15 et seq.). Based on that income, her 15 percent share under
the joint venture amounts to P3,064,428 (Exh. 10-I-3); and Arsenios, P2,026,000 minus theP30,000 which was
already advanced to him (Petty Cash Vouchers, Exhs. 6, 6-A to 6-B).
The CA originally held that respondents counterclaim was premature, pending an accounting of the
partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face.Affirming the trial
courts ruling on the counterclaim, it held as follows:

We earlier ruled that there is still need for an accounting of the profits and losses of the partnership
before we can rule with certainty as to the respective shares of the partners. Upon a further review
of the records of this case, however, there appears to be sufficient basis to determine the amount of
shares of the parties and damages incurred by [respondents]. The fact is that the court a quo already
made such a determination [in its] decision dated August 13, 1991 on the basis of the facts on
record.
[20]

The trial courts ruling alluded to above is quoted below:

27. The defendants counterclaim for the payment of their share in the profits of their joint venture
with SANTOS is supported by the evidence.

27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs. 5,
5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive) which she
prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is
a sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to
SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations
from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits.
27.1.1 SANTOS never denied NIEVES testimony that the money-lending business he was engaged
in netted a profit and that the originals of the daily case flow reports were furnished to
him.SANTOS however alleged that the money-lending operation of his joint venture with NIEVES
and ZABAT resulted in a loss of about half a million pesos to him. But such loss, even if true, does
not negate NIEVES claim that overall, the joint venture among them SANTOS, NIEVES and
ARSENIO netted a profit. There is no reason for the Court to doubt the veracity of [the testimony
of] NIEVES.
27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and
6-B) should be deducted from his total share.
[21]

After a close examination of respondents exhibits, we find reason to disagree with the CA. Exhibit 10I shows that the partnership earned a total income of P20,429,520 for the period June 13, 1986 until April 19,
1987. This entry is derived from the sum of the amounts under the following column headings: 2-Day Advance
Collection, Service Fee, Notarial Fee, Application Fee, Net Interest Income and Interest Income on Investment.
Such entries represent the collections of the money-lending business or its gross income.
[22]

The total income shown on Exhibit 10-I did not consider the expenses sustained by the partnership. For
instance, it did not factor in the gross loan releases representing the money loaned to clients. Since the business
is money-lending, such releases are comparable with the inventory or supplies in other business enterprises.
Noticeably missing from the computation of the total income is the deduction of the weekly allowance
disbursed to respondents. Exhibits I et seq. and J et seq. show that Arsenio received allowances from July 19,
1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12, 1986 to March 27, 1987
in the total amount of P25,600. These allowances are different from the profit already received by
Arsenio. They represent expenses that should have been deducted from the business profits. The point is that all
expenses incurred by the money-lending enterprise of the parties must first be deducted from the total income in
order to arrive at the net profit of the partnership. The share of each one of them should be based on this net
profit and not from the gross income or total income reflected in Exhibit 10-I, which the two courts invariably
referred to as cash flow sheets.
[23]

Similarly, Exhibits 15 et seq., which are the Daily Cashflow Reports, do not reflect the business expenses
incurred by the parties, because they show only the daily cash collections.Contrary to the rulings of both the
trial and the appellate courts, respondents exhibits do not reflect the complete financial condition of the moneylending business. The lower courts obviously labored over a mistaken notion that Exhibit 10-I-1 represented the
net profits earned by the partnership.
[24]

For the purpose of determining the profit that should go to an industrial partner (who shares in the profits
but is not liable for the losses), the gross income from all the transactions carried on by the firm must be added
together, and from this sum must be subtracted the expenses or the losses sustained in the business. Only in the
difference representing the net profits does the industrial partner share. But if, on the contrary, the losses exceed
the income, the industrial partner does not share in the losses.
[25]

When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain
relevant facts that would otherwise justify a different conclusion, as in this particular issue, a review of its
factual findings may be conducted, as an exception to the general rule applied to the first two issues.
[26]

The trial court has the advantage of observing the witnesses while they are testifying, an opportunity not
available to appellate courts. Thus, its assessment of the credibility of witnesses and their testimonies are
accorded great weight, even finality, when supported by substantial evidence; more so when such assessment is
affirmed by the CA. But when the issue involves the evaluation of exhibits or documents that are attached to the
case records, as in the third issue, the rule may be relaxed. Under that situation, this Court has a similar
opportunity to inspect, examine and evaluate those records, independently of the lower courts. Hence, we deem
the award of the partnership share, as computed by the trial court and adopted by the CA, to be incomplete and
not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision
is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998
areREVERSED and SET ASIDE. No costs.
SO ORDERED.

[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS

and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend

Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture,
Belo acted as capitalist, Tocao as president and general manager, and Anay as head of
the marketing department and later, vice-president for sales. Anay organized the
administrative staff and sales force while Tocao hired and fired employees, determined
commissions and/or salaries of the employees, and assigned them to different branches.
The parties agreed that Belos name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they agreed to use Anays name in
securing distributorship of cookware from that company. The parties agreed further that
Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty
percent (30%) of the sales she would make; and (4) two percent (2%) for her
demonstration services. The agreement was not reduced to writing on the strength of
Belos assurances that he was sincere, dependable and honest when it came to financial
commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware
business took off successfully. They operated under the name of Geminesse Enterprise, a
sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building,
Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay.
Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and
to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 2526, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as
president and general manager of Geminesse Enterprise, even wrote a letter to the Visa
Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20)
years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the
Vice President Sales Marketing and a business partner of our company, will attend in response to
the invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task
of saving the business on account of the unsatisfactory sales record in the Makati and
Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao [4] for her excellent job
performance. On October 7, 1987, in the presence of Anay, Belo signed a memo[5] entitling
her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87. Belo
explained to her that said commission was apart from her ten percent (10%) share in the
profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter[6] addressed to the Cubao sales office to the effect that she was no longer the vice-

president of Geminesse Enterprise. The following day, October 10, she received a note
from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding
office and conducting demonstrations in both Makati and Cubao offices.[7] Anay attempted
to contact Belo. She wrote him twice to demand her overriding commission for the period
of January 8, 1988 to February 5, 1988 and the audit of the company to determine her
share in the net profits. When her letters were not answered, Anay consulted her lawyer,
who, in turn, wrote Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages[8] against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8,
1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as
exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse
Enterprise from the inception of its business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She further prayed that she be
paid the five percent (5%) overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with
Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay
merely acted as marketing demonstrator of Geminesse Enterprise for an agreed
remuneration, and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor and not with the regular
court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on
account of ill-will and resentment because Marjorie Tocao did not allow her to lord it over
in the Geminesse Enterprise. Anay had acted like she owned the enterprise because of
her experience and expertise. Hence, petitioners were the ones who suffered actual
damages including unreturned and unaccounted stocks of Geminesse Enterprise, and
serious anxiety, besmirched reputation in the business world, and various damages not

less than P500,000.00. They also alleged that, to vindicate their names, they had to hire
counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff
was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties
are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit
of the business. He, however, admitted that the two had agreed that Anay would receive a
three to four percent (3-4%) share in the gross sales of the cookware. He denied
contributing capital to the business or receiving a share in its profits as he merely served
as a guarantor of Marjorie Tocao, who was new in the business. He attended and/or
presided over business meetings of the venture in his capacity as a guarantor but he
never participated in decision-making. He claimed that he wrote the memo granting the
plaintiff thirty-seven percent (37%) commission upon her dismissal from the business
venture at the request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement
with Anay. However, she admitted that Anay was an expert in the cookware business and
hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her co-equal, Marjorie received the
same amounts of commissions as her. However, Anay failed to account for stocks valued
at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the
years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent
(10%) share of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when plaintiff was wrongfully excluded from the
partnership by defendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the
period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary
damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.

SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between the
plaintiff and the defendants, based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of
money and industry, and (c) there was a joint interest in the profits. The testimony of
Elizabeth Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise
from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact
that a partnership existed between the parties. The letter of Roger Muencheberg of West
Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao
because he was convinced that with Marjories financial contribution and Anays
experience, the combination of the two would be invaluable to the partnership, also
supported that conclusion. Belos claim that he was merely a guarantor has no basis since
there was no written evidence thereof as required by Article 2055 of the Civil Code.
Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on personal sales belied this.
On the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in business
circles as an impetus to bigger sales volume. It did not matter that the agreement was not
in writing because Article 1771 of the Civil Code provides that a partnership may be
constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie
Tocaos name is not determinative of whether or not the business was managed and
operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership
is an innocent partner. Hence, the guilty partner must give him his due upon the
dissolution of the partnership as well as damages or share in the profits realized from the
appropriation of the partnership business and goodwill. An innocent partner thus
possesses pecuniary interest in every existing contract that was incomplete and in the
trade name of the co-partnership and assets at the time he was wrongfully expelled.

Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of
damages awarded by the trial court were reduced to P50,000.00 for moral damages and
P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied by the
Court of Appeals for lack of merit.[12] Petitioners Belo and Marjorie Tocao are now before
this Court on a petition for review on certiorari, asserting that there was no business
partnership between them and herein private respondent Nenita A. Anay who is, therefore,
not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise came into being exactly a year before the alleged partnership was formed, and
that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with
petitioner Tocao contributing nothing, without any memorandum whatsoever regarding the
alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.[14] In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1)
two or more persons bind themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners to divide the profits among
themselves.[15] It may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto. [16] This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what matters is that
the parties have complied with the requisites of a partnership. The fact that there appears
to be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil Code[17]did not
cause the nullification of the partnership. The pertinent provision of the Civil Code on the
matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business
of distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was

through her reputation with the West Bend Company that the partnership was able to
open the business of distributorship of that companys cookware products; it was through
the same efforts that the business was propelled to financial success. Petitioner Tocao
herself admitted private respondents indispensable role in putting up the business when,
upon being asked if private respondent held the positions of marketing manager and vicepresident for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only
me there then her and then two (2) people, so about four (4). Now, after that when she recruited
already Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of
marketing managers of which definitely Nita as superior to them would be the Vice President.[18]

By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger
Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge
does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda
and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela,
Menchu Javier. They will continue to gather other key people and build up the organization. All
they need is the finance and the products to sell. [19]
On the other hand, petitioner Belos denial that he financed the partnership rings hollow
in the face of the established fact that he presided over meetings regarding matters
affecting the operation of the business. Moreover, his having authorized in writing on
October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of her personal
sales, could not be interpreted otherwise than that he had a proprietary interest in the
business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of
petitioner Tocao under Article 2053 of the Civil Code, [20] he should have presented
documentary evidence therefor. While Article 2055 of the Civil Code simply provides that
guaranty must be express, Article 1403, the Statute of Frauds, requires that a special
promise to answer for the debt, default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belos roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname, Jiji.[23] The special

relationship between them dovetails with petitioner Belos claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to utilize their banking and
trading facilities in Singapore in the matter of importation and payment of the cookware
products.[24] The inevitable conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the partnership of distributing cookware
with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it is
true that the receipt of a percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the business, [25] the evidence in the case at
bar controverts an employer-employee relationship between the parties. In the first place,
private respondent had a voice in the management of the affairs of the cookware
distributorship,[26]including selection of people who would constitute the administrative staff
and the sales force. Secondly, petitioner Tocaos admissions militate against an employeremployee relationship. She admitted that, like her who owned Geminesse Enterprise,
[27]
private respondent received only commissions and transportation and representation
allowances[28] and not a fixed salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go
over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you
please go over this and tell the Honorable Court whether you ever came across this document and
know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage
for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense
because of her expertise in the business she is vital to my business. So, as part of the incentive I offer
her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there
you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received
the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]

If indeed petitioner Tocao was private respondents employer, it is difficult to believe

that they shall receive the same income in the business. In a partnership, each partner
must share in the profits and losses of the venture, except that the industrial partner shall
not be liable for the losses.[31] As an industrial partner, private respondent had the right to
demand for a formal accounting of the business and to receive her share in the net profit.
[32]

The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of

Domestic Trade on August 19, 1987 was merely the name of that enterprise. [33] While it is
true that in her undated application for renewal of registration of that firm name, petitioner
Tocao indicated that it would be engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34] she also admitted that the enterprise was only 60% to 70% for the cookware
business, while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was
used only for practical reasons - it was utilized as the common name for petitioner Tocaos
various business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the
unaccounted and unremitted stocks of Geminesse Enterprise amounting to P208,250.00.
[36]
Obviously a ploy to offset the damages awarded to private respondent, that claim, more
than anything else, proves the existence of a partnership between them. In Idos v. Court
of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding
commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the extent
that she would even shout at private respondent in front of other people. [38] Her instruction
to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation, [39] and resulted in a falling
out between the two. However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization. [40] The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partners capability to give it, and the absence of cause for

dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages.[41]
An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personaeallows
the partners to have the power, although not necessarily the right to dissolve the
partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from
the partnership and considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been entrusted to
private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings
upon which it is based is primarily the task of the trial court. [45] The Court of Appeals may
modify that amount only when its factual findings are diametrically opposed to that of the
lower court,[46] or the award is palpably or scandalously and unreasonably excessive.
[47]
However, exemplary damages that are awarded by way of example or correction for the
public good,[48] should be reduced to P50,000.00, the amount correctly awarded by the
Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that
should be granted on account of the award of exemplary damages and petitioners evident
bad faith in refusing to satisfy private respondents plainly valid, just and demandable
claims,[49] appear to have been excessively granted by the trial court and should therefore
be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are
ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent
provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the Regional Trial
Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership
affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to
determine private respondents ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets available for disposition
since the time private respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission
on the total production which, for the period covering January 8, 1988 to February 5, 1988,
amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the
amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the
amount of P25,000.00.
SO ORDERED.
[G.R. No. 143340. August 15, 2001.]
LILIBETH SUNGA-CHAN and CECILIA SUNGA, Petitioners, v. LAMBERTO T. CHUA,Respondent.
DECISION

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision 1 of the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto
T. Chua v. Lilibeth Sunga Chan and Cecilia Sunga" and of the Resolution dated May 23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga Chan and
Cecilia Sunga (hereafter collectively referred to as petitioners).
chanrob1es virtua1 1aw 1ibrary

The pertinent facts of this case are as follows:

chanrob1es virtual 1aw library

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner
Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for "Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name
of Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his
counterpart contribution, with the intention that the profits would be equally divided between them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy
(hereafter Josephine), a sister of the wife of respondent, Erlinda Sy. As compensation, Jacinto would receive a managers fee or remuneration of 10% of the gross profit and
Josephine would receive 10% of the net profits, in addition to her wages and other remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite well and was profitable. Respondent claimed that he could attest to
the success of their business because of the volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto
furnished respondent with the merchandise inventories, balance sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the amount indicated in
these documents were understated and undervalued by Jacinto and Josephine for their own selfish reasons and for tax avoidance.
chanrob1es virtua1 1aw 1ibrary

Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations, control, custody,
disposition and management of Shellite without respondents consent. Despite respondents repeated demands upon petitioners for accounting, inventory, appraisal, winding up
and restitution of his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her own use and
advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and reasons to evade respondents demands, she disbursed out of the partnership funds the
amount of P200,000.00 and partially paid the same to Respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented partial payment of the
latters share in the partnership, with a promise that the former would make the complete inventory and winding up of the properties of the business establishment. Despite such
commitment, petitioners allegedly failed to comply with their duty to account, and continued to benefit from the assets and income of Shellite to the damage and prejudice
of Respondent.
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On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court in
Zamboanga del Norte had jurisdiction over the action. Respondent opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims, contending that they are not liable for partnership shares, unreceived income/profits,
interests, damages and attorneys fees, that respondent does not have a cause of action against them, and that the trial court has no jurisdiction over the nature of the action,
the SEC being the agency that has original and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for winding up of partnership affairs, accounting and recovery of shares in
partnership affairs, accounting and recovery of shares in partnership assets/properties should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or
intestate proceeding.

On August 16, 1993, the trial court denied the second motion to dismiss for lack of merit.

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On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the
denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as petitioners failed to show that a reversible error was committed by the
appellate court." 2
On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to the trial court on April 26, 1995.

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On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the case on January 17, 1996. Respondent presented his evidence while
petitioners were considered to have waived their right to present evidence for their failure to attend the scheduled date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for Respondent. The dispositive portion of the Decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

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(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L. Sunga, from whom they continued the business operations including all businesses derived from the Shellite Gas Appliance
Center; submit an inventory, and appraisal of all these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval;
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(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they misapplied and converted to their own use and advantage
that legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the partnership of the listed properties, assets and good will (sic) in schedules A,
B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the closure of
the store the sum of P35,000.00 per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after delivering to the plaintiff all the interest, shares,
participation and equity in the partnership, or the value thereof in money or moneys worth, if the properties are not physically divisible;
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(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary
damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic) and P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED." 3
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision reads:

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"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all respects." 4
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon the following grounds:

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"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latters
invitation and offer and that upon his death the partnership assets and business were taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was competent and credible evidence to warrant the finding of a partnership, and assuming arguendo that
indeed there was a partnership, the finding of highly exaggerated amounts or values in the partnership assets and profits." 5
Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a partnership existed between respondent and Jacinto from 1977 until Jacintos
death. In the absence of any written document to show such partnership between respondent and Jacinto, petitioners argue that these courts were proscribed from hearing the
testimonies of respondent and his witness, Josephine, to prove the alleged partnership three years after Jacintos death. To support this argument, petitioners invoke the "Dead
Mans Statute" or "Survivorship Rule" under Section 23, Rule 130 of the Rules of Court that provides:
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"SECTION 23. Disqualification by reason of death or insanity of adverse party. Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted,
against an executor or administrator or other representative of a deceased person, or against a person of unsound mind, upon a claim or demand against the estate of such
deceased person, or against such person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before such person
became of unsound mind."
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Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego, Josephine, should not have been admitted to prove certain claims against a
deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. 6
Hence, based on the intention of the parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract of partnership may arise. 7 The
essential points that must be proven to show that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in the profits. 8
Understandably so, in view of the absence of a written contract of partnership between respondent and Jacinto, respondent resorted to the introduction of documentary and
testimonial evidence to prove said partnership. The crucial issue to settle then is whether or not the "Dead Mans Statute" applies to this case so as to render inadmissible
respondents testimony and that of his witness, Josephine.
The "Dead Mans Statute" provides that if one party to the alleged transaction is precluded from testifying by death, insanity, or other mental disabilities, the surviving party is
not entitled to the undue advantage of giving his own uncontradicted and unexplained account of the transaction. 9 But before this rule can be successfully invoked to bar the
introduction of testimonial evidence, it is necessary that:
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"1. The witness is a party or assignor of a party to a case or persons in whose behalf a case is prosecuted.

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2. The action is against an executor or administrator or other representative of a deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against person of unsound mind;

4. His testimony refers to any matter of fact which occurred before the death of such deceased person or before such person became of unsound mind." 10
Two reasons forestall the application of the "Dead Mans Statute" to this case.
First, petitioners filed a compulsory counterclaim 11 against respondent in their answer before the trial court, and with the filing of their counterclaim, petitioners themselves
effectively removed this case from the ambit of the "Dead Mans Statute." 12 Well entrenched is the rule that when it is the executor or administrator or representatives of the
estate that sets up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat the counterclaim. 13 Moreover, as
defendant in the counterclaim, respondent is not disqualified from testifying as to matters of fact occurring before the death of the deceased, said action not having been brought
against but by the estate or representatives of the deceased. 14
Second, the testimony of Josephine is not covered by the "Dead Mans Statute" for the simple reason that she is not "a party or assignor of a party to a case or persons in whose
behalf a case is prosecuted." Records show that respondent offered the testimony of Josephine to establish the existence of the partnership between respondent and Jacinto.
Petitioners insistence that Josephine is the alter ego of respondent does not make her an assignor because the term "assignor" of a party means "assignor of a cause of action
which has arisen, and not the assignor of a right assigned before any cause of action has arisen." 15 Plainly then, Josephine is merely a witness of respondent, the latter being
the party plaintiff.
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We are not convinced by petitioners allegation that Josephines testimony lacks probative value because she was allegedly coerced by respondent, her brother-in-law, to testify
in his favor. Josephine merely declared in court that she was requested by respondent to testify and that if she were not requested to do so she would not have testified. We fail
to see how we can conclude from this candid admission that Josephines testimony is involuntary when she did not in any way categorically say that she was forced to be a
witness of Respondent. Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her testimony since relationship per se, without more,
does not affect the credibility of witnesses. 16
Petitioners reliance alone on the "Dead Mans Statute" to defeat respondents claim cannot prevail over the factual findings of the trial court and the Court of Appeals that a
partnership was established between respondent and Jacinto. Based not only on the testimonial evidence, but the documentary evidence as well, the trial court and the Court of
Appeals considered the evidence for respondent as sufficient to prove the formation of a partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial precedents, a factual matter like the finding of the existence of a partnership
between respondent and Jacinto cannot be inquired into by this Court on review. 17 This Court can no longer be tasked to go over the proofs presented by the parties and
analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence of one party or the
other. 18 It must be also pointed out that petitioners failed to attend the presentation of evidence of Respondent. Petitioners cannot now turn to this Court to question the
admissibility and authenticity of the documentary evidence of respondent when petitioners failed to object to the admissibility of the evidence at the time that such evidence was
offered. 19
With regard to petitioners insistence that laches and/or prescription should have extinguished respondents claim, we agree with the trial court and the Court of Appeals that the
action for accounting filed by respondent three (3) years after Jacintos death was well within the prescribed period. The Civil Code provides that an action to enforce an oral
contract prescribes in six (6) years 20 while the right to demand an accounting for a partners interest as against the person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement. 21 Considering that the death of a partner results in the dissolution of the partnership22 , in this case, it was after
Jacintos death that respondent as the surviving partner had the right to an account of his interest as against petitioners. It bears stressing that while Jacintos death dissolved
the partnership, the dissolution did not immediately terminate the partnership. The Civil Code 23 expressly provides that upon dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business, culminating in its termination. 24
In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto, petitioners maintain that said partnership that had an initial capital of
P200,000.00 should have been registered with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil Code. True, Article 1772 of the Civil
Code requires that partnerships with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the Civil
Code 25 explicitly provides that the partnership retains its juridical personality even if it fails to register. The failure to register the contract of partnership does not invalidate the
same as among the partners, so long as the contract has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can be
assumed that the members themselves knew of the contents of their contract. 26 In the case at bar, non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that respondent and Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.

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SO ORDERED.

Republic of the Philippines

SUPREME COURT
SECOND DIVISION
G.R. No. 126881

October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY,respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the Decision 1 dated March 13, 1996 of the former Fifth Division 2 of the Court of Appeals in
CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent, joined by their children Teresita, Nena,
Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on
February 19, 1990. The complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of
the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended
complaint4 impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the
trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered
into a partnership engaged in the business of selling lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However,
they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners
prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet
Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business venture and/or particular partnership
called Benguet Lumber and as such should share in the profits and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular partnership have descended to the
plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber Company Inc. to render an accounting of all
the assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to submit the name of any person they want to be appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration7 was denied by the Court of Appeals in a Resolution 8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a
judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng
Kee was a mere employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 7885778870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by a private
individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment 9 dismissing the cases for
insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND
HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS
EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E)
THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY
THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE
OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP
DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC;
AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE
LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO
NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17,
DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND
HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00
AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC
INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed on appeal if such are supported by the
evidence.10 Our jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to analyze the evidentiary basis on which the lower court rendered
judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are contradicted by the evidence on
record.12
In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the existence of a partnership, the Court in turn went
beyond that by justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of standing between the parties, equal proprietary interest and the exercise by the
parties equally of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war. The appellees however argued that
(Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of capital to start a lumber and hardware business, Lay and Kee pooled the proceeds of their
individual businesses earned from buying and selling military supplies, so that the common fund would be enough to form a partnership, both in the
lumber and hardware business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses. Because
of the pooling of resources, the post-war Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were partners, is obvious
from the fact that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2) they were the ones giving orders to the employees, (3)
they were the ones preparing orders from the suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5) all their children
were employed in the business in different capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence,
no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kee's death in 1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as
the only registered owner of the Benguet Lumber and Hardware. His application for registration, effective 1954, in fact mentioned that his business
started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber
Company, on the basis of his SSS coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee
was similarly listed only as an employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also as the
proprietor.
xxx

xxx

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an immovable is constituted, the
execution of a public instrument becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public instrument is
also necessary, and which is to be recorded with the Securities and Exchange Commission. In this case at bar, we can easily assume that the business
establishment, which from the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the
accumulation of real properties and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was never
established by the appellees.
And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his family. There is no proof either that the
capital assets of the partnership, assuming them to be in existence, were maliciously assigned or transferred by Lay, supposedly to the corporation and
since then have been treated as a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house in Trinidad, but within the compound of the
lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding people" as testified to by the
son, Elpidio Tan; 3) that both were supervising the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by
Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written. However, if it involves real property or where the
capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or
industry contribution; 4) community of funds and interest, mentioning equality of the partners or one having a proportionate share in the benefits; and 5)
intention to divide the profits, being the true test of the partnership. The intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered
into a joint venture. In this connection, we have held that whether a partnership exists is a factual matter; consequently, since the appeal is brought to us under
Rule 45, we cannot entertain inquiries relative to the correctness of the assessment of the evidence by the court a quo. 13 Inasmuch as the Court of Appeals and the
trial court had reached conflicting conclusions, perforce we must examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. 14
Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or
industry to a common fund, and (2) they intend to divide the profits among themselves. 15 The agreement need not be formally reduced into writing, since
statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed, 16 and (2) when
the partnership has a capital of three thousand pesos or more. 17 In both cases, a public instrument is required.18 An inventory to be signed by the parties
and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the
partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is akin to a particular partnership. 20 A particular
partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no firm name and no legal personality. In a
joint account, the participating merchants can transact business under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to a successful termination
may continue for a number of years; a partnership generally relates to a continuing business of various transactions of a certain kind. 21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party has an equal proprietary interest in the
capital or property contributed, and where each party exercises equal rights in the conduct of the business." 22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their
elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F.
2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main
distinction cited by most opinions in common law jurisdiction is that the partnership contemplates a general business with some degree of continuity,
while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95
Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though,
was never formally organized. In addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime
in 1945, although the contrary may well be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect
on August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a partnership existed based purely on
circumstantial evidence. A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business
relationship between them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a
common fund for the purpose of establishing a partnership. The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should
be noted that it is not with the number of witnesses wherein preponderance lies; 24 the quality of their testimonies is to be considered. None of petitioners' witnesses
could suitably account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly
owned by both brothers.26Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother. 27 Tan Eng Lay
consistently testified that he had his business and his brother had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as
it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership. 28
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The
essence of a partnership is that the partners share in the profits and losses. 29 Each has the right to demand an accounting as long as the partnership exists. 30 We
have allowed a scenario wherein "[i]f excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the
firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible." 31 But in the situation in the case at bar, the deferment, if
any, had gone on too long to be plausible. A person is presumed to take ordinary care of his concerns. 32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she has even demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have
done; all that she did was to receive her share of P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945
(Exh. "A"), which shows that both parties considered this offer as the real contract between them. 33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership. 34 During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting
from his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee
of Benguet Lumber, as it was then called. The authenticity of these documents was questioned by petitioners, to the extent that they filed criminal charges against
Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan
Eng Kee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were
discarded, petitioners would still be back to square one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any,
as his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide
the profits of the business between themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng
Kee were commanding the employees; that both were supervising the employees; that both were the ones who determined the price at which the stocks were to
be sold; and that both placed orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan
Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore, that an employee's position
is higher in rank, it is not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from suppliers for and in behalf of
Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee
was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not accorded to other employees, the
undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed between them. Whatever privileges
Tan Eng Lay gave his brother, and which were not given the other employees, only proves the kindness and generosity of Tan Eng Lay towards a blood
relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the pricing of stocks, this does not adequately prove
the existence of a partnership relation between them. Even highly confidential employees and the owners of a company sometimes argue with respect
to certain matters which, in no way indicates that they are partners as to each other.35
In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence of the parties' intent. 36 Yet, in the case
at bench, even the aforesaid circumstances when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a

niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may
even be that among his duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the conclusion
desired; these are not inconsistent with the powers and duties of a manager, even in a business organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is herebyAFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom,
even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from
that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477, 1

which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the
special and unique facts and circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices and computed on their respective amounts as
follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13,
1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of
P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court noted that these items were attached
to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for
which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect,
the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in
this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest
bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment
[was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that
this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be
satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the
total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount
of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain
possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of
Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000
were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong
Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean

On September 20,
1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with

The trial court maintained the Writ, and upon motion of

private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of P900,000.
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. 6

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua,
Yao and Lim, as general partners, were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise

in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e) damages. The Compromise Agreement provided:
Agreement executed by the three

10

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the
excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered
and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal
distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets
and floats purchased by and for the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking,
that is for commercial fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is
what a partnership essentially is . . . . By a contract of partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code). 13
Hence, petitioner brought this recourse before this Court.

14

The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must resolve this key issue: whether by their acts,
Lim, Chua and Yao could be deemed to have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between
him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct
participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of
the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990,
showed that he had merely leased to the two the main asset of the purported partnership the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao
and him, pursuant to Article 1767 of the Civil Code which provides:
Art. 1767 By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings:

15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already
Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB
Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner
Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a
check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy
to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in
behalf of "Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong
Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4)
injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are
already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently revealed their
intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair
of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying
the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats,
which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and

In assailing the factual

findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.
the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule.

16

Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the
settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The
Agreement was but an embodiment of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone,
petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony
with law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the existence of a partnership was
based only on the Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument
allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets
were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a
preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of
the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of
them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable
as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed
to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact
no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind
this doctrine is obvious an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of
a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages
and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be
barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by
the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether petitioner

liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the
name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and
since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.
should be held jointly 18

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership.
He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of
a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons
with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by
estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps
and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the
merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and
academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the
debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used
in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F.
LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO
SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F.
LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier
decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing
Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI's
choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the
six (6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.
The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and
abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and
that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and, insofar as permitted
under Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long as AmericanStandard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be designated by AmericanStandard, and the other six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers over a number of corporate
acts and the right to designate certain officers, such as a member of the Executive Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand
the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint venture groups in the countries where Philippine
exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken
by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the members of the board
of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six,
namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr.
Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section
5 (a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the
nine-member board of directors, and the legal advice of Saniwares' legal counsel. The following events then, transpired:
... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by the ASI representative to
the body of stockholders present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out
of order and no vote on the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision
of the Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other
proxy holders announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were
being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all
votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six originally
nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee,
and Baldwin Young. The Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then
moved to recess the meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and declared the meeting
adjourned. Protests against the adjournment were registered and having been ignored, Mr. Jaqua the ASI representative, stated that the
meeting was not adjourned but only recessed and that the meeting would be reconvened in the next room. The Chairman then threatened to
have the stockholders who did not agree to the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano
E. Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted
as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were
certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6)
nominees for the four (4) remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee
against Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo warranto and application for
receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to
be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and
Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a new stockholders' meeting of
Saniwares be ordered convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE
BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED
BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF
THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH
WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by stockholders and the
replacement of the conditions of such agreements with terms never contemplated by the stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without due process of law in order
that a favored group of stockholders may be illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp.
14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE
DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting held on March 8, 1983. To
answer this question the following factors should be determined: (1) the nature of the business established by the parties whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other relation depends upon their
actual intention which is determined in accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B.
and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on the "Agreement" dated
August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture presented by the Lagdameo and
Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo
and Young Group never pleaded in their pleading that the "Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be considered as containing all such
terms, and therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties or the validity of the
agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement
failed to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the existence of two distinct groups of stockholders
in Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other ASI shall constitute the minority stockholder.
In any event, the evident intention of the Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise,
and if some words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Art.
1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to the doubtful ones that sense which
may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No.
2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an enterprise for their joint
profit, the question whether they intended by their agreement to create a joint adventure, or to assume some other relation is a question of
fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27
Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the Philippine nationals. He
testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group of investors, on the condition that the Agreement
should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled
to designate a member of the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b)
(iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and knowhow to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for certain actions, in effect
gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting requirements for amendments of the articles and by-laws; and most significantly

to the issues of tms case, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other
6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three ratio. Each group
is assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder" was merely to
obviate the possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world. Arrangements are formalized where a foreign group becomes a minority owner of
a firm in exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is always a danger from such arrangements.
The foreign group may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold
or test the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign
group undermines the local majority ownership and actively tries to completely or predominantly take over the entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented, the courts should extend protection especially
in industries where constitutional and legal requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding the exercise of their
voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting
rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure
agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and Saniwares cannot be a
close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders
meeting, these 95 stockholders are not separate from each other but are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family
and/or business or interest group are considered as one (which, it is respectfully submitted, they should be for purposes of determining how
closely held Saniwares is there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5
to 6 of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20 stockholders, the undeniable fact
is that it is a close-held corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly applied principles of
corporation law designed primarily for public issue corporations. These courts have indicated that express arrangements between corporate
joint ventures should be construed with less emphasis on the ordinary rules of law usually applied to corporate entities and with more
consideration given to the nature of the agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co.,
7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240
N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571;
Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American
cases dealt with legal questions as to the extent to which the requirements arising from the corporate form of joint venture corporations
should control, and the courts ruled that substantial justice lay with those litigants who relied on the joint venture agreement rather than the
litigants who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of corporation management. A
noted authority has pointed out that just as in close corporations, shareholders' agreements in joint venture corporations often contain
provisions which do one or more of the following: (1) require greater than majority vote for shareholder and director action; (2) give certain
shareholders or groups of shareholders power to select a specified number of directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the exercise of voting rights
are allowed only in close corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these agreements can be valid
only in close corporations as defined by the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot qualify as
a close corporation under section 96, can some of them enter into an agreement to vote as a unit in the election of directors? It is submitted
that there is no reason for denying stockholders of corporations other than close ones the right to enter into not voting or pooling agreements
to protect their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to the agreement.
Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close corporations. But they may also be
found necessary even in widely held corporations. Moreover, since the Code limits the legal meaning of close corporations to those which
comply with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close corporation will not come
within the definition. In such case, its stockholders should not be precluded from entering into contracts like voting agreements if these are
otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and binding upon the
signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of directors, the Court of Appeals
correctly stated:
As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the
Filipino stockholders. This allocation of board seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights
and obligations thereunder. Appellants seem to contend that any allocation of board seats, even in joint venture corporations, are null and
void to the extent that such may interfere with the stockholder's rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement which curtails in any way cumulative voting should be struck down,
even if such agreement has been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It
may well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision appealed from, that
cumulative voting rights may be voluntarily waived by stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and local stockholders, so long as such agreements do not
adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that needs to be done is to
give life and effect to the particular contractual rights and obligations which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats Cannot be disregarded. On the
other hand, the rights of the stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we feel that the proper and
just solution to give due consideration to both factors suggests itself quite clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of the stockholders within each group to cumulative voting in the process
of determining who the group's nominees would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that
if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only.
During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the
Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act
No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three
directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:
And provided finally that the election of aliens as members of the board of directors or governing body of corporations or associations
engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such
entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:

The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.
2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954])
(Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev.
(167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may vote their additional equity lies
in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in the process of determining who the group's nominees would be under Section 3
(a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating the members of the board of directors while
Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result
which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act
No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three
directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's
position is that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to their share in the capital of the entity. It is to be noted, however,
that the same law also limits the election of aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant
case, the foreign Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of
six to three board seats should always be maintained as long as the joint venture agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the appellate court declaring Messrs. Wolfgang
Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F.
Lee as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in isolation. This should be construed
in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative
voting while section 5(a) relates to the manner of nominating the members of the board of directors. The petitioners in G.R. No. 75951 agreed to this procedure,
hence, they cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the enterprise must always be taken into account, so long as the company exists under

its original agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There
are substantial safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-49982 April 27, 1988
ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO,respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.

GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists between members of the same
family arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of
Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell Company of the Philippines
Limited (SHELL). They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service
Station with an initial investment of P 15,000.00 to be taken from the advance rentals due to them from SHELL for
the occupancy of the said lots owned in common by them. A joint affidavit was executed by them on April 11, 1966
which was prepared byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner herein, by allowing him to
operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical purposes and in
order not to run counter to the company's policy of appointing only one dealer, it was agreed that petitioner would apply for
the dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3, 1966 up to February
16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was
reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner
as dealer with a proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966
executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the business to private
respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty. Angeles, a
demand was made on petitioner to render an accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to make a profit of P 87,293.79 and
that by the year ending 1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering the period from May 6, 1966 up
to December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the
same be subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an
amount of no less than P l50,000.00 with interest at the rate of 1% per month from date of demand
until full payment thereof for the entire duration of the business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14
Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding judge of
Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and ordering private
respondents to pay petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion for
reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who was the newly appointed
presiding judge of the same branch, set aside the aforesaid derision and rendered another decision in favor of said
respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new
judgment is hereby rendered in favor of the plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public instrument embodying all the provisions of the
partnership agreement entered into between plaintiffs and defendant as provided for in Article 1771,
Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the business operation from April 1969
up to the time this order is issued, the same to be subject to examination and audit by the plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of
the business in the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent
per month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of
plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly committed by
the trial court. In due course, a decision was rendered by the Court of Appeals on November 28,1978 affirming in
toto the decision of the lower court with costs against petitioner. *

A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not satisfied
therewith, the petitioner now comes to this court by way of this petition for certiorari alleging that the respondent
court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge
Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by and among the petitioner and the private
respondents as regards the ownership and or operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additional Cash
Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos.
45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL
COMPANY OF THE PHILIPPINES LIMITED a corporation duly licensed to do business in the
Philippines;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced
rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so
that we can use the said amount to augment our capital investment in the operation of that gasoline
station constructed ,by the said company on our two lots aforesaid by virtue of an outstanding Lease
Agreement we have entered into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and
desire to help us in aumenting our capital investment in the operation of the said gasoline station,
has agreed to give us the said amount of P 15,000.00, which amount will partake the nature of
ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the
said sum as ADVANCED RENTALS to us be applied as monthly rentals for the sai two lots under our
Lease Agreement starting on the 25th of May, 1966 until such time that the said of P 15,000.00 be
applicable, which time to our estimate and one-half months from May 25, 1966 or until the 10th of
October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE
PHILIPPINES LIMITED execute an instrument for us to sign embodying our conformity that the said
amount that it will generously grant us as requested be applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 &
1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries
Public Rosauro Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL by the
herein CO-OWNERS and another Lease Agreement dated 19th March 1964 . . . also executed in
favour of SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining

portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE
a total monthly rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND
29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the
leased land, and as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to
SHELL in cash the amount of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure
his purchase on credit of Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has
secured the conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals
due to all of them to accumulate the equivalent amount of P 15,000, commencing 24th May 1966,
this P 15,000 shall be treated as additional cash deposit to SHELL under the same terms and
conditions of the aforementioned Cash Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants
among the CO-OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all COOWNERS, collectively, under the above describe two Lease Agreements, one dated 13th November
1963 and the other dated 19th March 1964 to enable DEALER to increase his existing cash deposit
to SHELL, from P 10,000 to P 25,000, for such purpose, the SHELL CO-OWNERS and DEALER
hereby irrevocably assign to SHELL the monthly rental of P 3,382.29 payable to them respectively
as they fall due, monthly, commencing 24th May 1966, until such time that the monthly rentals
accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by
DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement,
therefore, cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the COOWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from
SHELL petroleum products, on credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms and conditions of the abovementioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis
supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P 15,000.00
advance rental due to them from SHELL shall augment their "capital investment" in the operation of the gasoline
station, which advance rentals shall be credited as rentals from May 25, 1966 up to four and one-half months or until
10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the private
respondents and petitioners assigned to SHELL the monthly rentals due them commencing the 24th of May 1966
until such time that the monthly rentals accumulated equal P 15,000.00 which private respondents agree to be a
cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer. As above-stated it provided therein
that "This agreement, therefore, cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the COOWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous agreement had thereby been abrogated. We find no
merit in this argument. Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00
advance rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount
starting May 24, 1966. There is, therefore, a duplication of reference to the P 15,000.00 hence the need to provide
in the subsequent document that it "cancels and supersedes" the previous one. True it is that in the latter document,
it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of the
parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in
the latter document SHELL was a signatory and it would be against its policy if in the agreement it should be stated
that the business is a partnership with private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such partnership agreement between the
parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty. Angeles. Petitioner
submitted to private respondents periodic accounting of the business. 4 Petitioner gave a written authority to private
respondent Remedies Estanislao, his sister, to examine and audit the books of their "common business' aming
negosyo). 5 Respondent Remedios assisted in the running of the business. There is no doubt that the parties hereto
formed a partnership when they bound themselves to contribute money to a common fund with the intention of dividing
the profits among themselves. 6 The sole dealership by the petitioner and the issuance of all government permits and
licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the
parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on
the said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This decision is
immediately executory and no motion for extension of time to file a motion for reconsideration shag beentertained.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was amended as to
include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and
Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The amended Articles provided, inter alia, that
"the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed
among the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to
be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila, alleging that the partnership, which
was also made a party-defendant, had been paying dividends to the partners except to her; and that notwithstanding her demands the defendants had refused and
continued to refuse and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends
declared by the partnership. She therefore prayed that the defendants be ordered to render accounting to her of the partnership business and to pay her
corresponding share in the partnership profits after such accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied likewise that the plaintiff ever demanded
that she be allowed to examine the partnership books; and byway of affirmative defense alleged that the amended Articles of Co-partnership did not express the
true agreement of the parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership; and that her
share of 30% was to be based on the profits which might be realized by the partnership only until full payment of the loan which it had obtained in December, 1955
from the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as
security.
The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by appellants (herein petitioners)." On that issue the Court of First Instance found for the plaintiff and rendered
judgement "declaring her an industrial partner of Evangelista & Co.; ordering the defendants to render an accounting of the business operations of the (said)
partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after such an accounting
has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista & Co., notwithstanding the admitted fact
that since 1954 and until after promulgation of the decision of the appellate court the said respondent was one of the judges of the City Court
of Manila, and despite its findings that respondent had been paid for services allegedly contributed by her to the partnership. In this
connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive evidence that respondent was in
fact made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the decision proves that said respondent did not
bind herself to contribute her industry, and she could not, and in fact did not, because she was one of the judges of the
City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite the appellate court's own finding that she
has been paid for the services allegedly rendered by her, as well as for the loans of money made by her to the
partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and deprived of, her alleged share,
interests and participation, as an alleged industrial partner, in the partnership Evangelista & Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was declared an industrial partner of the
petitioner, and petitioners were ordered to render an accounting of the business operation of the partnership from June 7, 1955, and to pay
the respondent her alleged share in the net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the costs of the suit,
instead of dismissing respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of Appeals. The evidence presented by the parties as
the trial in support of their respective positions on the issue of whether or not the respondent was an industrial partner was thoroughly analyzed by the Court of
Appeals on its decision, to the extent of reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have
been commited by the lower court. It should be observed, in this regard, that the Court of Appeals did not hold that the Articles of Co-partnership, identified in the
record as Exhibit "A", was conclusive evidence that the respondent was an industrial partner of the said company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder reproduced if only to demonstrate that the same
were made after a through analysis of then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein it is pointed out that "Appellee's
documentary evidence does not conclusively prove that appellee was in fact admitted by appellants as industrial partner of Evangelista &
Co." and that "The grounds relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding that the appellee is an industrial partner
of appellant Evangelista & Co., herein referred to as the partnership the lower court relied mainly on the appellee's documentary evidence,

entirely disregarding facts and circumstances established by appellants" evidence which contradict the said finding' (Page 21, Appellants'
Brief). The lower court could not have done otherwise but rely on the exhibits just mentioned, first, because appellants have admitted their
genuineness and due execution, hence they were admitted without objection by the lower court when appellee rested her case and,
secondly the said exhibits indubitably show the appellee is an industrial partner of appellant company. Appellants are virtually estopped from
attempting to detract from the probative force of the said exhibits because they all bear the imprint of their knowledge and consent, and there
is no credible showing that they ever protested against or opposed their contents prior of the filing of their answer to appellee's complaint. As
a matter of fact, all the appellant Evangelista, Jr., would have us believe as against the cumulative force of appellee's aforesaid
documentary evidence is the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already mentioned, does not
express the true intent and agreement of the parties thereto, the real understanding between them being the appellee would be merely a
profit sharer entitled to 30% of the net profits that may be realized between the partners from June 7, 1955, until the mortgage loan of
P30,000.00 to be obtained from the RFC shall have been fully paid. This version, however, is discredited not only by the aforesaid
documentary evidence brought forward by the appellee, but also by the fact that from June 7, 1955 up to the filing of their answer to the
complaint on February 8, 1964 or a period of over eight (8) years appellants did nothing to correct the alleged false agreement of the
parties contained in Exhibit "A". It is thus reasonable to suppose that, had appellee not filed the present action, appellants would not have
advanced this obvious afterthought that Exhibit "A" does not express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact which proves that the parties to the
Amended Articles of Partnership, Exhibit "A", did not contemplate to make the appellee Estrella Abad Santos, an industrial partner of
Evangelista & Co. It is an admitted fact that since before the execution of the amended articles of partnership, Exhibit "A", the appellee
Estrella Abad Santos has been, and up to the present time still is, one of the judges of the City Court of Manila, devoting all her time to the
performance of the duties of her public office. This fact proves beyond peradventure that it was never contemplated between the parties, for
she could not lawfully contribute her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil
Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite impression that, even as she was and still is a Judge of
the City Court of Manila, she has rendered services for appellants without which they would not have had the wherewithal to operate the
business for which appellant company was organized. Article 1767 of the New Civil Code which provides that "By contract of partnership two
or more persons bind themselves, to contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves, 'does not specify the kind of industry that a partner may thus contribute, hence the said services may legitimately be
considered as appellee's contribution to the common fund. Another article of the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him
to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of interest
between the industrial partner and the partnership, and to insure faithful compliance by said partner with this prestation. There is no
pretense, however, even on the part of the appellee is engaged in any business antagonistic to that of appellant company, since being a
Judge of one of the branches of the City Court of Manila can hardly be characterized as a business. That appellee has faithfully complied
with her prestation with respect to appellants is clearly shown by the fact that it was only after filing of the complaint in this case and the
answer thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in their Supplemental Answer
dated June 29, 1964 or after around nine (9) years from June 7, 1955 subsequent to the filing of defendants' answer to the complaint,
defendants reached an agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in the defendant partnership and/or in its net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of
Manila, devoting her time to performance of her duties as such judge and enjoying the privilege and emoluments appertaining to the said
office, aside from teaching in law school in Manila, without the express consent of the herein defendants' (Record On Appeal, pp. 24-25).
Having always knows as a appellee as a City judge even before she joined appellant company on June 7, 1955 as an industrial partner, why
did it take appellants many yearn before excluding her from said company as aforequoted allegations? And how can they reconcile such
exclusive with their main theory that appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was to
grant the appellee a share of 30% of the net profits which the appellant partnership may realize from June 7, 1955, until the mortgage of
P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of appellant company, with the right to
demand for a formal accounting and to receive her share in the net profit that may result from such an accounting, which right appellants
take exception under their second assigned error. Our said holding is based on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors of law, accepting as conclusive the
factual findings of the lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:

+.wph!1

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to
respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that:

t.hqw

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of
printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran actually supervising the work; that
Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a
liquidation of the accounts in the distribution and printing of the 95,000 posters would be made, that Pecson gave Moran P10,000 for which
the latter issued a receipt; that only a few posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000
payable on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment on the date due,
complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money and alleged in his complaint three (3)
causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the
partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and
exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that:

t.hqw

From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement entered into by the parties-plaintiff
and defendant the plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of
the expected 95,000 copies of the posters, the defendant was able to print 2,000 copies only authorized of which, however, were sold at
P5.00 each. Nothing more was done after this and it can be said that the venture did not really get off the ground. On the other hand, the
plaintiff failed to give his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract which right is implied in reciprocal
obligations under Article 1385 of the Civil Code whereunder 'rescission creates the obligation to return the things which were the object of the
contract ...
WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum
of P17,000.00, with interest at the legal rate from the filing of the complaint on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise rendered a decision against the petitioner. The dispositive portion
of the decision reads:
t.hqw

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby rendered, ordering defendantappellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of substance in a way not in accord with law and with Supreme Court decisions
when it committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO
E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO
E. PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO
E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN
OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership. The
petitioner contends that the award is highly speculative. The petitioner maintains that the respondent court did not take into account the great risks involved in the
business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact and law.
There is no dispute over the nature of the agreement between the petitioner and the private respondent. It is a contract of partnership. The latter in his complaint
alleged that he was induced by the petitioner to enter into a partnership with him under the following terms and conditions:
t.hqw

1. That the partnership will print colored posters of the delegates to the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the said posters;
4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account pertaining to the distribution and printing
of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code).
Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in
favor of the appellee because the appellant therein was remiss in his obligations as a partner and as prime contractor of the construction projects in question. This
case was decided on a particular set of facts. We awarded compensatory damages in the Uy case because there was a finding that the constructing business is a
profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges despite its deficient capital."
Besides, there was evidence to show that the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from January 1, 1958
up to September 30, 1959. The profits on two government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no evidence

whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the
start. There is therefore no basis for the award of speculative damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much more than what was expected of him. In this case, however,
there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The petitioner
likewise failed to give any of the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed
only 2,000 copies.
Article 1797 of the Civil Code provides:

t.hqw

The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. And even with an assurance
made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the highly
speculative profits. It is a rare business venture guaranteed to give 100% profits. In this case, on an investment of P15,000.00, the respondent was supposed to
earn a guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were sold at P5.00
each. The fantastic nature of expected profits is obvious. We have to take various factors into account. The failure of the Commission on Elections to proclaim all
the 320 candidates of the Constitutional Convention on time was a major factor. The petitioner undesirable his best business judgment and felt that it would be a
losing venture to go on with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to recover any amount from the petitioner. The records show that the private respondent gave
P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The
records further show that the 2,000 copies were sold at P5.00 each. The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from
the gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00. This net profit of P6,000.00 should be
divided between the petitioner and the private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private respondent a monthly commission of Pl,000.00 from April 15, 1971 to December
15, 1971 for a total of eight (8) monthly commissions. The agreement does not state the basis of the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the
venture was a failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in holding him liable to the private respondent in the sum of
P7,000.00 as a supposed return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of the Veterans" magazine venture, the respondent court ruled
that:
t.hqw

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question the due execution of said note.
Must Moran therefore pay the amount of P20,000? The evidence indicates that the P20,000 was assigned by Moran to cover the following:

t.hqw

(a) P 7,000 the amount of the PNB check given by Pecson to Moran representing Pecson's
investment in Moran's other project (the publication and printing of the 'Voice of the Veterans');
(b) P10,000 to cover the return of Pecson's contribution in the project of the Posters;
(c) P3,000 representing Pecson's commission for three months (April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans' project, for this project never left the
ground) ...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252),
provided they are borne out by the record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule admits of
certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and
rectify the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension
of facts; and (5) when the court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both the appellant and
the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself shows that his investment in the "Voice of Veterans" project
amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that the private respondent expected to receive.
The records show the following exhibits-

t.hqw

E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant. Defendant admitted the authenticity of
this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for the purpose of showing
plaintiff's capital investment in the printing of the "Voice of the Veterans" for which he was promised a fixed profit of P8,000. This investment
of P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory note for P14,000 dated March 31, 1971 marked by
defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00
investment thereby proportionately reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised profit),
defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000,
defendant paid P4,000 representing full return of the capital investment and P1,000 partial payment of the promised profit. The P3,000
balance of the promised profit was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore,
being presented to show the consideration for the P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The authenticity of the check and his receipt
of the proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the
P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the consideration for the P20,000 note and the
existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject matter of the other partnership
agreement and in which plaintiff invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000 made up for the
consideration of the P14,000 promissory note (Exhibit 2; Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the
promised profit was later made part consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document is being offered for the purpose of
further showing the transaction as explained in connection with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of P6,000 (Exh. E) in the P14,000
promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This document is being offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show the transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose of showing the transaction as
explained in connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that:

t.hqw

Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in the amount of P14,000.00
which has been marked as Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with your transaction with the defendant?
A This promissory note is for the printing of the "Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.

t.hqw

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine National Bank Manager's
check and the P8,000.00 profit assured me by Mr. Moran which I will derive from the printing of this "Voice of the
Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you Exhibit E, is this the
Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you said represented P6,000.00 of your investment and
P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you gave to him, what
happened to the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection with the Balance of P3,000.00 of your capital
investment and the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for purposes of Identification I
request the same to be marked as Exhibit M. . .
Court

t.hqw

Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was executed by Mr. Moran in connection with your
transaction regarding the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00 covered by the promissory
note, Exhibit M. What does this P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital investment and the
P1,000.00 represents partial payment of the P4,000.00 profit that was promised to me by Mr. Moran.
Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration of the promissory note of
P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed. It was the private respondent
himself who presented a copy of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error to state that the project
never took place and on this basis decree the return of the private respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the undertaking cannot entirely be blamed on the managing partner alone,
specially if the latter exercised his best business judgment, which seems to be true in this case. In view of the foregoing, there is no reason to pass upon the fourth
and fifth assignments of errors raised by the petitioner. We likewise find no valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a new
one is rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS representing the
amount of the private respondent's contribution to the partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing one
half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000) copies of the posters, with interests at the legal rate on both amounts
from the date the complaint was filed until full payment is made.
SO ORDERED.

1wph1.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.

AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 square meters located at Greenhills, San
Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The company sold the two lots to
petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners of the
two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canda for the
total sum of P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital
gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required the four petitioners to
pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income tax,
P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital gain of which is taxable)
and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of P134,336, in addition to the tax on
capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and
84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed
P178,708.12 to buy the two lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction
between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high
cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution
of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeas says:

Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone necesariamente la
convencion, mentras que la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la
sociedad es obtener lucro, mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho positive se ofrecen a veces
dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de sociedad, la moderna orientacion de la doctrina
cientifica seala como nota fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad
perseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion y aprovechamiento en la comunidad. (Derecho
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have
a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint
venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as
an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent Commissioner:
Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to the De Leon case. Thus, like the De
Leon heirs, the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their deceased parents; they did not contribute or invest
additional ' capital to increase or expand the inherited properties; they merely continued dedicating the property to the use to which it had
been put by their forebears; they individually reported in their tax returns their corresponding shares in the income and expenses of the
'hacienda', and they continued for many years the status of co-ownership in order, as conceded by respondent, 'to preserve its (the
'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas,
CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject
to any kind of income tax, whether the income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738,
September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the inheritance or the incomes
derived therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where
the three Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in
these two cases had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the
donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19342 May 25, 1972
LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZ B.
OA, VIRGINIA B. OA and LORENZO B. OA, JR., petitioners,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete, and Special
Attorney Purificacion Ureta for respondent.

BARREDO, J.:p
Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above,
holding that petitioners have constituted an unregistered partnership and are, therefore, subject to the payment of
the deficiency corporate income taxes assessed against them by respondent Commissioner of Internal Revenue for
the years 1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from
December 15, 1958, subject to the provisions of Section 51 (e) (2) of the Internal Revenue Code, as amended by
Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as the resolution of said court denying petitioners'
motion for reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and
her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila
for the settlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed
administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the
administrator submitted the project of partition, which was approved by the Court on May 16, 1949
(See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed
Oa, were still minors when the project of partition was approved, Lorenzo T. Oa, their father and
administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of
Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him
guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided
one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses
with a total assessed value of P17,590.00 and an undetermined amount to be collected from the War
Damage Commission. Later, they received from said Commission the amount of P50,000.00, more
or less. This amount was not divided among them but was used in the rehabilitation of properties
owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were
acquired after the death of the decedent with money borrowed from the Philippine Trust Company in
the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the
administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with
the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court on May 16, 1949, no attempt was made
to divide the properties therein listed. Instead, the properties remained under the management of
Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the
income derived therefrom and the proceeds from the sales thereof in real properties and securities.
As a result, petitioners' properties and investments gradually increased from P105,450.00 in 1949 to
P480,005.20 in 1956 as can be gleaned from the following year-end balances:

Y
e
a

Invest
ment

Lan
d

Buil
din

Accou
nt

Acc
oun
t

Acc
oun
t

1949

P87,860.00

P17,590.00

1950

P24,657.65

128,566.72

96,076.26

1951

51,301.31

120,349.28

110,605.11

1952

67,927.52

87,065.28

152,674.39

1953

61,258.27

84,925.68

161,463.83

1954

63,623.37

99,001.20

167,962.04

1955

100,786.00

120,249.78

169,262.52

1956

175,028.68

135,714.68

169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
From said investments and properties petitioners derived such incomes as profits from installment
sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account
kept by Lorenzo T. Oa where the corresponding shares of the petitioners in the net income for the
year are also known. Every year, petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from transactions involving them (Exhibit
3, supra; t.s.n., pp. 25-26). However, petitioners did not actually receive their shares in the yearly
income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in the hands of Lorenzo T. Oa
who, as heretofore pointed out, invested them in real properties and securities. (See Exhibit 3, t.s.n.,
pp. 50, 102-104).

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for
1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered partnership. Finding no merit in petitioners'
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23
Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of
the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so
that the questioned assessment refers solely to the income tax proper for the years 1955 and 1956
and the "Compromise for non-filing," the latter item obviously referring to the compromise in lieu of
the criminal liability for failure of petitioners to file the corporate income tax returns for said years.
(See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE COOWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY
INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE
PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY
TAX OF THE UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of
Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased
Julia Buales and the profits derived from transactions involving the same, or, must they be deemed to have formed
an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2)
Assuming they have formed an unregistered partnership, should this not be only in the sense that they invested as a
common fund the profits earned by the properties owned by them in common and the loans granted to them upon
the security of the said properties, with the result that as far as their respective shares in the inheritance are
concerned, the total income thereof should be considered as that of co-owners and not of the unregistered
partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various
amounts already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the deficiency corporate
taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in
interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early
as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since
those dates admittedly under the administration or management of the head of the family, the widower and father
Lorenzo T. Oa, the assessment in question refers to the later years 1955 and 1956. We believe this point to be
important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal
Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered
them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is
easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the
purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact that
they were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to
the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who
used said properties in business by leasing or selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account"
in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the
income or profits from Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective
shares of the profits of their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the
properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the
purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided
among petitioners proportionately in accordance with their respective shares in the inheritance. In these

circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a
common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by
them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in effect,
they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the Tax
Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners
rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the
partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs,
obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such
status as co-owners continues until the inheritance is actually and physically distributed among the heirs, for it is
easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding
said shares under the common management of the administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants
therein to be unregistered co-partners for tax purposes, that their common fund "was not something they found
already in existence" and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that ergo, in all instances where an inheritance is not actually
divided, there can be no unregistered co-partnership. As already indicated, for tax purposes, the co-ownership of
inherited properties is automatically converted into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate
proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as
exclusively his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all
taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs
under a single management to be used with the intent of making profit thereby in proportion to his share, there can
be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing
of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived," and, for that matter, on any other
provision of said code on partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the
concept of partnerships under the Civil Code from that of unregistered partnerships which are considered as
"corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion,
now Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships," which constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in confirmity with the usual
requirements of the law on partnerships, in order that one could be deemed constituted for purposes
of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes,
among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a
legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not
have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general co-partnerships" which are

possessed of the aforementioned personality have been expressly excluded by law (sections 24
and 84[b]) from the connotation of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term "partnership" it includes
not only a partnership as known in common law but, as well, a syndicate, group,
pool, joint venture, or other unincorporated organization which carries on any
business, financial operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income
Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships with the exception only of duly registered general copartnerships within the
purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by
appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes
in question, of their inherited properties from those acquired by them subsequently, We consider as justified the
following ratiocination of the Tax Court in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was an unregistered partnership, the
holding should be limited to the business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership should be limited to the income
derived from the acquisition and sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is admitted that the inherited properties
and the income derived therefrom were used in the business of buying and selling other real
properties and corporate securities. Accordingly, the partnership income must include not only the
income derived from the purchase and sale of other properties but also the income of the inherited
properties.
Besides, as already observed earlier, the income derived from inherited properties may be considered as individual
income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but
the moment their respective known shares are used as part of the common assets of the heirs to be used in making
profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court. Pertinently,
the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court that the herein
petitioners have formed an unregistered partnership and, therefore, have to be taxed
as such, it might be recalled that the petitioners in their individual income tax returns

reported their shares of the profits of the unregistered partnership. We think it only
fair and equitable that the various amounts paid by the individual petitioners as
income tax on their respective shares of the unregistered partnership should be
deducted from the deficiency income tax found by this Honorable Court against the
unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their
Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be
reduced by the amounts of income tax paid by each petitioner on his share of partnership profits.
This is not correct; rather, it should be the other way around. The partnership profits distributable to
the partners (petitioners herein) should be reduced by the amounts of income tax assessed against
the partnership. Consequently, each of the petitioners in his individual capacity overpaid his income
tax for the years in question, but the income tax due from the partnership has been correctly
assessed. Since the individual income tax liabilities of petitioners are not in issue in this proceeding,
it is not proper for the Court to pass upon the same.
Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as
individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to
sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and, worse,
considering the time that has lapsed since they paid their individual income taxes, they may already be barred by
prescription from recovering their overpayments in a separate action. We do not agree. As We see it, the case of
petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax, assuming
that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has the right to
be reimbursed what he has erroneously paid, but the law is very clear that the claim and action for such
reimbursement are subject to the bar of prescription. And since the period for the recovery of the excess income
taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper
return and payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax
obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs
against petitioners.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is
the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966,
they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners
in 1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda
Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the
amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said
years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were
assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the
years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable
as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of
the National Internal Revenue Code 1 that the unregistered partnership was subject to corporate income tax as
distinguished from profits derived from the partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax
liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required
to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In
due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the decision and action taken by
respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact formed by
petitioners which like a corporation was subject to corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of
this case, although there might in fact be a co-ownership between the petitioners, there was no adequate basis for
the conclusion that they thereby formed an unregistered partnership which made "hem liable for corporate income
tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT
AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID
DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM
PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13,
Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds
they used in buying several real properties. They appointed their brother to manage their properties with full power
to lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various tenants for several
years and they gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,
as well as to the residence tax for corporations and the real estate dealers' fixed tax. With respect to
the tax on corporations, the issue hinges on the meaning of the terms corporation and partnership as
used in sections 24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships (companies collectives), a tax
upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, jointstock companies, joint accounts (cuentas en participation), associations or insurance companies, but
does not include duly registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the
issue narrows down to their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not a property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. On
February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number
of lots (24) acquired and transcations undertaken, as well as the brief interregnum between each,
particularly the last three purchases, is strongly indicative of a pattern or common design that was
not limited to the conservation and preservation of the aforementioned common fund or even of the
property acquired by petitioners in February, 1943. In other words, one cannot but perceive a
character of habituality peculiar to business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to
1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being
so let, for petitioners do not even suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely,
Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen
(15) years, since the first property was acquired, and over twelve (12) years, since Simeon
Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the
set up already adverted to, or on the causes for its continued existence. They did not even try to
offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide the profits among themselves. Respondent
commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that
petitioners purchased certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by
them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968
when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The
remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality
peculiar to business transactions for the purpose of gain was not present.

In Evangelista, the properties were leased out to tenants for several years. The business was under the
management of one of the partners. Such condition existed for over fifteen (15) years. None of the circumstances
are present in the case at bar. The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code lays down the
rule for determining when a transaction should be deemed a partnership or a co-ownership. Said
article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners
or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are
derived;
From the above it appears that the fact that those who agree to form a co- ownership share or do
not share any profits made by the use of the property held in common does not convert their venture
into a partnership. Or the sharing of the gross returns does not of itself establish a partnership
whether or not the persons sharing therein have a joint or common right or interest in the property.
This only means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership, the existence of
a juridical personality different from that of the individual partners, and the freedom to transfer or
assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross
returns of that enterprise in proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no common stock or capital,
and no community of interest as principal proprietors in the business itself which the proceeds
derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are
only tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding
as tenants in common, and to divide the profits of disposing of it, the brother and the other not being
entitled to share in plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233
Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b)
generally participating in both profits and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract, manage the business, and dispose
of the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree
among themselves as to the management, and use of such property and the application of the
proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a
joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of
a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the
whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to
support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby
they purchased properties and sold the same a few years thereafter did not thereby make them partners. They
shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership
which is thereby liable for corporate income tax, as the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have been formed,
since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held
liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this
unpaid obligation of the partnership p. 7 However, as petitioners have availed of the benefits of tax amnesty as individual
taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March
30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the
corporate income tax liability in this case, without pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner,
vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY CORPORATION, respondents.

GANCAYCO, J.:
This petition for review on certiorari seeks the reversal of the decision of the Insurance Commission in IC Case
#367 1dismissing the complaint 2 for recovery of the alleged unpaid balance of the proceeds of the Fire Insurance Policies
issued by herein respondent insurance company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are as follows:
Complainants acquired from a certain Rolando Gonzales a parcel of land and a building located at
San Rafael Village, Davao City. Complainants assumed the mortgage of the building in favor of

S.S.S., which building was insured with respondent S.S.S. Accredited Group of Insurers for
P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of
P100,000.00. To secure the payment of the loan, a mortgage was executed over the land and the
building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache & Co. insured the latter's interest with Travellers MultiIndemnity Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents
thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500 (Exhibit "A"),
covering the building for P50,000.00 with respondent Zenith Insurance Corporation. On July 16,
1975, another Fire Insurance Policy No. 8459 (Exhibit "B") was procured from respondent Philippine
British Assurance Company, covering the same building for P50,000.00 and the contents thereof for
P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
Adjustment Standard Corporation submitted a report as follow
xxx xxx xxx
... Thus the apportioned share of each company is as follows:

Poli
cy
No..

C
o
m
p
a
n
y

R
i
s
k

I
n
s
u
r
e
s

P
a
y
s

MI
RO

Z
e
n
i
t
h

B
u
i
l
d
i
n
g

P
5
0
,
0
0
0

P
1
7
,
6
1
0
.
9
3

F02
50
0

I
n
s
u
r
a
n
c
e

C
o
r
p
.

F84
59
0

P
h
i
l
.

H
o
u
s
e
h
o
l
d

7
0
,
0
0
0

2
4
,
6
5
5
.
3
1

F
F

5
0

3
9

B
r
i
t
i
s
h

A
s
s
c
o
.
C
o
.

I
n

c
.

,
0
0
0

,
1
8
6
.
1
0

R
i
s
k

I
n
s
u
r
e
s

P
a
y
s

B
u
i
l
d
i
n
g

P
2
5
,
0
0
0

P
8
,
8
0
5
.
4
7

&
F
5

Pol
icy
No
.

C
o
m
p
a
n
y

FI
C15
38
1

S
S
S
A
c
c
r
e

d
i
t
e
d
G
r
o
u
p

o
f
I
n
s
u
r
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r
s

T
o
t
a
l
s

P
1
9
5
,
0
0
0

P
9
0
,
2
5
7
.
8
1

We are showing hereunder another apportionment of the loss which includes the Travellers MultiIndemnity policy for reference purposes.

Poli
cy
No.

C
o
m
p
a
n
y

MI
R
O/

Z
e
n
it
h

F02
50
0

I
n
s
u
r
a
n
c
e

C
o
r
p
.

R
i
s
k

I
n
j
u
r
e
s

P
a
y
s

B
u
i
l
d
i
n
g

P
5
0
,
0
0
0

P
1
1
,
8
7
7
.
1

F84
59
0

P
h
il
.

B
r
it
i
s
h

A
s
s
c
o
.
C
o
.

I
B
u
i
l
d
i
n
g

7
0
,
0
0
0

1
6
,
6
2
8
.
0
0

II
B
u
il
d
i
n
g

F
F
F
&
P
E

5
0
,
0
0
0

2
4
,
9
1
8
.
7
9

PV
C15
18
1

S
S
S

A
c
c
r
e
d
i
t
e
d

G
r
o
u
p
o
f

F59
9
DV

I
n
s
u
r
e
r
s

B
u
i
l
d
i
n
g

2
5
,
0
0
0

5
,
9
3
8
.
5
0

I
n
s
u
r
e
r
s

I
R
e
f

3
0
,
0
0
0

1
4
,
4
6
7
.
3
1

M
u
lt
i

I
I
B
u
i
l
d
i

7
0
,
0
0
0

1
6
,
6
2
8
.
0

n
g

T
o
t
a
l
s

P
2
9
5
.
0
0
0

P
9
0
,
2
5
7
.
8
1

Based on the computation of the loss, including the Travellers Multi- Indemnity, respondents, Zenith
Insurance, Phil. British Assurance and S.S.S. Accredited Group of Insurers, paid their corresponding
shares of the loss. Complainants were paid the following: P41,546.79 by Philippine British
Assurance Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers (Par. 6. Amended Complaint). Demand was made from respondent Travellers
Multi-Indemnity for its share in the loss but the same was refused. Hence, complainants demanded
from the other three (3) respondents the balance of each share in the loss based on the computation
of the Adjustment Standards Report excluding Travellers Multi-Indemnity in the amount of
P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited)
but the same was refused, hence, this action.
In their answers, Philippine British Assurance and Zenith Insurance Corporation admitted the
material allegations in the complaint, but denied liability on the ground that the claim of the
complainants had already been waived, extinguished or paid. Both companies set up counterclaim in
the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers informed the Commission in its letter
of July 22, 1977 that the herein claim of complainants for the balance had been paid in the amount
of P 5,938.57 in full, based on the Adjustment Standards Corporation Report of September 22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and alleged as its
special and affirmative defenses the following, to wit: that Fire Policy No. 599 DV, covering the
furniture and building of complainants was secured by a certain Arsenio Chua, mortgage creditor, for
the purpose of protecting his mortgage credit against the complainants; that the said policy was
issued in the name of Azucena Palomo, only to indicate that she owns the insured premises; that the
policy contains an endorsement in favor of Arsenio Chua as his mortgage interest may appear to
indicate that insured was Arsenio Chua and the complainants; that the premium due on said fire
policy was paid by Arsenio Chua; that respondent Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of
the fire Insurance Policy No. F-559 DV, issued by respondent Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention, alleged that the Intervenor is not
entitled to indemnity under its Fire Insurance Policy for lack of insurable interest before the loss of
the insured premises and that the complainants, spouses Pedro and Azucena Palomo, had already
paid in full their mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed spouses Palomos' complaint on the ground that
the insurance policy subject of the complaint was taken out by Tai Tong Chuache & Company, petitioner herein, for

its own interest only as mortgagee of the insured property and thus complainant as mortgagors of the insured
property have no right of action against herein respondent. It likewise dismissed petitioner's complaint in intervention
in the following words:
We move on the issue of liability of respondent Travellers Multi-Indemnity to the Intervenormortgagee. The complainant testified that she was still indebted to Intervenor in the amount of
P100,000.00. Such allegation has not however, been sufficiently proven by documentary evidence.
The certification (Exhibit 'E-e') issued by the Court of First Instance of Davao, Branch 11, indicate
that the complainant was Antonio Lopez Chua and not Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration but it was likewise
denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission decided an issue not raised in the
pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is the one entitled to the insurance
proceeds and not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation of the decision appealed from considering
the manner it was written. 5 As correctly pointed out by respondent insurance commission in their comment, the decision
did not pronounce that it was Arsenio Lopez Chua who has insurable interest over the insured property. Perusal of the
decision reveals however that it readily absolved respondent insurance company from liability on the basis of the
commissioner's conclusion that at the time of the occurrence of the peril insured against petitioner as mortgagee had no
more insurable interest over the insured property. It was based on the inference that the credit secured by the mortgaged
property was already paid by the Palomos before the said property was gutted down by fire. The foregoing conclusion was
arrived at on the basis of the certification issued by the then Court of First Instance of Davao, Branch II that in a certain
civil action against the Palomos, Antonio Lopez Chua stands as the complainant and not petitioner Tai Tong Chuache &
Company.
We find the petition to be impressed with merit. It is a well known postulate that the case of a party is constituted by
his own affirmative allegations. Under Section 1, Rule 131 6 each party must prove his own affirmative allegations by
the amount of evidence required by law which in civil cases as in the present case is preponderance of evidence. The
party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain favorable judgment. 7 Thus, petitioner who is claiming a right over the
insurance must prove its case. Likewise, respondent insurance company to avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the part of the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of the insurance policy taken out by
petitioner over the mortgaged property. Neither did it deny that the said property was totally razed by fire within the
period covered by the insurance. Respondent, as mentioned earlier advanced an affirmative defense of lack of
insurable interest on the part of the petitioner that before the occurrence of the peril insured against the Palomos
had already paid their credit due the petitioner. Respondent having admitted the material allegations in the
complaint, has the burden of proof to show that petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of proof. Respondent, it will be noted, exerted no
effort to present any evidence to substantiate its claim, while petitioner did. For said respondent's failure, the
decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission absolved respondent insurance company from
liability on the basis of the certification issued by the then Court of First Instance of Davao, Branch II, that in a
certain civil action against the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong Chuache.
From said evidence respondent commission inferred that the credit extended by herein petitioner to the Palomos
secured by the insured property must have been paid. Such is a glaring error which this Court cannot sanction.
Respondent Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the insurance proceeds offered as evidence
the contract of mortgage (Exh. 1) which has not been cancelled nor released. It has been held in a long line of
cases that when the creditor is in possession of the document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was not assailed by private respondent. Moreover,

petitioner's claim that the loan extended to the Palomos has not yet been paid was corroborated by Azucena Palomo who
testified that they are still indebted to herein petitioner. 9

Public respondent argues however, that if the civil case really stemmed from the loan granted to Azucena Palomo
by petitioner the same should have been brought by Tai Tong Chuache or by its representative in its own behalf.
From the above premise respondent concluded that the obligation secured by the insured property must have been
paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent pointed out that the action must
be brought in the name of the real party in interest. We agree. However, it should be borne in mind that petitioner being a
partnership may sue and be sued in its name or by its duly authorized representative. The fact that Arsenio Lopez Chua is
the representative of petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent insurance company. 11 Thus Chua as the managing partner of
the partnership may execute all acts of administration 12 including the right to sue debtors of the partnership in case of
their failure to pay their obligations when it became due and demandable. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is understood that he acted for
and in behalf of the firm. 13 Public respondent's allegation that the civil case flied by Arsenio Chua was in his capacity as
personal creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal
force and effect at the time of the fire, it is bound by its terms and conditions. Upon its failure to prove the allegation
of lack of insurable interest on the part of the petitioner, respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and ANOTHER judgment is
rendered order private respondent Travellers Multi-Indemnity Corporation to pay petitioner the face value of
Insurance Policy No. 599-DV in the amount of P100,000.00. Costs against said private respondent.
SO ORDERED.
B. Formal Requirements (Articles 1771-1773)

[G.R. No. 143340. August 15, 2001]

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T.

CHUA, respondent.
DECISION
GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision of the
Court of Appeals dated January 31, 2000 in the case entitled Lamberto T. Chua vs.
[1]

Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23, 2000 denying the motion for
reconsideration of herein petitioners Lilibeth Sunga Chan and Cecilia Sunga (hereafter collectively referred to
as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan
(hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, respectively
of the deceased Jacinto L. Sunga (hereafter Jacinto), for Winding Up of Partnership Affairs, Accounting,

Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment with the Regional Trial
Court, Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of
Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto
allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER
(hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered his
initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his
counterpart contribution, with the intention that the profits would be equally divided between them. The
partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife
of respondent, Erlinda Sy. As compensation, Jacinto would receive a managers fee or remuneration of 10% of
the gross profit and Josephine would receive 10% of the net profits, in addition to her wages and other
remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite
well and was profitable. Respondent claimed that he could attest to the success of their business because of the
volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum
Corporation. While Jacinto furnished respondent with the merchandise inventories, balance sheets and net
worth of Shellite from 1977 to 1989, respondent however suspected that the amount indicated in these
documents were understated and undervalued by Jacinto and Josephine for their own selfish reasons and for tax
avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management of Shellite
without respondents consent.
Despite respondents repeated demands upon petitioners for accounting, inventory, appraisal, winding up
and restitution of his net shares in the partnership, petitioners failed to comply.Petitioner Lilibeth allegedly
continued the operations of Shellite, converting to her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and reasons to evade
respondents demands, she disbursed out of the partnership funds the amount of P200,000.00 and partially paid
the same to respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented
partial payment of the latters share in the partnership, with a promise that the former would make the complete
inventory and winding up of the properties of the business establishment. Despite such commitment, petitioners
allegedly failed to comply with their duty to account, and continued to benefit from the assets and income of
Shellite to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and
Exchange Commission (SEC) in Manila, not the Regional Trial Court in Zambaonga del Norte had jurisdiction
over the action. Respondent opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and substance denied the
motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims, contending that they
are not liable for partnership shares, unreceived income/profits, interests, damages and attorneys fees, that
respondent does not have a cause of action against them, and that the trial court has no jurisdiction over the
nature of the action, the SEC being the agency that has original and exclusive jurisdiction over the case. As
counterclaim, petitioner sought attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for
winding up of partnership affairs, accounting and recovery of shares in partnership affairs, accounting and
recovery of shares in partnership assets /properties should be dismissed and prosecuted against the estate of
deceased Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the
Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, as
petitioners failed to show that a reversible error was committed by the appellate court."
[2]

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to the
trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the case on
January 17, 1996. Respondent presented his evidence while petitioners were considered to have waived their
right to present evidence for their failure to attend the scheduled date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive portion of
the Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as
follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and
standards of the properties, assets, income and profits of the Shellite Gas Appliance Center since
the time of death of Jacinto L. Sunga, from whom they continued the business operations including
all businesses derived from the Shellite Gas Appliance Center; submit an inventory, and appraisal
of all these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or
disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties, assets,
income and profits they misapplied and converted to their own use and advantage that legally
pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of
this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the
partnership of the listed properties, assets and good will (sic) in schedules A, B and C, on pages 4-5
of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the
partnership from 1988 to may 30, 1992, when the plaintiff learned of the closure of the store the
sum of P35,000.00 per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities
pursuant to law, after delivering to the plaintiff all the interest, shares, participation and equity in
the partnership, or the value thereof in money or moneys worth, if the properties are not physically
divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and
hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic) and
P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.

[3]

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the
Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision
reads:

WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
respects.
[4]

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon the following grounds:
1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between respondent
Lamberto T. Chua and the late Jacinto L. Sunga upon the latters invitation and offer and that upon his death
the partnership assets and business were taken over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not apply in the
instant case.
3. The Court of Appeals erred in making the legal conclusion that there was competent and credible evidence to
warrant the finding of a partnership, and assuming arguendo that indeed there was a partnership, the finding
of highly exaggerated amounts or values in the partnership assets and profits. [5]

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a
partnership existed between respondent and Jacinto from 1977 until Jacintos death. In the absence of any
written document to show such partnership between respondent and Jacinto, petitioners argue that these courts
were proscribed from hearing the testimonies of respondent and his witness, Josephine, to prove the alleged
partnership three years after Jacintos death. To support this argument, petitioners invoke the Dead Mans Statute
or Survivorship Rule under Section 23, Rule 130 of the Rules of Court that provides:

SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or assignors of
parties to a case, or persons in whose behalf a case is prosecuted, against an executor or
administrator or other representative of a deceased person, or against a person of unsound mind,
upon a claim or demand against the estate of such deceased person, or against such person of
unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased
person or before such person became of unsound mind.
Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego, Josephine, should
not have been admitted to prove certain claims against a deceased person (Jacinto), now represented by
petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary. Hence, based on the intention of the
parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract of
partnership may arise. The essential points that must be proven to show that a partnership was agreed upon are
(1) mutual contribution to a common stock, and (2) a joint interest in the profits. Understandably so, in view of
the absence of a written contract of partnership between respondent and Jacinto, respondent resorted to the
introduction of documentary and testimonial evidence to prove said partnership. The crucial issue to settle then
is whether or not the Dead Mans Statute applies to this case so as to render inadmissible respondents testimony
and that of his witness, Josephine.
[6]

[7]

[8]

The Dead Mans Statute provides that if one party to the alleged transaction is precluded from testifying by
death, insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage of giving
his own uncontradicted and unexplained account of the transaction. But before this rule can be successfully
invoked to bar the introduction of testimonial evidence, it is necessary that:
[9]

1. The witness is a party or assignor of a party to a case or persons in whose behalf a case is prosecuted.
2. The action is against an executor or administrator or other representative of a deceased person or a person of
unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against
person of unsound mind;
4. His testimony refers to any matter of fact which occurred before the death of such deceased person or before
such person became of unsound mind.[10]

Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim against respondent in their answer before the trial court,
and with the filing of their counterclaim, petitioners themselves effectively removed this case from the ambit of
the Dead Mans Statute. Well entrenched is the rule that when it is the executor or administrator or
representatives of the estate that sets up the counterclaim, the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased to defeat the counterclaim. Moreover, as defendant in the
counterclaim, respondent is not disqualified from testifying as to matters of fact occurring before the death of
the deceased, said action not having been brought against but by the estate or representatives of the deceased.
[11]

[12]

[13]

[14]

Second, the testimony of Josephine is not covered by the Dead Mans Statute for the simple reason that she
is not a party or assignor of a party to a case or persons in whose behalf a case is prosecuted. Records show that
respondent offered the testimony of Josephine to establish the existence of the partnership between respondent
and Jacinto. Petitioners insistence that Josephine is the alter ego of respondent does not make her an assignor
because the term assignor of a party means assignor of a cause of action which has arisen, and not the assignor
of a right assigned before any cause of action has arisen. Plainly then, Josephine is merely a witness of
respondent, the latter being the party plaintiff.
[15]

We are not convinced by petitioners allegation that Josephines testimony lacks probative value because she
was allegedly coerced by respondent, her brother-in-law, to testify in his favor. Josephine merely declared in
court that she was requested by respondent to testify and that if she were not requested to do so she would not
have testified. We fail to see how we can conclude from this candid admission that Josephines testimony is
involuntary when she did not in any way categorically say that she was forced to be a witness of
respondent. Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of
her testimony since relationship per se, without more, does not affect the credibility of witnesses.
[16]

Petitioners reliance alone on the Dead Mans Statute to defeat respondents claim cannot prevail over the
factual findings of the trial court and the Court of Appeals that a partnership was established between
respondent and Jacinto. Based not only on the testimonial evidence, but the documentary evidence as well, the
trial court and the Court of Appeals considered the evidence for respondent as sufficient to prove the formation
of a partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial
precedents, a factual matter like the finding of the existence of a partnership between respondent and Jacinto
cannot be inquired into by this Court on review. This Court can no longer be tasked to go over the proofs
presented by the parties and analyze, assess and weigh them to ascertain if the trial court and the appellate court
were correct in according superior credit to this or that piece of evidence of one party or the other. It must be
also pointed out that petitioners failed to attend the presentation of evidence of respondent. Petitioners cannot
now turn to this Court to question the admissibility and authenticity of the documentary evidence of respondent
when petitioners failed to object to the admissibility of the evidence at the time that such evidence was offered.
[17]

[18]

[19]

With regard to petitioners insistence that laches and/or prescription should have extinguished respondents
claim, we agree with the trial court and the Court of Appeals that the action for accounting filed by respondent
three (3) years after Jacintos death was well within the prescribed period. The Civil Code provides that an
action to enforce an oral contract prescribes in six (6) years while the right to demand an accounting for a
partners interest as against the person continuing the business accrues at the date of dissolution, in the absence
of any contrary agreement. Considering that the death of a partner results in the dissolution of the
partnership , in this case, it was after Jacintos death that respondent as the surviving partner had the right to an
account of his interest as against petitioners. It bears stressing that while Jacintos death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The Civil Code expressly provides
that upon dissolution, the partnership continues and its legal personality is retained until the complete winding
up of its business, culminating in its termination.
[20]

[21]

[22]

[23]

[24]

In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto,
petitioners maintain that said partnership that had an initial capital of P200,000.00 should have been registered
with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil Code. True,
Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or more must register with
the SEC, however, this registration requirement is not mandatory. Article 1768 of the Civil Code explicitly
provides that the partnership retains its juridical personality even if it fails to register. The failure to register the
contract of partnership does not invalidate the same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration is to give notice to third parties, and it can be
assumed that the members themselves knew of the contents of their contract. In the case at bar, noncompliance with this directory provision of the law will not invalidate the partnership considering that the
totality of the evidence proves that respondent and Jacinto indeed forged the partnership in question.
[25]

[26]

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is
AFFIRMED.
SO ORDERED.

[G.R. No. 134559. December 9, 1999]

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners,
vs.
COURT
OF
APPEALS
and
MANUEL
TORRES, respondents.
DECISION
PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms
of a contract turn out to be financially disadvantageous to them will not relieve them of their
obligations therein. The lack of an inventory of real property will not ipso facto release the
contracting partners from their respective obligations to each other arising from acts executed in
accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision [1] Second
Division of the Court of Appeals[2] (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution
denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court
(RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and
against the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the
defendant are likewise ordered dismissed. No pronouncement as to costs.[3]
The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land
in favor of respondent, who then had it registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the subdivision. [4] All three of them also agreed to share the
proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of respondents lack of funds or means and
skills. They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the Agreement. With
the said amount, he was able to effect the survey and the subdivision of the lots. He secured the
Lapu Lapu City Councils approval of the subdivision project which he advertised in a local
newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a
contract with an engineering firm for the building of sixty low-cost housing units and actually even
set up a model house on one of the subdivision lots. He did all of these for a total expense
ofP85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project. [5]
Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed the present civil case which, upon respondent's

motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal,
however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued
its assailed Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had
formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered
by the partnership in the same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial courts pronouncement that losses as well as profits in a joint
venture should be distributed equally,[7] the CA invoked Article 1797 of the Civil Code which
provides:
Article 1797 - The losses and profits shall be distributed in conformity with the agreement. If only
the share of each partner in the profits has been agreed upon, the share of each in the losses shall be
in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the
losses.As for the profits, the industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital, he shall also receive a
share in the profits in proportion to his capital.
The Issue

Petitioners impute to the Court of Appeals the following error:

x x x [The] Court of Appeals erred in concluding that the transaction x x x between the petitioners
and respondent was that of a joint venture/partnership, ignoring outright the provision of Article
1769, and other related provisions of the Civil Code of the Philippines. [8]
The Courts Ruling

The Petition is bereft of merit.

Main Issue: Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint
Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate
courts finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts, respondent is
liable for his failure to implement the project. Because the agreement entitled them to receive 60
percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them
damages equivalent to 60 percent of the value of the property.[9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March,
1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS.
ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located
at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total
area of 17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises herein
contained the respective parties hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in
the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS.
(P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount
of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations
and this particular amount will serve as an advance payment from the FIRST PARTY for the
property mentioned to be sub-divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the
principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, until the sub-division project is terminated and ready for sale to any interested parties,
and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be
deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be
paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales
after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for
the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional
profits or whatever income deriving from the sales will be divided equally according to the x x x
percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall
[be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the property
mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including
all necessary improvements spent by the FIRST PARTY, and the FIRST PARTY will be given a
grace period to turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who executed same freely
and voluntarily for the uses and purposes therein stated. [10]
A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:
ART. 1767. By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves.
Under the above-quoted Agreement, petitioners would contribute property to the partnership in
the form of land which was to be developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated percentage.Clearly, the
contract manifested the intention of the parties to form a partnership. [11]

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the
title to the land to facilitate its use in the name of the respondent. On the other hand, respondent
caused the subject land to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or
property, but also industry.
Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary consequences thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and 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.
It is undisputed that petitioners are educated and are thus presumed to have understood the
terms of the contract they voluntarily signed. If it was not in consonance with their expectations,
they should have objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences of their acts, and
the fact that the contractual stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot now disavow the relationship formed from
such agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code,
which provides:
ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto,
if an inventory of said property is not made, signed by the parties, and attached to the public
instrument.
They contend that since the parties did not make, sign or attach to the public instrument an
inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of

Article 1771,[12] the execution of a public instrument would be useless if there is no inventory of the
property contributed, because without its designation and description, they cannot be subject to
inscription in the Registry of Property, and their contribution cannot prejudice third persons. This
will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the contract is declared void by the law when
no such inventory is made. The case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim that
respondent should pay them 60 percent of the value of the property.[13] They cannot in one breath
deny the contract and in another recognize it, depending on what momentarily suits their
purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not
tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the Joint
Venture Agreement an ordinary contract from which the parties rights and obligations to each other
may be inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 [14] of the
Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the
land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the consideration for
the sale was the expectation of profits from the subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as cause, can take different forms, such as
the prestation or promise of a thing or service by another.[15]
In this case, the cause of the contract of sale consisted not in the stated peso value of the land,
but in the expectation of profits from the subdivision project, for which the land was intended to be
used. As explained by the trial court, the land was in effect given to the partnership as [petitioners]
participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting
in the expectation that, should the venture come into fruition, they [would] get sixty percent of the
net profits.
Liability of the Parties

Claiming that respondent was solely responsible for the failure of the subdivision project,
petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of
the property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners acts were not the cause
of the failure of the project. [16] But it also ruled that neither was respondent responsible therefor. [17] In
imputing the blame solely to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be
resolved in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to
say shown, that their Petition constitutes one of the exceptions to this doctrine. [18] Accordingly, we
find no reversible error in the CA's ruling that petitioners are not entitled to damages.
WHEREFORE,
the
Petition
is
Decision AFFIRMED. Costs against petitioners.

hereby DENIED and

the

challenged

SO ORDERED.

C. Characteristics (Articles 1768, 1775, 1804-1805)

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner,
vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY CORPORATION, respondents.

GANCAYCO, J.:

dismissing the complaint for

recovery of the alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by herein respondent
insurance company in favor of petitioner-intervenor.
This petition for review on certiorari seeks the reversal of the decision of the Insurance Commission in IC Case #367

The facts of the case as found by respondent Insurance Commission are as follows:
Complainants acquired from a certain Rolando Gonzales a parcel of land and a building located at San Rafael Village, Davao City.
Complainants assumed the mortgage of the building in favor of S.S.S., which building was insured with respondent S.S.S. Accredited Group
of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of P100,000.00. To secure the payment of the
loan, a mortgage was executed over the land and the building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975,
Arsenio Chua, representative of Thai Tong Chuache & Co. insured the latter's interest with Travellers Multi-Indemnity Corporation for
P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500 (Exhibit "A"), covering the building for P50,000.00 with
respondent Zenith Insurance Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459 (Exhibit "B") was procured from
respondent Philippine British Assurance Company, covering the same building for P50,000.00 and the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
Adjustment Standard Corporation submitted a report as follow
xxx xxx xxx

... Thus the apportioned share of each company is as follows:

Poli
cy
No..

C
o
m
p
a
n
y

R
i
s
k

I
n
s
u
r
e
s

P
a
y
s

MIR
O

Z
e
n
it
h

B
u
il
d
i
n
g

P
5
0
,
0
0
0

P
1
7
,
6
1
0
.
9
3

F025
00

I
n
s
u
r
a
n
c
e

H
o
u
s
e
h
o
l
d

7
0
,
0
0
0

2
4
,
6
5
5
.
3
1

C
o
r
p
.

F845
90

P
h
il
.

B
ri
ti
s
h

A
s
s
c
o
.

C
o
.

I
n
c
.

F
F
F

5
0
,
0
0
0

3
9
,
1
8
6
.
1
0

R
i
s
k

I
n
s
u
r
e
s

P
a
y
s

B
u
il
d
i
n
g

P
2
5
,
0
0
0

P
8
,
8
0
5
.
4
7

T
o
t
a
l
s

P
1
9
5
,
0
0

P
9
0
,
2
5
7

&
F
5

Poli
cy
No.

C
o
m
p
a
n
y

FIC
153
81

S
S
S
A
c
c
r
e

d
it
e
d
G
r
o
u
p

o
f
I
n
s
u
r
e
r
s

.
8
1

We are showing hereunder another apportionment of the loss which includes the Travellers Multi-Indemnity policy for reference purposes.

Poli
cy
No.

C
o
m
p
a
n
y

MI
RO/

Z
e
n
it
h

F025
00

I
n
s
u
r
a
n
c
e

C
o
r
p
.

F845
90

R
i
s
k

I
nj
u
r
e
s

P
a
y
s

B
u
il
d
i
n
g

P
5
0
,
0
0
0

P
1
1
,
8
7
7
.
1
4

I
B

7
0
,

1
6
,

P
h
il.

B
ri
ti
s
h

A
s
s

c
o
.
C
o
.

u
il
d
i
n
g

0
0
0

6
2
8
.
0
0

II
B
ui
ld
in
g

F
F
F
&

5
0
,
0
0
0

2
4
,
9
1
8
.
7
9

P
E

PV
C151
81

S
S
S

A
c
c
r
e
d
it
e
d

G
r
o
u
p
o
f

F599
DV

I
n
s
u
r
e
r
s

B
u
il
d
i
n
g

2
5
,
0
0
0

5
,
9
3
8
.
5
0

I
n
s
u
r
e
r

I
R
e
f

3
0
,
0
0
0

1
4
,
4
6
7
.

M
u
lti

3
1

I
I
B
u
il
d
i
n
g

7
0
,
0
0
0

1
6
,
6
2
8
.
0
0

T
o
t
a
l
s

P
2
9
5
.
0
0
0

P
9
0
,
2
5
7
.
8
1

Based on the computation of the loss, including the Travellers Multi- Indemnity, respondents, Zenith Insurance, Phil. British Assurance and
S.S.S. Accredited Group of Insurers, paid their corresponding shares of the loss. Complainants were paid the following: P41,546.79 by
Philippine British Assurance Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6.
Amended Complaint). Demand was made from respondent Travellers Multi-Indemnity for its share in the loss but the same was refused.
Hence, complainants demanded from the other three (3) respondents the balance of each share in the loss based on the computation of the
Adjustment Standards Report excluding Travellers Multi-Indemnity in the amount of P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62,
Phil. British: and P2,866.90, SSS Accredited) but the same was refused, hence, this action.
In their answers, Philippine British Assurance and Zenith Insurance Corporation admitted the material allegations in the complaint, but denied
liability on the ground that the claim of the complainants had already been waived, extinguished or paid. Both companies set up counterclaim
in the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers informed the Commission in its letter of July 22, 1977 that the herein claim of
complainants for the balance had been paid in the amount of P 5,938.57 in full, based on the Adjustment Standards Corporation Report of
September 22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and alleged as its special and affirmative defenses the
following, to wit: that Fire Policy No. 599 DV, covering the furniture and building of complainants was secured by a certain Arsenio Chua,
mortgage creditor, for the purpose of protecting his mortgage credit against the complainants; that the said policy was issued in the name of
Azucena Palomo, only to indicate that she owns the insured premises; that the policy contains an endorsement in favor of Arsenio Chua as
his mortgage interest may appear to indicate that insured was Arsenio Chua and the complainants; that the premium due on said fire policy
was paid by Arsenio Chua; that respondent Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of the fire Insurance Policy No. F-559 DV,
issued by respondent Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention, alleged that the Intervenor is not entitled to indemnity under its Fire
Insurance Policy for lack of insurable interest before the loss of the insured premises and that the complainants, spouses Pedro and
Azucena Palomo, had already paid in full their mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed spouses Palomos' complaint on the ground that the insurance policy subject of the complaint
was taken out by Tai Tong Chuache & Company, petitioner herein, for its own interest only as mortgagee of the insured property and thus complainant as
mortgagors of the insured property have no right of action against herein respondent. It likewise dismissed petitioner's complaint in intervention in the following
words:
We move on the issue of liability of respondent Travellers Multi-Indemnity to the Intervenor-mortgagee. The complainant testified that she
was still indebted to Intervenor in the amount of P100,000.00. Such allegation has not however, been sufficiently proven by documentary
evidence. The certification (Exhibit 'E-e') issued by the Court of First Instance of Davao, Branch 11, indicate that the complainant was Antonio
Lopez Chua and not Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration but it was likewise denied hence, the present petition.

It is the contention of the petitioner that respondent Insurance Commission decided an issue not raised in the pleadings of the parties in that it ruled that a certain
Arsenio Lopez Chua is the one entitled to the insurance proceeds and not Tai Tong Chuache & Company.

As correctly
pointed out by respondent insurance commission in their comment, the decision did not pronounce that it was Arsenio
Lopez Chua who has insurable interest over the insured property. Perusal of the decision reveals however that it readily
absolved respondent insurance company from liability on the basis of the commissioner's conclusion that at the time of
the occurrence of the peril insured against petitioner as mortgagee had no more insurable interest over the insured
property. It was based on the inference that the credit secured by the mortgaged property was already paid by the
Palomos before the said property was gutted down by fire. The foregoing conclusion was arrived at on the basis of the
certification issued by the then Court of First Instance of Davao, Branch II that in a certain civil action against the
Palomos, Antonio Lopez Chua stands as the complainant and not petitioner Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation of the decision appealed from considering the manner it was written.

We find the petition to be impressed with merit. It is a well known postulate that the case of a party is constituted by his own affirmative allegations. Under Section
1, Rule 131 6 each party must prove his own affirmative allegations by the amount of evidence required by law which in civil

cases as in the present case is preponderance of evidence. The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of presenting at the trial such amount of evidence as required by law to obtain
favorable judgment. Thus, petitioner who is claiming a right over the insurance must prove its case. Likewise, respondent
insurance company to avoid liability under the policy by setting up an affirmative defense of lack of insurable interest on
the part of the petitioner must prove its own affirmative allegations.
7

It will be recalled that respondent insurance company did not assail the validity of the insurance policy taken out by petitioner over the mortgaged property. Neither
did it deny that the said property was totally razed by fire within the period covered by the insurance. Respondent, as mentioned earlier advanced an affirmative
defense of lack of insurable interest on the part of the petitioner that before the occurrence of the peril insured against the Palomos had already paid their credit
due the petitioner. Respondent having admitted the material allegations in the complaint, has the burden of proof to show that petitioner has no insurable interest
over the insured property at the time the contingency took place. Upon that point, there is a failure of proof. Respondent, it will be noted, exerted no effort to
present any evidence to substantiate its claim, while petitioner did. For said respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission absolved respondent insurance company from liability on the basis of the certification issued
by the then Court of First Instance of Davao, Branch II, that in a certain civil action against the Palomos, Arsenio Lopez Chua stands as the complainant and not
Tai Tong Chuache. From said evidence respondent commission inferred that the credit extended by herein petitioner to the Palomos secured by the insured
property must have been paid. Such is a glaring error which this Court cannot sanction. Respondent Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the insurance proceeds offered as evidence the contract of mortgage (Exh. 1) which has
not been cancelled nor released. It has been held in a long line of cases that when the creditor is in possession of the document of credit, he need not prove nonpayment for it is presumed. 8 The validity of the insurance policy taken b petitioner was not assailed by private respondent.

Moreover, petitioner's claim that the loan extended to the Palomos has not yet been paid was corroborated by Azucena
Palomo who testified that they are still indebted to herein petitioner.
9

Public respondent argues however, that if the civil case really stemmed from the loan granted to Azucena Palomo by petitioner the same should have been
brought by Tai Tong Chuache or by its representative in its own behalf. From the above premise respondent concluded that the obligation secured by the insured
property must have been paid.

respondent pointed out that the action must be brought in the

name of the real party in interest. We agree. However, it should be borne in mind that petitioner being a partnership may
sue and be sued in its name or by its duly authorized representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent insurance company. Thus Chua as the managing partner of
the partnership may execute all acts of administration including the right to sue debtors of the partnership in case of their
failure to pay their obligations when it became due and demandable. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is understood that he acted for
and in behalf of the firm. Public respondent's allegation that the civil case flied by Arsenio Chua was in his capacity as
personal creditor of spouses Palomo has no basis.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2

10

11

12

13

The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal force and effect at the time of the fire, it is bound
by its terms and conditions. Upon its failure to prove the allegation of lack of insurable interest on the part of the petitioner, respondent insurance company is and
must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and ANOTHER judgment is rendered order private respondent Travellers MultiIndemnity Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the amount of P100,000.00. Costs against said private respondent.
SO ORDERED.

D. Classification of Partnerships (Articles 1776-1781, 1783, 1825)

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S.
LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO
and MODESTO CERVANTES and CONSTANCIO MAGLANA,respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court
of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197)
was dismissed but in all other respects the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the amount of P311,056.02, with interest
at the rate of 12% per annum compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until full
payment is made; plus P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from Pl51,000.00,,making a total of
P184,878.74. Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the
other half, the amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and
exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-complaints until the amount is fully paid; plus
moral and exemplary damages in the amount of P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another P20,000.00 to Constancio B. Maglana as
attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco, the Cervanteses and Constancio B.
Maglana, is dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses the amount of P20,000.00
as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. The fact that the properties of the
Bormaheco and the Cervanteses were attached and that they were required to file a counterbond in order to dissolve the attachment, is not

an act of bad faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary damages. Furthermore, the
rights exercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only secured the attachment prayed for by
the plaintiff Pioneer. If an insurance company would be liable for damages in performing an act which is clearly within its power and which is
the reason for its being, then nobody would engage in the insurance business. No further claim or counter-claim for or against anybody is
declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the sale and purchase of two
(2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with
Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639
(Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana
(respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2)
in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated
that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all
damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having
become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its
representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's
suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with
the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the
Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and,
by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the
aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. In all other respects
the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER ON THE SOLE
GROUND THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE
JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety bond in favor of
JDA and subsequently collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer
amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from defendants will no longer
prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand to be benefited or injured by the
judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants, hence, it instituted the action is
utterly devoid of merit. Plaintiff did not even present any evidence that it is the attorney-in-fact of the reinsurance company, authorized to
institute an action for and in behalf of the latter. To qualify a person to be a real party in interest in whose name an action must be
prosecuted, he must appear to be the present real owner of the right sought to be enforced (Moran, Vol. I, Comments on the Rules of Court,
1979 ed., p. 155). It has been held that the real party in interest is the party who would be benefited or injured by the judgment or the party
entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present
substantial interest as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest (Garcia v. David,
67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye,
97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest as it has already been paid by the
reinsurer the sum of P295,000.00 the bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the former was able to foreclose extrajudicially one of the subject airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale of the mortgaged chattels.
Adding the sum of P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff has been overpaid in
the amount of P33,383.72 considering that the total amount it had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover
from defendants the amount in excess of P298,666.28 would be tantamount to unjust enrichment as it has already been paid by the
reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled
is the rule that no person should unjustly enrich himself at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its reinsurer in the aforesaid amount, as this
matter has never been raised by any of the parties herein both in their answers in the court below and in their respective briefs with respondent court; (Rollo, p. 11)
(2) even assuming hypothetically that it was paid by its reinsurer, still none of the respondents had any interest in the matter since the reinsurance is strictly
between the petitioner and the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to
recover from respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as has been paid with reinsurance
money?
2. If the answer to the preceding question is in the negative, has Pioneer still any claim against defendants, considering the amount it has
realized from the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000, and paid with the said amount the bulk of its alleged liability to JDA under the said surety bond, it is
plain that on this score it no longer has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the amount paid to it by the reinsurers,
notwithstanding that the cause of action pertains to the latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety
Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the amount.'
In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the reinsurers for any
amount. Lastly, and most important of all, Pioneer has no right to institute and maintain in its own name an action for the benefit of the
reinsurers. It is well-settled that an action brought by an attorney-in-fact in his own name instead of that of the principal will not prosper, and
this is so even where the name of the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name of the real
party in interest.' This provision is mandatory. The real party in interest is the party who would be benefitted or injured
by the judgment or is the party entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is no law permitting
an action to be brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco
and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA 706,
710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from the reinsurers, the uninsured
portion of what it paid to JDA is the difference between the two amounts, or P3,666.28. This is the amount for which Pioneer may sue
defendants, assuming that the indemnity agreement is still valid and effective. But since the amount realized from the sale of the mortgaged
chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid by
P33,383.72. Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admitted payment, the only issue that cropped up
was the effect of payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument that the respondents had no interest in the reinsurance
contract as this is strictly between the petitioner as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has
no basis.
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the original
insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance. (Delaware, Ins.
Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied
in Manila Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is
deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss,
then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with
regard to the portion of the indemnity paid is the insurer and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for the reason that the
petitioner was not the real party in interest in the complaint and, therefore, has no cause of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the premise that the evidence on
record shows that it is entitled to recover from the counter indemnitors. It does not, however, cite any grounds except its allegation that respondent "Maglanas
defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that the counter-indemnitors are not liable to the
petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the bond provided that the same would
be mortgaged to it, but this was not possible because the planes were still in Japan and could not be mortgaged here in the Philippines. As
soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the bond, and this indemnity
agreement would be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have impaired and rendered insufficient the security under
the chattel mortgage and there is thus no other sufficient security for the claim sought to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be enforced by this action,
which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this action was instituted. Sec 2,
Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no longer has any further
action against the defendants as indemnitors to recover any unpaid balance of the price. The indemnity agreement was ipso jure

extinguished upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right
of Pioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to recover any unpaid
balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made of the payments to
JDA, the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. Such being the
case, as provided by the aforementioned provisions, Pioneer shall have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA. The reason
is that Pioneer is actually exercising the rights of JDA as vendor, having subrogated it in such rights. Nor may the application of the provision
be validly opposed on the ground that these defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et al. v.
Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged these defendants from any liability as
alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru novations thus
discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three months interval installments, the first of which shall
be due and payable 25 August 1965, the remainder of which ... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA, modifying the maturity dates of the
obligations, as follows:
The principal hereof shall be paid in eight equal successive three month interval installments the first of which shall be
due and payable 4 September 1965, the remainder of which ... shall be due and payable on the 4th day ... of each
succeeding months and the last of which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the aforesaid
memorandum; the due date of the first installment appears as October 15, 1965, and those of the rest of the installments, the 15th of each
succeeding three months, that of the last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates, effected twice, were done without the knowledge, much less, would
have it believed that these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it believed that these defendants
and defendant Maglana knew of and consented to the modification of the obligations. But if that were so, there would have been the
corresponding documents in the form of a written notice to as well as written conformity of these defendants, and there are no such
document. The consequence of this was the extinguishment of the obligations and of the surety bond secured by the indemnity agreement
which was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v.
Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the
guaranty The mere failure on the part of the creditor to demand payment after the debt has become due does not of
itself constitute any extension time referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently, Pioneer has no more cause of action
to recover from these defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety bond,
the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer from
liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is
made after the obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing of the instant case
against them and the attachment and garnishment of their properties. The instant action is clearly unfounded insofar as plaintiff drags these
defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but who
failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in situations where their contributions to
the intended 'corporation' were invested not through the corporate form? This Petition presents these fundamental questions which we
believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and
petitioner Lim to incorporate, a de facto partnership among them was created, and that as a consequence of such relationship all must share in the losses and/or
gains of the venture in proportion to their contribution. The petitioner, therefore, questions the appellate court's findings ordering him to reimburse certain amounts
given by the respondents to the petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184,878.74 as correctly found
by the trial court, with interest from the filing of the cross-complaints until the amount is fully paid. Defendant Lim should pay one-half of the
said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in the records that defendant
Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglana representing the latter's participation in the
ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional expenses, hence, the
total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be
governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush
Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who
carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas.
1913A 1065). Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and
their rights as members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co.,
84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a corporation for the
development of land for irrigation purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the
difference in the proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a trustee
for the associates in an action between them for an accounting, and its capital stock was treated as partnership assets, sold, and the
proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However,
such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves,
when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed.
688), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for
stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business
under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other stockholders, who were also
directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally
contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial despite notification. In his answer, the
petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however,
found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in
the ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence
to the cross-claims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was
never formed because the petitioner reneged on their agreement. Maglana alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure
two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the
operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim
acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about
August 9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his own
account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to set up the corporation or return the money of
Maglana. (Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts from Japan
which the latter considered as their lawful contribution and participation in the proposed corporation to be known as SAL. Arrangements and
negotiations were undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the Cervanteses and
Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants, defendant Lim in connivance with the plaintiff, signed
and executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL. The
answering defendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel
mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of
the two planes and their accessories and or return the amount advanced by the former amounting to an aggregate sum of P 178,997.14 as
evidenced by a statement of accounts, the latter ignored, omitted and refused to comply with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the parties which would entitle
the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf
of his other would-be incorporators in transacting the sale of the airplanes and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

Obligations of the Partners- Articles 1784-1827

A. Obligations of the Partners among Themselves (Section 1)
1. Contributions (Articles 1784-1796, 1808)

SEE - Luzviminda J. Villareal vs. Donaldo Efren C. Ramirez, et al, G.R. No. 144214, July 14, 2003
SEE - Moran v. CA, G.R. No. L-59956, October 31, 1984
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.

CONCEPCION JR., J.:

t.hqw

Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P. Construction Company" and ordering the defendant Bartolome Puzon to pay
the plaintiff the amounts of: (1) P115,102.13, with legal interest thereon from the date of the filing of the complaint until fully paid; (2) P200,000.00, as plaintiffs
share in the unrealized profits of the "U.P. Construction Company" and (3) P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the Republic of the Philippines for the construction of the Ganyangan Bato Section of the
Pagadian Zamboanga City Road, province of Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding

difficulty in accomplishing both projects, Bartolome Puzon sought the financial assistance of the plaintiff, William Uy. As an
inducement, Puzon proposed the creation of a partnership between them which would be the sub-contractor of the
projects and the profits to be divided equally between them. William Uy inspected the projects in question and, expecting

to derive considerable profits therefrom, agreed to the proposition, thus resulting in the formation of the "U.P. Construction
Company" which was subsequently engaged as subcontractor of the construction projects.
3

But, as
heretofore stated, Puzon was short of cash and he promised to contribute his share in the partnership capital as soon as
his application for a loan with the Philippine National Bank in the amount of P150,000.00 shall have been approved.
However, before his loan application could be acted upon, he had to clear his collaterals of its incumbrances first. For this
purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as advance contribution of
his share in the partnership to be organized between them under the firm name U.P. CONSTRUCTION COMPANY which
amount mentioned above will be used by Puzon to pay his obligations with the Philippine National Bank to effect the
release of his mortgages with the said Bank. On October 29, 1956, William Uy again gave Puzon the amount of
P30,000.00 as his partial contribution to the proposed partnership and which the said Puzon was to use in payment of his
obligation to the Rehabilitation Finance Corporation. Puzon promised William Uy that the amount of P150,000.00 would
be given to the partnership to be applied thusly: P40,000.00, as reimbursement of the capital contribution of William Uy
which the said Uy had advanced to clear the title of Puzon's property; P50,000.00, as Puzon's contribution to the
partnership; and the balance of P60,000.00 as Puzon's personal loan to the partnership.
The partners agreed that the capital of the partnership would be P100,000.00 of which each partner shall contribute the amount of P50,000.00 in cash.

work on the projects was started by the partnership on

October 1, 1956 in view of the insistence of the Bureau of Public Highways to complete the project right away. Since
Puzon was busy with his other projects, William Uy was entrusted with the management of the projects and whatever
expense the latter might incur, would be considered as part of his contribution. At the end of December, 1957, William
Uy had contributed to the partnership the amount of P115,453.39, including his capital.
Although the partnership agreement was signed by the parties on January 18, 1957, 9

10

11

12

The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he gave to William Uy the amount of P60,000.00. Of this amount,
P40,000.00 was for the reimbursement of Uy's contribution to the partnership which was used to clear the title to Puzon's property, and the P20,000.00 as Puzon's
contribution to the partnership capital. 13

assigned to the
Philippine National Bank all the payments to be received on account of the contracts with the Bureau of Public Highways
for the construction of the afore-mentioned projects. By virtue of said assignment, the Bureau of Public Highways paid
the money due on the partial accomplishments on the government projects in question to the Philippine National Bank
which, in turn, applied portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07, released by the Bureau
of Public Highways in payment of the partial work completed by the partnership on the projects, the amount of
P332,539.60 was applied in payment of Puzon's loan and only the amount of P27,820.80 was deposited in the partnership
funds, which, for all practical purposes, was also under Puzon's account since Puzon was the custodian of the common
funds.
To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the knowledge and consent of William Uy,

14

15

16

As time passed and the financial demands of the projects increased, William Uy, who supervised the said projects, found difficulty in obtaining the necessary funds
with which to pursue the construction projects. William Uy correspondingly called on Bartolome Puzon to comply with his obligations under the terms of their
partnership agreement and to place, at lest, his capital contribution at the disposal of the partnership. Despite several promises, Puzon, however, failed to do
so. 17 Realizing that his verbal demands were to no avail, William Uy consequently wrote Bartolome Puzon pormal letters of

demand, to which Puzon replied that he is unable to put in additional capital to continue with the projects.
18

19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the construction projects, wrote the subcontractor, U.P. Construction
Company, on November 20, 1957, advising the partnership, of which he is also a partner, that unless they presented an immediate solution and capacity to
prosecute the work effectively, he would be constrained to consider the sub-contract terminated and, thereafter, to assume all responsibilities in the construction of
the projects in accordance with his original contract with the Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again

wrote the U.P.Construction Company finally terminating their subcontract agreement as of December 1, 1957.

21

Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and his authority to deal with the Bureau of Public Highways in behalf of
the partnership was revoked by Bartolome Puzon who continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their partnership agreement, instituted an action in court, seeking, inter alia,
the dissolution of the partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming that it was the plaintiff, William Uy, who violated the terms thereof. He,
likewise, prayed for the dissolution of the partnership and for the payment by the plaintiff of his, share in the losses suffered by the partnership.
After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their partnership agreement, failed to contribute his share in the
capital of the partnership applied partnership funds to his personal use; ousted the plaintiff from the management of the firm, and caused the failure of the
partnership to realize the expected profits of at least P400,000.00. As a consequence, the trial court dismissed the defendant's counterclaim and ordered the
dissolution of the partnership. The trial court further ordered the defendant to pay the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal before this Court, the said Bartolome Puzon died, and was
substituted by Franco Puzon.

The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact, which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the appellee is not supported by the evidence and the law.
After going over the record, we find no reason for rejecting the findings of fact below, justifying the reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his share in the capital of the partnership is clear incontrovertible. The record shows that after
the appellant's loan the amount of P150,000.00 was approved by the Philippin National Bank in November, 1956, he gave the amount P60,000.00 to the appellee
who was then managing the construction projects. Of this amount, P40,000.00 was to be applied a reimbursement of the appellee's contribution to the partnership
which was used to clear the title to the appellant's property, and th balance of P20,000.00, as Puzon's contribution to the partnership. 23 Thereafter, the

appellant failed to make any further contributions the partnership funds as shown in his letters to the appellee wherein he
confessed his inability to put in additional capital to continue with the projects.
24

Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing his share in the partnership capital inasmuch as the amount of
P40,000.00, allegedly given to him in October, 1956 as partial contribution of the appellee is merely a personal loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the receipts signed by the appellant are clear and unequivocal that the sums of money given by the appellee are
appellee's partial contributions to the partnership capital. Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the appellant stated:
+.wph!1

Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in Check No. SC 423285 Equitable Banking Corporation,
dated October 24, 1956, as advance contribution of the share of said William Uy in the partnership to be organized between us under the
firm name U.P. CONSTRUCTION COMPANY which amount mentioned above will be used by the undersigned to pay his obligations with the
Philippine National Bank to effect the release of his mortgages with the said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956,

26

the appellant also said:

+.wph!1

Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in Check No. SC423287, of the Equitable Banking
Corporation, as partial contribution of the share of the said William Uy to the U.P. CONSTRUCTION COMPANY for which the undersigned
will use the said amount in payment of his obligation to the Rehabilitation Finance Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership funds is, likewise, sustained by competent evidence. It is of record that the appellant
assigned to the Philippine National Bank all the payments to be received on account of the contracts with the Bureau of Public Highways for the construction of the
aforementioned projects to guarantee the repayment of the bank. 27 By virtue of the said appeflant's personal loan with the said bank

assignment, the Bureau of Public Highways paid the money due on the partial accomplishments on the construction
projects in question to the Philippine National Bank who, in turn, applied portions of it in payment of the appellant's loan.

28

The appellant claims, however, that the said assignment was made with the consent of the appellee and that the assignment not prejudice the partnership as it
was reimbursed by the appellant.
But, the appellee categorically stated that the assignment to the Philippine National Bank was made without his prior knowledge and consent and that when he
learned of said assignment, he cal the attention of the appellant who assured him that the assignment was only temporary as he would transfer the loan to the
Rehabilitation Finance Corporation within three (3) months time. 29
The question of whom to believe being a matter large dependent on the trier's discretion, the findings of the trial court who had the better opportunity to examine
and appraise the fact issue, certainly deserve respect.
That the assignment to the Philippine National Bank prejudicial to the partnership cannot be denied. The record show that during the period from March, 1957 to
September, 1959, the appellant Bartolome Puzon received from the Bureau of Public highways, in payment of the work accomplished on the construction projects,
the amount of P1,047,181.01, which amount rightfully and legally belongs to the partnership by virtue of the subcontract agreements between the appellant and
the U.P. Construction Company. In view of the assignemt made by Puzon to the Philippine National Bank, the latter withheld and applied the amount of
P332,539,60 in payment of the appellant's personal loan with the said bank. The balance was deposited in Puzon's current account and only the amount of
P27,820.80 was deposited in the current account of the partnership. 30 For sure, if the appellant gave to the partnership all that were eamed

and due it under the subcontract agreements, the money would have been used as a safe reserve for the discharge of all
obligations of the firm and the partnership would have been able to successfully and profitably prosecute the projects it
subcontracted.
When did the appellant make the reimbursement claimed by him?

Since the
appellant received from the Bureau of Public Highways the sum of P1,047,181.01, the appellant has a deficit balance of
P94,342.24. The appellant, therefore, did not make complete restitution.
For the same period, the appellant actually disbursed for the partnership, in connection with the construction projects, the amount of P952,839.77.

31

The findings of the trial court that the appellee has been ousted from the management of the partnership is also based upon persuasive evidence. The appellee
testified that after he had demanded from the appellant payment of the latter's contribution to the partnership capital, the said appellant did not allow him to hold
office in the U.P. Construction Company and his authority to deal with the Bureau of Public Highways was revoked by the appellant. 32

As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained by the evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse the plaintiff-appellee whatever amount latter had invested in or spent for
the partnership on account of construction projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the partnership is P100,000.00 of which each part shall contribute to the partnership the
amount of P50,000.00 cash 33 the partners of the U.P. Construction Company did contribute their agreed share in the

capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial amount P40,000.00 put up by the
appellee in October, 1956, the partners' investments took, the form of cash advances coveting expenses of the
construction projects as they were incurred. Since the determination of the amount of the disbursements which each of
them had made for the construction projects require an examination of the books of account, the trial court appointed two
commissioners, designated by the parties, "to examine the books of account of the defendant regarding the U.P.
Construction Company and his personal account with particular reference to the Public Works contract for the construction
of the Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan Road,
including the payments received by defendant from the Bureau of Public Highways by virtue of the two projects above
mentioned, the disbursements or disposition made by defendant of the portion thereof released to him by the Philippine
National Bank and in whose account these funds are deposited .
34

35

In due time, the loners so appointed,

36

submitted their report they indicated the items wherein they are in agreement, as well as
37

their points of disagreement.

In the commissioners' report, the appellant's advances are listed under Credits; the money received from the firm, under Debits; and the resulting monthly
investment standings of the partners, under Balances. The commissioners are agreed that at the end of December, 1957, the appellee had a balance of
P8,242.39. 38 It is in their respective adjustments of the capital account of the appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of P24,239.48, representing the checks isssued by the appellant,

39

and

encashed by the appellee or his brother, Uy Han so that the appellee would owe the partnership the amount of
P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but recognized and charged to Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77 less payroll remittances from the appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting the findings of the trial which we find to be in accord with the
evidence:
To enhance defendant's theory that he should be credited P24,239.48, he presented checks allegedly given to plaintiff and the latter's brother, Uy Han, marked as
Exhibits 2 to 11. However, defendant admitted that said cheeks were not entered nor record their books of account, as expenses for and in behalf of partnership or
its affairs. On the other hand, Uy Han testified that of the cheeks he received were exchange for cash, while other used in the purchase of spare parts
requisitioned by defendant. This testimony was not refuted to the satisfaction of the Court, considering that Han's explanation thereof is the more plausible
because if they were employed in the prosecution of the partners projects, the corresponding disbursements would have certainly been recorded in its books,
which is not the case. Taking into account defendant is the custodian of the books of account, his failure to so enter therein the alleged disbursements,
accentuates the falsity of his claim on this point. 40
Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in view of his proclivity to favor the appellant and because of the
inaccurate accounting procedure adopted by him in auditing the books of account of the partnership unlike Mr. Tayag's report which inspires faith and credence.

41

As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee out of his personal funds which not been entered in the books of the
partnership but which been recognized and conceded to by the auditor designated by the appellant who included the said amount under Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear and convincing.

43

As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in connection withe the projects and not entered in the books of the
partnership since all vouchers and receipts were sent to the Manila office which were under the control of the appellant. However, officer which were under the
control of the appellant. However, a list of these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:

+.wph!1

Undisputed balance as
of Dec. 1967

Add: Items omitted

from the books but

P 8,242.

recognized and
charged to
Miscellaneous

Expenses by Mr.
Ablaza

7,497.80

Add:
Payrolls
paid by
the
appelle
e

P128,10
3.77

Less:
Payroll
remittan
ces
receive
d

63,000.0
0

65,103.7
7

Add:
Other
expens
es
incurred
at the

site
(Exhs,
ZZ, ZZ1 to ZZ4)

26,027.0
4

TOTAL

P106,87
1.00

At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which he also advanced for the construction projects but which were not
included in the Commissioner's Report. 44
Appellee's total investments in the partnership would, therefore, be:

Appellee's total
credits

P106,871.00

Add: unrecorded
balances for the
month of Dec.
1957 (Exhs. KKK,
KK-1 to KKK_19,
KKK-22)

3,917,39

Add: Payments to
Munoz, as
subcontractor of
five,(5) Bridges (p.
264 tsn; Exhs.
KKK-20, KKK-21)

4,665.00

Total Investments

Pl 15,453.39

Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership, the appellant contends that the findings of the trial court that the
amount of P400,000.00 as reasonable profits of the partnership venture is without any basis and is not supported by the evidence. The appemnt maintains that the
lower court, in making its determination, did not take into consideration the great risks involved in business operations involving as it does the completion of the
projects within a definite period of time, in the face of adverse and often unpredictable circumstances, as well as the fact that the appellee, who was in charge of
the projects in the field, contributed in a large measure to the failure of the partnership to realize such profits by his field management.
This argument must be overruled in the light of the law and evidence on the matter. Under Article 2200 of the Civil Code, indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain. In other words lucrum cessans is also a basis for
indemnification.
Has the appellee failed to make profits because of appellant's breach of contract?
There is no doubt that the contracting business is a profitable one and that the U.P. Construction Company derived some profits from' co io oa ects its sub ntracts
in the construction of the road and bridges projects its deficient working capital and the juggling of its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some profits during the period from July 2, 1956 to December 31, 1957. If the Profit and Loss
Statement 45 showed a net loss of P134,019.43, this was primarily due to the confusing accounting method employed

by the
auditor who intermixed h and accthe cas ruamethod of accounting and the erroneous inclusion of certain items, like
personal expenses of the appellant and afteged extraordinary losses due to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a net profit of P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the partnership admittedly made a net profit of P52,943.89.

46

Besides, as We have heretofore pointed out, the appellant received from the Bureau of Public Highways, in payment of the zonstruction projects in question, the
amount of P1,047,181.01 47 and disbursed the amount of P952,839.77, 48 leaving an unaccounted balance of P94,342.24.

Obviously, this amount is also part of the profits of the partnership.

During the trial of this case, it was discovered that the appellant had money and credits receivable froin the projects in question, in the custody of the Bureau of
Public Highways, in the amount of P128,669.75, representing the 10% retention of said projects. 49 After the trial of this case, it was shown that the

total retentions Wucted from the appemnt amounted to P145,358.00.

the profits of the partnership.

50

Surely, these retained amounts also form part of

Had the appellant not been remiss in his obligations as partner and as prime contractor of the construction projects in question as he was bound to perform
pursuant to the partnership and subcontract agreements, and considering the fact that the total contract amount of these two projects is P2,327,335.76, it is
reasonable to expect that the partnership would have earned much more than the P334,255.61 We have hereinabove indicated. The award, therefore, made by
the trial court of the amount of P200,000.00, as compensatory damages, is not speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed with costs against the appellant, it being understood that the
liability mentioned herein shall be home by the estate of the deceased Bartolome Puzon, represented in this instance by the administrator thereof, Franco Puzon.

SO ORDERED.

[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,Defendant-Appellee.
DECISION
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao,
Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called
Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with
an indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange
Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor
forests products licenses and concessions over public and/or private forest lands and to operate, develop
and promote such forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved
and Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for
and in behalf of the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the
partnership, including marketing and handling of cash and is authorized to sign all papers and instruments
relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the
logging operations of the partnership. It is also provided in the said articles of co-partnership that all
profits and losses of the partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership
(Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang
as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership
(Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside
from the slight difference in the purpose of the second partnership which is to hold and secure renewal of
timber license instead of to secure the license as in the first partnership and the term of the second
partnership is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was
able to ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of
P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL
SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and
"D") agreeing among themselves that Maglana and Rojas shall purchase the interest, share and
participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed
in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount
of loan secured by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the
owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES,
the name also given to the second partnership, be dissolved. Pahamotang was paid in fun on August 31,
1957. No other rights and obligations accrued in the name of the second partnership (R.A. 921).

After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the
benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A.
948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired
area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was transferred to
CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash
or in equipment, to the capital investments of the partnership as well as his obligation to perform his
duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's
share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or
dispute (Decision, R.A. 949).
: nad

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated
February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the
recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and
voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by
Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire
year 1961 in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the
commissioners started examining the records and supporting papers of the partnership as well as the
information furnished them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim,
attaching thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p.
336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving
the report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed
upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of
the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership
(Decision, R.A. pp. 895-896).
- nad

After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads
as follows:

"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the
Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang
retired from the second partnership, that is, after August 31, 1957, when Pahamotang was finally
paid his share the partnership of the defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the
ratio and proportion of their respective contributions, or on the basis of share and share alike
this covered by actual contributions of the plaintiff and the defendant and by their verbal
agreement; that the sharing of profits and losses is on the basis of actual contributions; that from
1957 to 1959, the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the
profits, but from 1960 to the date of dissolution, February 23, 1961, the plaintiff's share will be on
the basis of his actual contribution and, considering his indebtedness to the partnership, the
plaintiff is not entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his
wife's name were acquired with partnership funds or with funds of the defendant and the Court
declares that there is no evidence that these properties were acquired by the partnership funds,
and therefore the same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who
should be liable for them the Court declares that neither parties is entitled to damages, for as
already stated above it is not a wise policy to place a price on the right of a person to litigate
and/or to come to Court for the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961;
did it dissolve the partnership or not the Court declares that the letter of the defendant to the
plaintiff dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other
merchandise to the laborers and employees of the Eastcoast Development Enterprises, the
COURT DECLARES THE SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David is
VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the
amount of P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which
according to him he is still entitled to receive from the CMS Estate, Inc. is hereby denied
considering that it has not yet been actually received, and further the receipt is merely based upon
an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal
account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have
received as logging superintendent, and which was not paid to him, and this should be considered
as part of Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.

: rd

"SO ORDERED." Decision, Record on Appeal, pp. 985-989).

Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas
after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second
partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as
provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which
was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto

partnership and at will. It was considered as a partnership at will because there was no term, express or
implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast
Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955
(Exhibit "A") has not been novated, superseded and/or dissolved by the unregistered articles of copartnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956
(Exhibit "C") and accordingly, the terms and stipulations of said registered Articles of Co-Partnership
(Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal of Agustin
Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE
(Exhibit "A") continues to govern the relations between them and it was legal error to consider a de facto
partnership between said two partners or a partnership at will. Hence, the letter of appellee Maglana dated
February 23, 1961, did not legally dissolve the registered partnership between them, being in
contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership
(Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and to
the sharing profits between them of "share and share alike" as stipulated in the registered Articles of CoPartnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears
evident that it was not the intention of the partners to dissolve the first partnership, upon the constitution
of the second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for
Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an
equal share in the profits and fixed the term of the second partnership to thirty (30) years, everything else
was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both
partnerships call for the same amounts. Just as important is the fact that all subsequent renewals of
Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all intents
and purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary
Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5).
Otherwise stated, even during the existence of the second partnership, all business transactions were
carried out under the duly registered articles. As found by the trial court, it is an admitted fact that even
up to now, there are still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No
rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which
was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent.
Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and
Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang
and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by
Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding
the latter of his obligation to contribute either in cash or in equipment, to the capital investment of the
partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot
refer to any other but to the provisions of the duly registered Articles of Co-Partnership. As earlier stated,
Rojas replied that he will not be able to comply with the promised contributions and he will not work as
logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was
referring to and left no room for doubt that both considered themselves governed by the articles of the
duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can
neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an
existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar,
the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in
effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of

members is decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership
shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished
by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 19561961 are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only
P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision,
R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute a sum of money
fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute
(Article 1786, Civil Code) and for interests and damages from the time he should have complied with his
obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a
contract of partnership, each partner must share in the profits and losses of the venture. That is the
essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous
reports which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in
the amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual
capital contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which
is unquestionably a continuation of the duly registered partnership and the sharing of profits and losses
which should be on the basis of share and share alike as provided for in the duly registered Articles of CoPartnership, no plausible reason could be found to disturb the findings and conclusions of the trial court.
: nad

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise,
the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in equipment to the capital investment and to perform
his duties as logging superintendent, as stipulated in their partnership agreement. The records also show
that Rojas not only abandoned the partnership but also took funds in an amount more than his
contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is
hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises
continued to exist until liquidated and that the sharing basis of the partners should be on share and share
alike as provided for in its Articles of Partnership, in accordance with the computation of the
commissioners. We also hereby AFFIRM the decision of the trial court in all other respects.
: nad

SO ORDERED.

2. Profits and Losses (Articles 1797-1799)

[G.R. No. 149844. October 13, 2004]

MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner,

vs. CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.
DECISION
PANGANIBAN, J.:

Inasmuch as the facts indubitably and eloquently show an implied trust in favor of
respondent, the Court of Appeals did not err in affirming the Decision of the Regional Trial
Court ordering petitioner to convey the subject property to her. That Decision satisfied the
demands of justice and prevented unjust enrichment.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, challenging the
August 22, 2001 Decision of the Court of Appeals (CA) in CA-GR CV No. 54852. The
assailed Decision disposed as follows:
[1]

[2]

WHEREFORE, the decision appealed from is AFFIRMED.

[3]

On the other hand, the Regional Trial Court (RTC) Decision affirmed by the CA
disposed as follows:
WHEREFORE, considering that this action is essentially one for reconveyance or enforcement of a
trust, judgment is hereby rendered ordering the substituted defendant Marietta Cuenco Cuyegkeng
to reconvey or transfer, in a duly registrable public instrument, Lot No 903-A-6 under TCT No.
113781 of the Registry of Deeds of Cebu City, of the Banilad Estate with an area of 834 square
meters, in favor of plaintiff Concepcion Cuenco Vda. De Manguerra; or should the substituted
defendant, for one reason or another, fail to execute the necessary instrument once the decision
becomes final, the Clerk of Court of this Court (RTC) is hereby instructed, in accordance with the
Rules of Court, to prepare and execute the appropriate and requisite conveyance and instrument in
favor of herein plaintiff which, in either case, shall be registered with the Office of the Register of
Deeds of Cebu City.
Without costs in this instance.

[4]

The Facts
The facts were summarized by the appellate court as follows:
On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific
performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father,
the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed the Cuenco
and Cuenco Law Offices; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices
served as lawyers in two (2) cases entitled Valeriano Solon versus Zoilo Solon (Civil Case 9037)
and Valeriano Solon versus Apolonia Solon (Civil Case 9040) involving a dispute among relatives
over ownership of lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that
records of said cases indicate the name of the [petitioner] alone as counsel of record, but in truth
and in fact, the real lawyer behind the success of said cases was the influential Don Mariano Jesus

Cuenco; that after winning said cases, the awardees of Lot 903 subdivided said lot into three (3)
parts as follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuencos attorneys fees
Lot 903-B: 5,000 [square meters]: Miguel Cuencos attorneys fees
Lot 903-C: 54,000 [square meters]: Solons retention
That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was actively
practicing law in Manila, and so he entrusted his share (Lot 903-A) to his brother law partner (the
[petitioner]); that on September 10, 1938, the [petitioner] was able to obtain in his own name a title
for Lot 903-A (Transfer Certificate of Title [TCT] RT-6999 [T-21108]); that he was under the
obligation to hold the title in trust for his brother Marianos children by first marriage; that
sometime in 1947, the Cuenco family was anticipating Marianos second marriage, and so on
February 1, 1947, they partitioned Lot 903-A into six (6) sub-lots (Lots 903-A-1 to 903-A-6) to
correspond to the six (6) children of Marianos first marriage (Teresita, Manuel, Lourdes, Carmen,
Consuelo, and Concepcion); that the [petitioner] did not object nor oppose the partition plan; that
on June 4, 1947, the [petitioner] executed four (4) deeds of donation in favor of Marianos four (4)
children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the partition plan (per notary
documents 183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary Public Candido
Vasquez); that on June 24, 1947, the [petitioner] executed the fifth deed of donation in favor of
Marianos fifth child Consuelo (per notary document 214, Book III, Series 1947 of Cebu City
Notary Public Candido Vasquez) (Exhibits 2 to 5); that said five (5) deeds of donation left out
Marianos sixth child Concepcion who later became the [respondent] in this case; that in 1949,
[respondent] occupied and fenced a portion of Lot 903-A-6 for taxation purposes (Exhibit F,
Exhibit 6); that she also paid the taxes thereon (Exhibit G); that her father died on February 25,
1964 with a Last Will and Testament; that the pertinent portion of her fathers Last Will and
Testament bequeaths the lot.
near the Cebu provincial capitol, which were my attorneys fees from my clients, Victoria Rallos
and Zoilo Solon, respectively have already long been disposed of, and distributed by me, through
my brother, Miguel, to all my said children in the first marriage;
That on June 3, 1966, the [petitioner] wrote a letter petitioning the Register of Deeds of Cebu to
transfer Lot 903-A-6 to his name on the ground that Lot 903-A-6 is a portion of Lot 903-A; that on
April 6, 1967, the [respondent] requested the Register of Deeds to annotate an affidavit of adverse
claim against the [petitioners] TCT RT-6999 (T-21108) which covers Lot 903-A; that on June 3,
1967, the Register of Deeds issued TCT 35275 covering Lot 903-A-6 in the name of the [petitioner]
but carrying the earlier annotation of adverse claim; that in 1969, the [petitioner] tore down the

wire fence which the [respondent] constructed on Lot 903-A-6 which compelled the latter to
institute the instant complaint dated August 20, 1970 on September 19, 1970.
On December 5, 1970, the answer with counterclaim dated December 3, 1970 of [petitioner]
Miguel Cuenco was filed where he alleged that he was the absolute owner of Lot 903-A-6; that this
lot was a portion of Lot 903-A which in turn was part of Lot 903 which was the subject matter of
litigation; that he was alone in defending the cases involving Lot 903 without the participation of
his brother Mariano Cuenco; that he donated five (5) of the six (6) portions of Lot 903-A to the five
(5) children of his brother Mariano out of gratitude for the love and care they exhibited to him
(Miguel) during the time of his long sickness; that he did not give or donate any portion of the lot to
the [respondent] because she never visited him nor took care of him during his long sickness; that
he became critically ill on February 11, 1946 and was confined at the Singians Clinic in Manila and
then transferred to Cebu where he nearly died in 1946; that his wife Fara Remia Ledesma Cuenco
had an operation on January 1951 and was confined at the University of Santo Tomas Hospital and
John Hopkins Hospital in the United States; that two of his children died at the University of Santo
Tomas Hospital in 1951 and 1952; and that his wife was blind for many months due to malignant
hypertension but [respondent] never remembered her nor did she commiserate with him and his
wife in their long period of sorrow.
[Petitioner] Miguel Cuenco took the witness stand as early as September 13, 1974. His selfconducted direct examination lasted until 1985, the last one on November 22, 1985. Unfortunately,
he died before he was able to submit himself for cross-examination and so his testimony had to be
stricken off the record. His only surviving daughter, Marietta Cuyegkeng, stood as the substitute
[petitioner] in this case. She testified that she purchased Lot 903-A-6 (the property subject matter of
this case) from her late father sometime in 1990 and constructed a house thereon in the same year;
that she became aware of this case because her late father used to commute to Cebu City to attend
to this case; and that Lot 903-A-6 is in her name per Transfer Certificate of Title #113781 of the
Registry of Deeds for Cebu.
[5]

[6]

Ruling of the Court of Appeals

The CA found respondents action not barred by res judicata, because there was no
identity of causes of action between the Petition for cancellation of adverse claim in L.R.C.
Records 5988 and the Complaint for specific performance to resolve the issue of
ownership in Civil Case No. R-11891.
The appellate court further found no reason to disturb the findings of the trial court that
respondent has the legal right of ownership over lot 903-A-6. The CA ruled that the subject
land is part of the attorneys fees of Don Mariano Cuenco, predecessor-in-interest of
[Respondent] Concepcion Cuenco vda. de Manguerra and [petitioner] merely holds such
property in trust for [her], his title there[to] notwithstanding.

Finally, the CA held that the right of action of respondent has not yet prescribed as she
was in possession of the lot in dispute and the prescriptive period to file the case
commences to run only from the time she acquired knowledge of an adverse claim over
[her] possession.
Hence, this Petition.

[7]

The Issues
In her Memorandum, petitioner raises the following issues for our consideration:
I.

On question of law, the Court of Appeals failed to consider facts of substance and significance
which, if considered, will show that the preponderance of evidence is in favor of the petitioner.
II.

On question of law, the Court of Appeals failed to appreciate the proposition that, contrary to
the position taken by the trial court, no constructive or implied trust exists between the parties,
and neither is the action one for reconveyance based upon a constructive or implied trust.
III.

On question of law, the Court of Appeals erred in not finding that even where implied trust is
admitted to exist the respondents action for relief is barred by laches and prescription.
IV.

On question of law, the trial court and the appellate court erred in expunging from the records
the testimony of Miguel Cuenco.
[8]

This Courts Ruling

The Petition has no merit.
First Issue:
Evaluation of Evidence
Petitioner asks us to appreciate and weigh the evidence offered in support of the
finding that Lot 903-A-6 constituted a part of Mariano Cuencos share in the attorneys fees.
In other words, she seeks to involve us in a reevaluation of the veracity and probative
value of the evidence submitted to the lower court. What she wants us to do is contrary to

the dictates of Rule 45 that only questions of law may be raised and resolved in a petition
for review. Absent any whimsical or capricious exercise of judgment, and unless the lack
of any basis for the conclusions made by the lower courts be amply demonstrated, the
Supreme Court will not disturb such factual findings.
[9]

As a rule, findings of fact of the Court of Appeals affirming those of the trial court are
binding and conclusive. Normally, such factual findings are not disturbed by this Court, to
which only questions of law may be raised in an appeal by certiorari. This Court has
consistently ruled that these questions must involve no examination of the probative value
of the evidence presented by the litigants or any of them. Emphasizing the difference
between the two types of question, it has explained that there is a question of law in a
given case when the doubt or difference arises as to what the law is pertaining to a certain
state of facts, and there is a question of fact when the doubt arises as the truth or the
falsity of alleged facts.
[10]

[11]

[12]

Indeed, after going over the records of the present case, we are not inclined to disturb
the factual findings of the trial and the appellate courts, just because of the insistent claim
of petitioner. His witnesses allegedly testified that Civil Case No. 9040 involving Lot 903
had not been handled by Mariano for defendants therein -- Apolonia Solon, Zoilo Solon, et
al. It has sufficiently been proven, however, that these defendants were represented by
the Cuenco and Cuenco Law Office, composed of Partners Mariano Cuenco and Miguel
Cuenco.
Given as attorneys fees was one hectare of Lot 903, of which two five-thousand
square meter portions were identified as Lot 903-A and Lot 903-B. That only Miguel
handled Civil Case No. 9040 does not mean that he alone is entitled to the attorneys fees
in the said cases. When a client employs the services of a law firm, he does not employ
the services of the lawyer who is assigned to personally handle the case. Rather, he
employs the entire law firm. Being a partner in the law firm, Mariano -- like Miguel -- was
likewise entitled to a share in the attorneys fees from the firms clients. Hence, the lower
courts finding that Lot 903-A was a part of Mariano Cuencos attorneys fees has ample
support.
[13]

[14]

Second Issue:
Implied Trust
Petitioner then contends that no constructive or implied trust exists between the
parties.

A trust is a legal relationship between one having an equitable ownership in a property

and another having legal title to it.
[15]

Trust relations between parties may either be express or implied. Express trusts are
created by the direct and positive acts of the parties, indicated through some writing,
deed, will, or words evidencing an intention to create a trust. On the other hand, implied
trusts are those that, without being express, are deducible from the nature of the
transaction as matters of intent[;] or which are superinduced on the transaction by
operation of law as a matter of equity, independently of the particular intention of the
parties. Implied trusts may either be resulting or constructive trusts, both coming into
being by operation of law.
[16]

[17]

[18]

Resulting trusts are presumed to have been contemplated by the parties and are
based on the equitable doctrine that valuable consideration, not legal title, determines the
equitable title or interest. These trusts arise from the nature of or the circumstances
involved in a transaction, whereby legal title becomes vested in one person, who is
obligated in equity to hold that title for the benefit of another.
[19]

[20]

Constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention against
one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold.
[21]

A review of the records shows that indeed there is an implied trust between the
parties.
Although Lot 903-A was titled in Miguels name, the circumstances surrounding the
acquisition and the subsequent partial dispositions of this property eloquently speak of the
intent that the equitable or beneficial ownership of the property should belong to Mariano
and his heirs.
First, Lot 903-A was one half of the one-hectare portion of Lot 903 given as attorneys
fees by a client of the law firm of Partners Miguel and Mariano Cuenco. It constituted the
latters share in the attorneys fees and thus equitably belonged to him, as correctly found
by the CA. That Lot 903-A had been titled in the name of Miguel gave rise to an implied
trust between him and Mariano, specifically, the former holds the property in trust for the
latter. In the present case, it is of no moment that the implied trust arose from the
circumstance -- a share in the attorneys fees -- that does not categorically fall under
Articles 1448 to 1456 of the Civil Code. The cases of implied trust enumerated therein
does not exclude others established by the general law of trust.
[22]

Second, from the time it was titled in his name in 1938, Lot 903-A remained undivided
and untouched by Miguel. Only on February 3, 1947, did Lourdes Cuenco, upon the
instruction of Mariano, have it surveyed and subdivided into six almost equal portions -903-A-1 to 903-A-6. Each portion was specifically allocated to each of the six children of
Mariano with his first wife.
[23]

[24]

[25]

[26]

Third, Miguel readily surrendered his Certificate of Title and interposed no

objection to the subdivision and the allocation of the property to Marianos six children,
including Concepcion.
[27]

[28]

Fourth, Marianos children, including Concepcion, were the ones who shouldered the
expenses incurred for the subdivision of the property.
[29]

Fifth, after the subdivision of the property, Marianos children -- including

Concepcion -- took possession of their respective portions thereof.
[30]

Sixth, the legal titles to five portions of the property were transferred via
a gratuitous deed of conveyance to Marianos five children, following the allocations
specified in the subdivision plan prepared for Lourdes Cuenco.
[31]

With respect to Lot 903-A-6 in particular, the existence of Concepcions equitable

ownership thereof is bolstered, not just by the above circumstances, but also by the fact
that respondent fenced the portion allocated to her and planted trees thereon.
[32]

More significantly, she also paid real property taxes on Lot 903-A-6 yearly, from 1956
until 1969 -- the year when she was dispossessed of the property. Although tax
declarations or realty tax payments of property are not conclusive evidence of ownership,
nevertheless, they are good indicia of possession in the concept of owner, for no one in
his right mind would be paying taxes for a property that is not in his actual or at least
constructive possession. Such realty tax payments constitute proof that the holder has a
claim of title over the property.
[33]

[34]

Tellingly, Miguel started paying real property taxes on Lot 903-A-6 only on April 4,
1964, after the death of Mariano. This fact shows that it was only in that year that he
was emboldened to claim the property as his own and to stop recognizing Marianos, and
subsequently Concepcions, ownership rights over it. It was only by then that the one who
could have easily refuted his claim had already been silenced by death. Such a situation
cannot be permitted to arise, as will be explained below.
[35]

Estoppel

[36]

From the time Lot 903-A was subdivided and Marianos six children -- including
Concepcion -- took possession as owners of their respective portions, no whimper of
protest from petitioner was heard until 1963. By his acts as well as by his omissions,
Miguel led Mariano and the latters heirs, including Concepcion, to believe that Petitioner
Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano
acted and relied on Miguels tacit recognition of his ownership thereof is evident from his
will, executed in 1963, which states:
I hereby make it known and declare that x x x all properties which my first wife and I had brought
to, or acquired during our marriage, or which I had acquired during the years I was a widower
including jewelry, war damage compensation, and two other lots also located at Cebu City, one near
the South-Western University and the other near the Cebu provincial capitol, which were my
attorneys fees from my clients, Victoria Rallos and Zoilo Solon, respectively have already long
been disposed of, and distributed by me, through my brother, Miguel, to all my said six
children in the first marriage. (emphasis supplied)
[37]

Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -situated along Juana Osmea Extension, Kamputhaw, Cebu City, near the Cebu
Provincial Capitol -- had been subdivided and distributed to his six children in his first
marriage. Having induced him and his heirs to believe that Lot 903-A-6 had already been
distributed to Concepcion as her own, petitioner is estopped from asserting the contrary
and claiming ownership thereof.
[38]

The principle of estoppel in pais applies when -- by ones acts, representations,

admissions, or silence when there is a need to speak out -- one, intentionally or through
culpable negligence, induces another to believe certain facts to exist; and the latter
rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to
deny the existence of those facts.
[39]

Third Issue:
Laches
Petitioner claims that respondents action is already barred by laches.
We are not persuaded. Laches is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to it has either
abandoned or declined to assert it. In the present case, respondent has persistently
asserted her right to Lot 903-A-6 against petitioner.
[40]

Concepcion was in possession as owner of the property from 1949 to 1969. When
Miguel took steps to have it separately titled in his name, despite the fact that she had the
[41]

owners duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she
had her adverse claim annotated on the title in 1967. When petitioner ousted her from her
possession of the lot by tearing down her wire fence in 1969, she commenced the
present action on September 19, 1970, to protect and assert her rights to the property.
We find that she cannot be held guilty of laches, as she did not sleep on her rights.
[42]

[43]

Fourth Issue:
Expunging of Testimony
Petitioner Cuyegkeng questions the expunging of the direct testimony of Miguel
Cuenco. Respondent points out that this issue was not raised before the CA. Neither had
petitioner asked the trial court to reconsider its Order expunging the testimony. Hence, this
issue cannot for the first time be raised at this point of the appeal. Issues, arguments and
errors not adequately and seriously brought below cannot be raised for the first time on
appeal. Basic considerations of due process impel this rule.
[44]

[45]

WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.

SEE - Marjorie Tocao, et al. vs. Court of Appeals, et al

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 85494

May 7, 1991

CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI and MOTI G. RAMNANI, petitioners,
vs.
COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA JETHMAL RAMNANI and OVERSEAS HOLDING CO., LTD., respondents.
G.R. No. 85496

May 7, 1991

SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET RAMNANI, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD. PARTNERSHIP, and OVERSEAS HOLDING CO., LTD., respondents.
Quasha, Asperilla Ancheta, Pea and Nolasco for petitioners Ishwar Jethmal Ramnani & Sonya Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram Jethmal Ramnani, Nirmla Ramnani & Moti Ramnani.
Rama Law Office for private respondents in collaboration with Salonga, Andres, Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.

GANCAYCO, J.:

This case involves the bitter quarrel of two brothers over two (2) parcels of land and its improvements now worth a fortune. The bone of contention is the
apparently conflicting factual findings of the trial court and the appellate court, the resolution of which will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full blood. Ishwar and his spouse Sonya had their main business based in
New York. Realizing the difficulty of managing their investments in the Philippines they executed a general power of attorney on January 24, 1966 appointing
Navalrai and Choithram as attorneys-in-fact, empowering them to manage and conduct their business concern in the Philippines.
1

On February 1, 1966 and on May 16, 1966, Choithram, in his capacity as aforesaid attorney-in-fact of Ishwar, entered into two agreements for the purchase of two
parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd. Partnership (Ortigas for short) with a total area of approximately 10,048 square
meters. Per agreement, Choithram paid the down payment and installments on the lot with his personal checks. A building was constructed thereon by Choithram
in 1966 and this was occupied and rented by Jethmal Industries and a wardrobe shop called Eppie's Creation. Three other buildings were built thereon by
Choithram through a loan of P100,000.00 obtained from the Merchants Bank as well as the income derived from the first building. The buildings were leased out
by Choithram as attorney-in-fact of Ishwar. Two of these buildings were later burned.
2

Sometime in 1970 Ishwar asked Choithram to account for the income and expenses relative to these properties during the period 1967 to 1970. Choithram failed
and refused to render such accounting. As a consequence, on February 4, 1971, Ishwar revoked the general power of attorney. Choithram and Ortigas were duly
notified of such revocation on April 1, 1971 and May 24, 1971, respectively. Said notice was also registered with the Securities and Exchange Commission on
March 29, 1971 and was published in the April 2, 1971 issue of The Manila Times for the information of the general public.
3

Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all rights and interests of Ishwar and Sonya in favor of his daughter-in-law, Nirmla
Ramnani, on February 19, 1973. Her husband is Moti, son of Choithram. Upon complete payment of the lots, Ortigas executed the corresponding deeds of sale in
favor of Nirmla. Transfer Certificates of Title Nos. 403150 and 403152 of the Register of Deeds of Rizal were issued in her favor.
6

Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed a complaint in the Court of First Instance of Rizal against Choithram and/or spouses
Nirmla and Moti (Choithram et al. for brevity) and Ortigas for reconveyance of said properties or payment of its value and damages. An amended complaint for
damages was thereafter filed by said spouses.
After the issues were joined and the trial on the merits, a decision was rendered by the trial court on December 3, 1985 dismissing the complaint and counterclaim.
A motion for reconsideration thereof filed by spouses Ishwar was denied on March 3, 1986.
An appeal therefrom was interposed by spouses Ishwar to the Court of Appeals wherein in due course a decision was promulgated on March 14, 1988, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered reversing and setting aside the appealed decision of the lower court dated December 3, 1985 and the
Order dated March 3, 1986 which denied plaintiffs-appellants' Motion for Reconsideration from aforesaid decision. A new decision is hereby rendered
sentencing defendants- appellees Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani, and Ortigas and Company Limited Partnership to
pay, jointly and severally, plaintiffs-appellants the following:
1. Actual or compensatory damages to the extent of the fair market value of the properties in question and all improvements thereon covered by
Transfer Certificate of Title No. 403150 and Transfer Certificate of Title No. 403152 of the Registry of Deeds of Rizal, prevailing at the time of the
satisfaction of the judgment but in no case shall such damages be less than the value of said properties as appraised by Asian Appraisal, Inc. in its
Appraisal Report dated August 1985 (Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be paid for the use and occupancy of the properties in question and all improvements thereon consisting of
buildings, and to be computed as follows:
a) On Building C occupied by Eppie's Creation and Jethmal Industries from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly
rentals paid by Eppie's Creation;
b) Also on Building C above, occupied by Jethmal Industries and Lavine from 1974 to 1978, the rental incomes based on then rates
prevailing as shown under Exhibit "P"; and from 1979 to 1981, based on then prevailing rates as indicated under Exhibit "Q";
c) On Building A occupied by Transworld Knitting Mills from 1972 to 1978, the rental incomes based upon then prevailing rates shown under
Exhibit "P", and from 1979 to 1981, based on prevailing rates per Exhibit "Q";
d) On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to 1978, the rentals based on the Lease Contract, Exhibit "P", and
from 1979 to 1980, the rentals based on the Lease Contract, Exhibit "Q",
and thereafter commencing 1982, to account for and turn over the rental incomes paid or ought to be paid for the use and occupancy of the properties
and all improvements totalling 10,048 sq. m based on the rate per square meter prevailing in 1981 as indicated annually cumulative up to 1984. Then,
commencing 1985 and up to the satisfaction of the judgment, rentals shall be computed at ten percent (10%) annually of the fair market values of the
properties as appraised by the Asian Appraisal, Inc. in August 1985 (Exhibits T to T-14, inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;
5. Attorney's fees equivalent to 10% of the award herein made;

6. Legal interest on the total amount awarded computed from first demand in 1967 and until the full amount is paid and satisfied; and
7. The cost of suit.

Acting on a motion for reconsideration filed by Choithram, et al. and Ortigas, the appellate court promulgated an amended decision on October 17, 1988 granting
the motion for reconsideration of Ortigas by affirming the dismissal of the case by the lower court as against Ortigas but denying the motion for reconsideration of
Choithram, et al.
8

Choithram, et al. thereafter filed a petition for review of said judgment of the appellate court alleging the following grounds:
1. The Court of Appeals gravely abused its discretion in making a factual finding not supported by and contrary, to the evidence presented at the Trial
Court.
2. The Court of Appeals acted in excess of jurisdiction in awarding damages based on the value of the real properties in question where the cause of
action of private respondents is recovery of a sum of money.
ARGUMENTS
I
THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION IN MAKING A FACTUAL FINDING THAT PRIVATE RESPONDENT
ISHWAR REMITTED THE AMOUNT OF US $150,000.00 TO PETITIONER CHOITHRAM IN THE ABSENCE OF PROOF OF SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS
FINDINGS BASED ON THE DIRECT DOCUMENTARY AND TESTIMONIAL EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL COURT
ESTABLISHING THAT THE PROPERTIES WERE PURCHASED WITH PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT WITH MONEY
ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN AWARDING DAMAGES BASED ON THE VALUE OF THE PROPERTIES AND
THE FRUITS OF THE IMPROVEMENTS THEREON.
9

Similarly, spouses Ishwar filed a petition for review of said amended decision of the appellate court exculpating Ortigas of liability based on the following assigned
errors
I
THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR AND HAS DECIDED A QUESTION OF SUBSTANCE NOT
IN ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT
A) IN PROMULGATING THE QUESTIONED AMENDED DECISION (ANNEX "A") RELIEVING RESPONDENT ORTIGAS FROM LIABILITY
AND DISMISSING PETITIONERS' AMENDED COMPLAINT IN CIVIL CASE NO. 534-P, AS AGAINST SAID RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY RATE NO ONE EVER TESTIFIED THAT ORTIGAS WAS A SUBSCRIBER
TO THE MANILA TIMES PUBLICATION OR THAT ANY OF ITS OFFICERS READ THE NOTICE AS PUBLISHED IN THE MANILA TIMES,
THEREBY ERRONEOUSLY CONCLUDING THAT FOR RESPONDENT ORTIGAS TO BE CONSTRUCTIVELY BOUND BY THE
PUBLISHED NOTICE OF REVOCATION, ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A SUBSCRIBER AND/OR THAT ANY OF
ITS OFFICERS SHOULD READ THE NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS COULD NOT BE HELD LIABLE JOINTLY AND SEVERALLY WITH THE
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI, AS ORTIGAS RELIED ON THE WORD OF CHOITHRAM THAT
ALL ALONG HE WAS ACTING FOR AND IN BEHALF OF HIS BROTHER ISHWAR WHEN IT TRANSFERRED THE RIGHTS OF THE
LATTER TO NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED AND ADMITTED DURING THE TRIAL THAT ORTIGAS WAS PROPERLY NOTIFIED
OF THE NOTICE OF REVOCATION OF THE GENERAL POWER OF ATTORNEY GIVEN TO CHOITHRAM, EVIDENCED BY THE
PUBLICATION IN THE MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH. F) WHICH CONSTITUTES NOTICE TO THE WHOLE WORLD;
THE RECEIPT OF THE NOTICE OF SUCH REVOCATION WHICH WAS SENT TO ORTIGAS ON MAY 22, 1971 BY ATTY. MARIANO P.
MARCOS AND RECEIVED BY ORTIGAS ON MAY 24, 1971 (EXH. G) AND THE FILING OF THE NOTICE WITH THE SECURITIES AND
EXCHANGE COMMISSION ON MARCH 29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS DECISION OF 14 MARCH 1988 (ANNEX B) THAT ORTIGAS WAS DULY
NOTIFIED OF THE REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM, HENCE ORTIGAS ACTED IN BAD FAITH IN
EXECUTING THE DEED OF SALE TO THE PROPERTIES IN QUESTION IN FAVOR OF NIRMLA V. RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS REHASHED ARGUMENTS IN ITS MOTION FOR RECONSIDERATION THAT IT
WOULD NOT GAIN ONE CENTAVO MORE FROM CHOITHRAM FOR THE SALE OF SAID LOTS AND THE SUBSEQUENT TRANSFER

OF THE SAME TO THE MATTER'S DAUGHTER-IN-LAW, AND THAT IT WAS IN GOOD FAITH WHEN IT TRANSFERRED ISHWAR'S
RIGHTS TO THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED DECISION OF 17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT ORTIGAS
& CO., LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI IN SPITE
OF ITS ORIGINAL DECISION OF 14 MARCH 1988 THAT ORTIGAS WAS DULY NOTIFIED OF THE REVOCATION OF THE POWER OF ATTORNEY
OF CHOITHRAM RAMNANI.
10

The center of controversy is the testimony of Ishwar that during the latter part of 1965, he sent the amount of US $150,000.00 to Choithram in two bank drafts of
US$65,000.00 and US$85,000.00 for the purpose of investing the same in real estate in the Philippines. The trial court considered this lone testimony unworthy of
faith and credit. On the other hand, the appellate court found that the trial court misapprehended the facts in complete disregard of the evidence, documentary and
testimonial.
Another crucial issue is the claim of Choithram that because he was then a British citizen, as a temporary arrangement, he arranged the purchase of the properties
in the name of Ishwar who was an American citizen and who was then qualified to purchase property in the Philippines under the then Parity Amendment. The trial
court believed this account but it was debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent US$150,000.00 to Choithram precisely to be used in the real estate business, the trial court made
the following disquisition
After a careful, considered and conscientious examination of the evidence adduced in the case at bar, plaintiff Ishwar Jethmal Ramanani's main
evidence, which centers on the alleged payment by sending through registered mail from New York two (2) US$ drafts of $85,000.00 and $65,000.00 in
the latter part of 1965 (TSN 28 Feb. 1984, p. 10-11). The sending of these moneys were before the execution of that General Power of Attorney, which
was dated in New York, on January 24, 1966. Because of these alleged remittances of US $150,000.00 and the subsequent acquisition of the
properties in question, plaintiffs averred that they constituted a trust in favor of defendant Choithram Jethmal Ramnani. This Court can be in full
agreement if the plaintiffs were only able to prove preponderantly these remittances. The entire record of this case is bereft of even a shred of proof to
that effect. It is completely barren. His uncorroborated testimony that he remitted these amounts in the "later part of 1965" does not engender enough
faith and credence. Inadequacy of details of such remittance on the two (2) US dollar drafts in such big amounts is completely not positive, credible,
probable and entirely not in accord with human experience. This is a classic situation, plaintiffs not exhibiting any commercial document or any
document and/or paper as regard to these alleged remittances. Plaintiff Ishwar Ramnani is not an ordinary businessman in the strict sense of the word.
Remember his main business is based in New York, and he should know better how to send these alleged remittances. Worst, plaintiffs did not present
even a scum of proof, that defendant Choithram Ramnani received the alleged two US dollar drafts. Significantly, he does not know even the bank
where these two (2) US dollar drafts were purchased. Indeed, plaintiff Ishwar Ramnani's lone testimony is unworthy of faith and credit and, therefore,
deserves scant consideration, and since the plaintiffs' theory is built or based on such testimony, their cause of action collapses or falls with it.
Further, the rate of exchange that time in 1966 was P4.00 to $1.00. The alleged two US dollar drafts amounted to $150,000.00 or about P600,000.00.
Assuming the cash price of the two (2) lots was only P530,000.00 (ALTHOUGH he said: "Based on my knowledge I have no evidence," when asked if
he even knows the cash price of the two lots). If he were really the true and bonafide investor and purchaser for profit as he asserted, he could have
paid the price in full in cash directly and obtained the title in his name and not thru "Contracts To Sell" in installments paying interest and thru an
attorney-in fact (TSN of May 2, 1984, pp. 10-11) and, again, plaintiff Ishwar Ramnani told this Court that he does not know whether or not his late
father-in-law borrowed the two US dollar drafts from the Swiss Bank or whether or not his late father-in-law had any debit memo from the Swiss
Bank (TSN of May 2, 1984, pp. 9-10).
11

On the other hand, the appellate court, in giving credence to the version of Ishwar, had this to say
While it is true, that generally the findings of fact of the trial court are binding upon the appellate courts, said rule admits of exceptions such as when (1)
the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inferences made is manifestly mistaken, absurd
and impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts and when the court, in
making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee (Ramos vs. Court
of Appeals, 63 SCRA 33; Philippine American Life Assurance Co. vs. Santamaria, 31 SCRA 798; Aldaba vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted under a misapprehension of facts and the inferences made on the evidence palpably a mistake.
The trial court's observation that "the entire records of the case is bereft of even a shred of proof" that plaintiff-appellants have remitted to defendantappellee Choithram Ramnani the amount of US $ 150,000.00 for investment in real estate in the Philippines, is not borne by the evidence on record and
shows the trial court's misapprehension of the facts if not a complete disregard of the evidence, both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own behalf, declared that during the latter part of 1965, he sent the amount of US
$150,000.00 to his brother Choithram in two bank drafts of US $65,000.00 and US $85,000.00 for the purpose of investing the same in real estate in the
Philippines. His testimony is as follows:
ATTY. MARAPAO:
Mr. Witness, you said that your attorney-in-fact paid in your behalf. Can you tell this Honorable Court where your attorney-in-fact got the
money to pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or hearsay.

COURT:
Witness can answer.
A I paid through my attorney-in-fact. I am the one who gave him the money.
ATTY. MARAPAO:
Q You gave him the money?
A That's right.
Q How much money did you give him?
A US $ 150,000.00.
Q How was it given then?
A Through Bank drafts. US $65,000.00 and US $85,000.00 bank drafts. The total amount which is $ 150,000.00 (TSN, 28 February 1984, p.
10; Emphasis supplied.)
xxx

xxx

xxx

ATTY. CRUZ:
Q The two bank drafts which you sent I assume you bought that from some banks in New York?
A No, sir.
Q But there is no question those two bank drafts were for the purpose of paying down payment and installment of the two parcels of land?
A Down payment, installment and to put up the building.
Q I thought you said that the buildings were constructed . . . subject to our continuing objection from rentals of first building?
ATTY. MARAPAO:
Your Honor, that is misleading.
COURT;
Witness (may) answer.
A Yes, the first building was immediately put up after the purchase of the two parcels of land that was in 1966 and the finds were used for the
construction of the building from the US $150,000.00 (TSN, 7 March 1984, page 14; Emphasis supplied.)
xxx

xxx

xxx

Q These two bank drafts which you mentioned and the use for it you sent them by registered mail, did you send them from New Your?
A That is right.
Q And the two bank drafts which were put in the registered mail, the registered mail was addressed to whom?
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).
On cross-examination, the witness reiterated the remittance of the money to his brother Choithram, which was sent to him by his father-in-law,
Rochiram L. Mulchandoni from Switzerland, a man of immense wealth, which even defendants-appellees' witness Navalrai Ramnani admits to be so
(tsn., p. 16, S. Oct. 13, 1985). Thus, on cross-examination, Ishwar testified as follows:
Q How did you receive these two bank drafts from the bank the name of which you cannot remember?
A I got it from my father-in-law.

Q From where did your father- in-law sent these two bank drafts?
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these two drafts from Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)
This positive and affirmative testimony of plaintiff-appellant that he sent the two (2) bank drafts totalling US $ 150,000.00 to his brother, is proof of said
remittance. Such positive testimony has greater probative force than defendant-appellee's denial of receipt of said bank drafts, for a witness who
testifies affirmatively that something did happen should be believed for it is unlikely that a witness will remember what never happened (Underhill's Cr.
Guidance, 5th Ed., Vol. 1, pp. 10-11).
That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani executed a General Power of Attorney (Exhibit "A") dated January 24, 1966
appointing his brothers, defendants-appellees Navalrai and Choithram as attorney-in-fact empowering the latter to conduct and manage plaintiffsappellants' business affairs in the Philippines and specifically
No. 14. To acquire, purchase for us, real estates and improvements for the purpose of real estate business anywhere in the Philippines and
to develop, subdivide, improve and to resell to buying public (individual, firm or corporation); to enter in any contract of sale in oar behalf and
to enter mortgages between the vendees and the herein grantors that may be needed to finance the real estate business being undertaken.
Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram Jethmal Ramnani entered into Agreements (Exhibits "B' and "C") with the other
defendant. Ortigas and Company, Ltd., for the purchase of two (2) parcels of land situated at Barrio Ugong, Pasig, Rizal, with said defendant-appellee
signing the Agreements in his capacity as Attorney-in-fact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven (7) years after Ishwar sent the US $ 150,000.00 in 1965, Choithram Ramnani, as attorney-in fact of Ishwar
entered into a Contract of Lease with Sigma-Mariwasa (Exhibit "P") thereby re-affirming the ownership of Ishwar over the disputed property and the
trust relationship between the latter as principal and Choithram as attorney-in-fact of Ishwar.
All of these facts indicate that if plaintiff-appellant Ishwar had not earlier sent the US $ 150,000.00 to his brother, Choithram, there would be no purpose
for him to execute a power of attorney appointing his brothers as s attorney-in-fact in buying real estate in the Philippines.
As against Choithram's denial that he did not receive the US $150,000.00 remitted by Ishwar and that the Power of Attorney, as well as the Agreements
entered into with Ortigas & Co., were only temporary arrangements, Ishwar's testimony that he did send the bank drafts to Choithram and was received
by the latter, is the more credible version since it is natural, reasonable and probable. It is in accord with the common experience, knowledge and
observation of ordinary men (Gardner vs. Wentors 18 Iowa 533). And in determining where the superior weight of the evidence on the issues involved
lies, the court may consider the probability or improbability of the testimony of the witness (Sec. 1, Rule 133, Rules of Court).
Contrary, therefore, to the trial court's sweeping observation that 'the entire records of the case is bereft of even a shred of proof that Choithram
received the alleged bank drafts amounting to US $ 150,000.00, we have not only testimonial evidence but also documentary and circumstantial
evidence proving said remittance of the money and the fiduciary relationship between the former and Ishwar.
12

The Court agrees. The environmental circumstances of this case buttress the claim of Ishwar that he did entrust the amount of US $ 150,000.00 to his brother,
Choithram, which the latter invested in the real property business subject of this litigation in his capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of Ishwar to evidence the same, but it is not unusual among brothers and close family members to
entrust money and valuables to each other without any formalities or receipt due to the special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out of frustration when Choithram failed to account for the realty business despite his demands, revoked the
general power of attorney he extended to Choithram and Navalrai. Thereafter, Choithram wrote a letter to Ishwar pleading that the power of attorney be renewed
or another authority to the same effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the case has been postponed for two weeks. The same way as it has been send before in
favor of both names. Send it immediately otherwise everything will be lost unnecessarily, and then it will take us in litigation. Now that we
have gone ahead with a case and would like to end it immediately otherwise squatters will take the entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us because we are holding the installments, because they have refused to give a rebate of P5.00 per meter which
they have to give us as per contract. They have filed the law suit that since we have not paid the installment they should get back the land.
The hearing of this case is in the month of July. Therefore, please send the power immediately. In one case DADA (Elder Brother) will
represent and in another one, I shall.

(3) In case if you do not want to give power then make one letter in favor of Dada and the other one in my favor showing that in any litigation
we can represent you and your wife, and whatever the court decide it will be acceptable by me. You can ask any lawyer, he will be able to
prepare these letters. After that you can have these letters ratify before P.I. Consulate. It should be dated April 15, 1971.
(4) Try to send the power because it will be more useful. Make it in any manner whatever way you have confident in it. But please send it
immediately.
You have cancelled the power. Therefore, you have lost your reputation everywhere. What can I further write you about it. I have told everybody that due to certain
reasons I have written you to do this that is why you have done this. This way your reputation have been kept intact. Otherwise if I want to do something about it, I
can show you that inspite of the power you have cancelled you can not do anything. You can keep this letter because my conscience is clear. I do not have
anything in my mind.
I should not be writing you this, but because my conscience is clear do you know that if I had predated papers what could you have done? Or do you know that I
have many paper signed by you and if had done anything or do then what can you do about it? It is not necessary to write further about this. It does not matter if
you have cancelled the power. At that time if I had predated and done something about it what could you have done? You do not know me. I am not after money. I
can earn money anytime. It has been ten months since I have not received a single penny for expenses from Dada (elder brother). Why there are no expenses?
We can not draw a single penny from knitting (factory). Well I am not going to write you further, nor there is any need for it. This much I am writing you because of
the way you have conducted yourself. But remember, whenever I hale the money I will not keep it myself Right now I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will discontinue because he likes to keep his business very clean.

13

The said letter was in Sindhi language. It was translated to English by the First Secretary of the Embassy of Pakistan, which translation was verified correct by the
Chairman, Department of Sindhi, University of Karachi.
14

From the foregoing letter what could be gleaned is that

1. Choithram asked for the issuance of another power of attorney in their favor so they can continue to represent Ishwar as Ortigas has sued them for
unpaid installments. It also appears therefrom that Ortigas learned of the revocation of the power of attorney so the request to issue another.
2. Choithram reassured Ishwar to have confidence in him as he was not after money, and that he was not interested in Ishwar's money.
3. To demonstrate that he can be relied upon, he said that he could have ante-dated the sales agreement of the Ortigas lots before the issuance of the
powers of attorney and acquired the same in his name, if he wanted to, but he did not do so.
4. He said he had not received a single penny for expenses from Dada (their elder brother Navalrai). Thus, confirming that if he was not given money by
Ishwar to buy the Ortigas lots, he could not have consummated the sale.
5. It is important to note that in said letter Choithram never claimed ownership of the property in question. He affirmed the fact that he bought the same
as mere agent and in behalf of Ishwar. Neither did he mention the alleged temporary arrangement whereby Ishwar, being an American citizen, shall
appear to be the buyer of the said property, but that after Choithram acquires Philippine citizenship, its ownership shall be transferred to Choithram.
This brings us to this temporary arrangement theory of Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels of land for himself in 1966 but placed it in the name of his younger brother, Ishwar, who is an
American citizen, as a temporary arrangement,' because as a British subject he is disqualified under the 1935 Constitution to acquire real property in
the Philippines, which is not so with respect to American citizens in view of the Ordinance Appended to the Constitution granting them parity
rights, there is nothing in the records showing that Ishwar ever agreed to such a temporary arrangement.
During the entire period from 1965, when the US $ 150,000. 00 was transmitted to Choithram, and until Ishwar filed a complaint against him in 1982, or
over 16 years, Choithram never mentioned of a temporary arrangement nor can he present any memorandum or writing evidencing such temporary
arrangement, prompting plaintiff-appellant to observe:
The properties in question which are located in a prime industrial site in Ugong, Pasig, Metro Manila have a present fair market value of no
less than P22,364,000.00 (Exhibits T to T-14, inclusive), and yet for such valuable pieces of property, Choithram who now belatedly that he
purchased the same for himself did not document in writing or in a memorandum the alleged temporary arrangement with Ishwar' (pp. 4-41,
Appellant's Brief).
Such verbal allegation of a temporary arrangement is simply improbable and inconsistent. It has repeatedly been held that important contracts made
without evidence are highly improbable.
The improbability of such temporary arrangement is brought to fore when we consider that Choithram has a son (Haresh Jethmal Ramnani) who is an
American citizen under whose name the properties in question could be registered, both during the time the contracts to sell were executed and at the
time absolute title over the same was to be delivered. At the time the Agreements were entered into with defendant Ortigas & Co. in 1966, Haresh, was
already 18 years old and consequently, Choithram could have executed the deeds in trust for his minor son. But, he did not do this. Three (3) years,
thereafter, or in 1968 after Haresh had attained the age of 21, Choithram should have terminated the temporary arrangement with Ishwar, which
according to him would be effective only pending the acquisition of citizenship papers. Again, he did not do anything.

Evidence to be believed, said Vice Chancellor Van Fleet of New Jersey, must not only proceed from the mouth of a credible witness, but it
must be credible in itselfsuch as the common experience and observation of mankind can approve as probable under the circumstances.
We have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience. Whatever is repugnant
to these belongs to the miraculous and is outside of judicial cognizance. (Daggers vs. Van Dyek 37 M.J. Eq. 130, 132).
Another factor that can be counted against the temporary arrangement excuse is that upon the revocation on February 4, 1971 of the Power of attorney
dated January 24, 1966 in favor of Navalrai and Choithram by Ishwar, Choithram wrote (tsn, p. 21, S. July 19, 1985) a letter dated June 25, 1971
(Exhibits R, R-1, R-2 and R-3) imploring Ishwar to execute a new power of attorney in their favor. That if he did not want to give power, then Ishwar
could make a letter in favor of Dada and another in his favor so that in any litigation involving the properties in question, both of them could represent
Ishwar and his wife. Choithram tried to convince Ishwar to issue the power of attorney in whatever manner he may want. In said letter no mention was
made at all of any temporary arrangement.
On the contrary, said letter recognize(s) the existence of principal and attorney-in-fact relationship between Ishwar and himself. Choithram wrote: . . . do
you know that if I had predated papers what could you have done? Or do you know that I have many papers signed by you and if I had done anything
or do then what can you do about it?' Choithram was saying that he could have repudiated the trust and ran away with the properties of Ishwar by
predating documents and Ishwar would be entirely helpless. He was bitter as a result of Ishwar's revocation of the power of attorney but no mention
was made of any temporary arrangement or a claim of ownership over the properties in question nor was he able to present any memorandum or
document to prove the existence of such temporary arrangement.
Choithram is also estopped in pais or by deed from claiming an interest over the properties in question adverse to that of Ishwar. Section 3(a) of Rule
131 of the Rules of Court states that whenever a party has, by his own declaration, act, or omission intentionally and deliberately led another to believe
a particular thing true and act upon such belief, he cannot in any litigation arising out of such declaration, act or omission be permitted to falsify it.' While
estoppel by deed is a bar which precludes a party to a deed and his privies from asserting as against the other and his privies any right of title in
derogation of the deed, orfrom denying the truth of any material fact asserted in it (31 C.J.S. 195; 19 Am. Jur. 603).
Thus, defendants-appellees are not permitted to repudiate their admissions and representations or to assert any right or title in derogation of the deeds
or from denying the truth of any material fact asserted in the (1) power of attorney dated January 24, 1966 (Exhibit A); (2) the Agreements of February
1, 1966 and May 16, 1966 (Exhibits B and C); and (3) the Contract of Lease dated January 5, 1972 (Exhibit P).
. . . The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to
speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been applied by court wherever and whenever special
circumstances of a case so demands' (Philippine National Bank vs. Court of Appeals, 94 SCRA 357, 368 [1979]).
It was only after the services of counsel has been obtained that Choithram alleged for the first time in his Answer that the General Power of attorney
(Annex A) with the Contracts to Sell (Annexes B and C) were made only for the sole purpose of assuring defendants' acquisition and ownership of the
lots described thereon in due time under the law; that said instruments do not reflect the true intention of the parties (par. 2, Answer dated May 30,
1983), seventeen (17) long years from the time he received the money transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by which he claimed purchasing the two (2) parcels in question in 1966 and placing them in the name
of Ishwar who is an American citizen, to circumvent the disqualification provision of aliens acquiring real properties in the Philippines under the 1935
Philippine Constitution, as Choithram was then a British subject, show a palpable disregard of the law of the land and to sustain the supposed
"temporary arrangement" with Ishwar would be sanctioning the perpetration of an illegal act and culpable violation of the Constitution.
Defendants-appellees likewise violated the Anti-Dummy Law (Commonwealth Act 108, as amended), which provides in Section 1 thereof that:
In all cases in which any constitutional or legal provision requires Philippine or any other specific citizenship as a requisite for the exercise or
enjoyment of a right, franchise or privilege, . . . any alien or foreigner profiting thereby, shall be punished . . . by imprisonment . . . and of a
fine of not less than the value of the right, franchise or privileges, which is enjoyed or acquired in violation of the provisions hereof . . .
Having come to court with unclean hands, Choithram must not be permitted foist his 'temporary arrangement' scheme as a defense before this court.
Being in delicto, he does not have any right whatsoever being shielded from his own wrong-doing, which is not so with respect to Ishwar, who was not a
party to such an arrangement.
The falsity of Choithram's defense is further aggravated by the material inconsistencies and contradictions in his testimony. While on January 23, 1985
he testified that he purchased the land in question on his own behalf (tsn, p. 4, S. Jan. 23, 1985), in the July 18, 1985 hearing, forgetting probably what
he stated before, Choithram testified that he was only an attorney-in-fact of Ishwar (tsn, p. 5, S. July 18, 1985). Also in the hearing of January 23, 1985,
Choithram declared that nobody rented the building that was constructed on the parcels of land in question (tsn, pp. 5 and 6), only to admit in the
hearing of October 30, 1985, that he was in fact renting the building for P12,000. 00 per annum (tsn, p. 3). Again, in the hearing of July 19, 1985,
Choithram testified that he had no knowledge of the revocation of the Power of Attorney (tsn, pp. 20- 21), only to backtrack when confronted with the
letter of June 25, 1971 (Exhibits R to R-3), which he admitted to be in "his own writing," indicating knowledge of the revocation of the Power of Attorney.
These inconsistencies are not minor but go into the entire credibility of the testimony of Choithram and the rule is that contradictions on a very crucial
point by a witness, renders s testimony incredible People vs. Rafallo, 80 Phil. 22). Not only this the doctrine of falsus in uno, falsus in omnibus is fully
applicable as far as the testimony of Choithram is concerned. The cardinal rule, which has served in all ages, and has been applied to all conditions of
men, is that a witness willfully falsifying the truth in one particular, when upon oath, ought never to be believed upon the strength of his own testimony,
whatever he may assert (U.S. vs. Osgood 27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for what ground of judicial relief can
there be left when the party has shown such gross insensibility to the difference between right and wrong, between truth and falsehood? (The Santisima
Trinidad, 7 Wheat, 283, 5 U.S. [L. ed.] 454).
True, that Choithram's testimony finds corroboration from the testimony of his brother, Navalrai, but the same would not be of much help to Choithram.
Not only is Navalrai an interested and biased witness, having admitted his close relationship with Choithram and that whenever he or Choithram had
problems, they ran to each other (tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a pecuniary interest in the success of Choithram in the case in
question. Both he and Choithram are business partners in Jethmal and Sons and/or Jethmal Industries, wherein he owns 60% of the company and

Choithram, 40% (p. 62, Appellant's Brief). Since the acquisition of the properties in question in 1966, Navalrai was occupying 1,200 square meters
thereof as a factory site plus the fact that his son (Navalrais) was occupying the apartment on top of the factory with his family rent free except the
amount of P l,000.00 a month to pay for taxes on said properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent contradictions also marked Navalrai testimony. "While the latter was very meticulous in keeping a receipt for the P 10,000.00 that he paid
Ishwar as settlement in Jethmal Industries, yet in the alleged payment of P 100,000.00 to Ishwar, no receipt or voucher was ever issued by him (tsn, p.
17, S. Oct. 3, 1983).
15

We concur.
The foregoing findings of facts of the Court of Appeals which are supported by the evidence is conclusive on this Court. The Court finds that Ishwar entrusted
US$150,000.00 to Choithram in 1965 for investment in the realty business. Soon thereafter, a general power of attorney was executed by Ishwar in favor of both
Navalrai and Choithram. If it is true that the purpose only is to enable Choithram to purchase realty temporarily in the name of Ishwar, why the inclusion of their
elder brother Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two parcels of land located in Barrio Ugong Pasig, Rizal, from Ortigas in 1966. With the balance of
the money of Ishwar, Choithram erected a building on said lot. Subsequently, with a loan obtained from a bank and the income of the said property, Choithram
constructed three other buildings thereon. He managed the business and collected the rentals. Due to their relationship of confidence it was only in 1970 when
Ishwar demanded for an accounting from Choithram. And even as Ishwar revoked the general power of attorney on February 4, 1971, of which Choithram was
duly notified, Choithram wrote to Ishwar on June 25, 1971 requesting that he execute a new power of attorney in their favor. When Ishwar did not respond
thereto, Choithram nevertheless proceeded as such attorney-in-fact to assign all the rights and interest of Ishwar to his daughter-in-law Nirmla in 1973 without the
knowledge and consent of Ishwar. Ortigas in turn executed the corresponding deeds of sale in favor of Nirmla after full payment of the purchase accomplice of the
lots.
16

In the prefatory statement of their petition, Choithram pictured Ishwar to be so motivated by greed and ungratefulness, who squandered the family business in New
York, who had to turn to his wife for support, accustomed to living in ostentation and who resorted to blackmail in filing several criminal and civil suits against them.
These statements find no support and should be stricken from the records. Indeed, they are irrelevant to the proceeding.
Moreover, assuming Ishwar is of such a low character as Choithram proposes to make this Court to believe, why is it that of all persons, under his temporary
arrangement theory, Choithram opted to entrust the purchase of valuable real estate and built four buildings thereon all in the name of Ishwar? Is it not an
unconscious emergence of the truth that this otherwise wayward brother of theirs was on the contrary able to raise enough capital through the generosity of his
father-in-law for the purchase of the very properties in question? As the appellate court aptly observed if truly this temporary arrangement story is the only
motivation, why Ishwar of all people? Why not the own son of Choithram, Haresh who is also an American citizen and who was already 18 years old at the time of
purchase in 1966? The Court agrees with the observation that this theory is an afterthought which surfaced only when Choithram, Nirmla and Moti filed their
answer.
When Ishwar asked for an accounting in 1970 and revoked the general power of attorney in 1971, Choithram had a total change of heart. He decided to claim the
property as his. He caused the transfer of the rights and interest of Ishwar to Nirmla. On his representation, Ortigas executed the deeds of sale of the properties in
favor of Nirmla. Choithram obviously surmised Ishwar cannot stake a valid claim over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by Choithram, was intended only to place the property in her name until Choithram acquires Philippine
citizenship. What appears certain is that it appears to be a scheme of Choithram to place the property beyond the reach of Ishwar should he successfully claim
the same. Thus, it must be struck down.
17

Worse still, on September 27, 1990 spouses Ishwar filed an urgent motion for the issuance of a writ of preliminary attachment and to require Choithram, et al. to
submit certain documents, inviting the attention of this Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in General Garments Corporation in favor of his children on December 29, 1989;

18

b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex (Phils.), Inc., in favor of his children; and
19

c) Mortgage on June 20, 1989 by Nirmla through her attorney-in-fact, Choithram, of the properties subject of this litigation, for the amount of $3 Million in
favor of Overseas Holding, Co. Ltd., (Overseas for brevity), a corporation which appears to be organized and existing under and by virtue of the laws of
Cayman Islands, with a capital of only $100.00 divided into 100 shares of $1.00 each, and with address at P.O. Box 1790, Grand Cayman, Cayman
Islands.
20

An opposition thereto was filed by Choithram, et al. but no documents were produced. A manifestation and reply to the opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent attempts to remove these properties to the detriment of spouses Ishwar should the latter prevail in this
litigation.
On December 10, 1990 the court issued a resolution that substantially reads as follows:
Considering the allegations of petitioners Ishwar Jethmal Ramnani and Sonya Ramnani that respondents Choithram Jethmal Ramnani, Nirmla Ramnani
and Moti G. Ramnani have fraudulently executed a simulated mortgage of the properties subject of this litigation dated June 20, 1989, in favor of
Overseas Holding Co., Ltd. which appears to be a corporation organized in Cayman Islands, for the amount of $ 3,000,000.00, which is much more
than the value of the properties in litigation; that said alleged mortgagee appears to be a "shell" corporation with a capital of only $100.00; and that this
alleged transaction appears to be intended to defraud petitioners Ishwar and Sonya Jethmal Ramnani of any favorable judgment that this Court may
render in this case;
Wherefore the Court Resolved to issue a writ of preliminary injunction enjoining and prohibiting said respondents Choithram Jethmal Ramnani, Nirmla
V. Ramnani, Moti G. Ramnani and the Overseas Holding Co., Ltd. from encumbering, selling or otherwise disposing of the properties and improvements
subject of this litigation until further orders of the Court. Petitioners Ishwar and Sonya Jethmal Ramnani are hereby required to post a bond of P

100,000.00 to answer for any damages d respondents may suffer by way of this injunction if the Court finally decides the said petitioners are not entitled
thereto.
The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand Cayman, Cayman Islands, is hereby IMPLEADED as a respondent in these
cases, and is hereby required to SUBMIT its comment on the Urgent Motion for the Issuance of a Writ of Preliminary Attachment and Motion for
Production of Documents, the Manifestation and the Reply to the Opposition filed by said petitioners, within Sixty (60) days after service by publication
on it in accordance with the provisions of Section 17, Rule 14 of the Rules of Court, at the expense of petitioners Ishwar and Sonya Jethmal Ramnani.
Let copies of this resolution be served on the Register of Deeds of Pasig, Rizal, and the Provincial Assessor of Pasig, Rizal, both in Metro Manila, for its
annotation on the transfer Certificates of Titles Nos. 403150 and 403152 registered in the name of respondent Nirmla V. Ramnani, and on the tax
declarations of the said properties and its improvements subject of this litigation.
21

The required injunction bond in the amount of P 100,000.00 was filed by the spouses Ishwar which was approved by the Court. The above resolution of the Court
was published in the Manila Bulletin issue of December 17, 1990 at the expense of said spouses. On December 19, 1990 the said resolution and petition for
review with annexes in G.R. Nos. 85494 and 85496 were transmitted to respondent Overseas, Grand Cayman Islands at its address c/o Cayman Overseas Trust
Co. Ltd., through the United Parcel Services Bill of Lading and it was actually delivered to said company on January 23, 1991.
22

23

24

On January 22, 1991, Choithram, et al., filed a motion to dissolve the writ of preliminary injunction alleging that there is no basis therefor as in the amended
complaint what is sought is actual damages and not a reconveyance of the property, that there is no reason for its issuance, and that acts already executed cannot
be enjoined. They also offered to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar that there is basis for the injunction as the alleged mortgage of the property is simulated and the other
donations of the shares of Choithram to his children are fraudulent schemes to negate any judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite due notice, thus it is and must be considered to be in default and to have lost the right to contest the
representations of spouses Ishwar to declare the aforesaid alleged mortgage nun and void.
This purported mortgage of the subject properties in litigation appears to be fraudulent and simulated. The stated amount of $3 Million for which it was mortgaged
is much more than the value of the mortgaged properties and its improvements. The alleged mortgagee-company (Overseas) was organized only on June 26,1989
but the mortgage was executed much earlier, on June 20, 1989, that is six (6) days before Overseas was organized. Overseas is a "shelf" company worth only
$100.00. In the manifestation of spouses Ishwar dated April 1, 1991, the Court was informed that this matter was brought to the attention of the Central Bank
(CB) for investigation, and that in a letter of March 20, 1991, the CB informed counsel for spouses Ishwar that said alleged foreign loan of Choithram, et al. from
Overseas has not been previously approved/registered with the CB.
25

26

Obviously, this is another ploy of Choithram, et al. to place these properties beyond the reach of spouses Ishwar should they obtain a favorable judgment in this
case. The Court finds and so declares that this alleged mortgage should be as it is hereby declared null and void.
All these contemporaneous and subsequent acts of Choithram, et al., betray the weakness of their cause so they had to take an steps, even as the case was
already pending in Court, to render ineffective any judgment that may be rendered against them.
The problem is compounded in that respondent Ortigas is caught in the web of this bitter fight. It had all the time been dealing with Choithram as attorney-in-fact of
Ishwar. However, evidence had been adduced that notice in writing had been served not only on Choithram, but also on Ortigas, of the revocation of Choithram's
power of attorney by Ishwar's lawyer, on May 24, 1971. A publication of said notice was made in the April 2, 1971 issue of The Manila Times for the information
of the general public. Such notice of revocation in a newspaper of general circulation is sufficient warning to third persons including Ortigas. A notice of
revocation was also registered with the Securities and Exchange Commission on March 29, 1 971.
27

28

29

30

Indeed in the letter of Choithram to Ishwar of June 25, 1971, Choithram was pleading that Ishwar execute another power of attorney to be shown to Ortigas who
apparently learned of the revocation of Choithram's power of attorney. Despite said notices, Ortigas nevertheless acceded to the representation of Choithram, as
alleged attorney-in-fact of Ishwar, to assign the rights of petitioner Ishwar to Nirmla. While the primary blame should be laid at the doorstep of Choithram, Ortigas is
not entirely without fault. It should have required Choithram to secure another power of attorney from Ishwar. For recklessly believing the pretension of Choithram
that his power of attorney was still good, it must, therefore, share in the latter's liability to Ishwar.
31

In the original complaint, the spouses Ishwar asked for a reconveyance of the properties and/or payment of its present value and damages. In the amended
complaint they asked, among others, for actual damages of not less than the present value of the real properties in litigation, moral and exemplary damages,
attorneys fees, costs of the suit and further prayed for "such other reliefs as may be deemed just and equitable in the premises . The amended complaint contain
the following positive allegations:
32

33

7. Defendant Choithram Ramnani, in evident bad faith and despite due notice of the revocation of the General Power of Attorney, Annex 'D" hereof,
caused the transfer of the rights over the said parcels of land to his daughter-in-law, defendant Nirmla Ramnani in connivance with defendant Ortigas &
Co., the latter having agreed to the said transfer despite receiving a letter from plaintiffs' lawyer informing them of the said revocation; copy of the letter
is hereto attached and made an integral part hereof as Annex "H";
8. Defendant Nirmla Ramnani having acquired the aforesaid property by fraud is, by force of law, considered a trustee of an implied trust for the benefit
of plaintiff and is obliged to return the same to the latter:
9. Several efforts were made to settle the matter within the family but defendants (Choithram Ramnani, Nirmla Ramnani and Moti Ramnani) refused and
up to now fail and still refuse to cooperate and respond to the same; thus, the present case;
10. In addition to having been deprived of their rights over the properties (described in par. 3 hereof), plaintiffs, by reason of defendants' fraudulent act,
suffered actual damages by way of lost rental on the property which defendants (Choithram Ramnani, Nirmla Ramnani and Moti Ramnani have
collected for themselves;
34

In said amended complaint, spouses Ishwar, among others, pray for payment of actual damages in an amount no less than the value of the properties in litigation
instead of a reconveyance as sought in the original complaint. Apparently they opted not to insist on a reconveyance as they are American citizens as alleged in
the amended complaint.
The allegations of the amended complaint above reproduced clearly spelled out that the transfer of the property to Nirmla was fraudulent and that it should be
considered to be held in trust by Nirmla for spouses Ishwar. As above-discussed, this allegation is well-taken and the transfer of the property to Nirmla should be
considered to have created an implied trust by Nirmla as trustee of the property for the benefit of spouses Ishwar.
35

The motion to dissolve the writ of preliminary injunction filed by Choithram, et al. should be denied. Its issuance by this Court is proper and warranted under the
circumstances of the case. Under Section 3(c) Rule 58 of the Rules of Court, a writ of preliminary injunction may be granted at any time after commencement of
the action and before judgment when it is established:
(c) that the defendant is doing, threatens, or is about to do, or is procuring or suffering to be done, some act probably in violation of plaintiffs's rights
respecting the subject of the action, and tending to render the judgment ineffectual.
As above extensively discussed, Choithram, et al. have committed and threaten to commit further acts of disposition of the properties in litigation as well as the
other assets of Choithram, apparently designed to render ineffective any judgment the Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction is to preserve the status quo of the things subject of the litigation and to protect the rights of the
spouses Ishwar respecting the subject of the action during the pendency of the Suit and not to obstruct the administration of justice or prejudice the adverse
party. In this case for damages, should Choithram, et al. continue to commit acts of disposition of the properties subject of the litigation, an award of damages to
spouses Ishwar would thereby be rendered ineffectual and meaningless.
36

37

38

Consequently, if only to protect the interest of spouses Ishwar, the Court hereby finds and holds that the motion for the issuance of a writ of preliminary attachment
filed by spouses Ishwar should be granted covering the properties subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the commencement of an action or at any time thereafter, the plaintiff or any proper party may have the
property of the adverse party attached as security for the satisfaction of any judgment that may be recovered, in, among others, the following cases:
(d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the obligation upon which the action is brought, or in
concealing or disposing of the property for the taking, detention or conversion of which the action is brought;
(e) In an action against a party who has removed or disposed of his property, or is about to do so, with intent to defraud his creditors; . . .
Verily, the acts of Choithram, et al. of disposing the properties subject of the litigation disclose a scheme to defraud spouses Ishwar so they may not be able to
recover at all given a judgment in their favor, the requiring the issuance of the writ of attachment in this instance.
Nevertheless, under the peculiar circumstances of this case and despite the fact that Choithram, et al., have committed acts which demonstrate their bad faith and
scheme to defraud spouses Ishwar and Sonya of their rightful share in the properties in litigation, the Court cannot ignore the fact that Choithram must have been
motivated by a strong conviction that as the industrial partner in the acquisition of said assets he has as much claim to said properties as Ishwar, the capitalist
partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of $150,000.00 for the business. They entrusted the money to Choithram to invest in a profitable
business venture in the Philippines. For this purpose they appointed Choithram as their attorney-in-fact.
1wphi1

Choithram in turn decided to invest in the real estate business. He bought the two (2) parcels of land in question from Ortigas as attorney-in-fact of Ishwar- Instead
of paying for the lots in cash, he paid in installments and used the balance of the capital entrusted to him, plus a loan, to build two buildings. Although the buildings
were burned later, Choithram was able to build two other buildings on the property. He rented them out and collected the rentals. Through the industry and genius
of Choithram, Ishwar's property was developed and improved into what it is nowa valuable asset worth millions of pesos. As of the last estimate in 1985, while
the case was pending before the trial court, the market value of the properties is no less than P22,304,000.00. It should be worth much more today.
39

We have a situation where two brothers engaged in a business venture. One furnished the capital, the other contributed his industry and talent. Justice and equity
dictate that the two share equally the fruit of their joint investment and efforts. Perhaps this Solomonic solution may pave the way towards their reconciliation. Both
would stand to gain. No one would end up the loser. After all, blood is thicker than water.
However, the Court cannot just close its eyes to the devious machinations and schemes that Choithram employed in attempting to dispose of, if not dissipate, the
properties to deprive spouses Ishwar of any possible means to recover any award the Court may grant in their favor. Since Choithram, et al. acted with evident bad
faith and malice, they should pay moral and exemplary damages as well as attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in G.R. No. 85496 is hereby given due course and GRANTED. The judgment of the
Court of Appeals dated October 18, 1988 is hereby modified as follows:
1. Dividing equally between respondents spouses Ishwar, on the one hand, and petitioner Choithram Ramnani, on the other, (in G.R. No. 85494) the two parcels of
land subject of this litigation, including all the improvements thereon, presently covered by transfer Certificates of Title Nos. 403150 and 403152 of the Registry of
Deeds, as well as the rental income of the property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and respondent Ortigas and Company, Limited Partnership (in G.R. No. 85496)
are ordered solidarily to pay in cash the value of said one-half (1/2) share in the said land and improvements pertaining to respondents spouses Ishwar and Sonya
at their fair market value at the time of the satisfaction of this judgment but in no case less than their value as appraised by the Asian Appraisal, Inc. in its Appraisal
Report dated August 1985 (Exhibits T to T-14, inclusive).

3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas & Co., Ltd. Partnership shall also be jointly and severally liable to pay to said
respondents spouses Ishwar and Sonya Ramnani one-half (1/2) of the total rental income of said properties and improvements from 1967 up to the date of
satisfaction of the judgment to be computed as follows:
a. On Building C occupied by Eppie's Creation and Jethmal Industries from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly
rentals paid by Eppie's Creation;
b. Also on Building C above, occupied by Jethmal Industries and Lavine from 1974 to 1978, the rental incomes based on then rates
prevailing as shown under Exhibit "P"; and from 1979 to 1981, based on then prevailing rates as indicated under Exhibit "Q";
c. On Building A occupied by Transworld Knitting Mills from 1972 to 1978, the rental incomes based upon then prevailing rates shown under
Exhibit "P", and from 1979 to 1981, based on prevailing rates per Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to 1978, the rentals based on the Lease Contract, Exhibit "P", and
from 1979 to 1980, the rentals based on the Lease Contract, Exhibit "Q".
and thereafter commencing 1982, to account for and turn over the rental incomes paid or ought to be paid for the use and occupancy of the properties and all
improvements totalling 10,048 sq. m., based on the rate per square meter prevailing in 1981 as indicated annually cumulative up to 1984. Then, commencing 1985
and up to the satisfaction of the judgment, rentals shall be computed at ten percent (10%) annually of the fair market values of the properties as appraised by the
Asian Appraisals, Inc. in August 1985. (Exhibits T to T-14, inclusive.)
4. To determine the market value of the properties at the time of the satisfaction of this judgment and the total rental incomes thereof, the trial court is hereby
directed to hold a hearing with deliberate dispatch for this purpose only and to have the judgment immediately executed after such determination.
5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also jointly and severally liable to pay respondents Ishwar and Sonya Ramnani the amount
of P500,000.00 as moral damages, P200,000.00 as exemplary damages and attorney's fees equal to 10% of the total award. to said respondents spouses.
6. The motion to dissolve the writ of preliminary injunction dated December 10, 1990 filed by petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, is
hereby DENIED and the said injunction is hereby made permanent. Let a writ of attachment be issued and levied against the properties and improvements subject
of this litigation to secure the payment of the above awards to spouses Ishwar and Sonya.
7. The mortgage constituted on the subject property dated June 20, 1989 by petitioners Choithram and Nirmla, both surnamed Ramnani in favor of respondent
Overseas Holding, Co. Ltd. (in G.R. No. 85496) for the amount of $3-M is hereby declared null and void. The Register of Deeds of Pasig, Rizal, is directed to
cancel the annotation of d mortgage on the titles of the properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar and Sonya Ramnani under this judgment, it shall be entitled to reimbursement from
petitioners Choithram, Nirmla and Moti, all surnamed Ramnani.
9. The above awards shag bear legal rate of interest of six percent (6%) per annum from the time this judgment becomes final until they are fully paid by
petitioners Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and Ortigas, Co., Ltd. Partnership. Said petitioners Choithram, et al. and respondent Ortigas
shall also pay the costs.
SO ORDERED.

SEE - Moran v. CA, G.R. No. L-59956, October 31, 1984

3. Management (Articles 1800-1804)

SEE Tai Tong Chuache & Co. v. Insurance Commission, G.R. No. L-55397, February 29, 1988

4. Accounting of Partnership Affairs (Articles 1805-1809)

SEE Marjorie Tocao, et al. vs. Court of Appeals, et al., G.R. No. 127405, October 4, 2000
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court
of First Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun
Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch II to recover the sum equivalent to
twenty-two percent (22%) of the annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in October, 1955. It was registered as a
single proprietorship and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced
evidence during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00
to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his contribution to the partnership. This is
evidenced by a receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto. The receipt
was written in Chinese characters so that the trial court commissioned an interpreter in the person of Ms. Florence Yap to translate its contents into English.
Florence Yap issued a certification and testified that the translation to the best of her knowledge and belief was correct. The private respondent identified the
signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private respondents') presence. Witnesses So Sia and
Antonio Ah Heng corroborated the private respondents testimony to the effect that they were both present when the receipt (Exhibit "A") was signed by the
petitioner. So Sia further testified that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his own investment in another
amount of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the trial court granting the private respondents motion for
examination of certain documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature of the petitioner appearing in the pay
envelopes of employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were indeed
the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check No.
13389470-B from the profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China Banking
Corporation testified that said check (Exhibit B) was deposited by and duly credited to the private respondents savings account with the bank after it was cleared
by the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation testified that the check in question was
in fact and in truth drawn by the petitioner and debited against his own account in said bank. This fact was clearly shown and indicated in the petitioner's statement
of account after the check (Exhibit B) was duly cleared. Rana further testified that upon clearance of the check and pursuant to normal banking procedure, said
check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit
D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To
bolster his contention that he was the sole owner of the restaurant, the petitioner presented various government licenses and permits showing the Sun Wah
Panciteria was and still is a single proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied having issued to the private respondent
the receipt (Exhibit G) and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs. Hence, the court ruled in favor of the private respondent.
The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to deliver and pay to the
former, the sum equivalent to 22% of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955, until fully paid,
and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)

The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial and, as supplement to the said motion, he requested that
the decision rendered should include the net profit of the Sun Wah Panciteria which was not specified in the decision, and allow private respondent to adduce
evidence so that the said decision will be comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff, which was granted earlier by the Court,
is hereby reiterated and the decision rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion of said
decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the defendant, ordering the latter to pay the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as
and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The questioned decision was further modified by the appellate
court. The dispositive portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of P2,000.00 a day from judicial demand to
May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant, ordering the latter to pay to the former the sum
equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and
for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the setting up and operations of the panciteria. While
the dispositive portions merely ordered the payment of the respondents share, there is no question from the factual findings that the respondent invested in the
business as a partner. Hence, the two courts declared that the private petitioner is entitled to a share of the annual profits of the restaurant. The petitioner,
however, claims that this factual finding is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended 'financial assistance' to
herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious error for the lower court and the Hon.
Intermediate Appellate Court to grant a relief not called for by the complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe
'financial assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of plaintiff in operating the defendant's
eatery known as Sun Wah Panciteria, located in the given address of defendant; as a return for such financial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos (P4,000.00), Philippine Currency, of which
copy for the receipt of such amount, duly acknowledged by the defendant is attached hereto as Annex "A", and form an integral part hereof;
(p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the petitioner with the understanding that he
would be entitled to twenty-two percent (22%) of the annual profit derived from the operation of the said panciteria. These allegations, which were proved, make
the private respondent and the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the contract

of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among
themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the appellate court's observation to the
effect that "... given its ordinary meaning, financial assistance is the giving out of money to another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was given to the petitioner does not
obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of
the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc.,
113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was whether or not the private respondent is a partner of the petitioner in the
establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground that
the alleged standards or specimens used by the PC Crime Laboratory in arriving at the conclusion were never testified to by any witness nor has any witness
identified the handwriting in the standards or specimens belonging to the petitioner. The supposed standards or specimens of handwriting were marked as Exhibits
"H" "H-1" to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures in the two receipts issued separately by the petitioner to
the private respondent and So Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of the petitioner on the various pay envelopes
(Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual examination conducted on the questioned
documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were the
signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by the private respondent for marking as exhibits, the petitioner
did not interpose any objection. Neither did the petitioner file an opposition to the motion of the private respondent to have these exhibits together with the two
receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, no explanation has been offered for his silence nor was any hint of objection
registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court gravely erred in not resolving the issue of
prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two
(22) years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are 1) two or more persons bind themselves to
contribute money, property, or industry to a common fund; and 2) intention on the part of the partners to divide the profits among themselves (Article 1767, Civil
Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by the respondent, a partner shares not only in profits but also in the losses of
the firm. If excellent relations exist among the partners at the start of business and all the partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly plausible. It would be incorrect to state that if a partner does not assert his rights anytime within
ten years from the start of operations, such rights are irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to
give him the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842 states:

The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence or any agreement to the
contrary.
Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807, and 1809 show that the right to demand an
accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of the private respondent for being excessive and unconscionable and above the claim
of private respondent as embodied in his complaint and testimonial evidence presented by said private respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the
income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you were in charge of the custody of the cashier's box, of
the money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were the one who accepted the money and you gave the
change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is the gross income of the
restaurant?
A For regular days, I received around P7,000.00 a day during my shift alone and during pay days I receive more than
P10,000.00. That is excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable Court how many times a week were there
catering services?
A Sometimes three times a month; sometimes two times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to 11:30 P.M. in the evening the
restaurant grosses an income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the cross-examination on the matter of income but he failed to comply
with his promise to produce pertinent records. When a subpoena duces tecum was issued to the petitioner for the production of their records of sale, his counsel
voluntarily offered to bring them to court. He asked for sufficient time prompting the court to cancel all hearings for January, 1981 and reset them to the later part of
the following month. The petitioner's counsel never produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily sales book. ledgers, journals and for
this purpose, employed a bookkeeper. This inspired the Court to ask counsel for the defendant to bring said records and counsel for the
defendant promised to bring those that were available. Seemingly, that was the reason why this case dragged for quite sometime. To
bemuddle the issue, defendant instead of presenting the books where the same, etc. were recorded, presented witnesses who claimed to
have supplied chicken, meat, shrimps, egg and other poultry products which, however, did not show the gross sales nor does it prove that
the same is the best evidence. This Court gave warning to the defendant's counsel that if he failed to produce the books, the same will be
considered a waiver on the part of the defendant to produce the said books inimitably showing decisive records on the income of the eatery
pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process to the petitioner.
The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant promised that he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for the defendant and the last one was on October 1, 1981 when he asked that this case
be postponed for 45 days because said defendant was then in Hongkong and he (defendant) will be back after said period. The Court acting
with great concern and understanding reset the hearing to November 17, 1981. On said date, the counsel for the defendant who again failed
to present the defendant asked for another postponement, this time to November 24, 1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a condition in the order granting the postponement to said date that if the
defendant cannot be presented, counsel is deemed to have waived the presentation of said witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-working holiday, so much so, the
hearing was reset to December 7 and 22, 1981. On December 7, 1981, on motion of defendant's counsel, the same was again reset to
December 22, 1981 as previously scheduled which hearing was understood as intransferable in character. Again on December 22, 1981, the
defendant's counsel asked for postponement on the ground that the defendant was sick. the Court, after much tolerance and judicial
magnanimity, denied said motion and ordered that the case be submitted for resolution based on the evidence on record and gave the
parties 30 days from December 23, 1981, within which to file their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket. It is near the corner of Claro M. Recto Street.
According to the trial court, it is in the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank employees, and people
from all walks of life converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the trial court and the appellate court. If the respondent court awarded damages only
from judicial demand in 1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits were being plowed back
into the expansion of the business. There is no basis in the records to sustain the petitioners contention that the damages awarded are excessive. Even if the
Court is minded to modify the factual findings of both the trial court and the appellate court, it cannot refer to any portion of the records for such modification. There
is no basis in the records for this Court to change or set aside the factual findings of the trial court and the appellate court. The petitioner was given every
opportunity to refute or rebut the respondent's submissions but, after promising to do so, it deliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation shows that the same continues until fully paid. The question
now arises as to whether or not the payment of a share of profits shall continue into the future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to
the partnership business that it is not reasonably practicable to carry on the business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution because the continuation of the partnership
has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the respondent court is AFFIRMED with a MODIFICATION that as
indicated above, the partnership of the parties is ordered dissolved.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-40098 August 29, 1975

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.

BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of First Instance of Cebu Branch III in its Civil Case No. 12328, an action for
accounting of properties and money totalling allegedly about P15 million pesos filed with a common cause of action against six defendants, in which after declaring
four of the said defendants herein petitioners, in default and while the trial as against the two defendants not declared in default was in progress, said court
granted plaintiff's motion to dismiss the case in so far as the non-defaulted defendants were concerned and thereafter proceeded to hear ex-parte the rest of the
plaintiffs evidence and subsequently rendered judgment by default against the defaulted defendants, with the particularities that notice of the motion to dismiss
was not duly served on any of the defendants, who had alleged a compulsory counterclaim against plaintiff in their joint answer, and the judgment so rendered
granted reliefs not prayed for in the complaint, and (2) prohibition to enjoin further proceedings relative to the motion for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay.
Subsequently, in an amended complaint dated September 26, 1972, their son Lim Teck Chuan and the other spouses-petitioners Alfonso Leonardo Ng Sua and Co
Oyo and their son Eng Chong Leonardo were included as defendants. In said amended complaint, respondent Tan alleged that she "is the widow of Tee Hoon Lim
Po Chuan, who was a partner in the commercial partnership, Glory Commercial Company ... with Antonio Lim Tanhu and Alfonso Ng Sua that "defendant Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company, defendants managed to use the funds of the partnership to
purchase lands and building's in the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla, some of which were hidden, but the
description of those already discovered were as follows: (list of properties) ...;" and that:

13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation continued the business of Glory Commercial Company
by purportedly organizing a corporation known as the Glory Commercial Company, Incorporated, with paid up capital in the sum of
P125,000.00, which money and other assets of the said Glory Commercial Company, Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the plaintiff has a share equivalent to one third (/ 3)

thereof;

14. (P)laintiff, on several occasions after the death of her husband, has asked defendants of the above-mentioned properties and for the
liquidation of the business of the defunct partnership, including investments on real estate in Hong Kong, but defendants kept on promising
to liquidate said properties and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim Tanhu, by means of fraud deceit and misrepresentations did then
and there, induce and convince the plaintiff to execute a quitclaim of all her rights and interests, in the assets of the partnership of Glory
Commercial Company, which is null and void, executed through fraud and without any legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim Tanhu offered to pay the plaintiff the amount
P65,000.00 within a period of one (1) month, for which plaintiff was made to sign a receipt for the amount of P65,000.00 although no such
amount was given and plaintiff was not even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid properties and assets in favor
among others of plaintiff and until the middle of the year 1970 when the plaintiff formally demanded from the defendants the accounting of
real and personal properties of the Glory Commercial Company, defendants refused and stated that they would not give the share of the
plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal properties of the Glory Commercial Company including those
registered in the names of the defendants and other persons, which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third (/ 3)

of the total value of all the properties which

is approximately P5,000,000.00 representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred Fifty Thousand Pesos (P250,000.00) by way of
attorney's fees and damages in the sum of One Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law and equity and order the defendants to pay the costs.
(Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon the ground that there were material modifications of the causes of action previously
alleged, but respondent judge nevertheless allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for the recovery of the same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the defendants to sustain their opposition will show
that the allegations of facts therein are merely to amplify material averments constituting the cause of action in the original complaint. It
likewise include necessary and indispensable defendants without whom no final determination can be had in the action and in order that
complete relief is to be accorded as between those already parties.
Considering that the amendments sought to be introduced do not change the main causes of action in the original complaint and the reliefs
demanded and to allow amendments is the rule, and to refuse them the exception and in order that the real question between the parties
may be properly and justly threshed out in a single proceeding to avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel, defendants denied specifically not only the allegation that respondent Tan is the
widow of Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin still living and with whom he had four (4) legitimate children, a twin born in
1942, and two others born in 1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and conversion quoted above, the truth being,
according to them, that proper liquidation had been regularly made of the business of the partnership and Tee Hoon used to receive his just share until his death,
as a result of which the partnership was dissolved and what corresponded to him were all given to his wife and children. To quote the pertinent portions of said
answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and further most respectfully declare:

1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue
as such, considering that the legitimate wife, namely: Ang Siok Tin, together with their children are still alive. Under Sec. 1, (d), Rule 16 of the
Revised Rules of Court, lack of legal capacity to sue is one of the grounds for a motion to dismiss and so defendants prays that a preliminary
hearing be conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case under Art. 144 of the Civil Code, then, her claim or demand has
been paid, waived abandoned or otherwise extinguished as evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is another ground
for a motion to dismiss (Sec. 1, (h), Rule 16) and hence defendants pray that a preliminary hearing be made in connection therewith
pursuant to Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed with the following children, to wit: Ching Siong Lim
and Ching Hing Lim (twins) born on February 16, 1942; Lim Shing Ping born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and
presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law wife and even though she was not
entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and generosity on the part of the defendants, particularly Antonio
Lain Tanhu, who, was inspiring to be monk and in fact he is now a monk, plaintiff was given a substantial amount evidenced by the 'quitclaim'
(Annex 'A');
5. That the defendants have acquired properties out of their own personal fund and certainly not from the funds belonging to the partnership,
just as Tee Hoon Lim Po Chuan had acquired properties out of his personal fund and which are now in the possession of the widow and
neither the defendants nor the partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from funds belonging to the partnership without the other partners knowing about it
considering that the amount taken allegedly is quite big and with such big amount withdrawn the partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would have been lawfully entitled to succeed to the
properties left by the latter together with the widow and legitimate children;
8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the shares of the late Tee Hoon Lim Po Chuan, yet,
this suit was filed against the defendant who have to interpose the following
C O U N T E R C LAI M
A. That the defendants hereby reproduced, by way of reference, all the allegations and foregoing averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife of Tee Hoon Lim Po Chuan and that the lawful and legal is still
living, together with the legitimate children, and yet she deliberately suppressed this fact, thus showing her bad faith and is therefore liable
for exemplary damages in an amount which the Honorable Court may determine in the exercise of its sound judicial discretion. In the event
that plaintiff is married to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should suffer the consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even though she was not entitled to it, and yet she falsely claimed that
defendants refused even to see her and for filing this unfounded, baseless, futile and puerile complaint, defendants suffered mental anguish
and torture conservatively estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained to engage the services of the undersigned counsel, obligating
themselves to pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this case will be before this Honorable Court and until the same will be finally
terminated and adjudicated, defendants will have to spend at least P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should be dismissed for non-payment of the corresponding filing fee, and after
being overruled by the court, in due time, plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-spouses the Lim Tanhus and Ng Suas, did not appear, for which reason,
upon motion of plaintiff dated February 16, 1973, in an order of March 12, 1973, they were all "declared in DEFAULT as of February 3, 1973 when they failed to
appear at the pre-trial." They sought to hive this order lifted thru a motion for reconsideration, but the effort failed when the court denied it. Thereafter, the trial
started, but at the stage thereof where the first witness of the plaintiff by the name of Antonio Nuez who testified that he is her adopted son, was up for re-crossexamination, said plaintiff unexpectedly filed on October 19, 1974 the following simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO

COMES now plaintiff, through her undersigned counsel, unto the Honorable Court most respectfully moves to drop from the complaint the
defendants Lim Teck Chuan and Eng Chong Leonardo and to consider the case dismissed insofar as said defendants Lim Teck Chuan and
Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court to drop from the complaint the defendants Lim Teck Chuan and Eng
Chong Leonardo and to dismiss the case against them without pronouncement as to costs. (Page 50, Record.)
which she set for hearing on December 21, 1974. According to petitioners, none of the defendants declared in default were notified of said
motion, in violation of Section 9 of Rule 13, since they had asked for the lifting of the order of default, albeit unsuccessfully, and as regards
the defendants not declared in default, the setting of the hearing of said motion on October 21, 1974 infringed the three-day requirement of
Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the motion personally only on October
19, 1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was served by registered mail sent only on the same date.
Evidently without even verifying the notices of service, just as simply as plaintiff had couched her motion, and also without any legal grounds
stated, respondent court granted the prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of the complaint as against defendants Lim Teck Chuan and Eng Chong
Leonardo.
The same is hereby GRANTED. The complaint as against defendant Lim Teck Chuan and Eng Chong Leonardo is hereby ordered
DISMISSED without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well as defendants Alfonso Ng Sua and his spouse Co Oyo
have been declared in default for failure to appear during the pre-trial and as to the other defendants the complaint had already been ordered
dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be set on November 20, 1974, at 8:30 A.M. before the Branch Clerk of Court who is
deputized for the purpose, to swear in witnesses and to submit her report within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not take place on November 20, 1974, for on October 28, 1974, upon
verbal motion of plaintiff, the court issued the following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court deputized the Branch Clerk of Court to receive the evidence
of the plaintiff ex-parte to be made on November 20, 1974. However, on October 28, 1974, the plaintiff, together with her witnesses,
appeared in court and asked, thru counsel, that she be allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in bringing her witnesses to the court, the Branch Clerk of Court is hereby
authorized to receive immediately the evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on
November 1, 1974, defendant Eng Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion for reconsideration and clarification of the same orders.
These motions were denied in an order dated December 6, 1974 but received by the movants only on December 23, 1974. Meanwhile, respondent court rendered
the impugned decision on December 20, 1974. It does not appear when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash the order of October 28, 1974. Without waiting however for the
resolution thereof, on January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals with a petition for certiorari seeking the
annulment of the above-mentioned orders of October 21, 1974 and October 28, 1974 and decision of December 20, 1974. By resolution of January 24, 1975, the
Court of Appeals dismissed said petition, holding that its filing was premature, considering that the motion to quash the order of October 28, 1974 was still
unresolved by the trial court. This holding was reiterated in the subsequent resolution of February 5, 1975 denying the motion for reconsideration of the previous
dismissal.

On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their notice of appeal, appeal bond and motion for extension to file their
record on appeal, which was granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975, for defendants Lim Tanhu and Ng Suas,
respectively. But on February 7, 1975, before the perfection of their appeal, petitioners filed the present petition with this Court. And with the evident intent to make
their procedural position clear, counsel for defendants, Atty. Manuel Zosa, filed with respondent court a manifestation dated February 14, 1975 stating that "when
the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court of Appeals, they in effect abandoned their motion to quash
the order of October 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo, filed their petition for certiorari and
prohibition ... in the Supreme Court, they likewise abandoned their motion to quash." This manifestation was acted upon by respondent court together with
plaintiffs motion for execution pending appeal in its order of the same date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of October 28, 1974 and the motion for execution pending appeal were called for
hearing today, counsel for the defendants-movants submitted their manifestation inviting the attention of this Court that by their filing for
certiorari and prohibition with preliminary injunction in the Court of Appeals which was dismissed and later the defaulted defendants filed with
the Supreme Court certiorari with prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The resolution of the motion for execution pending appeal shall be
resolved after the petition for certiorari and prohibition shall have been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in violation of the rules or with grave abuse of discretion in acting on
respondent's motion to dismiss of October 18, 1974 without previously ascertaining whether or not due notice thereof had been served on the adverse parties, as,
in fact, no such notice was timely served on the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no notice at all was ever sent to the
other defendants, herein petitioners, and more so, in actually ordering the dismissal of the case by its order of October 21, 1974 and at the same time setting the
case for further hearing as against the defaulted defendants, herein petitioners, actually hearing the same ex-parte and thereafter rendering the decision of
December 20, 1974 granting respondent Tan even reliefs not prayed for in the complaint. According to the petitioners, to begin with, there was compulsory
counterclaim in the common answer of the defendants the nature of which is such that it cannot be decided in an independent action and as to which the attention
of respondent court was duly called in the motions for reconsideration. Besides, and more importantly, under Section 4 of Rule 18, respondent court had no
authority to divide the case before it by dismissing the same as against the non-defaulted defendants and thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the defaulted defendants, considering that in their view, under the said provision of the rules, when a common cause of
action is alleged against several defendants, the default of any of them is a mere formality by which those defaulted are not allowed to take part in the
proceedings, but otherwise, all the defendants, defaulted and not defaulted, are supposed to have but a common fate, win or lose. In other words, petitioners posit
that in such a situation, there can only be one common judgment for or against all the defendant, the non-defaulted and the defaulted. Thus, petitioners contend
that the order of dismissal of October 21, 1974 should be considered also as the final judgment insofar as they are concerned, or, in the alternative, it should be
set aside together with all the proceedings and decision held and rendered subsequent thereto, and that the trial be resumed as of said date, with the defendants
Lim Teck Chuan and Eng Chong Leonardo being allowed to defend the case for all the defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as petitioners had been properly declared in default, they have no personality nor
interest to question the dismissal of the case as against their non-defaulted co-defendants and should suffer the consequences of their own default. Respondent
further contends, and this is the only position discussed in the memorandum submitted by her counsel, that since petitioners have already made or at least started
to make their appeal, as they are in fact entitled to appeal, this special civil action has no reason for being. Additionally, she invokes the point of prematurity upheld
by the Court of Appeals in regard to the above-mentioned petition therein of the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature deliberation, the Court has arrived at the conclusion that petitioners
should be granted relief, if only to stress emphatically once more that the rules of procedure may not be misused and abused as instruments for the denial of
substantial justice. A review of the record of this case immediately discloses that here is another demonstrative instance of how some members of the bar, availing
of their proficiency in invoking the letter of the rules without regard to their real spirit and intent, succeed in inducing courts to act contrary to the dictates of justice
and equity, and, in some instances, to wittingly or unwittingly abet unfair advantage by ironically camouflaging their actuations as earnest efforts to satisfy the
public clamor for speedy disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule 1 is that the "rules shall be liberally construed
in order to promote their object and to assist the parties in obtaining not only 'speedy' but more imperatively, "just ... and inexpensive determination of every action
and proceeding." We cannot simply pass over the impression that the procedural maneuvers and tactics revealed in the records of the case at bar were
deliberately planned with the calculated end in view of depriving petitioners and their co-defendants below of every opportunity to properly defend themselves
against a claim of more than substantial character, considering the millions of pesos worth of properties involved as found by respondent judge himself in the
impugned decision, a claim that appears, in the light of the allegations of the answer and the documents already brought to the attention of the court at the pretrial, to be rather dubious. What is most regrettable is that apparently, all of these alarming circumstances have escaped respondent judge who did not seem to
have hesitated in acting favorably on the motions of the plaintiff conducive to the deplorable objective just mentioned, and which motions, at the very least,
appeared to be 'of highly controversial' merit, considering that their obvious tendency and immediate result would be to convert the proceedings into a one-sided
affair, a situation that should be readily condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of private respondent may be discerned from the manner it resolved
the attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of default against them lifted. Notwithstanding that Dy Ochay's motion of
October 8, 1971, co-signed by her with their counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer herein) was over the jurat of the notary public before
whom she took her oath, in the order of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the motion is not the one
contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of the rules. It is not even a verification. (See. 6, Rule 7.) What the rule requires as
interpreted by the Supreme Court is that the motion must have to be accompanied by an affidavit of merits that the defendant has a meritorious defense, thereby

ignoring the very simple legal point that the ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate
affidavit of merit is required refers obviously to instances where the motion is not over oath of the party concerned, considering that what the cited provision literally
requires is no more than a "motion under oath." Stated otherwise, when a motion to lift an order of default contains the reasons for the failure to answer as well as
the facts constituting the prospective defense of the defendant and it is sworn to by said defendant, neither a formal verification nor a separate affidavit of merit is
necessary.
What is worse, the same order further held that the motion to lift the order of default "is an admission that there was a valid service of summons" and that said
motion could not amount to a challenge against the jurisdiction of the court over the person of the defendant. Such a rationalization is patently specious and
reveals an evident failure to grasp the import of the legal concepts involved. A motion to lift an order of default on the ground that service of summons has not been
made in accordance with the rules is in order and is in essence verily an attack against the jurisdiction of the court over the person of the defendant, no less than if
it were worded in a manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as against defendant Lim Tanhu, His Honor posited that said defendant
"has a defense (quitclaim) which renders the claim of the plaintiff contentious." We have read defendants' motion for reconsideration of November 25, 1971 (Annex
5, id.), but We cannot find in it any reference to a "quitclaim". Rather, the allegation of a quitclaim is in the amended complaint (Pars. 15-16, Annex B of the petition
herein) in which plaintiff maintains that her signature thereto was secured through fraud and deceit. In truth, the motion for reconsideration just mentioned, Annex
5, merely reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be but the
common law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation, His Honor held in the order of November 2, 1971, Annex 3, to be "not
good and meritorious defense". To top it all, whereas, as already stated, the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu because of
the additional consideration that "he has a defense (quitclaim) which renders the claim of the plaintiff contentious," the default of Dy Ochay was maintained
notwithstanding that exactly the same "contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal postures in the orders in question can hardly convince Us that the
matters here in issue were accorded due and proper consideration by respondent court. In fact, under the circumstances herein obtaining, it seems appropriate to
stress that, having in view the rather substantial value of the subject matter involved together with the obviously contentious character of plaintiff's claim, which is
discernible even on the face of the complaint itself, utmost care should have been taken to avoid the slightest suspicion of improper motivations on the part of
anyone concerned. Upon the considerations hereunder to follow, the Court expresses its grave concern that much has to be done to dispel the impression that
herein petitioners and their co-defendants are being railroaded out of their rights and properties without due process of law, on the strength of procedural
technicalities adroitly planned by counsel and seemingly unnoticed and undetected by respondent court, whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made therein, cannot be said to have proceeded from utter lack of juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is the seeming alacrity with which the motion to dismiss the case against non-defaulted
defendants Lim Teck Chuan and Eng Chong Leonardo was disposed of, which definitely ought not to have been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still under re-cross-examination. Undoubtedly, the motion to dismiss at that stage and in the light of the
declaration of default against the rest of the defendants was a well calculated surprise move, obviously designed to secure utmost advantage of the situation,
regardless of its apparent unfairness. To say that it must have been entirely unexpected by all the defendants, defaulted and non-defaulted , is merely to rightly
assume that the parties in a judicial proceeding can never be the victims of any procedural waylaying as long as lawyers and judges are imbued with the requisite
sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who were entitled to be notified of such unanticipated dismissal motion did
not get due notice thereof. Certainly, the non-defaulted defendants had the right to the three-day prior notice required by Section 4 of Rule 15. How could they
have had such indispensable notice when the motion was set for hearing on Monday, October 21, 1974, whereas the counsel for Lim Teck Chuan, Atty. Sitoy was
personally served with the notice only on Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified by registered mail which
was posted only that same Saturday, October 19, 1974? According to Chief Justice Moran, "three days at least must intervene between the date of service of
notice and the date set for the hearing, otherwise the court may not validly act on the motion." (Comments on the Rules of Court by Moran, Vol. 1, 1970 ed. p.
474.) Such is the correct construction of Section 4 of Rule 15. And in the instant case, there can be no question that the notices to the non-defaulted defendants
were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is the seeming inattention of respondent judge to the explicit mandate of
the pertinent rule, not to speak of the imperatives of fairness, considering he should have realized the far-reaching implications, specially from the point of view he
subsequently adopted, albeit erroneously, of his favorably acting on it. Actually, he was aware of said consequences, for simultaneously with his order of dismissal,
he immediately set the case for the ex-parte hearing of the evidence against the defaulted defendants, which, incidentally, from the tenor of his order which We
have quoted above, appears to have been done by him motu propio As a matter of fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent with a number of known juridical principles concerning defaults, which
We will here take occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate errors committed in this case. Perhaps some of these
principles have not been amply projected and elaborated before, and such paucity of elucidation could be the reason why respondent judge must have acted as he
did. Still, the Court cannot but express its vehement condemnation of any judicial actuation that unduly deprives any party of the right to be heard without clear and
specific warrant under the terms of existing rules or binding jurisprudence. Extreme care must be the instant reaction of every judge when confronted with a
situation involving risks that the proceedings may not be fair and square to all the parties concerned. Indeed, a keen sense of fairness, equity and justice that
constantly looks for consistency between the letter of the adjective rules and these basic principles must be possessed by every judge, If substance is to prevail,
as it must, over form in our courts. Literal observance of the rules, when it is conducive to unfair and undue advantage on the part of any litigant before it, is
unworthy of any court of justice and equity. Withal, only those rules and procedure informed, with and founded on public policy deserve obedience in accord with
their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should not be amiss to advert first to the patent incorrectness, apparent on the
face of the record, of the aforementioned order of dismissal of October 21, 1974 of the case below as regards non-defaulted defendants Lim and Leonardo. While

it is true that said defendants are not petitioners herein, the Court deems it necessary for a full view of the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent court to also make reference to the very evident fact that in ordering said dismissal respondent court
disregarded completely the existence of defendant's counterclaim which it had itself earlier held if indirectly, to be compulsory in nature when it refused to dismiss
the same on the ground alleged by respondent Tan that he docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted in the allegations hereof aforequoted, it arose out of or is
necessarily connected with the occurrence that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly being the widow of the
deceased Tee Hoon entitled, as such, to demand accounting of and to receive the share of her alleged late husband as partner of defendants Antonio Lim Tanhu
and Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of which allegations all the defendants have denied. Defendants maintain in their
counterclaim that plaintiff knew of the falsity of said allegations even before she filed her complaint, for she had in fact admitted her common-law relationship with
said deceased in a document she had jointly executed with him by way of agreement to terminate their illegitimate relationship, for which she received P40,000
from the deceased, and with respect to her pretended share in the capital and profits in the partnership, it is also defendants' posture that she had already
quitclaimed, with the assistance of able counsel, whatever rights if any she had thereto in November, 1967, for the sum of P25,000 duly receipted by her, which
quitclaim was, however, executed, according to respondent herself in her amended complaint, through fraud. And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material allegations thereof are false and baseless, she has caused them to suffer damages. Undoubtedly, with
such allegations, defendants' counterclaim is compulsory, not only because the same evidence to sustain it will also refute the cause or causes of action alleged in
plaintiff's complaint, (Moran, supra p. 352) but also because from its very nature, it is obvious that the same cannot "remain pending for independent adjudication
by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff's
motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication by
the court." Defendants Lim and Leonardo had no opportunity to object to the motion to dismiss before the order granting the same was issued, for the simple
reason that they were not opportunity notified of the motion therefor, but the record shows clearly that at least defendant Lim immediately brought the matter of
their compulsory counterclaim to the attention of the trial court in his motion for reconsideration of October 23, 1974, even as the counsel for the other defendant,
Leonardo, predicated his motion on other grounds. In its order of December 6, 1974, however, respondent court not only upheld the plaintiffs supposed absolute
right to choose her adversaries but also held that the counterclaim is not compulsory, thereby virtually making unexplained and inexplicable 180-degree turnabout
in that respect.
There is another equally fundamental consideration why the motion to dismiss should not have been granted. As the plaintiff's complaint has been framed, all the
six defendants are charged with having actually taken part in a conspiracy to misappropriate, conceal and convert to their own benefit the profits, properties and all
other assets of the partnership Glory Commercial Company, to the extent that they have allegedly organized a corporation, Glory Commercial Company, Inc. with
what they had illegally gotten from the partnership. Upon such allegations, no judgment finding the existence of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally possible without the presence of all the defendants. The non-defaulted defendants are alleged to be
stockholders of the corporation and any decision depriving the same of all its assets cannot but prejudice the interests of said defendants. Accordingly, upon these
premises, and even prescinding from the other reasons to be discussed anon it is clear that all the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than grant that they are so on page 23 of their answer. Such being the case, the questioned order of
dismissal is exactly the opposite of what ought to have been done. Whenever it appears to the court in the course of a proceeding that an indispensable party has
not been joined, it is the duty of the court to stop the trial and to order the inclusion of such party. (The Revised Rules of Court, Annotated & Commented by
Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general rule with reference
to the making of parties in a civil action requires the joinder of all necessary parties wherever possible, and the joinder of all indispensable parties under any and
all conditions, the presence of those latter being a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely "
when an indispensable party is not before the court (that) the action should be dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an
indispensable party renders all subsequent actuations of the court null and void, for want of authority to act, not only as to the absent parties but even as to those
present. In short, what respondent court did here was exactly the reverse of what the law ordains it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the motions for reconsideration of the dismissal order filed by the non-defaulted
defendants, His Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon which he predicates his right of action, or the parties
he desires to sue, without dictation or imposition by the court or the adverse party. If he makes a mistake in the choice of his right of action,
or in that of the parties against whom he seeks to enforce it, that is his own concern as he alone suffers therefrom. The plaintiff cannot be
compelled to choose his defendants, He may not, at his own expense, be forced to implead anyone who, under the adverse party's theory, is
to answer for defendant's liability. Neither may the Court compel him to furnish the means by which defendant may avoid or mitigate their
liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue prosecuting her cause of action against the defendants-movants if in the
course of the trial she believes she can enforce it against the remaining defendants subject only to the limitation provided in Section 2, Rule
17 of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of October 18, 1974 by referring to the action he had taken as being
"dismissal of the complaint against them or their being dropped therefrom", without perceiving that the reason for the evidently intentional ambiguity is transparent.
The apparent idea is to rely on the theory that under Section 11 of Rule 3, parties may be dropped by the court upon motion of any party at any stage of the action,
hence "it is the absolute right prerogative of the plaintiff to choosethe parties he desires to sue, without dictation or imposition by the court or the adverse party."
In other words, the ambivalent pose is suggested that plaintiff's motion of October 18, 1974 was not predicated on Section 2 of Rule 17 but more on Section 11 of
Rule 3. But the truth is that nothing can be more incorrect. To start with, the latter rule does not comprehend whimsical and irrational dropping or adding of parties
in a complaint. What it really contemplates is erroneous or mistaken non-joinder and misjoinder of parties. No one is free to join anybody in a complaint in court
only to drop him unceremoniously later at the pleasure of the plaintiff. The rule presupposes that the original inclusion had been made in the honest conviction that
it was proper and the subsequent dropping is requested because it has turned out that such inclusion was a mistake. And this is the reason why the rule ordains
that the dropping be "on such terms as are just" just to all the other parties. In the case at bar, there is nothing in the record to legally justify the dropping of the

non-defaulted defendants, Lim and Leonardo. The motion of October 18, 1974 cites none. From all appearances, plaintiff just decided to ask for it, without any
relevant explanation at all. Usually, the court in granting such a motion inquires for the reasons and in the appropriate instances directs the granting of some form
of compensation for the trouble undergone by the defendant in answering the complaint, preparing for or proceeding partially to trial, hiring counsel and making
corresponding expenses in the premises. Nothing of these, appears in the order in question. Most importantly, His Honor ought to have considered that the
outright dropping of the non-defaulted defendants Lim and Leonardo, over their objection at that, would certainly be unjust not only to the petitioners, their own
parents, who would in consequence be entirely defenseless, but also to Lim and Leonardo themselves who would naturally correspondingly suffer from the
eventual judgment against their parents. Respondent court paid no heed at all to the mandate that such dropping must be on such terms as are just" meaning
to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October 21, 1974 as well as its order of December 6, 1974 denying
reconsideration of such dismissal. As We make this ruling, We are not oblivious of the circumstance that defendants Lim and Leonardo are not parties herein. But
such consideration is inconsequential. The fate of the case of petitioners is inseparably tied up with said order of dismissal, if only because the order of exparte hearing of October 21, 1974 which directly affects and prejudices said petitioners is predicated thereon. Necessarily, therefore, We have to pass on the
legality of said order, if We are to decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning of the dismissal is from another point of view understandable. On the
one hand, why should they insist on being defendants when plaintiff herself has already release from her claims? On the other hand, as far as their respective
parents-co-defendants are concerned, they must have realized that they (their parents) could even be benefited by such dismissal because they could question
whether or not plaintiff can still prosecute her case against them after she had secured the order of dismissal in question. And it is in connection with this last point
that the true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of Appeals of January 24, 1975 in G. R. No. SP-03066 dismissing the petition for certiorari of
non-defaulted defendants Lim and Leonardo impugning the order of dismissal of October 21, 1974, has no bearing at all in this case, not only because that
dismissal was premised by the appellate court on its holding that the said petition was premature inasmuch as the trial court had not yet resolved the motion of the
defendants of October 28, 1974 praying that said disputed order be quashed, but principally because herein petitioners were not parties in that proceeding and
cannot, therefore, be bound by its result. In particular, We deem it warranted to draw the attention of private respondent's counsel to his allegations in paragraphs
XI to XIV of his answer, which relate to said decision of the Court of Appeals and which have the clear tendency to make it appear to the Court that the appeals
court had upheld the legality and validity of the actuations of the trial court being questioned, when as a matter of indisputable fact, the dismissal of the petition
was based solely and exclusively on its being premature without in any manner delving into its merits. The Court must and does admonish counsel that such
manner of pleading, being deceptive and lacking in candor, has no place in any court, much less in the Supreme Court, and if We are adopting a passive attitude
in the premises, it is due only to the fact that this is counsel's first offense. But similar conduct on his part in the future will definitely be dealt with more severely.
Parties and counsel would be well advised to avoid such attempts to befuddle the issues as invariably then will be exposed for what they are, certainly unethical
and degrading to the dignity of the law profession. Moreover, almost always they only betray the inherent weakness of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite apparent that the impugned orders must have proceeded from inadequate apprehension of the fundamental
precepts governing such procedure under the Rules of Court. It is time indeed that the concept of this procedural device were fully understood by the bench and
bar, instead of being merely taken for granted as being that of a simple expedient of not allowing the offending party to take part in the proceedings, so that after
his adversary shall have presented his evidence, judgment may be rendered in favor of such opponent, with hardly any chance of said judgment being reversed or
modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is concerned solely with default resulting from failure of the defendant
or defendants to answer within the reglementary period. Referring to the simplest form of default, that is, where there is only one defendant in the action and he
fails to answer on time, Section 1 of the rule provides that upon "proof of such failure, (the court shall) declare the defendant in default. Thereupon the court shall
proceed to receive the plaintiff's evidence and render judgment granting him such relief as the complaint and the facts proven may warrant." This last clause is
clarified by Section 5 which says that "a judgment entered against a party in default shall not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full import of what they contemplate. To begin with, contrary to the
immediate notion that can be drawn from their language, these provisions are not to be understood as meaning that default or the failure of the defendant to
answer should be "interpreted as an admission by the said defendant that the plaintiff's cause of action find support in the law or that plaintiff is entitled to the relief
prayed for." (Moran, supra, p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12
Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that of being heard and of presenting evidence in the trial court. According to Section 2,
"except as provided in Section 9 of Rule 13, a party declared in default shall not be entitled to notice of subsequent proceedings, nor to take part in the trial." That
provision referred to reads: "No service of papers other than substantially amended pleadings and final orders or judgments shall be necessary on a party in
default unless he files a motion to set aside the order of default, in which event he shall be entitled to notice of all further proceedings regardless of whether the
order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a party who has been declared in default may likewise appeal from the judgment
rendered against him as contrary to the evidence or to the law, even if no petition for relief to set aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be said that by defaulting he leaves himself at the mercy of the
court, the rules see to it that any judgment against him must be in accordance with law. The evidence to support the plaintiff's cause is, of course, presented in his
absence, but the court is not supposed to admit that which is basically incompetent. Although the defendant would not be in a position to object, elementary justice
requires that, only legal evidence should be considered against him. If the evidence presented should not be sufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind from what is prayed for in the
complaint.

Incidentally, these considerations argue against the present widespread practice of trial judges, as was done by His Honor in this case, of delegating to their clerks
of court the reception of the plaintiff's evidence when the defendant is in default. Such a Practice is wrong in principle and orientation. It has no basis in any rule.
When a defendant allows himself to be declared in default, he relies on the faith that the court would take care that his rights are not unduly prejudiced. He has a
right to presume that the law and the rules will still be observed. The proceedings are held in his forced absence, and it is but fair that the plaintiff should not be
allowed to take advantage of the situation to win by foul or illegal means or with inherently incompetent evidence. Thus, in such instances, there is need for more
attention from the court, which only the judge himself can provide. The clerk of court would not be in a position much less have the authority to act in the premises
in the manner demanded by the rules of fair play and as contemplated in the law, considering his comparably limited area of discretion and his presumably inferior
preparation for the functions of a judge. Besides, the default of the defendant is no excuse for the court to renounce the opportunity to closely observe the
demeanor and conduct of the witnesses of the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare as a matter of judicial policy
that there being no imperative reason for judges to do otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave enough opportunity open for possible lifting of the order of default before
proceeding with the reception of the plaintiff's evidence and the rendition of the decision. "A judgment by default may amount to a positive and considerable
injustice to the defendant; and the possibility of such serious consequences necessitates a careful and liberal examination of the grounds upon which the
defendant may seek to set it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression, therefore, in Section 1 of Rule 18
aforequoted which says that "thereupon the court shall proceed to receive the plaintiff's evidence etc." is not to be taken literally. The gain in time and dispatch
should the court immediately try the case on the very day of or shortly after the declaration of default is far outweighed by the inconvenience and complications
involved in having to undo everything already done in the event the defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the only defendant or all the defendants, there being several, are declared in default. There
are additional rules embodying more considerations of justice and equity in cases where there are several defendants against whom a common cause of action is
averred and not all of them answer opportunely or are in default, particularly in reference to the power of the court to render judgment in such situations. Thus, in
addition to the limitation of Section 5 that the judgment by default should not be more in amount nor different in kind from the reliefs specifically sought by plaintiff
in his complaint, Section 4 restricts the authority of the court in rendering judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult. When a complaint states a common cause of action against
several defendant some of whom answer, and the others fail to do so, the court shall try the case against all upon the answer thus filed and
render judgment upon the evidence presented. The same proceeding applies when a common cause of action is pleaded in a counterclaim,
cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of action against several defendants and some appear to defend the case on the merits while
others make default, the defense interposed by those who appear to litigate the case inures to the benefit of those who fail to appear, and if
the court finds that a good defense has been made, all of the defendants must be absolved. In other words, the answer filed by one or some
of the defendants inures to the benefit of all the others, even those who have not seasonably filed their answer. (Bueno v. Ortiz, L-22978,
June 27, 1968, 23 SCRA 1151.) The proper mode of proceeding where a complaint states a common cause of action against several
defendants, and one of them makes default, is simply to enter a formal default order against him, and proceed with the cause upon the
answers of the others. The defaulting defendant merely loses his standing in court, he not being entitled to the service of notice in the cause,
nor to appear in the suit in any way. He cannot adduce evidence; nor can he be heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.)
although he may appeal the judgment rendered against him on the merits. (Rule 41, sec. 2.) If the case is finally decided in the plaintiff's
favor, a final decree is then entered against all the defendants; but if the suit should be decided against the plaintiff, the action will be
dismissed as to all the defendants alike. (Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other words the
judgment will affect the defaulting defendants either favorably or adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro v. Pea, supra.) (Moran, Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited by Moran, this Court elaborated on the construction of the same rule when
it sanctioned the execution, upon motion and for the benefit of the defendant in default, of a judgment which was adverse to the plaintiff. The
Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition for execution Annex 1. Did she have a right to be
such, having been declared in default? In Frow vs. De la Vega,supra, cited as authority in Velez vs. Ramas, supra, the Supreme Court of the
United States adopted as ground for its own decision the following ruling of the New York Court of Errors in Clason vs. Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had made default, the plaintiff should have a decree even against him, where
the court is satisfied from the proofs offered by the other, that in fact the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a common cause of action against several defendants, the
complainant's rights or lack of them in the controversy have to be the same, and not different, as against all the defendant's although
one or some make default and the other or others appear, join issue, and enter into trial. For instance, in the case of Clason vs. Morris above
cited, the New York Court of Errors in effect held that in such a case if the plaintiff is not entitled to a decree, he will not be entitled to it, not
only as against the defendant appearing and resisting his action but also as against the one who made default. In the case at bar, the cause
of action in the plaintiff's complaint was common against the Mayor of Manila, Emilia Matanguihan, and the other defendants in Civil Case
No. 1318 of the lower court. The Court of First Instance in its judgment found and held upon the evidence adduced by the plaintiff and the
defendant mayor that as between said plaintiff and defendant Matanguihan the latter was the one legally entitled to occupy the stalls; and it
decreed, among other things, that said plaintiff immediately vacate them. Paraphrasing the New York Court of Errors, it would be
unreasonable to hold now that because Matanguihan had made default, the said plaintiff should be declared, as against her, legally entitled

to the occupancy of the stalls, or to remain therein, although the Court of First Instance was so firmly satisfied, from the proofs offered by the
other defendant, that the same plaintiff was not entitled to such occupancy that it peremptorily ordered her to vacate the stalls. If in the cases
of Clason vs. Morris, supra, Frow vs. De la Vega, supra, and Velez vs. Ramas, supra the decrees entered inured to the benefit of the
defaulting defendants, there is no reason why that entered in said case No. 1318 should not be held also to have inured to the benefit of the
defaulting defendant Matanguihan and the doctrine in said three cases plainly implies that there is nothing in the law governing default which
would prohibit the court from rendering judgment favorable to the defaulting defendant in such cases. If it inured to her benefit, it stands to
reason that she had a right to claim that benefit, for it would not be a benefit if the supposed beneficiary were barred from claiming it; and if
the benefit necessitated the execution of the decree, she must be possessed of the right to ask for the execution thereof as she did when
she, by counsel, participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It provides that when a complaint states a common
cause of action against several defendants, some of whom answer, and the others make default, 'the court shall try the case against all upon
the answer thus filed and render judgment upon the evidence presented by the parties in court'. It is obvious that under this provision the
case is tried jointly not only against the defendants answering but also against those defaulting, and the trial is held upon the answer filed by
the former; and the judgment, if adverse, will prejudice the defaulting defendants no less than those who answer. In other words, the
defaulting defendants are held bound by the answer filed by their co-defendants and by the judgment which the court may render against all
of them. By the same token, and by all rules of equity and fair play, if the judgment should happen to be favorable, totally or partially, to the
answering defendants, it must correspondingly benefit the defaulting ones, for it would not be just to let the judgment produce effects as to
the defaulting defendants only when adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the following words:
In answer to the charge that respondent Judge had committed a grave abuse of discretion in rendering a default judgment against the PC,
respondents allege that, not having filed its answer within the reglementary period, the PC was in default, so that it was proper for Patanao to
forthwith present his evidence and for respondent Judge to render said judgment. It should be noted, however, that in entering the area in
question and seeking to prevent Patanao from continuing his logging operations therein, the PC was merely executing an order of the
Director of Forestry and acting as his agent. Patanao's cause of action against the other respondents in Case No. 190, namely, the Director
of Forestry, the District Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary of Agriculture and Natural Resources.
Pursuant to Rule 18, Section 4, of the Rules of Court, 'when a complaint states a common cause of action against several defendants some
of whom answer and the others fail to do so, the court shall try the case against all upon the answer thus filed (by some) and render
judgment upon the evidence presented.' In other words, the answer filed by one or some of the defendants inures to the benefit of all the
others, even those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action against all of the respondents therein, a decision in favor of
one of them would necessarily favor the others. In fact, the main issue, in said case, is whether Patanao has a timber license to undertake
logging operations in the disputed area. It is not possible to decide such issue in the negative, insofar as the Director of Forestry, and to
settle it otherwise, as regards the PC, which is merely acting as agent of the Director of Forestry, and is, therefore, his alter ego, with respect
to the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several defendants, some of whom answer and the others do not, the latter
or those in default acquire a vested right not only to own the defense interposed in the answer of their co- defendant or co-defendants not in default but also to
expect a result of the litigation totally common with them in kind and in amount whether favorable or unfavorable. The substantive unity of the plaintiff's cause
against all the defendants is carried through to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice itself. Indeed, since the
singleness of the cause of action also inevitably implies that all the defendants are indispensable parties, the court's power to act is integral and cannot be split
such that it cannot relieve any of them and at the same time render judgment against the rest. Considering the tenor of the section in question, it is to be assumed
that when any defendant allows himself to be declared in default knowing that his defendant has already answered, he does so trusting in the assurance implicit in
the rule that his default is in essence a mere formality that deprives him of no more than the right to take part in the trial and that the court would deem anything
done by or for the answering defendant as done by or for him. The presumption is that otherwise he would not -have seen to that he would not be in default. Of
course, he has to suffer the consequences of whatever the answering defendant may do or fail to do, regardless of possible adverse consequences, but if the
complaint has to be dismissed in so far as the answering defendant is concerned it becomes his inalienable right that the same be dismissed also as to him. It
does not matter that the dismissal is upon the evidence presented by the plaintiff or upon the latter's mere desistance, for in both contingencies, the lack of
sufficient legal basis must be the cause. The integrity of the common cause of action against all the defendants and the indispensability of all of them in the
proceedings do not permit any possibility of waiver of the plaintiff's right only as to one or some of them, without including all of them, and so, as a rule, withdrawal
must be deemed to be a confession of weakness as to all. This is not only elementary justice; it also precludes the concomitant hazard that plaintiff might resort to
the kind of procedural strategem practiced by private respondent herein that resulted in totally depriving petitioners of every opportunity to defend themselves
against her claims which, after all, as will be seen later in this opinion, the record does not show to be invulnerable, both in their factual and legal aspects, taking
into consideration the tenor of the pleadings and the probative value of the competent evidence which were before the trial court when it rendered its assailed
decision where all the defendants are indispensable parties, for which reason the absence of any of them in the case would result in the court losing its
competency to act validly, any compromise that the plaintiff might wish to make with any of them must, as a matter of correct procedure, have to await until after
the rendition of the judgment, at which stage the plaintiff may then treat the matter of its execution and the satisfaction of his claim as variably as he might please.
Accordingly, in the case now before Us together with the dismissal of the complaint against the non-defaulted defendants, the court should have ordered also the
dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the action just discussed because all the defendants here have already joined
genuine issues with plaintiff. Their default was only at the pre-trial. And as to such absence of petitioners at the pre-trial, the same could be attributed to the fact
that they might not have considered it necessary anymore to be present, since their respective children Lim and Leonardo, with whom they have common
defenses, could take care of their defenses as well. Anything that might have had to be done by them at such pre-trial could have been done for them by their
children, at least initially, specially because in the light of the pleadings before the court, the prospects of a compromise must have appeared to be rather remote.
Such attitude of petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare them immediately and irrevocably in default was not

an absolute necessity. Practical considerations and reasons of equity should have moved respondent court to be more understanding in dealing with the situation.
After all, declaring them in default as respondent court did not impair their right to a common fate with their children.
3
Another issue to be resolved in this case is the question of whether or not herein petitioners were entitled to notice of plaintiff's motion to drop their co-defendants
Lim and Leonardo, considering that petitioners had been previously declared in default. In this connection, the decisive consideration is that according to the
applicable rule, Section 9, Rule 13, already quoted above, (1) even after a defendant has been declared in default, provided he "files a motion to set aside the
order of default, he shall be entitled to notice of all further proceedings regardless of whether the order of default is set aside or not" and (2) a party in default
who has not filed such a motion to set aside must still be served with all "substantially amended or supplemented pleadings." In the instant case, it cannot be
denied that petitioners had all filed their motion for reconsideration of the order declaring them in default. Respondents' own answer to the petition therein makes
reference to the order of April 3, 1973, Annex 8 of said answer, which denied said motion for reconsideration. On page 3 of petitioners' memorandum herein this
motion is referred to as "a motion to set aside the order of default." But as We have not been favored by the parties with a copy of the said motion, We do not even
know the excuse given for petitioners' failure to appear at the pre-trial, and We cannot, therefore, determine whether or not the motion complied with the
requirements of Section 3 of Rule 18 which We have held to be controlling in cases of default for failure to answer on time. (The Philippine-British Co. Inc. etc. et
al. vs. The Hon. Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but one for failure to appear at the pre-trial. We reiterate, in the situation
now before Us, issues have already been joined. In fact, evidence had been partially offered already at the pre-trial and more of it at the actual trial which had
already begun with the first witness of the plaintiff undergoing re-cross-examination. With these facts in mind and considering that issues had already been joined
even as regards the defaulted defendants, it would be requiring the obvious to pretend that there was still need for an oath or a verification as to the merits of the
defense of the defaulted defendants in their motion to reconsider their default. Inasmuch as none of the parties had asked for a summary judgment there can be
no question that the issues joined were genuine, and consequently, the reason for requiring such oath or verification no longer holds. Besides, it may also be
reiterated that being the parents of the non-defaulted defendants, petitioners must have assumed that their presence was superfluous, particularly because the
cause of action against them as well as their own defenses are common. Under these circumstances, the form of the motion by which the default was sought to be
lifted is secondary and the requirements of Section 3 of Rule 18 need not be strictly complied with, unlike in cases of default for failure to answer. We can thus hold
as We do hold for the purposes of the revival of their right to notice under Section 9 of Rule 13, that petitioner's motion for reconsideration was in substance legally
adequate regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended complaint was virtually a second amendment of plaintiffs complaint. And
there can be no doubt that such amendment was substantial, for with the elimination thereby of two defendants allegedly solidarily liable with their co-defendants,
herein petitioners, it had the effect of increasing proportionally what each of the remaining defendants, the said petitioners, would have to answer for jointly and
severally. Accordingly, notice to petitioners of the plaintiff's motion of October 18, 1974 was legally indispensable under the rule above-quoted. Consequently,
respondent court had no authority to act on the motion, to dismiss, pursuant to Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court
clearly provide that no motion shall be acted upon by the Court without the proof of service of notice thereof, together with a copy of the motion and other papers
accompanying it, to all parties concerned at least three days before the hearing thereof, stating the time and place for the hearing of the motion. (Rule 26, section
4, 5 and 6, Rules of Court (now Sec. 15, new Rules). When the motion does not comply with this requirement, it is not a motion. It presents no question which the
court could decide. And the Court acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs.
Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44
Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised Rules of Court in the Philippines, pp. 861-862.) Thus, We see again, from a different angle,
why respondent court's order of dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not the proper remedy of petitioners. It is contended that inasmuch as
said petitioners have in fact made their appeal already by filing the required notice of appeal and appeal bond and a motion for extension to file their record on
appeal, which motion was granted by respondent court, their only recourse is to prosecute that appeal. Additionally, it is also maintained that since petitioners have
expressly withdrawn their motion to quash of January 4, 1975 impugning the order of October 28, 1974, they have lost their right to assail by certiorari the
actuations of respondent court now being questioned, respondent court not having been given the opportunity to correct any possible error it might have
committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the court below have gone so far out of hand that prompt action is needed to
restore order in the entangled situation created by the series of plainly illegal orders it had issued. The essential purpose of certiorari is to keep the proceedings in
lower judicial courts and tribunals within legal bounds, so that due process and the rule of law may prevail at all times and arbitrariness, whimsicality and
unfairness which justice abhors may immediately be stamped out before graver injury, juridical and otherwise, ensues. While generally these objectives may well
be attained in an ordinary appeal, it is undoubtedly the better rule to allow the special remedy of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching in its consequences that the long and cumbersome procedure of appeal will only further
aggravate the situation of the aggrieved party because other untoward actuations are likely to materialize as natural consequences of those already perpetrated. If
the law were otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the case at bar. Verily, this is one case that calls for the exercise of the
Supreme Court's inherent power of supervision over all kinds of judicial actions of lower courts. Private respondent's procedural technique designed to disable
petitioners to defend themselves against her claim which appears on the face of the record itself to be at least highly controversial seems to have so fascinated
respondent court that none would be surprised should her pending motion for immediate execution of the impugned judgment receive similar ready sanction as her
previous motions which turned the proceedings into a one-sided affair. The stakes here are high. Not only is the subject matter considerably substantial; there is
the more important aspect that not only the spirit and intent of the rules but even the basic rudiments of fair play have been disregarded. For the Court to leave
unrestrained the obvious tendency of the proceedings below would be nothing short of wittingly condoning inequity and injustice resulting from erroneous
construction and unwarranted application of procedural rules.

5
The sum and total of all the foregoing disquisitions is that the decision here in question is legally anomalous. It is predicated on two fatal malactuations of
respondent court namely (1) the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception of the evidence
of the plaintiff by the clerk of court, the subsequent using of the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of dismissal of October 21, 1974 is unworthy of Our sanction: (1) there was no
timely notice of the motion therefor to the non-defaulted defendants, aside from there being no notice at all to herein petitioners; (2) the common answer of the
defendants, including the non-defaulted, contained a compulsory counterclaim incapable of being determined in an independent action; and (3) the immediate
effect of such dismissal was the removal of the two non-defaulted defendants as parties, and inasmuch as they are both indispensable parties in the case, the
court consequently lost the" sine qua non of the exercise of judicial power", per Borlasa vs. Polistico, supra. This is not to mention anymore the irregular delegation
to the clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-parte reception of plaintiff's evidence and subsequent rendition of the
judgment by default based thereon, We have seen that it was violative of the right of the petitioners, under the applicable rules and principles on default, to a
common and single fate with their non-defaulted co-defendants. And We are not yet referring, as We shall do this anon to the numerous reversible errors in the
decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent court's actuations do not call for a common corrective remedy. We cannot
simply rule that all the impugned proceedings are null and void and should be set aside, without being faced with the insurmountable obstacle that by so doing We
would be reviewing the case as against the two non-defaulted defendants who are not before Us not being parties hereto. Upon the other hand, for Us to hold that
the order of dismissal should be allowed to stand, as contended by respondents themselves who insist that the same is already final, not only because the period
for its finality has long passed but also because allegedly, albeit not very accurately, said 'non-defaulted defendants unsuccessfully tried to have it set aside by the
Court of Appeals whose decision on their petition is also already final, We would have to disregard whatever evidence had been presented by the plaintiff against
them and, of course, the findings of respondent court based thereon which, as the assailed decision shows, are adverse to them. In other words, whichever of the
two apparent remedies the Court chooses, it would necessarily entail some kind of possible juridical imperfection. Speaking of their respective practical or
pragmatic effects, to annul the dismissal would inevitably prejudice the rights of the non-defaulted defendants whom We have not heard and who even
respondents would not wish to have anything anymore to do with the case. On the other hand, to include petitioners in the dismissal would naturally set at naught
every effort private respondent has made to establish or prove her case thru means sanctioned by respondent court. In short, We are confronted with a legal paradilemma. But one thing is certain this difficult situations has been brought about by none other than private respondent who has quite cynically resorted to
procedural maneuvers without realizing that the technicalities of the adjective law, even when apparently accurate from the literal point of view, cannot prevail over
the imperatives of the substantive law and of equity that always underlie them and which have to be inevitably considered in the construction of the pertinent
procedural rules.
All things considered, after careful and mature deliberation, the Court has arrived at the conclusion that as between the two possible alternatives just stated, it
would only be fair, equitable and proper to uphold the position of petitioners. In other words, We rule that the order of dismissal of October 21, 1974 is in law a
dismissal of the whole case of the plaintiff, including as to petitioners herein. Consequently, all proceedings held by respondent court subsequent thereto including
and principally its decision of December 20, 1974 are illegal and should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent in securing the decision in her favor was ill-conceived. It was characterized
by that which every principle of law and equity disdains taking unfair advantage of the rules of procedure in order to unduly deprive the other party of full
opportunity to defend his cause. The idea of "dropping" the non-defaulted defendants with the end in view of completely incapacitating their co-defendants from
making any defense, without considering that all of them are indispensable parties to a common cause of action to which they have countered with a common
defense readily connotes an intent to secure a one-sided decision, even improperly. And when, in this connection, the obvious weakness of plaintiff's evidence is
taken into account, one easily understands why such tactics had to be availed of. We cannot directly or indirectly give Our assent to the commission of unfairness
and inequity in the application of the rules of procedure, particularly when the propriety of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents, although approved by His Honor, run counter to such basic principles in the rules on default and
such elementary rules on dismissal of actions and notice of motions that no trial court should be unaware of or should be mistaken in applying. We are at a loss as
to why His Honor failed to see through counsel's inequitous strategy, when the provisions (1) on the three-day rule on notice of motions, Section 4 of Rule 15, (2)
against dismissal of actions on motion of plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting the absence of indispensable
parties, Section 7, Rule 3, (4) on service of papers upon defendants in default when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on
the unity and integrity of the fate of defendants in default with those not in default where the cause of action against them and their own defenses are common,
Section 4, Rule 18, are so plain and the jurisprudence declaratory of their intent and proper construction are so readily comprehensible that any error as to their
application would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable to the initiative of private respondent and/or her counsel. She cannot, therefore, complain that
she is being made to unjustifiably suffer the consequences of what We have found to be erroneous orders of respondent court. It is only fair that she should not be
allowed to benefit from her own frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the decision in question cannot stand close scrutiny. What is more, the very
considerations contained therein reveal convincingly the inherent weakness of the cause of the plaintiff. To be sure, We have been giving serious thought to the
idea of merely returning this case for a resumption of trial by setting aside the order of dismissal of October 21, 1974, with all its attendant difficulties on account of
its adverse effects on parties who have not been heard, but upon closer study of the pleadings and the decision and other circumstances extant in the record
before Us, We are now persuaded that such a course of action would only lead to more legal complications incident to attempts on the part of the parties
concerned to desperately squeeze themselves out of a bad situation. Anyway, We feel confident that by and large, there is enough basis here and now for Us to
rule out the claim of the plaintiff.

Even a mere superficial reading of the decision would immediately reveal that it is littered on its face with deficiencies and imperfections which would have had no
reason for being were there less haste and more circumspection in rendering the same. Recklessness in jumping to unwarranted conclusions, both factual and
legal, is at once evident in its findings relative precisely to the main bases themselves of the reliefs granted. It is apparent therein that no effort has been made to
avoid glaring inconsistencies. Where references are made to codal provisions and jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly
commends itself as a deliberate and consciencious adjudication of a litigation which, considering the substantial value of the subject matter it involves and the
unprecedented procedure that was followed by respondent's counsel, calls for greater attention and skill than the general run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took another course of action, private respondent would still be able to make
out any case against petitioners, not to speak of their co-defendants who have already been exonerated by respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the
partners in the commercial partnership, Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua,
for short) as co-partners; that after the death of her husband on March 11, 1966 she is entitled to share not only in the capital and profits of the partnership but also
in the other assets, both real and personal, acquired by the partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at the Philippine Independent Church of Cebu City on December,
20, 1949; that Po Chuan died on March 11, 1966; that the plaintiff and the late Po Chuan were childless but the former has a foster son
Antonio Nuez whom she has reared since his birth with whom she lives up to the present; that prior to the marriage of the plaintiff to Po
Chuan the latter was already managing the partnership Glory Commercial Co. then engaged in a little business in hardware at Manalili St.,
Cebu City; that prior to and just after the marriage of the plaintiff to Po Chuan she was engaged in the drugstore business; that not long after
her marriage, upon the suggestion of Po Chuan the plaintiff sold her drugstore for P125,000.00 which amount she gave to her husband in the
presence of defendant Lim Tanhu and was invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of
the above-stated amount in the partnership its business flourished and it embarked in the import business and also engaged in the wholesale
and retail trade of cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership Glory Commercial Co. he was the one who made
the final decisions and approved the appointments of new personnel who were taken in by the partnership; that the late Po Chuan and
defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder brothers of the former; that defendants Lim Tanhu and Ng
Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner of the partnership having the controlling
interest; that defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision whether or not in making its findings of fact the court took into account
the allegations in the pleadings of the parties and whatever might have transpired at the pre-trial. All that We can gather in this respect is that references are made
therein to pre-trial exhibits and to Annex A of the answer of the defendants to plaintiff's amended complaint. Indeed, it was incumbent upon the court to consider
not only the evidence formally offered at the trial but also the admissions, expressed or implied, in the pleadings, as well as whatever might have been placed
before it or brought to its attention during the pre-trial. In this connection, it is to be regretted that none of the parties has thought it proper to give Us an idea of
what took place at the pre-trial of the present case and what are contained in the pre-trial order, if any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to compromise or settle their differences, is for the court to be apprised of
the unsettled issues between the parties and of their respective evidence relative thereto, to the end that it may take corresponding measures that would
abbreviate the trial as much as possible and the judge may be able to ascertain the facts with the least observance of technical rules. In other words whatever is
said or done by the parties or their counsel at the pre- trial serves to put the judge on notice of their respective basic positions, in order that in appropriate cases he
may, if necessary in the interest of justice and a more accurate determination of the facts, make inquiries about or require clarifications of matters taken up at the
pre-trial, before finally resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel of the proceedings, and hence, matters dealt with
therein may not be disregarded in the process of decision making. Otherwise, the real essence of compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be observed that the court's conclusion about the supposed marriage of
plaintiff to the deceased Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as husband and wife "shall be set forth in an instrument"
signed by the parties as well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary evidence of a marriage must be an authentic
copy of the marriage contract. While a marriage may also be proved by other competent evidence, the absence of the contract must first be satisfactorily
explained. Surely, the certification of the person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof of loss of the
contract or of any other satisfactory reason for its non-production is first presented to the court. In the case at bar, the purported certification issued by a Mons.
Jose M. Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely no showing as to unavailability
of the marriage contract and, indeed, as to the authenticity of the signature of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not
being authorized by law, since it is not part of the functions of his office. Besides, inasmuch as the bishop did not testify, the same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness Antonio Nuez, there can be no question that they are both self-serving and
of very little evidentiary value, it having been disclosed at the trial that plaintiff has already assigned all her rights in this case to said Nuez, thereby making him
the real party in interest here and, therefore, naturally as biased as herself. Besides, in the portion of the testimony of Nuez copied in Annex C of petitioner's
memorandum, it appears admitted that he was born only on March 25, 1942, which means that he was less than eight years old at the supposed time of the
alleged marriage. If for this reason alone, it is extremely doubtful if he could have been sufficiently aware of such event as to be competent to testify about it.

Incidentally, another Annex C of the same memorandum purports to be the certificate of birth of one Antonio T. Uy supposed to have been born on March 23, 1937
at Centro Misamis, Misamis Occidental, the son of one Uy Bien, father, and Tan Put, mother. Significantly, respondents have not made any adverse comment on
this document. It is more likely, therefore, that the witness is really the son of plaintiff by her husband Uy Kim Beng. But she testified she was childless. So which is
which? In any event, if on the strength of this document, Nuez is actually the legitimate son of Tan Put and not her adopted son, he would have been but 13 years
old in 1949, the year of her alleged marriage to Po Chuan, and even then, considering such age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of great weight belying the pretended marriage. We refer to (1) Exhibit LL,
the income tax return of the deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was Ang Sick Tin and (2) the quitclaim, Annex A of the answer,
wherein plaintiff Tan Put stated that she had been living with the deceased without benefit of marriage and that she was his "common-law wife". Surely, these two
documents are far more reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered to the judge himself, not to the clerk of court, and should have at
least moved him to ask plaintiff to explain if not rebut it before jumping to the conclusion regarding her alleged marriage to the deceased, Po Chuan. And in regard
to the quitclaim containing the admission of a common-law relationship only, it is to be observed that His Honor found that "defendants Lim Tanhu and Ng Sua had
the plaintiff execute a quitclaim on November 29, 1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share in the capital and profits
of the business of Glory Commercial Co. which was engaged in the hardware business", without making mention of any evidence of fraud and misrepresentation
in its execution, thereby indicating either that no evidence to prove that allegation of the plaintiff had been presented by her or that whatever evidence was actually
offered did not produce persuasion upon the court. Stated differently, since the existence of the quitclaim has been duly established without any circumstance to
detract from its legal import, the court should have held that plaintiff was bound by her admission therein that she was the common-law wife only of Po Chuan and
what is more, that she had already renounced for valuable consideration whatever claim she might have relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these considerations, there are mentioned and discussed in the memorandum of petitioners (1) the certification
of the Local Civil Registrar of Cebu City and (2) a similar certification of the Apostolic Prefect of the Philippine Independent Church, Parish of Sto. Nio, Cebu City,
that their respective official records corresponding to December 1949 to December 1950 do not show any marriage between Tee Hoon Lim Po Chuan and Tan Put,
neither of which certifications have been impugned by respondent until now, it stands to reason that plaintiff's claim of marriage is really unfounded. Withal, there is
still another document, also mentioned and discussed in the same memorandum and unimpugned by respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
T R AN S LAT I O N
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan alias TeeHoon since 1949 but it recently occurs that
we are incompatible with each other and are not in the position to keep living together permanently. With the mutual concurrence, we
decided to terminate the existing relationship of common law-marriage and promised not to interfere each other's affairs from now on. The
Forty Thousand Pesos (P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of China (corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that of a common-law wife but that they had settled their property interests
with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not
been satisfactorily established and that, on the contrary, the evidence on record convincingly shows that her relation with said deceased was that of a common-law
wife and furthermore, that all her claims against the company and its surviving partners as well as those against the estate of the deceased have already been
settled and paid. We take judicial notice of the fact that the respective counsel who assisted the parties in the quitclaim, Attys. H. Hermosisima and Natalio Castillo,
are members in good standing of the Philippine Bar, with the particularity that the latter has been a member of the Cabinet and of the House of Representatives of
the Philippines, hence, absent any credible proof that they had allowed themselves to be parties to a fraudulent document His Honor did right in recognizing its
existence, albeit erring in not giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is not only unconvincing but has been actually overcome by the
more competent and weighty evidence in favor of the defendants, her attempt to substantiate her main cause of action that defendants Lim Tanhu and Ng Sua
have defrauded the partnership Glory Commercial Co. and converted its properties to themselves is even more dismal. From the very evidence summarized by
His Honor in the decision in question, it is clear that not an iota of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted impliedly in defendants' affirmative defense that Po Chuan's share had
already been duly settled with and paid to both the plaintiff and his legitimate family. But the evidence as to the actual participation of the defendants Lim Tanhu

and Ng Sua in the operation of the business that could have enabled them to make the extractions of funds alleged by plaintiff is at best confusing and at certain
points manifestly inconsistent.

share of the assets and properties of the

partnership. In fact, her prayer in said complaint is, among others, for the delivery to her of such / share. His Honor's
statement of the case as well as his findings and judgment are all to that same effect. But what did she actually try to
prove at the ex- parte hearing?
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is entitled to / 3

According to the decision, plaintiff had shown that she had money of her own when she "married" Po Chuan and "that prior to and just after the marriage of the
plaintiff to Po Chuan, she was engaged in the drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold her
drugstore for P125,000 which amount she gave to her husband in the presence of Tanhu and was invested in the partnership Glory Commercial Co. sometime in
1950; that after the investment of the above-stated amount in the partnership, its business flourished and it embarked in the import business and also engaged in
the wholesale and retail trade of cement and GI sheets and under (sic) huge profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the partnership by reason of which the business flourished and amassed all the
millions referred to in the decision has not been alleged in the complaint, and inasmuch as what was being rendered was a judgment by default, such theory
should not have been allowed to be the subject of any evidence. But inasmuch as it was the clerk of court who received the evidence, it is understandable that he
failed to observe the rule. Then, on the other hand, if it was her capital that made the partnership flourish, why would she claim to be entitled to only to / 3

of its

assets and profits? Under her theory found proven by respondent court, she was actually the owner of everything,
particularly because His Honor also found "that defendants Lim Tanhu and Ng Sua were partners in the name but they
were employees of Po Chuan that defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their
employment with the Glory Commercial Co. under the management of the late Po Chuan except their salaries
therefrom; ..." (p. 27, id.) Why then does she claim only / share? Is this an indication of her generosity towards
defendants or of a concocted cause of action existing only in her confused imagination engendered by the death of her
common-law husband with whom she had settled her common-law claim for recompense of her services as common law
wife for less than what she must have known would go to his legitimate wife and children?
3

Actually, as may be noted from the decision itself, the trial court was confused as to the participation of defendants Lim Tanhu and Ng Sua in Glory Commercial
Co. At one point, they were deemed partners, at another point mere employees and then elsewhere as partners-employees, a newly found concept, to be sure, in
the law on partnership. And the confusion is worse comfounded in the judgment which allows these "partners in name" and "partners-employees" or employees
who had no means of livelihood and who must not have contributed any capital in the business, "as Po Chuan was practically the owner of the partnership having

each of the huge assets and profits of the partnership. Incidentally, it may be observed at this juncture
that the decision has made Po Chuan play the inconsistent role of being "practically the owner" but at the same time
getting his capital from the P125,000 given to him by plaintiff and from which capital the business allegedly "flourished."
the controlling interest", / 3

Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names of defendants Lim Tanhu and Ng Sua were bought by them with
partnership funds, His Honor confirmed the same by finding and holding that "it is likewise clear that real properties together with the improvements in the names
of defendants Lim Tanhu and Ng Sua were acquired with partnership funds as these defendants were only partners-employees of deceased Po Chuan in the Glory
Commercial Co. until the time of his death on March 11, 1966." (p. 30, id.) It Is Our considered view, however, that this conclusion of His Honor is based on nothing
but pure unwarranted conjecture. Nowhere is it shown in the decision how said defendants could have extracted money from the partnership in the fraudulent and
illegal manner pretended by plaintiff. Neither in the testimony of Nuez nor in that of plaintiff, as these are summarized in the decision, can there be found any
single act of extraction of partnership funds committed by any of said defendants. That the partnership might have grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the decision are not in the names of Po Chuan, who was Chinese, but of the defendants who are Filipinos, do
not necessarily prove that Po Chuan had not gotten his share of the profits of the business or that the properties in the names of the defendants were bought with
money of the partnership. In this connection, it is decisively important to consider that on the basis of the concordant and mutually cumulative testimonies of
plaintiff and Nuez, respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership Glory Commercial Co. he was the one who made
the final decisions and approved the appointments of new Personnel who were taken in by the partnership; that the late Po Chuan and
defendants Lim Tanhu and Ng Sua are brothers, the latter to (2) being the elder brothers of the former; that defendants Lim Tanhu and Ng
Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner of the partnership having the controlling
interest; that defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the defendants have defrauded him of such huge amounts as plaintiff had
made his Honor believe? Upon the other hand, since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if defendants had
obtained any portion of the funds of the partnership for themselves, it must have been with the knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner without the consent of
the other partner or partners. Incidentally again, this theory about Po Chuan having been actively managing the partnership up to his death is a substantial
deviation from the allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng
Chong Leonardo, through fraud and machination, took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager

of Glory Commercial Co., defendants managed to use the funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of amended complaint, Annex
B of petition) and should not have been permitted to be proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land titles listed in the decision, most if not all of the properties supposed to have
been acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969 or later, that is,
long after the partnership had been automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have no obligation to account to anyone
for such acquisitions in the absence of clear proof that they had violated the trust of Po Chuan during the existence of the partnership. (See Hanlon vs.
Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily disbelieve plaintiffs' pretensions. Nuez testified that "for about 18 years he was in
charge of the GI sheets and sometimes attended to the imported items of the business of Glory Commercial Co." Counting 18 years back from 1965 or 1966 would
take Us to 1947 or 1948. Since according to Exhibit LL, the baptismal certificate produced by the same witness as his birth certificate, shows he was born in
March, 1942, how could he have started managing Glory Commercial Co. in 1949 when he must have been barely six or seven years old? It should not have
escaped His Honor's attention that the photographs showing the premises of Philippine Metal Industries after its organization "a year or two after the establishment
of Cebu Can Factory in 1957 or 1958" must have been taken after 1959. How could Nuez have been only 13 years old then as claimed by him to have been his
age in those photographs when according to his "birth certificate", he was born in 1942? His Honor should not have overlooked that according to the same
witness, defendant Ng Sua was living in Bantayan until he was directed to return to Cebu after the fishing business thereat floundered, whereas all that the witness
knew about defendant Lim Teck Chuan's arrival from Hongkong and the expenditure of partnership money for him were only told to him allegedly by Po Chuan,
which testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan. Neither should His Honor have failed to note that according to
plaintiff herself, "Lim Tanhu was employed by her husband although he did not go there always being a mere employee of Glory Commercial Co." (p. 22, Annex
the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except their salaries. Actually, it is not stated, however, from what evidence
such conclusion was derived in so far as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the decision itself states that according to Exhibit
NN-Pre trial, in the supposed income tax return of Lim Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal Industries alone and had a
total assess sable net income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pretrial in the year, he had a
net income of P32,000 for which be paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in Madridejos Cebu was making money, and he reported
"a net gain from operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor gather the conclusion that all the properties
registered in his name have come from funds malversed from the partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory Commercial Co. without the aid of any accountant or without the same being
explained by any witness who had prepared them or who has knowledge of the entries therein. This must be the reason why there are apparent inconsistencies
and inaccuracies in the conclusions His Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets of the company amounted to P2,328,460.27 as
of December, 1965, and yet, Exhibit TT-Pre-trial, according to His Honor, showed that the total value of goods available as of the same date was P11,166,327.62.
On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of the company for 1966, "the value of inventoried merchandise, both local and imported",
as found by His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the company's goods available for sale was P5,524,050.87, per Exhibit YY
and YY-Pre-trial. Then, per Exhibit II-3-Pre-trial, the supposed Book of Account, whatever that is, of the company showed its "cash analysis" was P12,223,182.55.
We do not hesitate to make the observation that His Honor, unless he is a certified public accountant, was hardly qualified to read such exhibits and draw any
definite conclusions therefrom, without risk of erring and committing an injustice. In any event, there is no comprehensible explanation in the decision of the
conclusion of His Honor that there were P12,223,182.55 cash money defendants have to account for, particularly when it can be very clearly seen in Exhibits 11-4,
11-4- A, 11-5 and 11-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the
circumstances, We are not prepared to permit anyone to predicate any claim or right from respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in the amended complaint that a corporation denominated Glory
Commercial Co., Inc. was organized after the death of Po Chuan with capital from the funds of the partnership. We note also that there is absolutely no finding
made as to how the defendants Dy Ochay and Co Oyo could in any way be accountable to plaintiff, just because they happen to be the wives of Lim Tanhu and Ng

of the
P12,223,182.55, the supposed cash belonging to the partnership as of December 31, 1965, in the same breath, they have
also been sentenced to partition and give / share of the properties enumerated in the dispositive portion of the decision,
which seemingly are the very properties allegedly purchased from the funds of the partnership which would naturally
include the P12,223,182.55 defendants have to account for. Besides, assuming there has not yet been any liquidation of
the partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the status of a
partnership in liquidation and the only right plaintiff could have would be to what might result after such liquidation to
belong to the deceased partner, and before this is finished, it is impossible to determine, what rights or interests, if any, the
deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other words, no specific amounts or properties may be adjudicated
to the heir or legal representative of the deceased partner without the liquidation being first terminated.
Sua, respectively. We further note that while His Honor has ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or / 3

Indeed, only time and the fear that this decision would be much more extended than it is already prevent us from further pointing out the inexplicable deficiencies
and imperfections of the decision in question. After all, what have been discussed should be more than sufficient to support Our conclusion that not only must said
decision be set aside but also that the action of the plaintiff must be totally dismissed, and, were it not seemingly futile and productive of other legal complications,
that plaintiff is liable on defendants' counterclaims. Resolution of the other issues raised by the parties albeit important and perhaps pivotal has likewise become
superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent court in its Civil Case No. 12328 subsequent to the order of
dismissal of October 21, 1974 are hereby annulled and set aside, particularly the ex-parte proceedings against petitioners and the decision on December 20,
1974. Respondent court is hereby ordered to enter an order extending the effects of its order of dismissal of the action dated October 21, 1974 to herein

petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined from taking any further
action in said civil case gave and except as herein indicated. Costs against private respondent.

B. Property Rights of a Partner (Articles 1810-1814)

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was amended as to
include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and
Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The amended Articles provided, inter alia, that
"the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed
among the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to
be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila, alleging that the partnership, which
was also made a party-defendant, had been paying dividends to the partners except to her; and that notwithstanding her demands the defendants had refused and
continued to refuse and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends
declared by the partnership. She therefore prayed that the defendants be ordered to render accounting to her of the partnership business and to pay her
corresponding share in the partnership profits after such accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied likewise that the plaintiff ever demanded
that she be allowed to examine the partnership books; and byway of affirmative defense alleged that the amended Articles of Co-partnership did not express the
true agreement of the parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership; and that her
share of 30% was to be based on the profits which might be realized by the partnership only until full payment of the loan which it had obtained in December, 1955
from the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as
security.
The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by appellants (herein petitioners)." On that issue the Court of First Instance found for the plaintiff and rendered
judgement "declaring her an industrial partner of Evangelista & Co.; ordering the defendants to render an accounting of the business operations of the (said)
partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after such an accounting
has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista & Co., notwithstanding the admitted fact
that since 1954 and until after promulgation of the decision of the appellate court the said respondent was one of the judges of the City Court
of Manila, and despite its findings that respondent had been paid for services allegedly contributed by her to the partnership. In this
connection the Court of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive evidence that respondent was in
fact made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the decision proves that said respondent did not
bind herself to contribute her industry, and she could not, and in fact did not, because she was one of the judges of the
City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite the appellate court's own finding that she
has been paid for the services allegedly rendered by her, as well as for the loans of money made by her to the
partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and deprived of, her alleged share,
interests and participation, as an alleged industrial partner, in the partnership Evangelista & Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was declared an industrial partner of the
petitioner, and petitioners were ordered to render an accounting of the business operation of the partnership from June 7, 1955, and to pay
the respondent her alleged share in the net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the costs of the suit,
instead of dismissing respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of Appeals. The evidence presented by the parties as
the trial in support of their respective positions on the issue of whether or not the respondent was an industrial partner was thoroughly analyzed by the Court of
Appeals on its decision, to the extent of reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have
been commited by the lower court. It should be observed, in this regard, that the Court of Appeals did not hold that the Articles of Co-partnership, identified in the
record as Exhibit "A", was conclusive evidence that the respondent was an industrial partner of the said company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder reproduced if only to demonstrate that the same
were made after a through analysis of then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein it is pointed out that "Appellee's
documentary evidence does not conclusively prove that appellee was in fact admitted by appellants as industrial partner of Evangelista &
Co." and that "The grounds relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding that the appellee is an industrial partner
of appellant Evangelista & Co., herein referred to as the partnership the lower court relied mainly on the appellee's documentary evidence,
entirely disregarding facts and circumstances established by appellants" evidence which contradict the said finding' (Page 21, Appellants'
Brief). The lower court could not have done otherwise but rely on the exhibits just mentioned, first, because appellants have admitted their
genuineness and due execution, hence they were admitted without objection by the lower court when appellee rested her case and,
secondly the said exhibits indubitably show the appellee is an industrial partner of appellant company. Appellants are virtually estopped from
attempting to detract from the probative force of the said exhibits because they all bear the imprint of their knowledge and consent, and there
is no credible showing that they ever protested against or opposed their contents prior of the filing of their answer to appellee's complaint. As
a matter of fact, all the appellant Evangelista, Jr., would have us believe as against the cumulative force of appellee's aforesaid
documentary evidence is the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already mentioned, does not
express the true intent and agreement of the parties thereto, the real understanding between them being the appellee would be merely a
profit sharer entitled to 30% of the net profits that may be realized between the partners from June 7, 1955, until the mortgage loan of
P30,000.00 to be obtained from the RFC shall have been fully paid. This version, however, is discredited not only by the aforesaid
documentary evidence brought forward by the appellee, but also by the fact that from June 7, 1955 up to the filing of their answer to the
complaint on February 8, 1964 or a period of over eight (8) years appellants did nothing to correct the alleged false agreement of the
parties contained in Exhibit "A". It is thus reasonable to suppose that, had appellee not filed the present action, appellants would not have
advanced this obvious afterthought that Exhibit "A" does not express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact which proves that the parties to the
Amended Articles of Partnership, Exhibit "A", did not contemplate to make the appellee Estrella Abad Santos, an industrial partner of
Evangelista & Co. It is an admitted fact that since before the execution of the amended articles of partnership, Exhibit "A", the appellee
Estrella Abad Santos has been, and up to the present time still is, one of the judges of the City Court of Manila, devoting all her time to the
performance of the duties of her public office. This fact proves beyond peradventure that it was never contemplated between the parties, for
she could not lawfully contribute her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil
Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite impression that, even as she was and still is a Judge of
the City Court of Manila, she has rendered services for appellants without which they would not have had the wherewithal to operate the
business for which appellant company was organized. Article 1767 of the New Civil Code which provides that "By contract of partnership two
or more persons bind themselves, to contribute money, property, or industry to a common fund, with the intention of dividing the profits

among themselves, 'does not specify the kind of industry that a partner may thus contribute, hence the said services may legitimately be
considered as appellee's contribution to the common fund. Another article of the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him
to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of interest
between the industrial partner and the partnership, and to insure faithful compliance by said partner with this prestation. There is no
pretense, however, even on the part of the appellee is engaged in any business antagonistic to that of appellant company, since being a
Judge of one of the branches of the City Court of Manila can hardly be characterized as a business. That appellee has faithfully complied
with her prestation with respect to appellants is clearly shown by the fact that it was only after filing of the complaint in this case and the
answer thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in their Supplemental Answer
dated June 29, 1964 or after around nine (9) years from June 7, 1955 subsequent to the filing of defendants' answer to the complaint,
defendants reached an agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in the defendant partnership and/or in its net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of
Manila, devoting her time to performance of her duties as such judge and enjoying the privilege and emoluments appertaining to the said
office, aside from teaching in law school in Manila, without the express consent of the herein defendants' (Record On Appeal, pp. 24-25).
Having always knows as a appellee as a City judge even before she joined appellant company on June 7, 1955 as an industrial partner, why
did it take appellants many yearn before excluding her from said company as aforequoted allegations? And how can they reconcile such
exclusive with their main theory that appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was to
grant the appellee a share of 30% of the net profits which the appellant partnership may realize from June 7, 1955, until the mortgage of
P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of appellant company, with the right to
demand for a formal accounting and to receive her share in the net profit that may result from such an accounting, which right appellants
take exception under their second assigned error. Our said holding is based on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.
We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors of law, accepting as conclusive the
factual findings of the lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.

C. Obligations of the Partners with Regard to Third Persons (Articles 1815-1827)

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
July 30, 1979
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E.
SALAZAR, FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES
G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN
A. CATINDIG, ANCHETA K. TAN, and ALICE V. PESIGAN,petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES."
RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and
JOSE F. BUENAVENTURA, petitioners.
RESOLUTION

MELENCIO-HERRERA, J.:

+.wph!1

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners
of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to continue using, in the names of their firms, the names of partners who
had passed away. In the Court's Resolution of September 2, 1976, both Petitions were ordered consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its business under a firm name which includes the name of a deceased partner; in fact, Article
1840 of the Civil Code explicitly sanctions the practice when it provides in the last paragraph that:
t.hqw

The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or
partnership. 1
2. In regulating other professions, such as accountancy and engineering, the legislature has authorized the adoption of firm names without any restriction as to the

the legislative authorization given to those engaged in the practice of

accountancy a profession requiring the same degree of trust and confidence in respect of clients as that implicit in the
relationship of attorney and client to acquire and use a trade name, strongly indicates that there is no fundamental
policy that is offended by the continued use by a firm of professionals of a firm name which includes the name of a
deceased partner, at least where such firm name has acquired the characteristics of a "trade name."
use, in such firm name, of the name of a deceased partner;

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a deceased partner in the firm name of a law partnership because
Canon 33 of the Canons of Professional Ethics adopted by the American Bar Association declares that:
t.hqw

... The continued use of the name of a deceased or former partner when permissible by local custom, is not unethical but care should be
taken that no imposition or deception is practiced through this use. ... 4
4. There is no possibility of imposition or deception because the deaths of their respective deceased partners were well-publicized in all newspapers of general
circulation for several days; the stationeries now being used by them carry new letterheads indicating the years when their respective deceased partners were
connected with the firm; petitioners will notify all leading national and international law directories of the fact of their respective deceased partners' deaths. 5

there is no custom or usage in the

Philippines, or at least in the Greater Manila Area, which recognizes that the name of a law firm necessarily Identifies the
individual members of the firm.
5. No local custom prohibits the continued use of a deceased partner's name in a professional firm's name;

6. The continued use of a deceased partner's name in the firm name of law partnerships has been consistently allowed by U.S. Courts and is an accepted practice
in the legal profession of most countries in the world. 8
The question involved in these Petitions first came under consideration by this Court in 1953 when a law firm in Cebu (the Deen case) continued its practice of
including in its firm name that of a deceased partner, C.D. Johnston. The matter was resolved with this Court advising the firm to desist from including in their firm
designation the name of C. D. Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitled Register of Deeds of Manila vs. China Banking Corporation. The
law firm of Perkins & Ponce Enrile moved to intervene asamicus curiae. Before acting thereon, the Court, in a Resolution of April 15, 1957, stated that it "would like
to be informed why the name of Perkins is still being used although Atty. E. A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of
Perkins and Ponce Enrile, raising substantially the same arguments as those now being raised by petitioners, prayed that the continued use of the firm name
"Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved:

t.hqw

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and Associates for their continued use of the name of the
deceased E. G. Perkins, the Court found no reason to depart from the policy it adopted in June 1953 when it required Attorneys Alfred P.
Deen and Eddy A. Deen of Cebu City to desist from including in their firm designation, the name of C. D. Johnston, deceased. The Court
believes that, in view of the personal and confidential nature of the relations between attorney and client, and the high standards demanded
in the canons of professional ethics, no practice should be allowed which even in a remote degree could give rise to the possibility of
deception. Said attorneys are accordingly advised to drop the name "PERKINS" from their firm name.
Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.
The Court finds no sufficient reason to depart from the rulings thus laid down.

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in their
partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code which provides:
t.hqw

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability, of a partner.
It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and. in the case of non-partners, should
be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including his name in the firm name under
pain of assuming the liability of a partner. The heirs of a deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm
particularly where they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics "prohibits an agreement for the payment to the widow and heirs of a
deceased lawyer of a percentage, either gross or net, of the fees received from the future business of the deceased lawyer's clients, both because the recipients of
such division are not lawyers and because such payments will not represent service or responsibility on the part of the recipient. " Accordingly, neither the widow
nor the heirs can be held liable for transactions entered into after the death of their lawyer-predecessor. There being no benefits accruing, there ran be no
corresponding liability.
Prescinding the law, there could be practical objections to allowing the use by law firms of the names of deceased partners. The public relations value of the use of
an old firm name can tend to create undue advantages and disadvantages in the practice of the profession. An able lawyer without connections will have to make
a name for himself starting from scratch. Another able lawyer, who can join an old firm, can initially ride on that old firm's reputation established by deceased
partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title IX of
the Code entitled "Dissolution and Winding Up." The Article primarily deals with the exemption from liability in cases of a dissolved partnership, of the individual
property of the deceased partner for debts contracted by the person or partnership which continues the business using the partnership name or the name of the
deceased partner as part thereof. What the law contemplates therein is a hold-over situation preparatory to formal reorganization.
Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than of aprofessional partnership, with no saleable good will but
whose reputation depends on the personal qualifications of its individual members. Thus, it has been held that a saleable goodwill can exist only in a commercial
partnership and cannot arise in a professional partnership consisting of lawyers. 9
t.hqw

As a general rule, upon the dissolution of a commercial partnership the succeeding partners or parties have the right to carry on the business
under the old name, in the absence of a stipulation forbidding it, (s)ince the name of a commercial partnership is a partnership asset
inseparable from the good will of the firm. ... (60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand,

t.hqw

... a professional partnership the reputation of which depends or; the individual skill of the members, such as partnerships of attorneys or
physicians, has no good win to be distributed as a firm asset on its dissolution, however intrinsically valuable such skill and reputation may
be, especially where there is no provision in the partnership agreement relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis
supplied)
C. A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business. For one thing, the law on accountancy
specifically allows the use of a trade name in connection with the practice of accountancy. 10

t.hqw

A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a particular purpose. ... It is not a

Thus, it has been stated that "the

use of a nom de plume, assumed or trade name in law practice is improper.
partnership formed for the purpose of carrying on trade or business or of holding property."

11

12

The usual reason given for different standards of conduct being applicable to the practice of law from
those pertaining to business is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey of the Legal Profession, (The Lawyer from Antiquity to Modern Times, p. 5)
defines a profession as "a group of men pursuing a learned art as a common calling in the spirit of public service, no less a public service
because it may incidentally be a means of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession from business are:
1. A duty of public service, of which the emolument is a byproduct, and in which one may attain the highest eminence without making much
money.
2. A relation as an "officer of court" to the administration of justice involving thorough sincerity, integrity, and reliability.

3. A relation to clients in the highest degree fiduciary.

4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness to resort to current business methods of advertising
and encroachment on their practice, or dealing directly with their clients. 13

It is limited to persons of good moral

character with special qualifications duly ascertained and certified. The right does not only presuppose in its possessor
integrity, legal standing and attainment, but also the exercise of a special privilege, highly personal and partaking of the
nature of a public trust."
"The right to practice law is not a natural or constitutional right but is in the nature of a privilege or franchise.

14

15

16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association" in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased or former partner in the firm name of a law partnership when
such a practice is permissible by local custom but the Canon warns that care should be taken that no imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or former partner's name in the firm names of law
partnerships. Firm names, under our custom, Identify the more active and/or more senior members or partners of the law firm. A glimpse at the history of the firms
of petitioners and of other law firms in this country would show how their firm names have evolved and changed from time to time as the composition of the
partnership changed.
t.hqw

The continued use of a firm name after the death of one or more of the partners designated by it is proper only where sustained by local
custom and not where by custom this purports to Identify the active members. ...
There would seem to be a question, under the working of the Canon, as to the propriety of adding the name of a new partner and at the
same time retaining that of a deceased partner who was never a partner with the new one. (H.S. Drinker, op. cit., supra, at pp. 207208)
(Emphasis supplied).
The possibility of deception upon the public, real or consequential, where the name of a deceased partner continues to be used cannot be ruled out. A person in
search of legal counsel might be guided by the familiar ring of a distinguished name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased partner's name in the firm name of law partnerships. But that is so
because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al. quoted in their memorandum, the New York
Supreme Court sustained the use of the firm name Alexander & Green even if none of the present ten partners of the firm bears either name because the practice
was sanctioned by custom and did not offend any statutory provision or legislative policy and was adopted by agreement of the parties. The Court stated therein:

t.hqw

The practice sought to be proscribed has the sanction of custom and offends no statutory provision or legislative policy. Canon 33 of the
Canons of Professional Ethics of both the American Bar Association and the New York State Bar Association provides in part as follows: "The
continued use of the name of a deceased or former partner, when permissible by local custom is not unethical, but care should be taken that
no imposition or deception is practiced through this use." There is no question as to local custom. Many firms in the city use the names of
deceased members with the approval of other attorneys, bar associations and the courts. The Appellate Division of the First Department has
considered the matter and reached The conclusion that such practice should not be prohibited. (Emphasis supplied)
xxx xxx xxx
Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use of the firm name herein is also sustainable by
reason of agreement between the partners. 18
Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom has been defined as a rule of conduct formed by repetition of acts,

Courts take no judicial notice of custom. A custom must be

proved as a fact, according to the rules of evidence. A local custom as a source of right cannot be considered by a court
of justice unless such custom is properly established by competent evidence like any other fact. We find such proof of
the existence of a local custom, and of the elements requisite to constitute the same, wanting herein. Merely because
something is done as a matter of practice does not mean that Courts can rely on the same for purposes of adjudication as
a juridical custom. Juridical custom must be differentiated from social custom. The former can supplement statutory law or
be applied in the absence of such statute. Not so with the latter.
uniformly observed (practiced) as a social rule, legally binding and obligatory.

19

20

21

When the Supreme Court in the Deen and Perkins

cases issued its Resolutions directing lawyers to desist from including the names of deceased partners in their firm
designation, it laid down a legal rule against which no custom or practice to the contrary, even if proven, can prevail. This
Moreover, judicial decisions applying or interpreting the laws form part of the legal system.

22

is not to speak of our civil law which clearly ordains that a partnership is dissolved by the death of any partner.
which are contrary to law, public order or public policy shall not be countenanced.

23

Custom

24

The practice of law is intimately and peculiarly related to the administration of justice and should not be considered like an ordinary "money-making trade."

t.hqw

... It is of the essence of a profession that it is practiced in a spirit of public service. A trade ... aims primarily at personal gain; a profession at
the exercise of powers beneficial to mankind. If, as in the era of wide free opportunity, we think of free competitive self assertion as the
highest good, lawyer and grocer and farmer may seem to be freely competing with their fellows in their calling in order each to acquire as
much of the world's good as he may within the allowed him by law. But the member of a profession does not regard himself as in competition
with his professional brethren. He is not bartering his services as is the artisan nor exchanging the products of his skill and learning as the
farmer sells wheat or corn. There should be no such thing as a lawyers' or physicians' strike. The best service of the professional man is
often rendered for no equivalent or for a trifling equivalent and it is his pride to do what he does in a way worthy of his profession even if
done with no expectation of reward, This spirit of public service in which the profession of law is and ought to be exercised is a prerequisite of
sound administration of justice according to law. The other two elements of a profession, namely, organization and pursuit of a learned art
have their justification in that they secure and maintain that spirit. 25
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names "SYCIP" and "OZAETA" from their respective firm names. Those
names may, however, be included in the listing of individuals who have been partners in their firms indicating the years during which they served as such.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-22493 July 31, 1975

ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C.
DACO,defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.:

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First Instance of
Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to
pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus
attorney's fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with the understanding that the judgment against these

individual defendants shall be enforced only if the defendant company has no more leviable
properties with which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines,
purchased from the plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory
note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or
before May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid,
with the condition that failure to pay any of said installments as they fall due would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the
unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig,
and Augusto Palisoc were included as co-defendants in their capacity as general partners of the defendant
company.
Daniel A. Guizona failed to file an answer and was consequently declared in default. 1
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig
is concerned. 2
When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the
notices sent to them. Consequently, the trial court authorized the plaintiff to present its evidence ex-parte 3 , after
which the trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are
five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 ) of the
obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of the
plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the obligations of the defendant
company. 4 Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general partners of
a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the
partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts which may be entered into in
the name and for the account of the partnership, under its signature and by a person authorized to
act for the partnership. However, any partner may enter into a separate obligation to perform a
partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros. It
was, therefore, a civil partnership as distinguished from a mercantile partnership. Being a civil
partnership, by the express provisions of articles l698 and 1137 of the Civil Code, the partners are
not liable each for the whole debt of the partnership. The liability is pro rata and in this case Pedro
Yulo is responsible to plaintiff for only one-half of the debt. The fact that the other partner, Jaime
Palacios, had left the country cannot increase the liability of Pedro Yulo.

In the instant case, there were five (5) general partners when the promissory note in question was executed for and
in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C.
Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig
as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-39780 November 11, 1985
ELMO MUASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON PONS,respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of Appeals affirming the existence of a partnership between
petitioner and one of the respondents, Celestino Galan and holding both of them liable to the two intervenors which extended credit to their partnership. The
petitioner wants to be excluded from the liabilities of the partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages against respondents Celestino Galan, Tropical Commercial, Co., Inc.
(Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for remodelling a
portion of its building without exchanging or expecting any consideration from Galan although the latter was casually named as partner in the contract; that by
virtue of his having introduced the petitioner to the employing company (Tropical). Galan would receive some kind of compensation in the form of some
percentages or commission; that Tropical, under the terms of the contract, agreed to give petitioner the amount of P7,000.00 soon after the construction began
and thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00; that on January 9, 1967, Tropical
and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's indorsement on the
same check persuading the latter that the same be deposited in a joint account; that on January 26, 1967 when the second check for P6,000.00 was due,
petitioner refused to indorse said cheek presented to him by Galan but through later manipulations, respondent Pons succeeded in changing the payee's name
from Elmo Muasque to Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB)
placing the petitioner in great financial difficulty in his construction business and subjecting him to demands of creditors to pay' for construction materials, the
payment of which should have been made from the P13,000.00 received by Galan; that petitioner undertook the construction at his own expense completing it
prior to the March 16, 1967 deadline;that because of the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by respondents under the terms of the written contract between the petitioner and respondent company.
The respondents answered the complaint by denying some and admitting some of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed that the issues to be resolved are:
(1) Whether or not there existed a partners between Celestino Galan and Elmo Muasque; and

(2) Whether or not there existed a justifiable cause on the part of respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed to intervene, both having legal interest in the matter in
litigation.
After trial, the court rendered judgment, the dispositive portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the intervenors Cebu and Southern Hardware Company and
Blue Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the intervenors Cebu Southern Hardware Company and
Blue Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware Company and Tan Siu jointly and severally interest at
12% per annum of the sum of P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees jointly and severally to Intervenor Cebu Southern
Hardware Company:
(4) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification that the liability imposed in the dispositive part of the decision on
the credit of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and Muasque" as Contractor entered into a written contract with
respondent Tropical for remodelling the respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract for the entire services
of the Contractor. The terms of payment were as follows: thirty percent (30%) of the whole amount upon the signing of the contract and the balance thereof divided
into three equal installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the check in
favor of respondent Galan to enable the latter to deposit it in the bank and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when the second check in the amount of P6,000.00 came and
Galan asked the petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that there was a"misunderstanding" between him and petitioner,
respondent Tropical changed the name of the payee in the second check from Muasque to "Galan and Associates" which was the duly registered name of the
partnership between Galan and petitioner and under which name a permit to do construction business was issued by the mayor of Cebu City. This enabled Galan
to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He stated that he borrowed some P12,000.00 from his friend, Mr.
Espina and although the expenses had reached the amount of P29,000.00 because of the failure of Galan to pay what was partly due the laborers and partly due
for the materials, the construction work was finished ahead of schedule with the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were subsequently given to the petitioner alone with the last check being given pursuant to a court
order.

As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against the respondents,seeking to recover the following: the amounts
covered by the first and second checks which fell into the hands of respondent Galan, the additional expenses that the petitioner incurred in the construction,
moral and exemplary damages, and attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager, Pons, from any liability but they also held the petitioner together
with respondent Galan, hable to the intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which the intervenors extended
to the partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the appellate court erred in holding that a partnership existed between
petitioner and respondent Galan. (2) Assuming that there was such a partnership, whether or not the court erred in not finding Galan guilty of malversing the
P13,000.00 covered by the first and second checks and therefore, accountable to the petitioner for the said amount; and (3) Whether or not the court committed
grave abuse of discretion in holding that the payment made by Tropical through its manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and respondent Galan were partners, the truth being that Galan was a sham and a perfidious
partner who misappropriated the amount of P13,000.00 due to the petitioner.Petitioner also contends that the appellate court committed grave abuse of discretion
in holding that the payment made by Tropical to Galan was "good" payment when the same gave occasion for the latter to misappropriate the proceeds of such
payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with Tropical for the renovation of the latter's building on behalf of the partnership of "Galan and
Muasque." This is readily seen in the first paragraph of the contract where it states:
This agreement made this 20th day of December in the year 1966 by Galan and Muasque hereinafter called the Contractor, and Tropical
Commercial Co., Inc., hereinafter called the owner do hereby for and in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship organized by the two men was not a genuine one. If there was a falling out or misunderstanding
between the partners, such does not convert the partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a check made out in his name, he indorsed the check in favor of
Galan. Respondent Tropical therefore, had every right to presume that the petitioner and Galan were true partners. If they were not partners as petitioner claims,
then he has only himself to blame for making the relationship appear otherwise, not only to Tropical but to their other creditors as well. The payments made to the
partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the appellees also acted in good faith in extending credit
to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear
the consequences.
No error was committed by the appellate court in holding that the payment made by Tropical to Galan was a good payment which binds both Galan and the
petitioner. Since the two were partners when the debts were incurred, they, are also both liable to third persons who extended credit to their partnership. In the
case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:
There is a general presumption that each individual partner is an authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions. (Mills vs. Riggle,112 Pan, 617).
The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding Galan liable for the amounts which he "malversed" to the
prejudice of the petitioner. He adds that although this was not one of the issues agreed upon by the parties during the pretrial, he, nevertheless, alleged the same
in his amended complaint which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons in his personal capacity. Although the petitioner made
allegations as to the alleged malversations of Galan, these were the same allegations in his original complaint. The malversation by one partner was not an issue
actually raised in the amended complaint but the alleged connivance of Pons with Galan as a means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial because he himself agreed to the same. In Permanent Concrete
Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx

... The appellant is bound by the delimitation of the issues contained in the trial court's order issued on the very day the pre-trial conference
was held. Such an order controls the subsequent course of the action, unless modified before trial to prevent manifest injustice.In the case at
bar, modification of the pre-trial order was never sought at the instance of any party.
Petitioner could have asked at least for a modification of the issues if he really wanted to include the determination of Galan's personal liability to their partnership
but he chose not to do so, as he vehemently denied the existence of the partnership. At any rate, the issue raised in this petition is the contention of Muasque
that the amounts payable to the intervenors should be shouldered exclusively by Galan. We note that the petitioner is not solely burdened by the obligations of
their illstarred partnership. The records show that there is an existing judgment against respondent Galan, holding him liable for the total amount of P7,000.00 in
favor of Eden Hardware which extended credit to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu
Southern Hardware"jointly and severally" is plain error since the liability of partners under the law to third persons for contracts executed inconnection with
partnership business is only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be liable prorate with all their property and after all the
partnership assets have been exhausted, for the contracts which may be entered into the name and fm the account cd the partnership, under its signature and by
a person authorized to act for the partner-ship. ...". this provision should be construed together with Article 1824 which provides that: "All partners are liable
solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners are merely joint
in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if
the case of the third person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partner-ship or with the
authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or property of a third person and t he money or property so received
is misapplied by any partner while it is in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent. That is
why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the petitioner and Galan and no fault or error can be
imputed against it for making payments to "Galan and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner
with real authority to transact on behalf of the partnership with which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue
Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the
partners therein should be answered solidarily by all the partners and the partnership as a whole
However. as between the partners Muasque and Galan,justice also dictates that Muasque be reimbursed by Galan for the payments made by the former
representing the liability of their partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muasque as
a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the liability of petitioner and respondent Galan to intervenors Blue
Diamond Glass and Cebu Southern Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any amount that he pays, in his
capacity as a partner, to the above intervenors,
SO ORDERED.

SEE Pioneer Insurance & Security Corp. v. CA, G.R. Nos. 84197 & 84157, July 28, 1989
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 70403 July 7, 1989

SANTIAGO SYJUCO, INC., petitioner,

vs.
HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF THE NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV,
QUEZON CITY, THE CITY SHERIFF OF THE CITY OF MANILA, THE CITY REGISTER OF DEEDS OF THE CITY OF MANILA, EUGENIO LIM, ARAMIS LIM,
MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY PATERNO P.
CANLAS, respondents.
Doroteo B. Daguna and Felix D. Carao for petitioner.
Paterno Canlas for private respondents.

NARVASA, J.:
This case may well serve as a textbook example of how judicial processes, designed to promote the swift and efficient disposition of disputes at law, can be so
grossly abused and manipulated as to produce precisely the opposite result; how they can be utilized by parties with small scruples to forestall for an
unconscionably long time so essentially simple a matter as making the security given for a just debt answer for its payment.
The records of the present proceedings and of two other cases already decided by this Court expose how indeed the routine procedure of an extrajudicial
foreclosure came by dint of brazen forum shopping and other devious maneuvering to grow into a veritable thicket of litigation from which the mortgagee has been
trying to extricate itself for the last twenty years.
Back in November 1964, Eugenio Lim, for and in his own behalf and as attorney-in-fact of his mother, the widow Maria Moreno (now deceased) and of his brother
Lorenzo, together with his other brothers, Aramis, Mario and Paulino, and his sister, Nila, all hereinafter collectively called the Lims, borrowed from petitioner
Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of P800,000.00. The loan was given on the security of a first mortgage on property registered in the
names of said borrowers as owners in common under Transfer Certificates of Title Numbered 75413 and 75415 of the Registry of Deeds of Manila. Thereafter
additional loans on the same security were obtained by the Lims from Syjuco, so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00,
exclusive of interest, and the security had been augmented by bringing into the mortgage other property, also registered as owned pro indiviso by the Lims under
two titles: TCT Nos. 75416 and 75418 of the Manila Registry.
There is no dispute about these facts, nor about the additional circumstance that as stipulated in the mortgage deed the obligation matured on November 8, 1967;
that the Lims failed to pay it despite demands therefor; that Syjuco consequently caused extra-judicial proceedings for the foreclosure of the mortgage to be

The attempt to
foreclose triggered off a legal battle that has dragged on for more than twenty years now, fought through five (5) cases in
the trial courts, two (2) in the Court of Appeals, and three (3) more in this Court, with the end only now in sight.
commenced by the Sheriff of Manila; and that the latter scheduled the auction sale of the mortgaged property on December 27, 1968.

1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-R; G.R. NO. L-34683
To stop the foreclosure, the Lims through Atty. Marcial G. Mendiola, who was later joined by Atty. Raul Correa filed Civil Case No. 75180 on December
24,1968 in the Court of First Instance of Manila (Branch 5). In their complaint they alleged that their mortgage was void, being usurious for stipulating interest of
23% on top of 11 % that they had been required to pay as "kickback." An order restraining the auction sale was issued two days later, on December 26,1968,
premised inter alia on the Lims' express waiver of "their rights to the notice and re-publication of the notice of sale which may be conducted at some future date." 5

rendered judgment finding that usury tained

the mortgage without, however, rendering it void, declaring the amount due to be only Pl,136,235.00 and allowing the
foreclosure to proceed for satisfaction of the obligation reckoned at only said amount .
On November 25,1970, the Court of First Instance (then presided over by Judge Conrado M. Vasquez

Syjuco moved for new trial to enable it to present additional evidence to overthrow the finding of usury, and the Court ordered the case reopened for that purpose.
The Lims tried to negate that order of reopening in the Court of Appeals, the proceedings being docketed as CA-G.R. No. 00242-R. They failed. The Court of
Appeals upheld the Trial Court. The Lims then sought to nullify this action of the Appellate Court; towards that end, they filed with this Court a petition
for certiorari and prohibition, docketed as G.R. No. L-34683. But here, too, they failed; their petition was dismissed. 8
Thereafter, and on the basis of the additional evidence adduced by Syjuco on remand of the case from this Court, the Trial Court promulgated an amended
decision on August 16, 1972, reversing its previous holding that usury had flawed the Lims' loan obligation. It declared that the principal of said obligation indeed
amounted to P2,460,000.00, exclusive of interest at the rate of 12% per annum from November 8, 1967, and, that obligation being already due, the defendants
(Syjuco and the Sheriff of Manila) could proceed with the extrajudicial foreclosure of the mortgage given to secure its satisfaction. 9
2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R. NO. L-45752
On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in Civil Case No. 75180 as counsel for the Lims in collaboration with Atty. Raul Correa,

In that appeal, which was docketed as CA

G.R. No. 51752, Messrs. Canlas and Correa prayed that the loans be declared usurious; that the principal of the loans be
and on the same date appealed to the Court of Appeals from the amended decision of August 16, 1972.

10

found to be in the total amount of Pl,269,505.00 only, and the interest thereon fixed at only 6% per annum from the filing of
the complaint; and that the mortgage be also pronounced void ab initio.
11

The appeal met with no success. In a decision promulgated on October 25,1976, the Court of Appeals affirmed in toto the Trial Court's amended decision.

12

The Lims came to this Court seeking reversal of the appellate Court's decision. However, their petition for review-filed in their behalf by Canlas, and Atty. Pio R.
Marcos, and docketed as G.R. No. L-45752-was denied for lack of merit in a minute resolution dated August 5, 1977. The Lims' motion for reconsideration was
denied and entry of judgment was made on September 24,1977.

13

Here the matter should have ended; it marked only the beginning of

Syjuco's travails.
3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9
Syjuco then resumed its efforts to proceed with the foreclosure. It caused the auction sale of the mortgaged property to be scheduled on December 20, 1977, only
to be frustrated again by another action filed by the Lims on December 19, 1977, docketed as Civil Case No. 112762 of the Court of First Instance of

The action sought to stop the sale on the ground that the notice of foreclosure had not been republished; this,
notwithstanding that as earlier stressed, the restraining order of December 26, 1968 issued in Civil Case No 75180
explicitly declared itself to be predicated on the Lims' waiver of "their rights to the notice and republication of the notice of
sale which may be conducted at some future date." An order restraining the sale issued in the case, although the
petition for preliminary injunction was subsequently denied. A supplemental complaint was also filed by the Lims seeking
recovery of some Pl million in damages allegedly suffered by reason of said lack of republication.
Manila. 14

15

16

4. CIVIL CASE NO. 75180

That very same claim that there had been no republication of the notice of sale, which was the foundation of the Lims' action in Civil Case No. 112762 as
aforesaid was made by the Lims the basis of an urgent motion filed on December 15, 1977 in Civil Case No. 75180, in which, as earlier narrated, the judgement
authorizing the foreclosure had been affirmed by both the Court of Appeals and this Court, and had become final and executory. And that motion sought exactly the
same remedy prayed for in Civil Case No. 112762 (filed by the Lims four [4] days later, on December 19, 1977), i.e., the prevention of the auction sale. The Court

the very same day that the Lims

commenced Civil Case No. 112762 in the same Court and in which subsequent action they asked for and obtained a
similar restraining order.
-- Branch 5, then presided over by Judge Jose H. Tecson granted the restraining order on December 19, 1977,

17

The Lims' counsel thus brought about the anomalous situation of two (2) restraining orders directed against the same auction sale, based on the same ground,
issued by different courts having cognizance of two (2) separate proceedings instituted for identical objectives. This situation lasted for all of three (3) years,
despite the republication of the notice of sale caused by Syjuco in January, 1978 in an effort to end all dispute about the matter, and despite Judge Tecson's having
been made aware of Civil Case No. 112762. It should have been apparent to Judge Tecson that there was nothing more to be done in Civil Case No. 75180 except
to enforce the judgment, already final and executory, authorizing the extrajudicial foreclosure of the mortgage, a judgment sanctioned, to repeat, by both the Court
of Appeals and the Supreme Court; that there was in truth no need for another publication of the notice since the Lims had precisely waived such republication,
this waiver having been the condition under which they had earlier obtained an order restraining the first scheduled sale; that, in any event, the republication
effected by Syjuco had removed the only asserted impediment to the holding of the same; and that, finally, the Lims were acting in bad faith: they were maintaining

Incredibly, not only did Judge Tecson refuse to allow the holding of
the auction sale, as was the only just and lawful course indicated by the circumstances, he authorized the Lims to sell
the mortgaged property in a private sale, with the evident intention that the proceeds of the sale, which he directed to be
deposited in court, would be divided between Syjuco and the Lims; this, in line with the patently specious theory
advocated by the Lims' counsel that the bond flied by them for the postponement of the sale, set at P6 million by the Court
(later increased by P 3 million) had superseded and caused novation of the mortgage. The case lay fallow for a year,
certain other, incidents arising and remaining unresolved on account of numerous postponements.
proceedings in two (2) different courts for essentially the same relief.

18

19

20

21

5. G.R. No. L-56014

Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably no longer disposed to await Judge Tecson's pleasure or the Lims' convenience. It filed
a petition for certiorari and prohibition, docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had gravely abused discretion in:
(1) unreasonably delaying the foreclosure of the mortgage;
(2) entertaining the Lims' motion to discharge said mortgage grounded on the theory that it had been superseded and novated by the Lims'
act of filing the bond required by Judge Tecson in connection with the postponement of the foreclosure sale, and unreasonably delaying
resolution of the issue; and
(3) authorizing the Lims to negotiate and consummate the private sale of the mortgaged property and motu proprio extending the period
granted the Lims for the purpose, in disregard of the final and executory judgment rendered in the case.

issued the writ prayed for and nullified the

orders and actuations of Judge Tecson in Civil Case No. 75180. The judgment declared that:
By judgment rendered on September 21, 1982, after due proceedings, this Court

22

(1) the republication by Syjuco of the notice of foreclosure sale rendered the complaint in Civil Case No. 112762 moot and academic; hence,
said case could not operate to bar the sale;
(2) the Lims' bonds (of P 6 million and P 3 million), having by the terms thereof been given to guarantee payment of damages to Syjuco and
the Sheriff of Manila resulting from the suspension of the auction sale, could not in any sense and from any aspect have the effect of
superseding the mortgage or novating it;
(3) in fact, the bonds had become worthless when, as shown by the record, the bondsman's authority to transact non-life insurance business
in the Philippines was not renewed, for cause, as of July 1, 1981.
The decision consequently decreed that the Sheriff of Manila should proceed with the mortgage sale, there being no further impediment thereto. 23
Notice of the decision was served on the Lims, through Atty. Canlas, on October 2, 1982. A motion for reconsideration was filed,

denied with finality for lack of merit and entry of final judgment was made on March 22,1983.

24

but the same was

25

6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE REGIONAL TRIAL COURT, QUEZON CITY, JUDGE
JOSE P. CASTRO, PRESIDING
Twelve (12) days after the Lims were served, as above mentioned, with notice of this Court's judgment in G.R. No. 56014, or on October 14,1982, they caused the
filing with the Regional Trial Court of Quezon City of still another action, the third, also designed, like the first two, to preclude enforcement of the mortgage held by
Syjuco.
This time the complaint was presented, not in their individual names, but in the name of a partnership of which they themselves were the only partners: "Heirs of
Hugo Lim." The complaint advocated the theory that the mortgage which they, together with their mother, had individually constituted (and thereafter amended
during the period from 1964 to 1967) over lands standing in their names in the Property Registry as owners pro indiviso, in fact no longer belonged to them at that
time, having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim", more precisely, on March 30, 1959, hence, said mortgage was void
because executed by them without authority from the partnership.
The complaint was signed by a lawyer other than Atty. Canlas, but the records disclose that Atty. Canlas took over as counsel as of November 4,1982. The case,
docketed as Civil Case No. Q-39295, was assigned to Branch 35 of the Quezon City Regional Trial Court, then presided over by Judge Jose P. Castro.
Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff Perfecto G. Dalangin submitted a return of summons to the effect that on December 6,
1982 he
.. served personally and left a copy of summons together with a copy of Complaint and its annexes x x upon defendant's office formerly at
313 Quirino Ave., Paranaque, Metro-Manila and now at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft Avenue, Manila, through
the Manager, a person of sufficient age and discretion duly authorized to receive service of such nature, but who refused to accept service
and signed receipt thereof. 26
A vaguer return will be hard to find. It is impossible to discern from it where precisely the summons was served, whether at Quirino Avenue, Paranaque, or Taft
Avenue, Manila; and it is inexplicable that the name of the person that the sheriff had been able to identify as the manager is not stated, the latter being described
merely as "a person of sufficient age and discretion." In any event, as it was to claim later, Syjuco asserts that it was never so served with summons, or with any
other notice, pleading, or motion relative to the case, for that matter.
On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare Syjuco in default. The order of default issued the next day, also directing the plaintiff
partnership to present evidence ex parte within three (3) days. On February 22, 1983, judgment by default was rendered, declaring void the mortgage in question
because executed by the Lims without authority from the partnership which was and had been since March 30,1959 the exclusive owner of the mortgaged

Service of notice of the default

judgment was, according to the return of the same Sheriff Perfecto Dalangin, effected on the following day, February 23,
1983. His return is a virtual copy of his earlier one regarding service of summons: it also states the place of service as the
defendant's office, either at its former location, 313 Quirino Avenue, Paranaque, or at the later address, 407 Dona Felisa,
Syjuco Building, Taft Avenue, Manila; and it also fails to identify the person on whom service was made, describing him
only as "the clerk or person in charge" of the office.
property, and making permanent an injunction against the foreclosure sale that had issued on January 14,1983.

27

28

Unaccountably, and contrary to what might be expected from the rapidity with which it was decided-twelve (12) days from February 10, 1983, when the motion to
declare defendant Syjuco in default was filed-the case was afterwards allowed by Atty. Canlas to remain dormant for seventeen (17) months. He made no effort to
have the judgment executed, or to avail of it in other actions instituted by him against Syjuco. The judgment was not to be invoked until sometime in or after July,
1984, again to stop the extrajudicial mortgage sale scheduled at or about that time at the instance of Syjuco, as shall presently be recounted.
7. Other Actions in the Interim:

a. CIVIL CASE No. 83-19018, RTC MANILA

While the Lims, through their partnership ("Heirs of Hugo Lim"), were prosecuting their action in the sala of Judge Castro, as above narrated, Syjuco once again
tried to proceed with the foreclosure after entry of judgment had been made in G.R. No. 56014 on March 22, 1983. It scheduled the auction sale on July 30, 1983.
But once again it was frustrated. Another obstacle was put up by the Lims and their counsel, Atty. Canlas. This was Civil Case No. 83-19018 of the Manila
Regional Trial Court. The case was filed to stop the sale on the theory that what was sought to be realized from the sale was much in excess of the judgment in
Civil Case No. 75180, and that there was absence of the requisite notice. It is significant that the judgment by default rendered by Judge Castro in Civil Case No.
Q-36485 was not asserted as additional ground to support the cause of action. Be this as it may, a restraining order was issued on July 20,1983 in said Civil Case
No. 83-9018. 29
b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY
What the outcome of this case, No. 83-19018, is not clear. What is certain is (1) that the auction sale was re-scheduled for September 20, 1983, (2) that it was
aborted because the Lims managed to obtain still another restraining order in another case commenced by their lawyer, Atty. Canlas: Civil Case No. Q-32924 of
the Court of First Instance of Quezon City, grounded on the proposition that the publication of the notice of sale was defective; and (3) that the action was
dismissed by the Regional Trial Court on February 3, 1984. 30
No other salient details about these two (2) cases are available in the voluminous records before the Court, except that it was Atty. Canlas who had filed them. He
admits having done so unequivocally: "Thus, the undersigned counsel filed injunction cases in Civil Case No. 83-19018 and Civil Case No. 39294, Regional Trial
Courts of Manila and Quezon City. ... " 31
7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q QUEZON CITY, BRANCH XXXV
Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed its efforts to effect the mortgage sale which had already been stymied for more than
fifteen (15) years. At its instance, the sheriff once again set a date for the auction sale. But on the date of the sale, a letter of Atty. Canlas was handed to the sheriff

Syjuco
lost no time in inquiring about Civil Case No. Q-36485, and was very quickly made aware of the judgment by default
therein promulgated and the antecedent events leading thereto. It was also made known that on July 9, 1984, Judge
Castro had ordered execution of the judgment; that Judge Castro had on July 16, 1984 granted Atty. Canlas' motion to
declare cancelled the titles to the Lims' mortgaged properties and as nun and void the annotation of the mortgage and its
amendments on said titles, and to direct the Register of Deeds of Manila to issue new titles, in lieu of the old, in the name
of the partnership, "Heirs of Hugo Lim."
drawing attention to the permanent injunction of the sale embodied in the judgment by default rendered by Judge Castro in Civil Case No. Q- 36485.

32

33

On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion for reconsideration of the decision and for dismissal of the action, alleging that it had never
been served with summons; that granting arguendo that service had somehow been made, it had never received notice of the decision and therefore the same
had not and could not have become final; and that the action should be dismissed on the ground of bar by prior judgment premised on the final decisions of the
Supreme Court in G.R. No. L-45752 and G.R. No. 56014.
Two other motions by Syjuco quickly followed. The first, dated July 20, 1984, prayed for abatement of Judge Castro's order decreeing the issuance of new

The second, filed on July 24, 1984, was a supplement to

the motion to dismiss earlier filed, asserting another ground for the dismissal of the action, i.e., failure to state a cause of
action, it appearing that the mortgaged property remained registered in the names of the individual members of the Lim
family notwithstanding that the property had supposedly been conveyed to the plaintiff partnership long before the
execution of the mortgage and its amendments,-and that even assuming ownership of the property by the partnership, the
mortgage executed by all the partners was valid and binding under Articles 1811 and 1819 of the Civil Code.
certificates of title over the mortgaged lands in the name of the plaintiff partnership.

34

35

The motions having been opposed in due course by the plaintiff partnership, they remained pending until January 31, 1985 when Syjuco moved for their
immediate resolution. Syjuco now claims that Judge Castro never acted on the motions. The latter however states that that he did issue an order on February 22,
1985 declaring that he had lost jurisdiction to act thereon because, petitio principii, his decision had already become final and executory.
8. G.R.NO.L-70403; THE PROCEEDING AT BAR
For the third time Syjuco is now before this Court on the same matter. It filed on April 3, 1985 the instant petition for certiorari, prohibition and mandamus. It prays
in its petition that the default judgment rendered against it by Judge Castro in said Civil Case No. Q-36485 be annulled on the ground of lack of service of
summons, res judicata and laches, and failure of the complaint to state a cause of action; that the sheriff be commanded to proceed with the foreclosure of the
mortgage on the property covered by Transfer Certificates of Title Numbered 75413, 75415, 75416 and 75418 of the Manila Registry; and that the respondents the
Lims, Judge Castro, the Sheriff and the Register of Deeds of Manila, the partnership known as "Heirs of Hugo Lim," and Atty. Paterno R. Canlas, counsel for-the
Lims and their partnership-be perpetually enjoined from taking any further steps to prevent the foreclosure.
The comment filed for the respondents by Atty. Canlas in substance alleged that (a) Syjuco was validly served with summons in Civil Case No. Q-36485, hence,
that the decision rendered by default therein was also valid and, having been also duly served on said petitioner, became final by operation of law after the lapse of
the reglementary appeal period; (b) finality of said decision removed the case from the jurisdiction of the trial court, which was powerless to entertain and act on
the motion for reconsideration and motion to dismiss; (c) the petition was in effect an action to annul a judgment, a proceeding within the original jurisdiction of the

Court of Appeals; (d) the plea of res judicata came too late because raised after the decision had already become final; moreover, no Identity of parties existed
between the cases invoked, on the one hand, and Civil Case No. Q-36485, on the other, the parties in the former being the Lims in their personal capacities and in
the latter, the Lim Partnership, a separate and distinct juridical entity; and the pleaded causes of action being different, usury in the earlier cases and authority of
the parties to encumber partnership property in the case under review; (e) the plea of laches also came too late, not having been invoked in the lower court; and (f)
the property involved constituted assets of the Lim partnership, being registered as such with the Securities and Exchange Commission. 36
On his own behalf Atty. Canlas submitted that he had no knowledge of the institution of Civil Case No. Q-36485 (though he admitted being collaborating counsel in
said case); that he did not represent the Lims in all their cases against Syjuco, having been counsel for the former only since 1977, not for the last seventeen
years as claimed by Syjuco; and that he had no duty to inform opposing counsel of the pendency of Civil Case No. Q-36485. 37

disclaiming knowledge of previous controversies regarding the mortgaged property.

He asserted that Syjuco had been properly declared in default for having failed to answer the complaint despite service of
summons upon it, and that his decision in said case which was also properly served on Syjuco became final when it was
not timely appealed, after which he lost jurisdiction to entertain the motion for reconsideration and motion to dismiss. He
also denied having failed to act on said motions, adverting to an alleged order of February 22, 1985 where he declared his
lack of jurisdiction to act thereon.
Respondent Judge Castro also filed a comment

38

The respondent Register of Deeds for his part presented a comment wherein he stated that by virtue of an order of execution in Civil Case No. Q-36485, he had
cancelled TCTs Nos. 75413, 75415, 75416 and 75418 of his Registry and prepared new certificates of title in lieu thereof, but that cancellation had been held in
abeyance for lack of certain registration requirements and by reason also of the motion of Syjuco's Atty. Formoso to hold in abeyance enforcement of the trial
court's order of July 16, 1984 as well as of the temporary restraining order subsequently issued by the Court. 39
It is time to write finis to this unedifying narrative which is notable chiefly for the deception, deviousness and trickery which have marked the private respondents'
thus far successful attempts to avoid the payment of a just obligation. The record of the present proceeding and the other records already referred to, which the
Court has examined at length, make it clear that the dispute should have been laid to rest more than eleven years ago, with entry of judgment of this Court (on
September 24, 1977) in G.R. No. L-45752 sealing the fate of the Lims' appeal against the amended decision in Civil Case No. 75180 where they had originally
questioned the validity of the mortgage and its foreclosure. That result, the records also show, had itself been nine (9) years in coming, Civil Case No. 75180
having been instituted in December 1968 and, after trial and judgment, gone through the Court of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No.
34683), both at the instance of the Lims, on the question of reopening before the amended decision could be issued.
Unwilling, however, to concede defeat, the Lims moved (in Civil Case No. 75180) to stop the foreclosure sale on the ground of lack of republication. On December
19,1977 they obtained a restraining order in said case, but this notwithstanding, on the very same date they filed another action (Civil Case No. 117262) in a
different branch of the same Court of First Instance of Manila to enjoin the foreclosure sale on the same ground of alleged lack of republication. At about this time,
Syjuco republished the notice of sale in order, as it was later to manifest, to end all further dispute.
That move met with no success. The Lims managed to persuade the judge in Civil Case No. 75180, notwithstanding his conviction that the amended decision in
said case had already become final, not only to halt the foreclosure sale but also to authorize said respondents to dispose of the mortgaged property at a private
sale upon posting a bond of P6,000,000.00 (later increased by P3,000,000.00) to guarantee payment of Syjuco's mortgage credit. This gave the Lims a convenient
excuse for further suspension of the foreclosure sale by introducing a new wrinkle into their contentions-that the bond superseded the mortgage which should, they
claimed, therefore be discharged instead of foreclosed.
Thus from the final months of 1977 until the end of 1980, a period of three years, Syjuco found itself fighting a legal battle on two fronts: in the already finally
decided Civil Case No. 75180 and in Civil Case No. 117262, upon the single issue of alleged lack of republication, an issue already mooted by the Lims' earlier
waiver of republication as a condition for the issuance of the original restraining order of December 26,1968 in Civil Case No. 75180, not to mention the fact that
said petitioner had also tried to put an end to it by actually republishing the notice of sale.
With the advent of 1981, its pleas for early resolution having apparently fallen on deaf ears, Syjuco went to this Court (in G.R. No. L-56014) from which, on
September 21, 1982, it obtained the decision already referred to holding, in fine, that there existed no further impediment to the foreclosure sale and that the sheriff
could proceed with the same.
Said decision, instead of deterring further attempts to derail the foreclosure, apparently gave the signal for the clandestine filing this time by the Partnership of
the Heirs of Hugo Lim -on October 14,1982 of Civil Case No. Q-36485, the subject of the present petition, which for the first time asserted the claim that the
mortgaged property had been contributed to the plaintiff partnership long before the execution of the Syjuco's mortgage in order to defeat the foreclosure.
Syjuco now maintains that it had no actual knowledge of the existence and pendency of Civil Case No. Q-36485 until confronted, in the manner already adverted
to, with the fait accompli of a "final" judgment with permanent injunction therein, and nothing in the record disabuses the Court about the truth of this disclaimer.
Indeed, considering what had transpired up to that denouement, it becomes quite evident that actuations of the Lims and their lawyer had been geared to keeping
Syjuco in the dark about said case. Their filing of two other cases also seeking to enjoin the foreclosure sale (Civil Case No. 83-19018, Regional Trial Court of
Manila in July 1983, and Civil Case No. Q-32924, Regional Trial Court of Quezon City in September of the same year) after said sale had already been
permanently enjoined by default judgment in Civil Case No. Q-36485, appears in retrospect to be nothing but a brace of feints calculated to keep Syjuco in that
state of ignorance and to lull any apprehensions it mat may have harbored about encountering further surprises from any other quarter.
Further credence is lent to this appraisal by the unusually rapid movement of Civil Case No. Q-36485 itself in its earlier stages, which saw the motion to declare
Syjuco in default filed, an order of default issued, evidence ex parte for the plaintiffs received and judgment by default rendered, all within the brief span of twelve
days, February 10-22, 1983. Notice of said judgment was "served" on February 23, 1983, the day after it was handed down, only to be followed by an
unaccountable lull of well over a year before it was ordered executed on July 9, 1984 unaccountable, considering that previous flurry of activity, except in the

context of a plan to rush the case to judgment and then divert Syjuco's attention to the Lims' moves in other directions so as to prevent discovery of the existence
of the case until it was too late.
The Court cannot but condemn in the strongest terms this trifling with the judicial process which degrades the administration of justice, mocks, subverts and
misuses that process for purely dilatory purposes, thus tending to bring it into disrepute, and seriously erodes public confidence in the will and competence of the
courts to dispense swift justice.
Upon the facts, the only defense to the foreclosure that could possibly have merited the full-blown trial and appeal proceedings it actually went through was that of
alleged usury pleaded in Civil Case No. 75180 and finally decided against the respondent Lims in G.R. No. L-45752 in September 1977. The other issues of failure
to republish and discharge of mortgage by guarantee set up in succeeding actions were sham issues, questions without substance raised only for purposes of
delay by the private respondents, in which they succeeded only too well. The claim urged in this latest case: that the mortgaged property had been contributed to
the respondent partnership and was already property of said partnership when the individual Lims unauthorizedly mortgaged it to Syjuco, is of no better stripe, and
this, too, is clear from the undisputed facts and the legal conclusions to be drawn therefrom.
The record shows that the respondent partnership is composed exclusively of the individual Lims in whose name all the cases herein referred to, with the sole
exception of Civil Case No. Q-36485, were brought and prosecuted, their contribution to the partnership consisting chiefly, if not solely, of the property subject of
the Syjuco mortgage. It is also a fact that despite its having been contributed to the partnership, allegedly on March 30, 1959, the property was never registered
with the Register of Deeds in the name of the partnership, but to this date remains registered in the names of the Lims as owners in common. The original
mortgage deed of November 14,1964 was executed by the Lims as such owners, as were all subsequent amendments of the mortgage. There can be no dispute
that in those circumstances, the respondent partnership was chargeable with knowledge of the mortgage from the moment of its execution. The legal fiction of a
separate juridical personality and existence will not shield it from the conclusion of having such knowledge which naturally and irresistibly flows from the undenied
facts. It would violate all precepts of reason, ordinary experience and common sense to propose that a partnership, as commonly known to all the partners or of
acts in which all of the latter, without exception, have taken part, where such matters or acts affect property claimed as its own by said partnership.
If, therefore, the respondent partnership was inescapably chargeable with knowledge of the mortgage executed by all the partners thereof, its silence and failure to
impugn said mortgage within a reasonable time, let alone a space of more than seventeen years, brought into play the doctrine of estoppel to preclude any attempt
to avoid the mortgage as allegedly unauthorized.
The principles of equitable estoppel, sometimes called estoppel in pais, are made part of our law by Art. 1432 of the Civil Code. Coming under this class is
estoppel by silence, which obtains here and as to which it has been held that:
... an estoppel may arise from silence as well as from words. 'Estoppel by silence' arises where a person, who by force of circumstances is
under a duty to another to speak, refrains from doing so and thereby leads the other to believe in the existence of a state of facts in reliance
on which he acts to his prejudice. Silence may support an estoppel whether the failure to speak is intentional or negligent.
Inaction or silence may under some circumstances amount to a misrepresentation and concealment of the facts, so as to raise an equitable
estoppel. When the silence is of such a character and under such circumstances that it would become a fraud on the other party to permit
the party who has kept silent to deny what his silence has induced the other to believe and act on, it will operate as an estoppel. This
doctrine rests on the principle that if one maintains silence, when in conscience he ought to speak, equity will debar him from speaking when
in conscience he ought to remain silent. He who remains silent when he ought to speak cannot be heard to speak when he should be
silent. 40

And more to the point:

A property owner who knowingly permits another to sell or encumber the property, without disclosing his title or objecting to the transaction, is
estopped to set up his title or interest as against a person who has been thereby misled to his injury.
xxx
An owner of real property who stands by and sees a third person selling or mortgaging it under claim of title without asserting his own title or
giving the purchaser or mortgagee any notice thereof is estopped, as against such purchaser or mortgagee, afterward to assert his title; and,
although title does not pass under these circumstances, a conveyance will be decreed by a court of equity. Especially is the rule applicable
where the party against whom the estoppel is claimed, in addition to standing by, takes part in malting the sale or mortgage. 41

More specifically, the concept to which that species of estoppel which results from the non-disclosure of
an estate or interest in real property has ordinarily been referred is fraud, actual or constructive. ...
Although fraud is not an essential element of the original conduct working the estoppel, it may with perfect
property be said that it would be fraudulent for the party to repudiate his conduct, and to assert a right or
claim in contravention thereof.
42

Equally or even more preclusive of the respondent partnership's claim to the mortgaged property is the last paragraph of Article 1819 of the Civil Code, which
contemplates a situation duplicating the circumstances that attended the execution of the mortgage in favor of Syjuco and therefore applies foursquare thereto:
Where the title to real property is in the names of all the partners a conveyance executed by all the partners passes all their rights in such
property.

The term "conveyance" used in said provision, which is taken from Section 10 of the American Uniform Partnership Act, includes a mortgage.
Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that the right to mortgage is included in the right to convey. This is
different from the rule in agency that a special power to sell excludes the power to mortgage (Art. 1879). 43
As indisputable as the propositions and principles just stated is that the cause of action in Civil Case No. Q-36485 is barred by prior judgment. The right subsumed
in that cause is the negation of the mortgage, postulated on the claim that the parcels of land mortgaged by the Lims to Syjuco did not in truth belong to them but
to the partnership. Assuming this to be so, the right could have been asserted at the time that the Lims instituted their first action on December 24, 1968 in the
Manila Court of First Instance, Civil Case No. 75180, or when they filed their subsequent actions: Civil Case No. 112762, on December 19, 1977; Civil Case No.
83-19018, in 1983, and Civil Case No. Q-39294, also in 1983. The claim could have been set up by the Lims, as members composing the partnership, "Heirs of
Hugo Lim." It could very well have been put forth by the partnership itself, as co-plaintiff in the corresponding complaints, considering that the actions involved
property supposedly belonging to it and were being prosecuted by the entire membership of the partnership, and therefore, the partnership was in actuality, the
real party in interest. In fact, consistently with the Lims' theory, they should be regarded, in all the actions presented by them, as having sued for vindication, not of
their individual rights over the property mortgaged, but those of the partnership. There is thus no reason to distinguish between the Lims, as individuals, and the
partnership itself, since the former constituted the entire membership of the latter. In other words, despite the concealment of the existence of the partnership, for
all intents and purposes and consistently with the Lims' own theory, it was that partnership which was the real party in interest in all the actions; it was actually
represented in said actions by all the individual members thereof, and consequently, those members' acts, declarations and omissions cannot be deemed to be
simply the individual acts of said members, but in fact and in law, those of the partnership.
What was done by the Lims or by the partnership of which they were the only members-was to split their cause of action in violation of the well known rule that

The right sought to be enforced by them in all their actions was, at bottom,
to strike down the mortgage constituted in favor of Syjuco, a right which, in their view, resulted from several
circumstances, namely that the mortgage was constituted over property belonging to the partnership without the latter's
authority; that the principal obligation thereby secured was usurious; that the publication of the notice of foreclosure sale
was fatally defective, circumstances which had already taken place at the time of the institution of the actions. They
instituted four (4) actions for the same purpose on one ground or the other, making each ground the subject of a separate
action. Upon these premises, application of the sanction indicated by law is caned for, i.e., the judgment on the merits in
any one is available as a bar in the others.
only one suit may be instituted for a single cause of action.

44

45

The first judgment-rendered in Civil Case No. 75180 and affirmed by both the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R. No. L-45752) should
therefore have barred all the others, all the requisites of res judicata being present. The judgment was a final and executory judgment; it had been rendered by a
competent court; and there was, between the first and subsequent cases, not only identity of subject-matter and of cause of action, but also of parties. As already
pointed out, the plaintiffs in the first four (4) actions, the Lims, were representing exactly the same claims as those of the partnership, the plaintiff in the fifth and
last action, of which partnership they were the only members, and there was hence no substantial difference as regards the parties plaintiff in all the actions. Under
the doctrine of res judicata, the judgment in the first was and should have been regarded as conclusive in all other, actions not only "with respect to the matter

It being indisputable that the matter of the

partnership's being the owner of the mortgaged properties "could have been raised in relation" to those expressly made
issuable in the first action, it follows that that matter could not be re-litigated in the last action, the fifth.
directly adjudged," but also "as to any other matter that could have been raised in relation thereto. "

46

Though confronted with the facts thus precluding the respondent partnership's claim to the property under both the principle of estoppel and the provisions of
Article 1819, last paragraph, of the Civil Code, as well as the familiar doctrine of res judicata, the respondent Judge refused to act on Syjuco's motions on the
ground that he no longer had jurisdiction to do so because they were filed after judgment by default against Syjuco, which failed to answer the complaint despite
valid service of summons, had been rendered and become final. The sheriffs return, however, creates grave doubts about the correctness of the Judge's basic

is unspecific about where service was effected. No safe

conclusion about the place of service can be made from its reference to a former and a present office of Syjuco in widely
separate locations, with nothing to indicate whether service was effected at one address or the other, or even at both. A
more serious defect is the failure to name the person served who is, with equal ambiguity, identified only as "the Manager"
of the defendant corporation (petitioner herein). Since the sheriffs return constitutes primary evidence of the manner and
incidents of personal service of a summons, the Rules are quite specific about what such a document should contain:
premise that summons had been validly served on Syjuco. For one thing, the return

47

SEC. 20. Proof of service. The proof of service of a summons shall be made in writing by the server and shall set forth the manner, place
and date of service; shall specify any papers which have been served with the process and the name of the person who received the same;
and shall be sworn to when made by a person other than a sheriff or his deputy. 48
In the case of Delta Motor Sales Corporation vs. Mangosing

49

it was held that:"

(a) strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom service is made must be
one who is named in the statute; otherwise the service is insufficient. So, where the statute requires that in the case of a domestic corporation summons should be
served on 'the president or head of the corporation, secretary, treasurer, cashier or managing agent thereof, service of summons on the secretary's wife did not
confer jurisdiction over the corporation in the foreclosure proceeding against it. Hence, the decree of foreclosure and the deficiency judgment were void and should
be vacated (Reader vs. District Court, 94 Pacific 2nd 858).

The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure
that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal
papers served on him. In other words, 'to bring home to the corporation notice of the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs.
Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).
The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which
summons should be served on a domestic corporation (U.S. vs. Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd 260).'
The rule cannot be any less exacting as regards adherence to the requirements of proof of service, it being usually by such proof that sufficiency of compliance
with the prescribed mode of service is measured. Here the only proof of service of summons is the questioned sheriff's return which, as already pointed out, is not
only vague and unspecific as to the place of service, but also neglects to Identify by name the recipient of the summons as required by Rule 20, Section 14, of the

The defective
sheriffs return thus being insufficient and incompetent to prove that summons was served in the manner prescribed for
service upon corporations, there is no alternative to affirming the petitioner's claim that it had not been validly summoned
in Civil Case No. Q-36485. It goes without saying that lacking such valid service, the Trial Court did not acquire jurisdiction
over the petitioner Syjuco, rendering null and void all subsequent proceedings and issuances in the action from the order
of default up to and including the judgment by default and the order for its execution.
Rules of Court. Where the sheriffs return is defective the presumption of regularity in the performance of official functions will not lie.

50

51

The respondents' contention that the petition is in effect an action to annul a judgment which is within the exclusive original jurisdiction of the Court of

has already been answered in Matanguihan vs. Tengco where, by declaring that an action for annulment of
judgment is not a plain, speedy and adequate remedy, this Court in effect affirmed that certiorari is an appropriate remedy
against judgments or proceedings alleged to have been rendered or had without valid service of summons.
Appeals 52

53

54

Respondent Judge Castro begged the question when, instead of resolving on the merits the issue of the invalidity of his default judgment and of the proceedings
leading thereto because of absence of valid service of summons on the defendant, which had been expressly raised in the defendant's motion for reconsideration,
he simply refused to do so on the excuse that he had lost jurisdiction over the case. This refusal was, in the premises, a grave abuse of judicial discretion which
must be rectified.
What has been said makes unnecessary any further proceedings in the Court below, which might otherwise be indicated by the consideration that two of the
postulates of petitioner's unresolved motions which the Court considers equally as decisive as res judicata, to wit: estoppel by silence and Article 1819, last
paragraph, of the Civil Code, do not constitute grounds for a motion to dismiss under rule 16, of the Rules of Court. Such a step would only cause further delay.
And delay has been the bane of petitioner's cause, defying through all these years all its efforts to collect on a just debt.
The undenied and undisputable facts make it perfectly clear that the claim to the mortgaged property belatedly and in apparent bad faith pressed by the
respondent partnership is foreclosed by both law and equity. Further proceedings will not make this any clearer than it already is. The Court is clothed with ample
authority, in such a case, to call a halt to all further proceedings and pronounce judgment on the basis of what is already manifestly of record.
So much for the merits; the consequences that should attend the inexcusable and indefensible conduct of the respondents Lims, the respondent partnership and
their counsel, Atty. Paterno R. Canlas, should now be addressed. That the Lims and their partnership acted in bad faith and with intent to defraud is manifest in the
record of their actuations, presenting as they did, piecemeal and in one case after another, defenses to the foreclosure or claims in derogation thereof that were
available to them from the very beginning actuations that were to stave off the liquidation of an undenied debt for more than twenty years and culminated in the
clandestine filing and prosecution of the action subject of the present petition.
What has happened here, it bears repeating, is nothing less than an abuse of process, a trifling with the courts and with the rights of access thereto, for which Atty.
Canlas must share responsibility equally with his clients. The latter could not have succeeded so well in obstructing the course of justice without his aid and advice
and his tireless espousal of their claims and pretensions made in the various cases chronicled here. That the cause to which he lent his advocacy was less than
just or worthy could not have escaped him, if not at the start of his engagement, in the years that followed when with his willing assistance, if not instigation, it was
shuttled from one forum to another after each setback. This Court merely stated what is obvious and cannot be gainsaid when, inSurigao Mineral Reservation

it held that a party's lawyer of record has control of the proceedings and that '(w)hatever steps his client
takes should be within his knowledge and responsibility."
Board vs. Cloribel, 55

strikingly similar actuations in a case, which are described in the following paragraph taken from
this Court's decision therein:
In Prudential Bank vs. Castro, 56

Respondents' foregoing actuations reveal an 'unholy alliance' between them and a clear indication of partiality for the party represented by
the other to the detriment of the objective dispensation of justice. Writs of Attachment and Execution were issued and implemented with
lightning speed; the case itself was railroaded to a swift conclusion through a similar judgment; astronomical sums were awarded as
damages and attorney's fees; and topping it all, the right to appeal was foreclosed by clever maneuvers," and which, the Court found,
followed a pattern of conduct in other cases of which judicial notice was taken, were deemed sufficient cause for disbarment.

when the record indubitably shows that he

has represented them since September 9, 1972 when he first appeared for them to prosecute their appeal in Civil Case
Atty. Canlas even tried to mislead this Court by claiming that he became the Lims' lawyer only in 1977,

57

No. 75180. He has also quite impenitently disclaimed a duty to inform opposing counsel in Civil Case No. Q-39294 of
the existence of Civil Case No. Q-36485, as plaintiffs' counsel in both actions, even while the former, which involved the
same mortgage, was already being litigated when the latter was filed, although in the circumstances such disclosure was
required by the ethics of his profession, if not indeed by his lawyer's oath.
58

A clear case also exists for awarding at least nominal damages to petitioner, though damages are not expressly prayed for, under the general prayer of the petition
for "such other reliefs as may be just and equitable under the premises," and the action being not only of certiorari and prohibition, but also of mandamus-in which
the payment of "damages sustained by the petitioner by reason of the wrongful acts of the defendant' is expressly authorized. 59
There is no question in the Court's mind that such interests as may have accumulated on the mortgage loan will not offset the prejudice visited upon the petitioner
by the excruciatingly long delay in the satisfaction of said debt that the private respondents have engineered and fomented.
These very same considerations dictate the imposition of exemplary damages in accordance with Art. 2229 of the Civil Code.
WHEREFORE, so that complete justice may be dispensed here and, as far as consistent with that end, all the matters and incidents with which these proceedings
are concerned may be brought to a swift conclusion:
(1) the assailed judgment by default in Civil Case No.Q-36485, the writ of execution and all other orders issued in implementation thereof,
and all proceedings in the case leading to said judgment after the filing of the complaint are DECLARED null and void and are hereby SET
ASIDE; and the complaint in said case is DISMISSED for being barred by prior judgment and estoppel, and for lack of merit;
(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to schedule forthwith and thereafter conduct with all due dispatch
the sale at public auction of the mortgaged property in question for the satisfaction of the mortgage debt of the respondents Lims to
petitioner, in the principal amount of P2,460,000.00 as found in the amended decision in Civil Case No. 75180 of the Court of First Instance
of Manila, interests thereon at the rate of twelve (12%) percent per annum from November 8, 1967 until the date of sale, plus such other and
additional sums for commissions, expenses, fees, etc. as may be lawfully chargeable in extrajudicial foreclosure and sale proceedings;
(3) the private respondents, their successors and assigns, are PERPETUALLY ENJOINED from taking any action whatsoever to obstruct,
delay or prevent said auction sale;
(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo Lim and Atty. Paterno R. Canlas) are sentenced, jointly and
severally, to pay the petitioner P25,000.00 as nominal damages and P100,000.00 as exemplary damages, as well as treble costs; and
(5) let this matter be referred to the Integrated Bar of the Philippines for investigation, report, and recommendation insofar as the conduct of
Atty. Canlas as counsel in this case and in the other cases hereinabove referred to is concerned.
SO ORDERED.

SEE Lim Tong Lim vs. Phil. Fishing Gear Industries, G.R. No. 136448, November 3, 1999
Dissolution and Winding Up - Articles 1828-1842
A. Causes of Dissolution (Articles 1828-1831)

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL,
CHIU SHIAN JENG and CHEN HO-FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered partnership with the firm
name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership
business consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a
Memorandum Agreement dated 26 June 1984 with the Cruz spouses.

The partnership had its main office in Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a monthly salary of P4,000.00. According to
petitioner Yu, however, he actually received only half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be
paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the operations and finances of the business; he had
overall supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the
partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership
to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership interest. The partnership now
constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the firm's main office from Makati
to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz

The actual operations of the business enterprise continued as before. All the employees of the
partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out.
spouses in February of 1988. 2

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong
office for work and there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the
original partners and that it was for him to decide whether or not he was responsible for the obligations of the old partnership, including petitioner's unpaid salaries.
Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing from November 1984 to October 1988, moral
and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied
petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally dismissed. The Labor Arbiter decreed his
reinstatement and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution
dated 29 November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business,
that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was no law requiring the new
partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply
declined to retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted
against the original members of the preceding partnership, but these though impleaded had, apparently, not been served with summons in the proceedings before
the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the Resolution of the NLRC as a product of grave
abuse of discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical personality separate and distinct from that of each
of its members. Such independent legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the
employment contract between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had hired petitioner Yu as Assistant General
Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had
come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the partnership was
the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is found in the Civil Code provisions relating to partnerships. Article 1828 of
the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the circumstances do not
permit a dissolution under any other provision of this article, by the express will of any partner at
any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and
Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership
interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new
partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the
legal personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the
old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the
business enterprise owned by the preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the
business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the part of the
retiring and the incoming partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new
partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw

the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a
third party creditor of the old partnership. The liability of the new partnership, upon the other hand, in the set of
circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows:
Mill, et al, 8

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more
third persons, if the business is continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this Article,
with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership
property;
(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay
the debts and who continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue the businessunder the provisions of article 1837,
second paragraph, No. 2, either alone or with others, andwithout liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the
partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the
dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the retiring or
deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of
the deceased partner against the person or partnership continuing the business on account of the retired or deceased partner's interest in
the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without
liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to
priority vis-a-visany claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is not necessary
for the Court to determine under which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed
with sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim
for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the
affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to
appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful
termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy. 10

The

new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself, who
personally ran the business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became
superfluous or redundant. It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's
pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being
considered as a whole year.
11

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily treated by the
new partnership. The old partnership certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing
and exporting enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly benefitted from the labors of
Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that there was any cause consisting of some blameworthy act or omission on the
part of Mr. Yu which compelled the new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of
the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The
treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to
amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This Court,
exercising its discretion and in view of all the circumstances of this case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and
reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his
separation pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to
resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total amount due from private
respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is treated as their Answer to
the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED
requiring private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00 per month
multiplied by thirty-six (36) months (November 1984 to December 1987) in the total amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of service or a total of
P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on items (a) and (b) above, commencing on 26 December
1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted
with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the
articles of partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH,
SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners
with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics of liquidation, and
more particularly, my interest in the two floors of this building. I would like to have this resolved soon because it has to do with my
own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our employees including the
assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of our employees have been thwarted
by the other partners. Not only have they refused to give meaningful increases to the employees, even attorneys, are dressed
down publicly in a loud voice in a manner that deprived them of their self-respect. The result of such policies is the formation of
the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or interest
attributable to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and pleadings and
to pay petitioners damages for the use thereof despite the dissolution of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just and equitable under the premises but in no case less than ten
(10%) per cent of the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary damages in the
amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable under the
premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the
petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the
liquidation of the shares of any retiring or withdrawing partner in the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January
1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes that the partnership of Bito,
Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of the respective rights and obligations
of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well as
rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and
21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the
prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine, the
appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost,
removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or
bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such
a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this
matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause
simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of
the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm
and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such
persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all
courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a
purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at
will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of
completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership 4

but that it can result in a liability for damages.

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any

Among partners, mutual agency arises and the doctrine of delectus personae allows them
to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner
can subject him to a possible action for damages.
partnership by an act or will of a partner. 6

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be

Upon its dissolution, the partnership continues and its legal personality is retained
until the complete winding up of its business culminating in its termination.
distinguished from the winding up of, the business. 8

however, an agreement of
the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over
the Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading
thusly:
The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code;

10

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap
Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the case
may be. In the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose decision shall be final. The
share of the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation
above mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior
Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney Misa did
not act in bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree,

Indeed, for as long as the

reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly
visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context
here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.
to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will.

12

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

[G.R. No. 110782. September 25, 1998]

IRMA IDOS, petitioner, vs. COURT
PHILIPPINES, respondents.

OF

APPEALS

and

PEOPLE

OF

THE

DECISION
QUISUMBING, J.:

Before this Court is the petition for review of the Decision of respondent Court of Appeals [1] dismissing
petitioners appeal in CA-G.R. CR No. 11960; and affirming her conviction as well as the sentence imposed on
her by the Regional Trial Court of Malolos, Bulacan, in Criminal Case No. 1395-M-88[2] as follows:

WHEREFORE . . . the [c]ourt finds the accused Irma Idos guilty beyond reasonable doubt
and is hereby sentenced to suffer the penalty of imprisonment of six (6) months and to pay
a fine of P135,000.00 and to pay private complainant Eddie Alarilla the amount of the
check in question of P135,000.00 at 12% interest from the time of the filing of the
[i]nformation (August 10, 1988) until said amount has been fully paid.
Elevated from the Third Division [3] of this Court, the case was accepted for resolution en banc on the initial
impression that here, a constitutional question might be involved. [4] It was opined that petitioners sentence,
particularly six months imprisonment, might be in violation of the constitutional guarantee against
imprisonment for non-payment of a debt.[5]
A careful consideration of the issues presented in the petition as well as the comments thereon and the
findings of fact by the courts below in the light of applicable laws and precedents convinces us, however, that
the constitutional dimension need not be reached in order to resolve those issues adequately. For, as herein
discussed, the merits of the petition could be determined without delving into aspects of the cited constitutional
guarantee vis--vis provisions of the Bouncing Checks Law (Batas Pambansa Blg. 22). There being no necessity
therefor, we lay aside discussions of the constitutional challenge to said law in deciding this petition.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser for
violation of B.P. 22 is her erstwhile supplier and business partner, the complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:

The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant
Irma L. Idos for use in the latters business of manufacturing leather. In 1985, he joined the
accused-appellants business and formed with her a partnership under the style Tagumpay
Manufacturing, with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties agreed to terminate
their partnership. Upon liquidation of the business the partnership had as of May 1986
receivables and stocks worth P1,800,000.00. The complainants share of the assets
was P900,000.00 to pay for which the accused-appellant issued the following postdated
checks, all drawn against Metrobank Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks, but the third check
(Exh. A) which is the subject of this case, was dishonored on October 14, 1986 for
insufficiency of funds. The complainant demanded payment from the accused-appellant but
the latter failed to pay. Accordingly, on December 18, 1986, through counsel, he made a
formal demand for payment. (Exh. B) In a letter dated January 2, 1987, the accusedappellant denied liability. She claimed that the check had been given upon demand of
complainant in May 1986 only as assurance of his share in the assets of the partnership and
that it was not supposed to be deposited until the stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan
which on August 22, 1988 filed an information for violation of BP Blg. 22 against accusedappellant.
Complainant denied that the checks issued to him by accused-appellant were subject to the
disposition of the stocks and the collection of receivables of the business. But the accusedappellant insisted that the complainant had known that the checks were to be funded from
the proceeds of the sale of the stocks and the collection of receivables. She claimed that the
complainant himself asked for the checks because he did not want to continue in the
tannery business and had no use for a share of the stocks. (TSN, p. 7, April 14, 1991; id.,
pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb. 14, 1990; id., p. 14, June 4, 1990).

On February 15, 1992, the trial court rendered judgment finding the accused-appellant
guilty of the crime charged. The accused-appellants motion for annulment of the decision
and for reconsideration was denied by the trial court in its order dated April 12, 1991. [6]
Herein respondent court thereafter affirmed on appeal the decision of the trial court. Petitioner timely
moved for a reconsideration, but this was subsequently denied by respondent court in its Resolution [7] dated June
11, 1993. Petitioner has now appealed to us by way of a petition for certiorari under Rule 45 of the Rules of
Court.
During the pendency of this petition, this Court by a resolution [8] dated August 30, 1993, took note of the
compromise agreement executed between the parties, regarding the civil aspect of the case, as manifested by
petitioner in a Motion to Render Judgment based on Compromise Agreement [9]filed on August 5, 1993. After
submission of the Comment[10] by the Solicitor General, and the Reply[11] by petitioner, this case was deemed
submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial courts decision, petitioner cites the
following reasons to justify the review of her case:

1. The Honorable Court of Appeals has decided against the innocence of the accused based on
mere probabilities which, on the contrary, should have warranted her acquittal on reasonable
doubt. Even then, the conclusion of the trial court is contrary to the evidence on record,
including private complainants judicial admission that there was no consideration for the
check.
2. The Honorable Court of Appeals has confused and merged into one the legal concepts of
dissolution, liquidation and termination of a partnership and, on the basis of such
misconception of the law, disregarded the fact of absence of consideration of the check and
convicted the accused.
3. While this appeal was pending, the parties submitted for the approval of the Honorable Court
a compromise agreement on the civil liability. The accused humbly submits that this
supervening event, which by its terms puts to rest any doubt the Court of Appeals had
entertained against the defense of lack of consideration, should have a legal effect favorable
to the accused, considering that the dishonored check constitutes a private transaction
between partners which does not involve the public interest, and considering further that the
offense is not one involving moral turpitude.
4. The Honorable Court of Appeals failed to appreciate the fact that the accused had warned
private complainant that the check was not sufficiently funded, which should have
exonerated the accused pursuant to the ruling in the recent case of Magno vs. Court of
Appeals, 210 SCRA 471, which calls for a more flexible and less rigid application of the
Bouncing Checks law.[12]

For a thorough consideration of the merits of petitioners appeal, we find pertinent and decisive the
following issues:

1. Whether respondent court erred in holding that the subject check was issued by petitioner to
apply on account or for value, that is, as part of the consideration of a buy-out of said complainants
interest in the partnership, and not merely as a commitment on petitioners part to return the
investment share of complainant, along with any profit pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject check
knowing at the time of issue that she did not have sufficient funds in or credit with the drawee bank
and without communicating this fact of insufficiency of funds to the complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the trial courts
judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally in favor of the accused,
it bears stressing that for an act to be punishable under the B.P. 22, it must come clearly within both the spirit
and the letter of the statute.[13] Otherwise, the act has to be declared outside the laws ambit and a plea of
innocence by the accused must be sustained.
The relevant provisions of B.P. 22 state that:

SECTION 1. Checks without sufficient funds. Any person who makes or draws and issues any
check to apply on account or for value, knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days
but not more than one (1) year or by a fine of not less than but not more than double the amount of
the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who having sufficient funds in or credit with
the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or
to maintain a credit or to cover the full amount of the check if presented within a period of ninety
(90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who actually
signed the check in behalf of such drawer shall be liable under this Act.
SECTION 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance of a
check payment of which is refused by the drawee because of insufficient funds in or credit with
such bank, when presented within ninety (90) days from the date of the check, shall be prima

facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer
pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the
drawee of such check within five (5) banking days after receiving notice that such check has not
been paid by the drawee. (Underscoring supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows: (1) the
making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker,
drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for
the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid
cause, ordered the bank to stop payment.[14]
In the present case, with regard to the first issue, evidence on record would show that the subject check was
to be funded from receivables to be collected and goods to be sold by the partnership, and only when such
collection and sale were realized.[15] Thus, there is sufficient basis for the assertion that the petitioner issued the
subject check (Metrobank Check No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to
evidence only complainants share or interest in the partnership, or at best, to show her commitment that when
receivables are collected and goods are sold, she would give to private complainant the net amount due him
representing his interest in the partnership. It did not involve a debt of or any account due and payable by the
petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one (the
third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private complainant
admitted that there was no consideration whatsoever for the issuance of the check, whose funding was
dependent on future sales of goods and receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioners and complainant had agreed to dissolve the
partnership, such agreement did not automatically put an end to the partnership, since they still had to sell the
goods on hand and collect the receivables from debtors. In short, they were still in the process of winding up the
affairs of the partnership, when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and (3)
termination. These stages are distinguished, to wit:

(1) Dissolution Defined

Dissolution is the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the business (Art. 1828). It is that
point of time the partners cease to carry on the business together. [Citation
omitted]
(2) Winding Up Defined
Winding up is the process of settling business affairs after dissolution.

(NOTE: Examples of winding up: the paying of previous obligations; the

collecting of assets previously demandable; even new business if needed to wind
up, as the contracting with a demolition company for the demolition of the garage
used in a used car partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound
up.[16] [Citation omitted] (Underscoring supplied.)
These final stages in the life of a partnership are recognized under the Civil Code that explicitly declares
that upon dissolution, the partnership is not terminated, to wit:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as distinguished from the winding up of the
business.
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed. (Underscoring supplied.)
The best evidence of the existence of the partnership, which was not yet terminated (though in the winding
up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private complainant remained as co-partners. The check
was thus issued by the petitioner to complainant, as would a partner to another, and not as payment from a
debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued merely to evidence the
complainants share in the partnership property, or to assure the latter that he would receive in time his due share
therein. The alternative view that the check was in consideration of a buy out is but a theory, favorable to the
complainant, but lacking support in the record; and must necessarily be discarded.
For there is nothing on record which even slightly suggests that petitioner ever became interested in
acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that the petitioner
exerted her best efforts to sell the remaining goods and to collect the receivables of the partnership, in order to
come up with the amount necessary to satisfy the value of complainants interest in the partnership at the
dissolution thereof. To go by accepted custom of the trade, we are more inclined to the view that the subject
check was issued merely to evidence complainants interest in the partnership. Thus, we are persuaded that the
check was not intended to apply on account or for value; rather it should be deemed as having been drawn
without consideration at the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is the making, drawing and issuance
of any check to apply on account or for value, petitioners issuance of the subject check was not an act
contemplated in nor made punishable by said statute.

As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, the elements of
deceit and damage are not essential or required to constitute a violation thereof.In his view, the only essential
element is the knowledge on the part of the maker or drawer of the check of the insufficiency of his/her funds at
the time of the issuance of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special offense
punishable by law. Malice or intent in issuing the worthless check is immaterial, the offense being malum
prohibitum,[17] so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending to absurdity. For if a check were
issued by a kidnap victim to a kidnapper for ransom, it would be absurd to hold the drawer liable under B.P. 22,
if the check is dishonored and unpaid. That would go against public policy and common sense.
Public respondents further contend that since petitioner issued the check in favor of complainant Alarilla
and when notified that it was returned for insufficiency of funds, failed to make good the check, then petitioner
is liable for violation of B.P. 22. [18] Again, this matter could not be all that simple. For while the makers
knowledge of the insufficiency of funds is legally presumed from the dishonor of his checks for insufficiency of
funds,[19] this presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude the presentation of
contrary evidence.[20] In fact, such contrary evidence on two points could be gleaned from the record concerning
(1) lack of actual knowledge of insufficiency of funds; and (2) lack of adequate notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank for the
payment of a check upon its presentment is an essential element of the offense. [21] It must be proved, particularly
where the prima facie presumption of the existence of this element has been rebutted. The prima
facie presumption arising from the fact of drawing, issuing or making a check, the payment of which was
subsequently refused for insufficiency of funds is, moreover, not sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals,[22] it was held that the subsequent dishonor of the subject check
issued by accused merely engendered the prima facie presumption that she knew of the insufficiency of funds,
but did not render the accused automatically guilty under B.P. 22.[23]

The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to
the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima
faciepresumption. Therefore, if such knowledge of insufficiency of funds is proven to
be actually absent or non-existent, the accused should not be held liable for the offense defined
under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a malum
prohibitum, the prosecution is not thereby excused from its responsibility of proving beyond
reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of
funds.
Section 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the check, be shown
that he knows at the time of issue, that he does not have sufficient funds in or credit with the drawee bank for
the payment of such check in full upon its presentment.

In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the proportionate
share of complainant in the partnership assets upon its dissolution. Payment of that share in the partnership was
conditioned on the subsequent realization of profits from the unsold goods and collection of the receivables of
the firm. This condition must be satisfied or complied with before the complainant can actually encash the
check. The reason for the condition is that petitioner has no independent means to satisfy or discharge the
complainants share, other than by the future sale and collection of the partnership assets. Thus, prior to the
selling of the goods and collecting of the receivables, the complainant could not, as of yet, demand his
proportionate share in the business. This situation would hold true until after the winding up, and subsequent
termination of the partnership. For only then, when the goods were already sold and receivables paid that cash
money could be availed of by the erstwhile partners.
Complainant did not present any evidence that petitioner signed and issued four checks actually knowing
that funds therefor would be insufficient at the time complainant would present them to the drawee bank. For it
was uncertain at the time of issuance of the checks whether the unsold goods would have been sold, or whether
the receivables would have been collected by the time the checks would be encashed. As it turned out, three
were fully funded when presented to the bank; the remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the insufficiency of funds, she could
not be held liable under B.P. 22 when one was not honored right away. For it is basic doctrine that penal statutes
such as B.P. 22 must be construed with such strictness as to carefully safeguard the rights of the defendant x x x.
[24]
The element of knowledge of insufficiency of funds has to be proved by the prosecution; absent said proof,
petitioner could not be held criminally liable under that law. Moreover, the presumption of prima
facie knowledge of such insufficiency in this case was actually rebutted by petitioners evidence.
Further, we find that the prosecution also failed to prove adequate notice of dishonor of the subject check
on petitioners part, thus precluding any finding of prima facie evidence of knowledge of insufficiency of
funds. There is no proof that notice of dishonor was actually sent by the complainant or by the drawee bank to
the petitioner. On this point, the record is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by petitioner. In addition, the
terms of the parties compromise agreement, entered into during the pendency of this case, effectively
invalidates the allegation of failure to pay or to make arrangement for the payment of the check in full. Verily,
said compromise agreement constitutes an arrangement for the payment in full of the subject check.
The absence of notice of dishonor is crucial in the present case. As held by this Court in prior cases:

Because no notice of dishonor was actually sent to and received by the petitioner, the prima
facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22
clearly provides that this presumption arises not from the mere fact of drawing, making and issuing
a bum check; there must also be a showing that, within five banking days from receipt of the notice
of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or
to make arrangement for its payment in full by the drawee of such check. [25][Underscoring supplied.]
The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a
criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor

be actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness
require that the notice of dishonor be actually sent to and received by her to afford her the
opportunity to avert prosecution under B.P. 22. [26]
Further, what militates strongly against public respondents stand is the fact that petitioner repeatedly
notified the complainant of the insufficiency of funds. Instructive is the following pronouncement of this Court
in Magno v. Court of Appeals:

Furthermore, the element of knowing at the time of issue that he does not have sufficient funds in
or credit with the drawee bank for the payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason x x x is inversely applied in this case. From the very
beginning, petitioner never hid the fact that he did not have the funds with which to put up the
warranty deposit and as a matter of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would have been
different if this predicament was not communicated to all the parties he dealt with regarding the
lease agreement the financing of which was covered by L.S. Finance Management. [27]
In the instant case, petitioner intimated to private complainant the possibility that funds might be
insufficient to cover the subject check, due to the fact that the partnerships goods were yet to be sold and
receivables yet to be collected.
As Magno had well observed:

For all intents and purposes, the law was devised to safeguard the interest of the banking system
and the legitimate public checking account user. It did not intend to shelter or favor nor encourage
users of the system to enrich themselves through manipulations and circumvention of the noble
purpose and objective of the law. Least should it be used also as a means of jeopardizing honest-togoodness transactions with some color of get-rich scheme to the prejudice of well-meaning
businessmen who are the pillars of society.
xxx

Thus, it behooves upon a court of law that in applying the punishment imposed upon the accused,
the objective of retribution of a wronged society, should be directed against the actual and potential
wrongdoers. In the instant case, there is no doubt that petitioners four (4) checks were used to
collateralize an accommodation, and not to cover the receipt of an actual account or credit for value
as this was absent, and therefore petitioner should not be punished for mere issuance of the checks
in question. Following the aforecited theory, in petitioners stead the potential wrongdoer, whose
operation could be a menace to society, should not be glorified by convicting the petitioner. [28]
Under the circumstances obtaining in this case, we find the petitioner to have issued the check in good
faith, with every intention of abiding by her commitment to return, as soon as able, the investments of

complainant in the partnership. Evidently, petitioner issued the check with benign considerations in mind, and
not for the purpose of committing fraud, deceit, or violating public policy
To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable for violation of
B.P. 22 for the following reasons: (1) the subject check was not made, drawn and issued by petitioner in
exchange for value received as to qualify it as a check on account or for value; (2) there is no sufficient basis to
conclude that petitioner, at the time of issue of the check, had actual knowledge of the insufficiency of funds;
and (3) there was no notice of dishonor of said check actually served on petitioner, thereby depriving her of the
opportunity to pay or make arrangements for the payment of the check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious, we no longer need to
pass upon the validity and legality or necessity of the purported compromise agreement on civil liability
between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. The
Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and the
Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby SET ASIDE.
NO COSTS.
SO ORDERED.
B. Effects of Dissolution (Articles 1832-1842)

G.R. No. 126334. November 23, 2001]

EMILIO EMNACE, petitioner, vs. COURT OF APPEALS, ESTATE OF VICENTE

TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE
TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA
TABANAO and VINCENT TABANAO,respondents.
DECISION
YNARES-SANTIAGO, J.:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern
known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they decided to dissolve their partnership
and executed an agreement of partition and distribution of the partnership properties among them, consequent to
Jacinto Divinagracias withdrawal from the partnership.[1] Among the assets to be distributed were five (5)
fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio and Talisay, Negros Occidental, and
cash deposits in the local branches of the Bank of the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanaos untimely demise in 1994,
petitioner failed to submit to Tabanaos heirs any statement of assets and liabilities of the partnership, and to
render an accounting of the partnerships finances. Petitioner also reneged on his promise to turn over to

Tabanaos heirs the deceaseds 1/3 share in the total assets of the partnership, amounting to P30,000,000.00, or
the sum of P10,000,000.00, despite formal demand for payment thereof.[2]
Consequently, Tabanaos heirs, respondents herein, filed against petitioner an action for accounting,
payment of shares, division of assets and damages.[3] In their complaint, respondents prayed as follows:

1. Defendant be ordered to render the proper accounting of all the assets and liabilities of the
partnership at bar; and
2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to the
plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing vessels,
trucks, motor vehicles, and other forms and substance of treasures which belong and/or should
belong, had accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;
C. Attorneys fees equivalent to Thirty Percent (30%) of the entire share/amount/award which the
Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every appearance in
court.[4]
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of jurisdiction
over the nature of the action or suit, and lack of capacity of the estate of Tabanao to sue. [5] On August 30, 1994,
the trial court denied the motion to dismiss. It held that venue was properly laid because, while realties were
involved, the action was directed against a particular person on the basis of his personal liability; hence, the
action is not only a personal action but also an action in personam. As regards petitioners argument of lack of
jurisdiction over the action because the prescribed docket fee was not paid considering the huge amount
involved in the claim, the trial court noted that a request for accounting was made in order that the exact value
of the partnership may be ascertained and, thus, the correct docket fee may be paid. Finally, the trial court held
that the heirs of Tabanao had a right to sue in their own names, in view of the provision of Article 777 of the
Civil Code, which states that the rights to the succession are transmitted from the moment of the death of the
decedent.[6]
The following day, respondents filed an amended complaint, [7] incorporating the additional prayer that
petitioner be ordered to sell all (the partnerships) assets and thereafter pay/remit/deliver/surrender/yield to the
plaintiffs their corresponding share in the proceeds thereof. In due time, petitioner filed a manifestation and
motion to dismiss,[8] arguing that the trial court did not acquire jurisdiction over the case due to the plaintiffs
failure to pay the proper docket fees. Further, in a supplement to his motion to dismiss,[9] petitioner also raised
prescription as an additional ground warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order,[10] denying the motion to dismiss inasmuch as the grounds
raised therein were basically the same as the earlier motion to dismiss which has been denied. Anent the issue of
prescription, the trial court ruled that prescription begins to run only upon the dissolution of the partnership
when the final accounting is done. Hence, prescription has not set in the absence of a final

accounting. Moreover, an action based on a written contract prescribes in ten years from the time the right of
action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals,[11] raising the following issues:
I. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in taking
cognizance of a case despite the failure to pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in insisting to
try the case which involve (sic) a parcel of land situated outside of its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in allowing the
estate of the deceased to appear as party plaintiff, when there is no intestate case and filed by one who was
never appointed by the court as administratrix of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in not
dismissing the case on the ground of prescription.

On August 8, 1996, the Court of Appeals rendered the assailed decision, [12] dismissing the petition
for certiorari, upon a finding that no grave abuse of discretion amounting to lack or excess of jurisdiction was
committed by the trial court in issuing the questioned orders denying petitioners motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved by the Court of
Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside the said courts territorial
jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs cause of action.

It can be readily seen that respondents primary and ultimate objective in instituting the action below was to
recover the decedents 1/3 share in the partnerships assets. While they ask for an accounting of the partnerships
assets and finances, what they are actually asking is for the trial court to compel petitioner to pay and turn over
their share, or the equivalent value thereof, from the proceeds of the sale of the partnership assets. They also
assert that until and unless a proper accounting is done, the exact value of the partnerships assets, as well as
their corresponding share therein, cannot be ascertained. Consequently, they feel justified in not having paid the
commensurate docket fee as required by the Rules of Court.
We do not agree. The trial court does not have to employ guesswork in ascertaining the estimated value of
the partnerships assets, for respondents themselves voluntarily pegged the worth thereof at Thirty Million Pesos
(P30,000,000.00). Hence, this case is one which is really not beyond pecuniary estimation, but rather partakes
of the nature of a simple collection case where the value of the subject assets or amount demanded is
pecuniarily determinable.[13] While it is true that the exact value of the partnerships total assets cannot be shown
with certainty at the time of filing, respondents can and must ascertain, through informed and practical

estimation, the amount they expect to collect from the partnership, particularly from petitioner, in order to
determine the proper amount of docket and other fees. [14] It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court may acquire jurisdiction over the action.[15]
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals, [16] where there was
clearly an effort to defraud the government in avoiding to pay the correct docket fees, we see no attempt to
cheat the courts on the part of respondents. In fact, the lower courts have noted their expressed desire to remit to
the court any payable balance or lien on whatever award which the Honorable Court may grant them in this case
should there be any deficiency in the payment of the docket fees to be computed by the Clerk of Court. [17] There
is evident willingness to pay, and the fact that the docket fee paid so far is inadequate is not an indication that
they are trying to avoid paying the required amount, but may simply be due to an inability to pay at the time of
filing. This consideration may have moved the trial court and the Court of Appeals to declare that the unpaid
docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the nonpayment of the proper legal fees and in allowing the same to become a lien on the monetary or property
judgment that may be rendered in favor of respondents. There is merit in petitioners assertion. The third
paragraph of Section 16, Rule 141 of the Rules of Court states that:

The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it specifically applies to pauperlitigants. Nowhere in the records does it appear that respondents are litigating as paupers, and as such are
exempted from the payment of court fees.[18]
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which defines the
two kinds of claims as: (1) those which are immediately ascertainable; and (2) those which cannot be
immediately ascertained as to the exact amount. This second class of claims, where the exact amount still has to
be finally determined by the courts based on evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:

In case the value of the property or estate or the sum claimed is less or more in accordance with the
appraisal of the court, the difference of fee shall be refunded or paid as the case may be.
(Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,[19] this Court pronounced that the abovequoted provision clearly contemplates an initial payment of the filing fees corresponding to the estimated
amount of the claim subject to adjustment as to what later may be proved. [20] Moreover, we reiterated therein the
principle that the payment of filing fees cannot be made contingent or dependent on the result of the case. Thus,
an initial payment of the docket fees based on an estimated amount must be paid simultaneous with the filing of
the complaint.Otherwise, the court would stand to lose the filing fees should the judgment later turn out to be
adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court
expenses in the handling of cases. Consequently, in order to avoid tremendous losses to the judiciary, and to the

government as well, the payment of docket fees cannot be made dependent on the outcome of the case, except
when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3 of the value of all the partnership assets
but they did not allege a specific amount. They did, however, estimate the partnerships total assets to be worth
Thirty Million Pesos (P30,000,000.00), in a letter [21] addressed to petitioner. Respondents cannot now say that
they are unable to make an estimate, for the said letter and the admissions therein form part of the records of
this case. They cannot avoid paying the initial docket fees by conveniently omitting the said amount in their
amended complaint.This estimate can be made the basis for the initial docket fees that respondents should
pay. Even if it were later established that the amount proved was less or more than the amount alleged or
estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the court may refund the
excess or exact additional fees should the initial payment be insufficient. It is clear that it is only the difference
between the amount finally awarded and the fees paid upon filing of this complaint that is subject to adjustment
and which may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,[22] this Court held that
when the specific claim has been left for the determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment and it shall be the responsibility of the Clerk of Court or his duly authorized
deputy to enforce said lien and assess and collect the additional fee. Clearly, the rules and jurisprudence
contemplate the initial payment of filing and docket fees based on the estimated claims of the plaintiff, and it is
only when there is a deficiency that a lien may be constituted on the judgment award until such additional fee is
collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright despite their failure to
pay the proper docket fees. Nevertheless, as in other procedural rules, it may be liberally construed in certain
cases if only to secure a just and speedy disposition of an action. While the rule is that the payment of the
docket fee in the proper amount should be adhered to, there are certain exceptions which must be strictly
construed.[23]
In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine, allowing the
plaintiff to pay the proper docket fees within a reasonable time before the expiration of the applicable
prescriptive or reglementary period.[24]
In the recent case of National Steel Corp. v. Court of Appeals,[25] this Court held that:

The court acquires jurisdiction over the action if the filing of the initiatory pleading is accompanied
by the payment of the requisite fees, or, if the fees are not paid at the time of the filing of the
pleading, as of the time of full payment of the fees within such reasonable time as the court may
grant, unless, of course, prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed the complaint for failure of
private respondent to pay the correct amount of docket fees. Although the payment of the proper
docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an action to pay
the same within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the defendant should

timely raise the issue of jurisdiction or else he would be considered in estoppel. In the latter case,
the balance between the appropriate docket fees and the amount actually paid by the plaintiff will
be considered a lien or any award he may obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket fee based on the estimated
amount that respondents seek to collect from petitioner, and direct them to pay the same within a reasonable
time, provided the applicable prescriptive or reglementary period has not yet expired. Failure to comply
therewith, and upon motion by petitioner, the immediate dismissal of the complaint shall issue on jurisdictional
grounds.
On the matter of improper venue, we find no error on the part of the trial court and the Court of Appeals in
holding that the case below is a personal action which, under the Rules, may be commenced and tried where the
defendant resides or may be found, or where the plaintiffs reside, at the election of the latter.[26]
Petitioner, however, insists that venue was improperly laid since the action is a real action involving a
parcel of land that is located outside the territorial jurisdiction of the court a quo. This contention is not welltaken. The records indubitably show that respondents are asking that the assets of the partnership be accounted
for, sold and distributed according to the agreement of the partners. The fact that two of the assets of the
partnership are parcels of land does not materially change the nature of the action. It is an action in
personam because it is an action against a person, namely, petitioner, on the basis of his personal liability. It is
not an action in rem where the action is against the thing itself instead of against the person.[27] Furthermore,
there is no showing that the parcels of land involved in this case are being disputed. In fact, it is only incidental
that part of the assets of the partnership under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,[28] settled this issue thus:

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in
question, did not change the nature or character of the action, such sale being merely a necessary
incident of the liquidation of the partnership, which should precede and/or is part of its process of
dissolution.
The action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement of,
and petitioners compliance with, the contract that the partners executed to formalize the partnerships
dissolution, as well as to implement the liquidation and partition of the partnerships assets. Clearly, it is a
personal action that, in effect, claims a debt from petitioner and seeks the performance of a personal duty on his
part.[29] In fine, respondents complaint seeking the liquidation and partition of the assets of the partnership with
damages is a personal action which may be filed in the proper court where any of the parties reside. [30] Besides,
venue has nothing to do with jurisdiction for venue touches more upon the substance or merits of the case. [31] As
it is, venue in this case was properly laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to
sue since she was never appointed as administratrix or executrix of his estate.Petitioners objection in this regard
is misplaced. The surviving spouse does not need to be appointed as executrix or administratrix of the estate
before she can file the action. She and her children are complainants in their own right as successors of Vicente
Tabanao. From the very moment of Vicente Tabanaos death, his rights insofar as the partnership was concerned

were transmitted to his heirs, for rights to the succession are transmitted from the moment of death of the
decedent.[32]
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted to
respondents by operation of law, more particularly by succession, which is a mode of acquisition by virtue of
which the property, rights and obligations to the extent of the value of the inheritance of a person are
transmitted.[33] Moreover, respondents became owners of their respective hereditary shares from the moment
Vicente Tabanao died.[34]
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As successors who stepped
into the shoes of their decedent upon his death, they can commence any action originally pertaining to the
decedent.[35] From the moment of his death, his rights as a partner and to demand fulfillment of petitioners
obligations as outlined in their dissolution agreement were transmitted to respondents. They, therefore, had the
capacity to sue and seek the courts intervention to compel petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the complaint on the ground of
prescription, arguing that respondents action prescribed four (4) years after it accrued in 1986. The trial court
and the Court of Appeals gave scant consideration to petitioners hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination. [36] The
partnership, although dissolved, continues to exist and its legal personality is retained, at which time it
completes the winding up of its affairs, including the partitioning and distribution of the net partnership assets to
the partners.[37] For as long as the partnership exists, any of the partners may demand an accounting of the
partnerships business. Prescription of the said right starts to run only upon the dissolution of the partnership
when the final accounting is done.[38]
Contrary to petitioners protestations that respondents right to inquire into the business affairs of the
partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not even begun to run in the
absence of a final accounting. Article 1842 of the Civil Code provides:

The right to an account of his interest shall accrue to any partner, or his legal representative as
against the winding up partners or the surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited
provision states that the right to demand an accounting accrues at the date of dissolution in the absence of any
agreement to the contrary. When a final accounting is made, it is only then that prescription begins to run. In the
case at bar, no final accounting has been made, and that is precisely what respondents are seeking in their action
before the trial court, since petitioner has failed or refused to render an accounting of the partnerships business
and assets. Hence, the said action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioners motions to
dismiss. Likewise, the Court of Appeals did not commit reversible error in upholding the trial courts
orders. Precious time has been lost just to settle this preliminary issue, with petitioner resurrecting the very

same arguments from the trial court all the way up to the Supreme Court.The litigation of the merits and
substantial issues of this controversy is now long overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and the case
is REMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the
proper docket fee based on the estimated amount that plaintiffs therein seek to collect, and direct said plaintiffs
to pay the same within a reasonable time, provided the applicable prescriptive or reglementary period has not
yet expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings in Civil Case No.
416-C.
Costs against petitioner.
SO ORDERED.
SEE - Yu v. NLRC, G.R. No. 97212, June 30, 1993

[G.R. No. 94285. August 31, 1999]

JESUS SY, JAIME SY, ESTATE OF JOSE SY, ESTATE OF VICENTE SY, HEIR OF
MARCIANO SY represented by JUSTINA VDA. DE SY and WILLIE
SY, petitioners, vs. THE COURT OF APPEALS, INTESTATE ESTATE OF SY
YONG HU, SEC. HEARING OFFICER FELIPE TONGCO, SECURITIES AND
EXCHANGE COMMISSION, respondents.
[G.R. No. 100313. August 31, 1999]
SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND UPHOLSTERY
SUPPLY CO., AND NEGROS ISUZU SALES, petitioners, vs.HONORABLE
COURT OF APPEALS (11th Division), INTESTATE ESTATE OF THE LATE SY
YONG HU, JOSE FALSIS, JR., AND HON. BETHEL KATALBAS-MOSCARDON,
RTC OF NEGROS OCCIDENTAL, Branch 51, respondents.
DECISION
PURISIMA, J.:

At bar are two consolidated petitions for review on certiorari under Rule 45 of the Revised Rules of Court,
docketed as G. R. Nos. 94285 and G.R. No. 100313, respectively, seeking to reinstate the Resolution of the
Court of Appeals in CA - G. R. SP No. 17070 and its Decision in CA-G. R. SP No. 24189.
In G. R. No. 94285, the petitioners assail the Resolution[1] dated June 27, 1990 of the Court of Appeals
granting the Motion for Reconsideration interposed by the petitioners (now the private respondents) of its
Decision[2], promulgated on January 15, 1990, which affirmed the Order [3] issued on January 16, 1989 by the

Securities and Exchange Commission (SEC) en banc and the Order[4] of SEC Hearing Officer Felipe Tongco,
dated October 5, 1988,
The facts that matter are as follows:
Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy, Marciano Sy, Willie
Sy, Vicente Sy, and Jesus Sy, registered with the SEC on March 29, 1962, with Jose Sy as managing
partner. The partners and their respective shares are reflected in the Amended Articles of Partnership [5] as
follows:

NAMES AMOUNT CONTRIBUTED

SY YONG HU P 31, 000. 00
JOSE S. SY 205, 000. 00
JAYME S. SY 112, 000. 00
MARCIANO S. SY 143, 000. 00
WILLIE S. SY 85, 000. 00
VICENTE SY 85, 000. 00
JESUS SY 88, 000. 00
Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978, August 12, 1978, December
30, 1979 and August 7, 1987, respectively.[6] At present, the partnership has valuable assets such as tracts of
lands planted to sugar cane and commercial lots in the business district of Bacolod City.
Sometime in September, 1977, during the lifetime of all the partners, Keng Sian brought an action,
docketed as Civil Case No. 13388 before the then Court of First Instance of Negros Occidental, against the
partnership as well as against the individual partners for accounting of all the properties allegedly owned in
common by Sy Yong Hu and the plaintiff (Keng Sian), and for the delivery or reconveyance of her one-half
(1/2) share in said properties and in the fruits thereof. Keng Sian averred that she was the common law wife of
partner Sy Yong Hu, that Sy Yong Hu, together with his children, [8] who were partners in the partnership,
connived to deprive her of her share in the properties acquired during her cohabitation with Sy Yong Hu, by
diverting such properties to the partnership.[9]
[7]

In their answer dated November 3, 1977, the defendants, including Sy Yong Hu himself, countered that
Keng Sian is only a house helper of Sy Yong Hu and his wife, subject properties are exclusively owned by
defendant partnership, and plaintiff has absolutely no right to or interest therein.[10]
On September 20, 1978, during the pendency of said civil case, Marciano Sy filed a petition for declaratory
relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed as SEC Case No. 1648, praying that he be
appointed managing partner of the partnership, to replace Jose Sy who died on August 12, 1978. Answering the

petition, Vicente Sy, Jesus Sy and Jaime Sy, who claim to represent the majority interest in the partnership,
sought the dissolution of the partnership and the appointment of Vicente Sy as managing partner. In due time,
Hearing Officer Emmanuel Sison came out with a decision [11] (Sison Decision) dismissing the petition,
dissolving the partnership and naming Jesus Sy, in lieu of Vicente Sy who had died earlier, as the managing
partner in charge of winding the affairs of the partnership.
The Sison decision was affirmed in toto by the SEC en banc in a decision[12] (Abello decision) dated June 8,
1982, disposing thus:

WHEREFORE, the Commission en banc affirms the dispositive portion of the decision of the
Hearing Officer, but clarifies that: (1) the partnership was dissolved by express will of the majority
and not ipso facto because of the death of any partner in view of the stipulation of Articles of
Partnership and the provisions of the New Civil Code particularly Art. 1837 [2] and Art. 1841. (2)
The Managing Partner designated by the majority, namely Jesus Sy, vice Vicente Sy (deceased)
shall only act as a manager in liquidation and he shall submit to the Hearing Officer an accounting
and a project of partition, within 90 days from receipt of this decision. (3) The petitioner is also
required within the same period to submit his counter-project of partition, from date of receipt of
the Managing Partners project of partition. (4) The case is remanded to the Hearing Officer for
evaluation and approval of the accounting and project of partition.
On the basis of the above decision of the SEC en banc, Hearing Officer Sison approved a partial partition
of certain partnership assets in an order[13] dated December 2, 1986. Therefrom, respondents seasonably
appealed.
In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng Seng, Carlos Keng Seng, Tita Sy,
Yolanda Sy and Lolita Sy, filed a petition, docketed as SEC Case No 2338, to revoke the certificate of
registration of Sy Yong Hu & Sons, and to have its assets reverted to the estate of the late Sy Yong Hu. After
hearings, the petition was dismissed by Hearing Officer Bernardo T. Espejo in an Order, dated January 11, 1984,
which Order became final since no appeal was taken therefrom.[14]
After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to intervene in SEC Case No.
1648 but their motion to so intervene was denied in an Order dated May 9, 1985.There was no appeal from said
order.[15]
In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed one Felix Ferrer as
a Special Administrator for the Intestate Estate of Sy Yong Hu in Civil Case No. 13388. Then, on August 30,
1985, Alex Ferrer moved to intervene in the proceedings in SEC Case No. 1648, for the partition and
distribution of the partnership assets, on behalf of the respondent Intestate Estate.[16]
It appears that sometime in December, 1985, Special Administrator Ferrer filed an Amended Complaint on
behalf of respondent Intestate Estate in Civil Case No. 13388, wherein he joined Keng Sian as plaintiff and
thereby withdrew as defendant in the case. Special Administrator Ferrer adopted the theory of Keng Sian that
the assets of the partnership belong to Keng Sian and Sy Yong Hu (now represented by the Estate of Sy Yong
Hu) in co-ownership, which assets were wrongfully diverted in favor of the defendants.[17]

The motion to intervene in SEC Case No. 1648, filed by Special Administrator Alex Ferrer on behalf of the
respondent Estate, was denied in the order issued on May 9, 1986 by Hearing Officer Sison. With the denial of
the motion for reconsideration, private respondent Intestate Estate of Sy Yong Hu appealed to the
Commission en banc.
In its decision (Sulit decision) on the aforesaid appeal from the Order dated May 9, 1986, and the Order
dated December 2, 1986, the SEC en banc[18] ruled:

WHEREFORE, in the interest of Justice and equity, substantive rights of due process being
paramount over the rules of procedure, and in order to avoid multiplicity of suits; the order of the
hearing officer below dated May 9, 1986 denying the motion to intervene in SEC Case No. 1648 of
appellant herein as well as the order dated December 2, 1986 [19] denying the motion for
reconsideration are hereby reversed and the motion to intervene given due course. The instant case
is hereby remanded to the hearing officer below for further proceeding on the aspect of partition
and/or distribution of partnership assets. The urgent motion for the issuance of a restraining order is
likewise hereby remanded to the hearing officer below for appropriate action. [20]
The said decision of the SEC en banc reiterated that the Abello decision of June 8, 1982, which upheld the order
of dissolution of the partnership, had long become final and executory. No further appeal was taken from the
Sulit Decision.
During the continuation of the proceedings in SEC Case No. 1648, now presided over by Hearing Officer
Felipe S. Tongco who had substituted Hearing Officer Sison, the propriety of placing the Partnership under
receivership was taken up. The parties brought to the attention of the Hearing Officer the fact of existence of
Civil Case No. 903 (formerly Civil Case No. 13388) pending before the Regional Trial Court of Negros
Occidental. They also agreed that during the pendency of the aforesaid court case, there will be no disposition
of the partnership assets.[21] On October 5, 1988, Hearing Officer Tongco came out with an Order [22] (Tongco
Order) incorporating the above submissions of the parties and placing [23] the partnership under a receivership
committee, explaining that it is the most equitable fair and just manner to preserve the assets of the partnership
during the pendency of the civil case in the Regional Trial Court of Bacolod City.
On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed by herein petitioners Jayme Sy,
Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy, Heirs of Marciano Sy (represented by Justina Vda. de Sy), and
Willie Sy, against the Intervenor (now private respondent). In an order (Lopez Order) dated January 16, 1989,
the SEC en banc[24]affirmed the Tongco Order.
With the denial of their Motion for Reconsideration,[25] petitioners filed a special civil action
for certiorari with the Court of Appeals.
On January 15, 1990, the Court of Appeals granted the petition and set aside the Tongco and Lopez Orders,
and remanded the case for further execution of the 1982 Abello and 1988 Sulit Decisions, ordering the partition
and distribution of the partnership properties.[26]
Private respondent seasonably interposed a motion for reconsideration of such decision of the Court of
Appeals.

Acting thereupon on June 27, 1990, the Court of Appeals issued its assailed Resolution, reversing its
Decision of January 15, 1990, and remanding the case to the SEC for the formation of a receivership committee,
as envisioned in the Tongco Order.
G. R. No. 100313 came about in view of the dismissal by the Court of Appeals [27] of the Petition
for Certiorari with a Prayer for Preliminary Injunction, docketed as CA-G. R. SP No. 24189, seeking to annul
and set aside the orders, dated January 24, 1991 and April 19, 1989, respectively, in Civil Case No. 5326 before
the Regional Trial Court of Bacolod City.
The antecedent facts are as follows:
Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its Managing Partner, Jesus Sy, applied
for a building permit to reconstruct its building called Sy Yong Hu & Sons Building, located in the central
business district of Bacolod City, which had been destroyed by fire in the late 70s. On July 5, 1988, respondent
City Engineer issued Building Permit No. 4936 for the reconstruction of the first two floors of the
building. Soon thereafter, reconstruction work began. In January, 1989, upon completion of its reconstruction,
the building was occupied by the herein petitioners, Bacolod and Upholstery Supply Company and Negros
Isuzu Sales, which businesses are owned by successors-in-interest of the deceased partners Jose Sy and Vicente
Sy.Petitioner John Tan, who is also an occupant of the reconstructed building, is the brother-in-law of deceased
partner Marciano Sy.[28]
From the records on hand, it can be gleaned that the Tongco Order [29], dated October 5, 1988, in SEC Case
No. 1648, had, among others, denied a similar petition of the intervenors therein (now private respondents) for a
restraining order and/or injunction to enjoin the reconstruction of the same building. However, on October 10,
1988, respondent Intestate Estate sent a letter to the City Engineer claiming that Jesus Sy is not authorized to act
for petitioners Sy Yong Hu & Sons with respect to the reconstruction or renovation of the property of the
partnership. This was followed by a letter dated November 11, 1988, requesting the revocation of Building
Permit No. 4936.
Respondent City Engineer inquired[30] later from Jesus Sy for an authority to sign for and on behalf of Sy
Yong Hu & Sons to justify the latters signature in the application for the building permit, informing him that
absent any proof of his authority, he would not be issued an occupancy permit. [31] On December 27, 1988,
respondent Intestate Estate reiterated its objection to the authority of Jesus Sy to apply for a building permit and
pointing out that in view of the creation of a receivership committee, Jesus Sy no longer had any authority to act
for the partnership.[32]
In reply, Jesus Sy informed the City Engineer that the Tongco Order had been elevated to the SEC en
banc, making him still the authorized manager of the partnership. He then requested that an occupancy permit
be issued as Sy Yong Hu & Sons had complied with the requirements of the City Engineers Office and the
National Building Code.[33]
Unable to convince the respondent City Engineer to revoke subject building permit, respondent Intestate
Estate brought a Petition for Mandamus with prayer for a Writ of Preliminary Injunction, docketed as Civil
Case No 5326 before the Regional Trial Court of Bacolod City and entitled Intestate Estate of the Late Sy Yong
Hu vs. Engineer Jose P. Falsis, Jr.[34] The Complaint concluded with the following prayer:

WHEREFORE PREMISES CONSIDERED, it is respectfully prayed of the Honorable Court that:

1. A writ of Preliminary Injunction be issued to the respondent, after preliminary hearing is
had. compelling his office to padlock the premises occupied, without the requisite Certificate of
Occupancy; to stop all construction activities, and barricade the same premises so that the unwary
public will not be subject to undue hazards due to lack of requisite safety precaution;
2. The Respondent be ordered to enforce without exemption every requisite provision of the
Building Code as so mandated by it.[35]
Petitioners Sy Yong Hu & Sons, the owners of the building sought to be padlocked were not impleaded as
party to the petition dated February 22, 1989. Neither were the lessees-occupants thereon so impleaded. Thus,
they were not notified of the hearing scheduled for April 5, 1989, on which date the Petition was
heard. Subsequently, however, the Regional Trial Court issued an order dated April 19, 1989 for the issuance of
a Writ of Preliminary Mandatory Injunction ordering the City Engineer to padlock the building.[36]
On May 9, 1989, upon learning of the issuance of the Writ of Preliminary Injunction, dated May 4, 1989,
petitioners immediately filed the: (1) Motion for Intervention; (2) Answer in Intervention; and (3) Motion to set
aside order of mandatory injunction. In its order dated June 22, 1989, the Motion for Intervention was granted
by the lower court through Acting Presiding Judge Porfirio A. Parian.
On August 3, 1989, respondent Intestate Estate presented a Motion to cite Engineer Jose Falsis, Jr. in
contempt of court for failure to implement the injunctive relief.
On August 15, 1989, petitioners submitted an Amended Answer in Intervention. Reacting thereto,
respondent Intestate Estate filed a Motion to Strike or Expunge from the Record the Amended Answer in
Intervention.[37]
On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the respondent City Engineer to reiterate
its request for the immediate issuance of a certificate of occupancy, alleging that the Court of Appeals in its
Decision of January 15, 1990 in CA-G. R. No. 17070 had reversed the SEC decision which approved the
appointment of a receivership committee. However, the City Engineer refused to issue the Occupancy Permit
without the conformity of the respondent Intestate Estate and one John Keng Seng who claims to be an
Illegitimate son of the Late Sy Yong Hu.[38]
In an order issued on January 24, 1991 upon an Ex Parte Motion to Have All Pending Incidents Resolved
filed by respondent Intestate Estate, Judge Bethel Katalbas-Moscardon issued an order modifying the Writ of
Preliminary Mandatory Injunction, and directing the respondent City Engineer to:

x x x immediately order stoppage of any work affecting the construction of the said building under
Lot 259-A-2 located at Gonzaga Street adjacent to the present Banco de Oro Building, BACOLOD
City, to cancel or cause to be cancelled the Building Permit it had issued; to order the
discontinuance of the occupancy or use of said building or structure or portion thereof found to be
occupied or used, the same being contrary and violative of the provisions of the Code; and to desist

from issuing any certificate of Occupancy until the merits of this case can finally be resolved by
this Court. x x x
Again, it is emphasized that the issue involved is solely question of law and the Court cannot see
any logical reason that the intervenors should be allowed to intervene as earlier granted in the Order
of the then Presiding Judge Porfirio A. Parian, of June 22, 1989. Much less for said intervenors to
move for presentation of additional parties, only on the argument of Intervenors that any restraining
order to be issued by this Court upon the respondent would prejudice their present occupancy
which is self serving, whimsical and in fact immoral. It is axiomatic that the means would not
justify the end nor the end justify the means. Assuming damage to the present occupants will occur
and assuming further that they are entitled, the same should be ventilated in a different action
against the lessor or landlord, and the present petition cannot be the proper forum, otherwise, while
it maybe argued that there is a multiplicity of suit which actually is groundless, on the other hand,
there will be only confusion of the issues to be resolved by the Court. Well valid enough is to
reiterate that the present petition is not the proper forum for the intervenors to shop for whatever
relief.
In view of the above, the Order allowing the intervenors in this case is likewise hereby withdrawn
for the purposes above discussed. Consequently, the Motion to present additional parties is deemed
denied, and the Motion to Strike Or Expunge From The Records the Amended Answer In
Intervention is deemed granted as in fact the same become moot and academic with the elimination
of the Intervenors in this case.[39]
Pursuant to the above Order of January 24, 1991, respondent City Engineer served a notice upon petitioners
revoking Building Permit No. 4936, ordering the stoppage of all construction work on the building, and
commanding discontinuance of the occupancy thereof.
On February 15, 1991, the aggrieved petitioners filed a Petition for Certiorari with Prayer for Preliminary
Injunction with the Court of Appeals, docketed as CA-G. R. SP No. 24189.
On February 27, 1991, the Court of Appeals issued a Temporary Restraining Order enjoining the
respondent Judge from implementing the questioned orders dated January 24, 1991 and April 19, 1989.[40]
After the respondents had sent in their answer, petitioners filed a Reply with a prayer for the issuance of a
writ of mandamus directing the respondent City Engineer to reissue the building permit previously issued in
favor of petitioner Sy Yong Hu & Sons, and to issue a certificate of occupancy on the basis of the admission by
respondent City Engineer that petitioner had complied with the provisions of the National Building Code.[41]
On May 31, 1991, the Court of Appeals rendered its questioned decision denying the petition.[42]
From the Resolution of the Court of Appeals granting the motion for reconsideration in CA-G. R. SP No.
17070 and the Decision in CA-G. R. SP No. 24189, petitioners have come to this Court for relief.
In G. R. No. 94285, petitioners contend by way of assignment of errors,[43] that:

RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS MAIN

DECISION IN CA-G. R. No. 17070, WHICH DECISION HAD REMANDED TO THE
SEC THE CASE FOR THE PROPER IMPLEMENTATION OF THE 1982 ABELLO
AND 1988 SULIT DECISIONS WHICH IN TURN ORDERED THE DISTRIBUTION
AND PARTITION OF THE PARTNERSHIP PROPERTIES.
II

RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE TONGCO

ORDER, WHICH HAD SUSPENDED THE DISSOLUTION OF THE PARTNERSHIP
AND THE DISTRIBUTION OF ITS ASSETS, AND IN PLACING THE PARTNERSHIP
PROPERTIES UNDER RECEIVERSHIP PENDING THE RESOLUTION OF CIVIL
CASE NO. 903 (13388), ON A GROUND NOT MADE THE BASIS OF THE SEC
RESOLUTION UNDER REVIEW, I. E., THE DISPOSITION BY A PARTNER OF
SMALL PROPERTIES ALREADY ADJUDICATED TO HIM BY A FINAL SEC
ORDER DATED DECEMBER 2, 1986 AND MADE LONG BEFORE THE
AGREEMENT OF JUNE 28, 1988 OF THE PETITIONERS NOT TO DISPOSE OF THE
PARTNERSHIP ASSETS.
In G. R. No. 100313, Petitioners assign as errors, that:[44]
I

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN

HOLDING THAT RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION
AND WITH GRAVE ABUSE OF JURISDICTION IN ISSUING THE WRIT OF
PRELIMINARY MANDATORY INJUNCTION.
II

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN

HOLDING THAT THE RESPONDENT JUDGE DID NOT ACT WITHOUT
JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION IN DISALLOWING
THE INTERVENTION OF PETITIONERS IN CIVIL CASE NO. 5326.
III

THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING

AND ORDERING THE IMPLEMENTATION OF THE WRIT OF PRELIMINARY
MANDATORY INJUNCTION DESPITE THE ABSENCE OR LACK OF AN
INJUNCTION BOND.[45]

On the two (2) issues raised in G. R. No. 94285, the Court rules for respondents.
Petitioners fault the Court of Appeals for affirming the 1989 Decision of the SEC which approved the
appointment of a receivership committee as ordered by Hearing Officer Felipe Tongco.They theorize that the
1988 Tongco Decision varied the 1982 Abello Decision affirming the dissolution of the partnership, contrary to
the final and executory tenor of the said judgment. To buttress their theory, petitioners offer the 1988 Sulit
Decision which, among others, expressly confirmed the finality of the Abello Decision.
On the same premise, petitioners aver that when Hearing Officer Tongco took over from Hearing Officer
Sison, he was left with no course of action as far as the proceedings in the SEC Case were concerned other than
to continue with the partition and distribution of the partnership assets. Thus, the Order placing the partnership
under a receivership committee was erroneous and tainted with excess of jurisdiction.
The contentions are untenable. Petitioners fail to recognize the basic distinctions underlying the principles
of dissolution, winding up and partition or distribution. The dissolution of a partnership is the change in the
relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up, of its business. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its termination.[46]
The dissolution of the partnership did not mean that the juridical entity was immediately terminated and
that the distribution of the assets to its partners should perfunctorily follow. On the contrary, the dissolution
simply effected a change in the relationship among the partners. The partnership, although dissolved, continues
to exist until its termination, at which time the winding up of its affairs should have been completed and the net
partnership assets are partitioned and distributed to the partners.[47]
The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis. The Abello
Decision though, indeed, final and executory, did not pose any obstacle to the Hearing Officer to issue orders
not inconsistent therewith. From the time a dissolution is ordered until the actual termination of the partnership,
the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed order placing the
partnership under a receivership committee cannot be said to have varied the final order of dissolution. Neither
did it suspend the dissolution of the partnership. If at all, it only suspended the partition and distribution of the
partnership assets pending disposition of Civil Case No. 903 on the basis of the agreement by the parties and
under the circumstances of the case. It bears stressing that, like the appointment of a manager in charge of the
winding up of the affairs of the partnership, said appointment of a receiver during the pendency of the
dissolution is interlocutory in nature, well within the jurisdiction of the SEC.
Furthermore, having agreed with the respondents not to dispose of the partnership assets, petitioners
effectively consented to the suspension of the winding up or, more specifically, the partition and distribution of
subject assets. Petitioners are now estopped from questioning the order of the Hearing Officer issued in
accordance with the said agreement.[48]
Petitioners also assail the propriety of the receivership theorizing that there was no necessity therefor, and
that such remedy should be granted only in extreme cases, with respondent being duty-bound to adduce
evidence of the grave and irremediable loss or damage which it would suffer if the same was not granted. It is
further theorized that, at any rate, the rights of respondent Intestate Estate are adequately protected since notices
of lis pendens of the aforesaid civil case have been annotated on the real properties of the partnership.[49]

To bolster petitioners' contention, they maintain that they are the majority partners of the partnership Sy
Yong Hu & Sons controlling Ninety Six per cent (96%) of its equity. As such, they have the greatest interest in
preserving the partnership properties for themselves, [50] and therefore, keeping the said properties in their
possession will not bring about any feared damage or dissipation of such properties, petitioners stressed.
Sec. (6) of Presidential Decree No. 902-A, as amended, reads:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:
xxx xxx xxx

(c) To appoint one or more receivers of the property, real or personal, which is the subject of the
action pending before the commission in accordance with the pertinent provisions of the Rules of
Court, and in such other cases, whenever necessary in order to preserve the rights of partieslitigants and/or protect the interest of the investing public and creditors; xxx.
The findings of the Court of Appeals accord with existing rules and jurisprudence on
receivership. Conformably, it stated that:[51]

x x x From a reexamination of the issues and the evidences involved, We find merit in respondents
motion for reconsideration.
This Court notes with special attention the order dated June 28, 1988 issued by Hearing Officer
Felipe S. Tongco in SEC Case No. 1648 (Annex to Manifestation, June 16, 1990) wherein all the
parties agreed on the following:
1. That there is a pending case in court wherein the plaintiffs are claiming in their complaint that all
the assets of the partnership belong to Sy Yong Hu;
2. That the parties likewise agreed that during the pendency of the court case, there will be no
disposition of the partnership assets and further hearing is suspended. x x x
As observed by the SEC Commission (sic) in its Order dated January 16, 1989:
Ordinarily, appellants contention would be correct, except that the en banc order of April 29th
appears to have been overtaken, and accordingly, rendered inappropriate, by subsequent
developments in SEC Case No. 1648, particularly the entry in that proceedings, as of April 29,
1988, of an intervenor who claims a superior and exclusive ownership right to all the partnership
assets and property. This claim of superior ownership right is presently pending adjudication before
the Regional Trial Court of Negros Occidental, And precisely because if this supervening
development, it would appear that the parties in SEC Case No. 1648 agreed among themselves, as
of June 28, 1988, that during the pendency of the Negros Occidental case just mentioned, there

should be no disposition of partnership assets or property, and further, that the proceedings in SEC
Case No. 1648 should be suspended in the meantime (p. 2, Order; p. 12, Rollo)
As alleged by the respondents and as shown by the records there is now pending civil case entitled
Keng Sian and Intestate of Sy Yong Hu vs. Jayme Sy, Jesus Sy, Marciano Sy, Willy Sy, Intestate of
Jose Sy, Intestate of Vicente Sy, Sy Yong Hu & co and Sy Yong Hu & Sons denominated as Civil
Case No. 903 before Branch 50 of the Regional Trial Court of Bacolod City.
Moreover, a review of the records reveal that certain properties in question have already been sold
as of 1987, as evidenced by deeds of absolute sale executed by Jesus in favor of Reynaldo Navarro
(p. 331, Rollo), among others.
To ensure that no further disposition shall be made of the questioned assets and in view of the
pending civil case in the lower court, there is a compelling necessity to place all these properties
and assets under the management of a receivership committee. The receivership committee, which
will provide active participation, through a designated representative, on the part of all interested
parties, can best protect the properties involved and assure fairness and equity for all.
Receivership, which is admittedly a harsh remedy, should be granted with extreme caution. [52] Sound bases
therefor must appear on record, and there should be a clear showing of its necessity.[53] The need for a
receivership in the case under consideration can be gleaned from the aforecited disquisition by the Court of
Appeals finding that the properties of the partnership were in danger of being damaged or lost on account of
certain acts of the appointed manager in liquidation.
The dispositions of certain properties by the said manager, on the basis of an order of partial partition, dated
December 2, 1986, by Hearing Officer Sison, which was not yet final and executory, indicated that the feared
irreparable injury to the properties of the partnership might happen again. So also, the failure of the manager in
liquidation to submit to the SEC an accounting of all the partnership assets as required in its order of April 29,
1988, justified the SEC in placing the subject assets under receivership.
Moreover, it has been held by this Court that an order placing the partnership under receivership so as to
wind up its affairs in an orderly manner and to protect the interest of the plaintiff (herein private respondent)
was not tainted with grave abuse of discretion. [54] The allegation that respondents rights are adequately protected
by the notices of lis pendens in Civil Case 903 is inaccurate. As pointed out in their Comment to the Petition,
the private respondents claim that the partnership assets include the income and fruits thereof. Therefore,
protection of such rights and preservation of the properties involved are best left to a receivership committee in
which the opposing parties are represented.
What is more, as held in Go Tecson vs. Macaraig: [55]

The power to appoint a receiver pendente lite is discretionary with the judge of the court of first
instance; and once the discretion is exercised, the appellate court will not interfere, except in a clear
case of abuse thereof, or an extra limitation of jurisdiction.

Here, no clear abuse of discretion in the appointment of a receiver in the case under consideration can be
discerned.
With respect to G. R. No. 100313.[56]
Petitioners argue in this case that the failure of the private respondents to implead them in Civil Case No.
5326 constituted a violation of due process. It is their submission that the ex partegrant of said petition by the
trial court worked to their prejudice as they were deprived of an opportunity to be heard on the allegations of the
petition concerning subject property and assets. The recall of the order granting their Motion to Intervene was
done without the observance of due process and consequently without jurisdiction on the part of the lower court.
Commenting on the Petition, private respondents maintain that the only issue in the present case is whether
or not there was a violation of the Building Code. They contend that after due and proper hearing before the
lower court, it was fully established that the provisions of the said Code had been violated, warranting issuance
of the Writ of Preliminary Injunction dated April 19, 1989. They further asseverate that the petitioners, who are
the owner and lessees in the building under controversy, have nothing to do with the case for mandamus since it
is directed against the respondent building official to perform a specific duty mandated by the provisions of the
Building Code.
In his Comment, the respondent City Engineer, relying on the validity of the order of the trial court to
padlock the building, denied any impropriety in his compliance with the said order.
After a careful examination of the records on hand, the Court finds merit in the petition.
In opposing the petition, respondent intestate estate anchors its stance on the existence of violations of
pertinent provisions of the aforesaid Code. As regards due process, however, a distinction must be made
between matters of substance.[57] In essence, procedural due process refers to the method or manner by which the
law is enforced, while substantive due process requires that the law itself, not merely the procedure by which
the law would be enforced, is fair, reasonable, and just. [58] Although private respondent upholds the substantive
aspect of due process, it, in the same breath, brushes aside its procedural aspect, which is just as important, if
the constitutional injunction against deprivation of property without due process is to be observed.
Settled is the rule that the essence of due process is the opportunity to be heard. Thus, in Legarda vs. Court
of Appeals et al.,[59] the Court held that as long as a party was given the opportunity to defend her interest in due
course, he cannot be said to have been denied due process of law.
Contrary to these basic tenets, the trial court gave due course to the petition for mandamus, and granted the
prayer for the issuance of a writ of preliminary injunction on May 4, 1989, notwithstanding the fact that the
owner (herein petitioner Sy Yong Hu) of the building and its occupants [60] were not impleaded as parties in the
case. Affirming the same, the Court of Appeals acknowledged that the lower court came out with the said order
upon the testimony of the lone witness for the respondent, in the person of the City Engineer, whose testimony
was not effectively traversed by the petitioners. This conclusion arrived at by the Court of Appeals is erroneous
in the face of the irrefutable fact that the herein petitioners were not made parties in the said case and,
consequently, had absolutely no opportunity to cross examine the witness of private respondent and to present
contradicting evidence.

To be sure, the petitioners are indispensable parties in Civil Case No. 5326, which sought to close subject
building. Such being the case, no final determination of the claims thereover could be had. [61] That the petition
for mandamus with a prayer for the issuance of a writ of preliminary mandatory injunction was only directed
against the City Engineer is of no moment. No matter how private respondent justifies its failure to implead the
petitioners, the alleged violation of the provisions of the Building Code relative to the reconstruction of the
building in question, by petitioners, did not warrant an ex parte and summary resolution of the petition. The
violation of a substantive law should not be confused with punishment of the violator for such violation. The
former merely gives rise to a cause of action while the latter is its effect, after compliance with the requirements
of due process.
The trial court failed to give petitioners their day in court to be heard before they were condemned for the
alleged violation of certain provisions of the Building Code. Being the owner of the building in question and
lessees thereon, petitioners possess property rights entitled to be protected by law. Their property rights cannot
be arbitrarily interfered with without running afoul with the due process rule enshrined in the Bill of Rights.
For failure to observe due process, the herein respondent court acted without jurisdiction. As a result,
petitioners cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by
any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the
court.[62]
In similar fashion, the respondent court acted with grave abuse of discretion when it disallowed the
intervention of petitioners in Civil Case No. 5326. As it was, the issuance of the Writ of Preliminary Injunction
directing the padlocking of the building was improper for non-conformity with the rudiments of due process.
Parenthetically, the trial court, in issuing the questioned order, ignored established principles relative to the
issuance of a Writ of Preliminary Injunction. For the issuance of the writ of preliminary injunction to be proper,
it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of
complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to
prevent serious damage.[63]
In light of the allegations supporting the prayer for the issuance of a writ of preliminary injunction, the
Court is at a loss as to the basis of the respondent judge in issuing the same. What is clear is that complainant
(now private respondent) therein, which happens to be a juridical person (Estate of Sy Yong Hu), made general
allegations of hazard and serious damage to the public due to violations of various provisions of the Building
Code, but without any showing of any grave damage or injury it was bound to suffer should the writ not issue.
Finally, the Court notes, with disapproval, what the respondent court did in ordering the ejectment of the
lawful owner and the occupants of the building, and disposed of the case before him even before it was heard on
the merits by the simple expedient of issuing the said writ of preliminary injunction. In Ortigas & Company
Limited Partnership vs. Court of Appeals et al. this Court held that courts should avoid issuing a writ of
preliminary injunction which in effect disposes of the main case without trial.[64]
Resolution of the third issue has become moot and academic in view of the Courts finding of grave abuse
of discretion tainting the issuance of the Writ of Preliminary Injunction in question.

WHEREFORE, the Resolution of the Court of Appeals in CA-G. R. No. 17070 is AFFIRMED and its
Decision in CA-G. R. No. 24189 REVERSED. No pronouncement as to costs.
SO ORDERED.
SEE Lim Tanhu v. Ramolete, G.R. No. L-40098, August 29, 1975
SEE Ortega v. CA, G.R. No. 109248, July 3, 1995
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN
LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY,
TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants,
MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-appellants.

FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental in
Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which
reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract,
Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage lien on
the machineries and other chattels mentioned therein, all of which are property of the defendant
partnership "Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant partnership, have a
preferred right over the assets of the said partnership and over the proceeds of their sale at public
auction, superior to the right of the defendant Margarita G. Saldajeno, as creditor of the partners
Leon Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to the
plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with legal interest thereon from the filing of
the complaint on June 5, 1959; (4) that the same defendant is indebted to the plaintiff Manuel G.
Singsong in the total amount of P5,723.50, with interest thereon at the rate of 1 % per month from
May 6, 1959, (the date of the statements of account, Exhs. "L" and "M"), and 25% of the total
indebtedness at the time of payment, for attorneys' fees, both interest and attorneys fees being
stipulated in Exhs. "I" to "17", inclusive; (5) that the same defendant is indebted to the plaintiff
Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from the filing of the
complaint on June 5, 1959; (6) that the same defendant is indebted to the plaintiff Jose L. Espinos in
the amount of P1,579.44, with legal interest thereon from the filing of the complaint on June 5, 1959;
(7) that the same defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the amount
of Pl,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that the
same defendant is indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with legal

interest thereon from the filing of the complaint on June 5. 1959; (9) that the defendant Margarita G.
Saldajeno, having purchased at public auction the assets of the defendant partnership over which
the plaintiffs have a preferred right, and having sold said assets for P 45,000.00, is bound to pay to
each of the plaintiffs the respective amounts for which the defendant partnership is held indebted to,
them, as above indicated and she is hereby ordered to pay the said amounts, plus attorneys fees
equivalent to 25% of the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in Exhs.
"I" "to I-17", inclusive, and 20% of the respective judgments in favor of the other plaintiffs, pursuant
to. Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants Leon
Garibay and Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the respective amounts
adjudged in their favor in the event that said plaintiffs cannot recover them from the defendant
Margarita G. Saldajeno and the surety on the bond that she has filed for the lifting of the injunction
ordered by this court upon the commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid
Timoteo Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs.
SO ORDERED. 1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the
Supreme Court "considering that the resolution of this appeal involves purely questions or question of law over
which this Court has no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern
Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I, against
"Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua
and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of
Negros Occidental from proceeding with the sales at public auction that he advertised in two notices
issued by him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until
further orders of this Court; and to make said injunction permanent after hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G.
Singson the sum of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs;
to pay to the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25%
for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6%
annual interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff Bacolod Southern
Lumber Yard the sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, and
costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest
thereon and 25% attorney's fees and costs:
(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo
Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null
and void being in fraud of creditors of the defendant partnership and without valuable consideration
insofar as the said defendant is concerned:
(4) That the Honorable Court order the sale of public auction of the assets of the defendnat
partnership in case the latter fails to pay the judgment that the plaintiffs may recover in the action,

with instructions that the proceeds of the sale b e applied in payment of said judgment before any
part of saod proceeds is paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be
declared jointly liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of
the sale of the assets of the defendnt partnership are supplied in payment of the judgment that said
plaintiffs may recover in this action;
(6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them
entitled to, with costs to the defendants.
Bacolod City, June 4, 1959. 3
The action was docketed as Civil Case No. 5343 of said court.
In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the
following special and affirmative defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the
matter of: Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs.
Isabela Sawmill, et al., Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros
Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo
Tubungbanua became the successors-in-interest to the said defunct partnership and have bound
themselves to answere for any and all obligations of the defunct partnership to its creditors and third
persons;
4. That to secure the performance of the obligations of the other defendants Leon Garibay and
Timoteo Tubungbanua to the answering defendant herein, the former have constituted a chattel
mortgage over the properties mentioned in the annexes to that instrument entitled "Assignment of
Rights with Chattel Mortgage" entered into on May 26, 1968 and duly registered in the Register of
Deeds of Negros Occidental on the same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of
Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as
such they have no cause of action against answering defendant herein and the defendant Isabela
Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances,
gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo
Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G.
Saldajeno, Leon Garibay and Timoteo Tubungbanua, has already been dissolved;
7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc.,
Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the
amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of
interests;

8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a
misjoinder of parties because this is not a class suit, and therefore this Honorable Court cannot take
jurisdictionof the claims for payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned
inthe statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming
that there were such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in
jurisprudence that a court of first instance has no power or jurisdiction to annul judgments or decrees
of a coordinate court because other function devolves upon the proper appellate court; (Lacuna, et
al. vs. Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182;
PNB vs. Javellana, 49 O.G. No. 1, p.124), as it appears from the complaint in this case to annul the
decision of this same court, but of another branch (Branch II, Judge Querubin presiding). 4
Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua praying
"that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs the amount
claimed in the latter's complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in
accordance to the said judgment. ... 5
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals
assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.
II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE
WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE
PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED
THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANTAPPELLANT MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE
PARTNERSHIP "ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY,
TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.
V
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26,
1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS

FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF
NEGROS OCCIDENTAL) WAS NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANTAPPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO.
5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING
ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN
CONNECTION WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO
TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL',
AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G.
SALDAJENO WAS A PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.
X
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFSAPPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA. 6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits the plaintiffs and the defendant
Cecilio and Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh.
"A". Said stipulation reads as folows:
1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno,
and Timoteo Tubungbanua entered into a Contract of Partnership under the firm
name "Isabela Sawmill", a copy of which is hereto attached Appendix "A".

2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and
two Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In order to
pay the said purcahse price, the said partnership agreed to make arrangements with
the International Harvester Company at Bacolod City so that the latter would sell
farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to
be paid by the partnership. A copy of the corresponding contract of sle is attached
hereto as Appendix "B".
3. That through the method of payment stipulated in the contract marked as
Appendix "B" herein, the International Harvester Company has been paid a total of
P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the statements
hereto attached as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio
Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay,
and Timoteo Tubungbanua, a copy of which Complaint is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and
Margarita G. Saldajeno entered into a "Memorandum Agreement", a copy of which is
hereto attached as Appendix 'E' in Civil Case 4797 of the Court of First Instance of
Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and
Margarita G. Saldajeno executed a document entitled "Assignment of Rights with
Chattel Mortgage", a copy of which documents and its Annexes "A" to "A-5" forming
a part of the record of the above mentioned Civil Case No. 4797, which deed was
referred to in the Decision of the Court ofFirst Instance of Negros Occidental in Civil
Case No. 4797 dated May 29, 1958, a copy of which is hereto attached as Appendix
"F" and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not
divide the assets and properties of the "Isabela Sawmill" between them, but they
continued the business of said partnership under the same firm name "Isabela
Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two
(2) notices that he would sell at public auction on June 5, 1959 at Isabela, Negros
Occidental certain trucks, tractors, machinery, officeequipment and other things that
were involved in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See
Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a
Certificate ofSale in favor of the defendant Margarita G. Saldajeno, as a result of the
sale conducted by him on October 14 and 15, 1959 for the enforcement of the
judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, a certified copy of which certificte of sale is hereto attached as Appendix
"H".
10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed
of sale in favor of the Pan Oriental Lumber Company transfering to the latter for the

sum of P45,000.00 the trucks, tractors, machinery, and other things that she had
purchashed at a public auction referred to in the foregoing paragraph, a certified true
copy of which Deed of Sale is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno
reserve the right to present additional evidence at the hearing of this case.
Forming parts of the above copied stipulation are documents that were marked as Appendices "A",
"B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence,
mostly documentary, while the cross-defendants did not present any evidence. The case hardly
involves quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the
amount of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February
3, 10956 is expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices
"B", "C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from
October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela
Sawmill'. Agaist the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber,
leavng an unpaid balance of P933.73, which balance was confirmed on May 15, 1959 by the
defendant Leon Garibay, as Manager of the defendant partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from
May 25, 1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and
bran, on account of which business transaction there remains an unpaid balance of P3,580.50. The
same plaintiff also proved that the partnership ownes him the sum of P143.00 for nipa shingles
bought from him on credit and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and
his Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber
yard advanced the sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash
advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving
an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano
Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of
P1,500.00 to the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant
partnership delivered to the said plaintiff on November 19, 1958 P377.72 worth of lumber, and
P73.54 worth of lumber on January 27, 1959, leaving an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his
witness, and through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he
sold to the defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account
of said transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial
Sheriff sold to the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant
"Isabela Sawmill" which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged

to her, and said purchase price was applied to the judgment that she has obtained against he said
mortgagors in Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant
Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the
said properties that she had bought at public aucton one week before.
xxx xxx xxx 7
It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil
Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod
Southern Lumber Yard sought to collect sums of moeny, the biggest amount of which was less than P2,000.00 and,
therefore, within the jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with
chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon Garibay and
Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of
the Court of First Instnace. Where the basic issue is something more than the right to recover a sum of money and
where the money claim is purely incidental to or a consequence of the principal relief sought, the action is as a case
where the subject of the litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court
of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of litigation,
is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive original
jurisdiction over any case the subject matter of which is not capable of pecuniary estimation. An action for the
annulment of a judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court
has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for
the recovery of a sum of money, the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is
in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where
the basic issue is something other than the right to recover a sum of money, where the money claim is purely
incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases
where the subject ogf the litigation may not be estimated in terms of money, and are cognizable exclusively by
courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:
Actions for specific performance of contracts have been expressly prounounced to be exclusively
cognizable by courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28,
1967;Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent
reason appears, and none is here advanced by the parties, why an actin for rescission (or
resolution) should be differently treated, a "rescission" being a counterpart, so to speak, of "specific
performance'. In both cases, the court would certainly have to undertake an investigation into facts
that would justify one act of the other. No award for damages may be had in an action for resicssion
without first conducting an inquiry into matters which would justify the setting aside of a contract, in
the same manner that courts of first instance would have to make findings of fact and law in actions
not capable of pecuniary estimnation espressly held to be so by this Court, arising from issues like
those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the
conveyance sought for and the determination of the validity of the money deposit made); De Ursua
v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707, December

23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the
parties, the right to support created by the relation, etc., in actions for support); De Rivera, et al. v.
Halili, L-15159, September 30, 1963 (the validity or nullity of documents upon which claims are
predicated). Issues of the same nature may be raised by a party against whom an action for
rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer
for damages in an action for rescission should be taken as the basis for concluding such action for
resiccison should be taken as the basis for concluding such action as one cpable of pecuniary
estimation - a prayer which must be included in the main action if plaintiff is to be compensated for
what he may have suffered as a result of the breach committed by defendant, and not later on
precluded from recovering damages by the rule against splitting a cause of action and discouraging
multiplicitly of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this Court held:
On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It
was ruled therein that although the purposes of an action is to recover an amount plus interest which
comes within the original jurisidction of the Justice of the Peace Court, yet when said action involves
the foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now
P10,000.00) the action should be instituted before the Court of First Instance.
In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and
involves the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it
is clearly within the competence of the respondent court to try and resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in exercising
jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially
approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel mortgage had
been ordered foreclosed in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and
coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a court of concurrent or
coordinate jurisdiction having equal power to grant the relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in a sense coordinate courts and
cannot be allowed to interfere with each others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:
The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch
of the same court is not infringed when the Judge who modifies or annuls the order isued by the
other Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil.
193. But the rule is infringed when the Judge of a branch of the court issues a writ of preliminary
injunction in a case to enjoint the sheriff from carrying out an order by execution issued in another
case by the Judge of another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et
al., 44 Phil. 182).

This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was rendered by the
Court of First Instance of Iloilo and the action for annullment was filed with the Court of First Instance of Antique, both
courts belonging to the same Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not only possessed by but restricted to the court
in which the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not
be interfered with by any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First Instance
belongs solely to the very same branch which rendered the judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v.
Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the
end that the judgment of a court of competent jurisdiction may not be interfered with by any court of
concurrent jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court
feels that this is as good an occasion as any to re-examine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged
nullity of the judgment based on one ground or another, particularly fraud, which fact affords the
plaintiff a right to judicial interference in his behalf. In such a suit the cause of action is entirely
different from that in the actgion which grave rise to the judgment sought to be annulled, for a direct
attack against a final and executory judgment is not a incidental to, but is the main object of the
proceeding. The cause of action in the two cases being distinct and separate from each other, there
is no plausible reason why the venue of the action to annul the judgment should necessarily follow
the venue of the previous action ...
The present doctrine which postulate that one court or one branch of a court may not annul the
judgment of another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of
the Rules of Court) but also limit the opportunity for the application of said rule.
Our conclusion must therefore be that a court of first instance or a branch thereof has the authority
and jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or
order rendered by another court of first instance or by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance
of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the
same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of
the business. 18 However, on dissolution, the partnershop is not terminated but continuous until the winding up to the
business. 19

The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding up
the business of the partnership, they continued the business still in the name of said partnership. It is expressly
stipulated in the memorandum-agreement that the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo
Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used the
properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo
Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was correctly
held liable by the trial court because she purchased at public auction the properties of the partnership which were
mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended to
Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela Sawmill" could
be enforced against the proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidaiton of
the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the
business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in good
faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave
occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno not entered into
the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of
the aprtnership, the applees would not have been misled into thinking that they were still dealing with the
partnership "Isabela Sawmill". Under the facts, it is of no moment that technically speaking the partnership "Isabela
Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated
and it continued doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the
propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G.
Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the
rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may
exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting
parties, and can show detriment which would positively result to him from the contract in which he has no
intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the properties of
the partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and
Timoteo Tubungbanua. Hence, said appelees have a right to file the action to nullify the chattel mortgage in
question.

The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees
cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the rights of the
plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their
co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and
Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third
persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants
to pay attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo Tubungbanua,
should reimburse the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever
they shall pay to the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.
Limited Partnership
Articles 1843-1867
A. Nature (Arts. 1843-1849; 1867)
B. Rights/Duties/Liabilities of General Partners (Arts. 1850 and 1853)
C. Rights/Duties/Liabilities of Limited Partners (Arts. 1848; 1851; 1854-1859)
D. Dissolution and Winding Up (Arts. 1860; 1863-1866)

Agency
Nature, Form and Kinds of Agency
Articles 1868-1883
A. Agency as a contract (Art. 1868)

[G.R. No. 151319. November 22, 2004]

MANILA MEMORIAL PARK CEMETERY,

LINSANGAN, respondent.

INC., petitioner,

vs. PEDRO

L.

DECISION
TINGA, J.:

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

This is a petition for review assailing the Decision[1] of the Court of Appeals dated 22
June 2001, and its Resolution[2] dated 12 December 2001 in CA G.R. CV No. 49802
entitled Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al., finding Manila
Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C.
Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called
Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to
Baluyot, a former owner of a memorial lot under Contract No. 25012 was no longer
interested in acquiring the lot and had opted to sell his rights subject to reimbursement of
the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty.
Linsangan that once reimbursement is made to the former buyer, the contract would be
transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the
amount to be reimbursed to the original buyer and to complete the down payment to
MMPCI.[3] Baluyot issued handwritten and typewritten receipts for these payments.[4]
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued
Contract No. 28660, a new contract covering the subject lot in the name of the latter
instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that
he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down
payment leaving a balance of about P75,000.00.[5]
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15),
Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt
No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a
listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the
same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot
executed a document[6] confirming that while the contract price is P132,250.00, Atty.
Linsangan would pay only the original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will
be issued as discounted to conform to the previous price as previously agreed upon. ---P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under Contract No. 28660 states
that the total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00
under the old price. Further the total sum of P19,838.00 already paid by you under O.R. # 118912
dated April 6, 1985 has been credited in the total purchase price thereby leaving a balance
ofP75,162.00 on a monthly installment of P1,800.00 including interests (sic) charges for a period of
five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official
Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12)
postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April
1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660
was cancelled for reasons the latter could not explain, and presented to him another
proposal for the purchase of an equivalent property. He refused the new proposal and
insisted that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint[7] for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No.
28660 was cancelled conformably with the terms of the contract [8] because of nonpayment of arrearages.[9] MMPCI stated that Baluyot was not an agent but an independent
contractor, and as such was not authorized to represent MMPCI or to use its name except
as to the extent expressly stated in the Agency Manager Agreement. [10] Moreover, MMPCI
was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in
fact received a down payment and monthly installments as indicated in the contract.
[11]
Official receipts showing the application of payment were turned over to Baluyot whom
Atty. Linsangan had from the beginning allowed to receive the same in his behalf.
Furthermore, whatever misimpression that Atty. Linsangan may have had must have been

rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that
he expressly admits that Contract No. 28660 on account of serious delinquencyis now due
for cancellation under its terms and conditions.[12]
The trial court held MMPCI and Baluyot jointly and severally liable. [13] It found that
Baluyot was an agent of MMPCI and that the latter was estopped from denying this
agency, having received and enchased the checks issued by Atty. Linsangan and given to
it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the down
payment, it allowed her to continue to receive postdated checks from Atty. Linsangan,
which it in turn consistently encashed.[14]
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff
declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their
undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross
Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to defendants
should be credited for his accounts. NO DAMAGES, NO ATTORNEYS FEES but with costs
against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant
Baluyot is GRANTED up to the extent of the costs.
SO ORDERED.[15]
MMPCI appealed the trial courts decision to the Court of Appeals. [16] It claimed that
Atty. Linsangan is bound by the written contract with MMPCI, the terms of which were
clearly set forth therein and read, understood, and signed by the former.[17] It also alleged
that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered
into the contract, is presumed to know his contractual obligations and is fully aware that he
cannot belatedly and unilaterally change the terms of the contract without the consent,
much less the knowledge of the other contracting party, which was MMPCI. And in this
case, MMPCI did not agree to a change in the contract and in fact implemented the same
pursuant to its clear terms. In view thereof, because of Atty. Linsangans delinquency,
MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as
the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyots acts. It
added that it cannot be charged with making any misrepresentation, nor of having allowed
Baluyot to act as though she had full powers as the written contract expressly stated the
terms and conditions which Atty. Linsangan accepted and understood. In canceling the
contract, MMPCI merely enforced the terms and conditions imposed therein.[18]

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the
formers obligation, as a party knowingly dealing with an alleged agent, to determine the
limitations of such agents authority, particularly when such alleged agents actions were
patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify
Baluyots authority or ask copies of official receipts for his payments.[19]
The Court of Appeals affirmed the decision of the trial court. It upheld the trial courts
finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered
into, having represented MMPCIs interest and acting on its behalf in the dealings with
clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to
act and represent MMPCI even beyond her authority.[20] The appellate court likewise found
that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in
its behalf and stead. While Baluyots authority may not have been expressly conferred
upon her, the same may have been derived impliedly by habit or custom, which may have
been an accepted practice in the company for a long period of time. [21] Thus, the Court of
Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced
where the principal failed to adopt the needed measures to prevent misrepresentation.
Furthermore, if an agent misrepresents to a purchaser and the principal accepts the
benefits of such misrepresentation, he cannot at the same time deny responsibility for
such misrepresentation.[22] Finally, the Court of Appeals declared:
There being absolutely nothing on the record that would show that the court a quo overlooked,
disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions
must be given great weight and should not be disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision
in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57
of Makati, is hereby AFFIRMED in toto.
SO ORDERED.[23]
MMPCI filed its Motion for Reconsideration,[24] but the same was denied for lack of
merit.[25]
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously
erred in disregarding the plain terms of the written contract and Atty. Linsangans failure to
abide by the terms thereof, which justified its cancellation. In addition, even assuming that
Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan
knew or should have known about this considering his status as a long-practicing lawyer.
MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts

and the applicable law do not support a judgment against Baluyot only up to the extent of
costs.[26]
Atty. Linsangan argues that he did not violate the terms and conditions of the contract,
and in fact faithfully performed his contractual obligations and complied with them in good
faith for at least two years. [27] He claims that contrary to MMPCIs position, his profession
as a lawyer is immaterial to the validity of the subject contract and the case at bar.
[28]
According to him, MMPCI had practically admitted in its Petition that Baluyot was its
agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to
act as though she had full powers to be held solidarily liable with the latter.[29]
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the
Rules of Court is limited to reviewing only errors of law, not fact, unless the factual findings
complained of are devoid of support by the evidence on record or the assailed judgment is
based on misapprehension of facts.[30] In BPI Investment Corporation v. D.G. Carreon
Commercial Corporation,[31] this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of Appeals may be
reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd
or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and contradicted by the evidence on
record.[32]
In the case at bar, the Court of Appeals committed several errors in the apprehension
of the facts of the case, as well as made conclusions devoid of evidentiary support, hence
we review its findings of fact.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.[33] Thus, the elements of agency are (i) consent, express or implied, of the parties to
establish the relationship; (ii) the object is the execution of a juridical act in relation to a

third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent
acts within the scope of his authority.[34]
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its
Agency Manager Agreement; an agency manager such as Baluyot is considered an
independent contractor and not an agent.[35] However, in the same contract, Baluyot as
agency manager was authorized to solicit and remit to MMPCI offers to purchase
interment spaces belonging to and sold by the latter.[36] Notwithstanding the claim of
MMPCI that Baluyot was an independent contractor, the fact remains that she was
authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial
court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the
interest of the latter, and having been allowed by MMPCI to represent it in her dealings
with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be
bound by the contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment
spaces obtained on forms provided by MMPCI. The terms of the offer to purchase,
therefore, are contained in such forms and, when signed by the buyer and an authorized
officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by
MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein
that Purchaser agrees that he has read or has had read to him this agreement, that
he understands its terms and conditions, and that there are no covenants,
conditions, warranties or representations other than those contained herein.[37] By
signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents.
That he and Baluyot had an agreement different from that contained in the Offer to
Purchase is of no moment, and should not affect MMPCI, as it was obviously made
outside Baluyots authority. To repeat, Baluyots authority was limited only to soliciting
purchasers. She had no authority to alter the terms of the written contract provided by
MMPCI. The document/letter confirming the agreement that Atty. Linsangan would have to
pay the old price was executed by Baluyot alone. Nowhere is there any indication that the
same came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted, the burden of proof is upon
them to establish it.[38] The basis for agency is representation and a person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the agent. [39] If

he does not make such an inquiry, he is chargeable with knowledge of the agents
authority and his ignorance of that authority will not be any excuse.[40]
As noted by one author, the ignorance of a person dealing with an agent as to the
scope of the latters authority is no excuse to such person and the fault cannot be thrown
upon the principal.[41] A person dealing with an agent assumes the risk of lack of authority
in the agent. He cannot charge the principal by relying upon the agents assumption of
authority that proves to be unfounded. The principal, on the other hand, may act on the
presumption that third persons dealing with his agent will not be negligent in failing to
ascertain the extent of his authority as well as the existence of his agency.[42]
In the instant case, it has not been established that Atty. Linsangan even bothered to
inquire whether Baluyot was authorized to agree to terms contrary to those indicated in
the written contract, much less bind MMPCI by her commitment with respect to such
agreements. Even if Baluyot was Atty. Linsangans friend and known to be an agent of
MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent
of her authority.[43] Atty. Linsangan as a practicing lawyer for a relatively long period of time
when he signed the contract should have been put on guard when their agreement was
not reflected in the contract. More importantly, Atty. Linsangan should have been alerted
by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was
unable to make good her written commitment, nor convince MMPCI to assent thereto, as
evidenced by several attempts to induce him to enter into other contracts for a higher
consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of caution
should be expected of Atty. Linsangan especially in dealings involving legal documents.
He did not even bother to ask for official receipts of his payments, nor inquire from MMPCI
directly to ascertain the real status of the contract, blindly relying on the representations of
Baluyot. A lawyer by profession, he knew what he was doing when he signed the written
contract, knew the meaning and value of every word or phrase used in the contract, and
more importantly, knew the legal effects which said document produced. He is bound to
accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel.
For the trial court, MMPCIs acts of accepting and encashing the checks issued by Atty.
Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI
confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted
MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in
view of MMPCIs acceptance of the benefits of Baluyots misrepresentation, it can no
longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the
Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principals ratification.
Art. 1910. The principal must comply with all the obligations that 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.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal,
unless he ratifies them, expressly or impliedly. Only the principal can ratify; the agent
cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of
the acts he is to ratify.[44]
Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. The substance of the doctrine is
confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the
principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing such facts and
regardless of the parties between whom the question of ratification may arise.
[45]
Nevertheless, this principle does not apply if the principals ignorance of the material
facts and circumstances was willful, or that the principal chooses to act in ignorance of the
facts.[46]However, in the absence of circumstances putting a reasonably prudent man on
inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.[47]
No ratification can be implied in the instant case.
A perusal of Baluyots Answer[48] reveals that the real arrangement between her and
Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas
Baluyot was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00
monthly installments as indicated in the contract. Thus, every time an installment falls due,
payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash
component of P1,455.00 from Baluyot.[49] However, it appears that while Atty. Linsangan
issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This
was supported by Baluyots statements in her letter [50] to Mr. Clyde Williams, Jr., Sales

Manager of MMPCI, two days after she received the copy of the Complaint. In the letter,
she admitted that she was remiss in her duties when she consented to Atty. Linsangans
proposal that he will pay the old price while the difference will be shouldered by her. She
likewise admitted that the contract suffered arrearages because while Atty. Linsangan
issued the agreed checks, she was unable to give her share of P1,455.00 due to her own
financial difficulties. Baluyot even asked for compassion from MMPCI for the error she
committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far
as MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer to
Purchase signed by Atty. Linsangan and MMPCIs authorized officer. The down payment
of P19,838.00 given by Atty. Linsangan was in accordance with the contract as well.
Payments of P3,235.00 for at least two installments were likewise in accord with the
contract, albeit made through a check and partly in cash. In view of Baluyots failure to give
her share in the payment, MMPCI received only P1,800.00 checks, which were clearly
insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could
have caused the earlier cancellation of the contract, if not for MMPCIs application of some
of the checks to his account. However, the checks alone were not sufficient to cover his
obligations.
If MMPCI was aware of the arrangement, it would have refused the latters check
payments for being insufficient. It would not have applied to his account the P1,800.00
checks. Moreover, the fact that Baluyot had to practically explain to MMPCIs Sales
Manager the details of her arrangement with Atty. Linsangan and admit to having made an
error in entering such arrangement confirm that MMCPI had no knowledge of the said
agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was
fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i)
conduct of a party amounting to false representation or concealment of material facts or at
least calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at
least expectation, that this conduct shall be acted upon by, or at least influence, the other
party; and (iii) knowledge, actual or constructive, of the real facts.[51]
While there is no more question as to the agency relationship between Baluyot and
MMPCI, there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to
believe that Baluyot had the authority to alter the standard contracts of the company.
Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any
knowledge of Baluyots commitment to Atty. Linsangan. One who claims the benefit of an
estoppel on the ground that he has been misled by the representations of another must

not have been misled through his own want of reasonable care and circumspection.
[52]
Even assuming that Atty. Linsangan was misled by MMPCIs actuations, he still cannot
invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot,
and could have easily determined, had he only been cautious and prudent, whether said
agent was clothed with the authority to change the terms of the principals written contract.
Estoppel must be intentional and unequivocal, for when misapplied, it can easily become
a most convenient and effective means of injustice. [53] In view of the lack of sufficient proof
showing estoppel, we refuse to hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals findings that the
authority of defendant Baluyot may not have been expressly conferred upon her; however,
the same may have been derived impliedly by habit or custom which may have been an
accepted practice in their company in a long period of time. A perusal of the records of the
case fails to show any indication that there was such a habit or custom in MMPCI that
allows its agents to enter into agreements for lower prices of its interment spaces, nor to
assume a portion of the purchase price of the interment spaces sold at such lower price.
No evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract
No. 28660 between MMPCI and by Atty. Linsangan for the purchase of an interment
space in the formers cemetery. The other is the agreement between Baluyot and Atty.
Linsangan for the former to shoulder the amount P1,455.00, or the difference
betweenP95,000.00, the original price, and P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the
principal unless the latter ratifies the same. It also bears emphasis that when the third
person knows that the agent was acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If the said third person was aware of such
limits of authority, he is to blame and is not entitled to recover damages from the agent,
unless the latter undertook to secure the principals ratification.[54]
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and
Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the
terms and conditions thereof. When Atty. Linsangan incurred delinquencies in payment,
MMCPI merely enforced its rights under the said contract by canceling the same.
Being aware of the limits of Baluyots authority, Atty. Linsangan cannot insist on what
he claims to be the terms of Contract No. 28660. The agreement, insofar as
theP95,000.00 contract price is concerned, is void and cannot be enforced as against
MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since
there is no evidence showing that Baluyot undertook to secure MMPCIs ratification. At

best, the agreement between Baluyot and Atty. Linsangan bound only the two of them. As
far as MMPCI is concerned, it bound itself to sell its interment space to Atty. Linsangan
for P132,250.00 under Contract No. 28660, and had in fact received several payments in
accordance with the same contract. If the contract was cancelled due to arrearages, Atty.
Linsangans recourse should only be against Baluyot who personally undertook to pay the
difference between the true contract price of P132,250.00 and the original proposed price
of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she
promised to shoulder the said difference would be to conclude that MMPCI undertook to
pay itself the difference, a conclusion that is very illogical, if not antithetical to its business
interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to
recover damages from Baluyot, not as an agent of MMPCI, but in view of the latters
breach of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00
in addition to Atty. Linsangans P1,800.00 to complete the monthly installment payment
under the contract, which, by her own admission, she was unable to do due to personal
financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed
upon, and were it not for Baluyots failure to provide the balance, Contract No. 28660
would not have been cancelled. Thus, Atty. Linsangan has a cause of action against
Baluyot, which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals
dated 22 June 2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No.
49802, as well as the Decision in Civil Case No. 88-1253 of the Regional Trial Court,
Makati City Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil
Case No. 88-1253 is DISMISSED for lack of cause of action. No pronouncement as to
costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO
GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J.:

promulgated on 15 December
1980 in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial
Court's judgment dismissing the Complaint of private respondents for damages arising from breach of contract of carriage,
and awarding instead P90,000.00 as moral damages.
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then respondent Court of Appeals

Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS), purchased from AIR FRANCE through Imperial Travels,
Incorporated, a duly authorized travel agent, nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of
US$2,528.85 for their economy and first class fares. Said tickets were bought at the then prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid
travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the same route. At this time, the GANAS were booked
for the Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The
aforesaid tickets were valid until 8 May 1971, the date written under the printed words "Non valuable apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company where Jose Gana was the
Director and Treasurer, for the extension of the validity of their tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of Lee Ella Manager of
the Philippine Travel Bureau, who used to handle travel arrangements for the personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo,
Office Manager of AIR FRANCE. The tickets were returned to Ella who was informed that extension was not possible unless the fare differentials resulting from the
increase in fares triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the increased travel tax were first paid. Ella then
returned the tickets to Teresita and informed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the expiry date. In the morning of the very day of their scheduled
departure on the first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same negative answer and
warned her that although the tickets could be used by the GANAS if they left on 7 May 1971, the tickets would no longer be valid for the rest of their trip because
the tickets would then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make the arrangements. With that assurance, Ella on his
own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian Airways System) sticker. The
SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador",
and the date is handwritten in the center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status).
Apparently, Ella made no more attempt to contact AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no
question with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets because of their expiration, and the GANAS had to purchase new
tickets. They encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets. They were able to return
only after pre-payment in Manila, through their relatives, of the readjusted rates. They finally flew back to Manila on separate Air France Frights on 19 May 1971
for Jose Gana and 26 May 1971 for the rest of the family.
On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila, Branch III, Civil Case No. 84111 for damages arising from breach of
contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS brought upon themselves the predicament they found themselves in
and assumed the consequential risks; that travel agent Ella's affixing of validating stickers on the tickets without the knowledge and consent of AIR FRANCE,
violated airline tariff rules and regulations and was beyond the scope of his authority as a travel agent; and that AIR FRANCE was not guilty of any fraudulent
conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional Stipulations of Fact as wen as on the documentary and testimonial
evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to pay appellants moral damages in the total sum of
NINETY THOUSAND PESOS (P90,000.00) plus costs.
SO ORDERED. 2

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have made out a case for breach of contract of carriage entitling them to an award
of damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact
between the parties in the Trial Court, dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must undertake the final portion of his journey
by departing from the last point at which he has made a voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a passenger to
begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if its validity has expired before the passenger completes his trip
(parag. 3.5.1.) ... To complete the trip, the passenger must purchase a new ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when it dishonored the tickets of the GANAS after 8 May 1971 since
those tickets expired on said date; nor when it required the GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment of their trip.
Neither can it be said that, when upon sale of the new tickets, it imposed additional charges representing fare differentials, it was motivated by self-interest or
unjust enrichment considering that an increase of fares took effect, as authorized by the Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in
accord with the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the date on which transportation commences from the point of origin. Any
ticket sold prior to a change of fare or charge (increase or decrease) occurring between the date of commencement of the journey, is subject
to the above general rule and must be adjusted accordingly. A new ticket must be issued and the difference is to be collected or refunded as
the case may be. No adjustment is necessary if the increase or decrease in fare (or charge) occurs when the journey is already
commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears out that Teresita, who handled travel arrangements for the
GANAS, was duly informed by travel agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in question could not be extended beyond
the period of their validity without paying the fare differentials and additional travel taxes brought about by the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo?
A I told her, because that is the reason why they accepted again the tickets when we returned the tickets spin, that they
could not be extended. They could be extended by paying the additional fare, additional tax and additional exchange
during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65 SCRA 237 (1975), holding that it would be unfair to charge
respondents therein with automatic knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all legal intents and purposes, Teresita was the
agent of the GANAS and notice to her of the rejection of the request for extension of the validity of the tickets was notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL. Flight 108 for 16 May 1971, without clearing the same with AIR

was certainly in
contravention of IATA rules although as he had explained, he did so upon Teresita's assurance that for the onward flight
from Osaka and return, the GANAS would make other arrangements.
FRANCE allegedly because of the imminent departure of the GANAS on the same day so that he could not get in touch with Air France

Q Referring you to page 33 of the transcript of the last session, I had this question which reads as follows: 'But did she
say anything to you when you said that the tickets were about to expire?' Your answer was: 'I am the one who asked
her. At that time I told her if the tickets being used ... I was telling her what about their bookings on the return. What
about their travel on the return? She told me it is up for the Ganas to make the arrangement.' May I know from you
what did you mean by this testimony of yours?
A That was on the day when they were asking me on May 7, 1971 when they were checking the tickets. I told Mrs.
Manucdoc that I was going to get the tickets. I asked her what about the tickets onward from the return from Tokyo, and

her answer was it is up for the Ganas to make the arrangement, because I told her that they could leave on the
seventh, but they could take care of that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire on May 7, and they insisted on leaving. I asked Mrs.
Manucdoc what about the return onward portion because they would be travelling to Osaka, and her answer was, it is
up to for the Ganas to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can remember, what were her exact
words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ...

The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the GANAS to leave is not tantamount to an implied ratification of travel
agent Ella's irregular actuations. It should be recalled that the GANAS left in Manila the day before the expiry date of their tickets and that "other arrangements"
were to be made with respect to the remaining segments. Besides, the validating stickers that Ella affixed on his own merely reflect the status of reservations on
the specified flight and could not legally serve to extend the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for having insisted on using tickets that were due to expire in
an effort, perhaps, to beat the deadline and in the thought that by commencing the trip the day before the expiry date, they could complete the trip even thereafter.
It should be recalled that AIR FRANCE was even unaware of the validating SAS and JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines
and AIR FRANCE merely acted within their contractual rights when they dishonored the tickets on the remaining segments of the trip and when AIR FRANCE
demanded payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28740 February 24, 1981
FERMIN Z. CARAM, JR., petitioner,
vs.
CLARO L. LAURETA, respondent.
FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L. Laureta,
plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram, Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants," affirming the
decision of the Court of First Instance of Davao in Civil Case No. 3083. 1
On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action for nullity, recovery of ownership and/or reconveyance with damages and
attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the Register of Deeds of Davao City. 2
On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original Certificate of Title No. 3019 in favor of Claro Laureta, plaintiff, the
respondent herein. The deed of absolute sale in favor of the plaintiff was not registered because it was not acknowledged before a notary public or any other
authorized officer. At the time the sale was executed, there was no authorized officer before whom the sale could be acknowledged inasmuch as the civil
government in Tagum, Davao was not as yet organized. However, the defendant Marcos Mata delivered to Laureta the peaceful and lawful possession of the

premises of the land together with the pertinent papers thereof such as the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax

Since June 10, 1945, the plaintiff Laureta had been and is stin in continuous, adverse
and notorious occupation of said land, without being molested, disturbed or stopped by any of the defendants or their
representatives. In fact, Laureta had been paying realty taxes due thereon and had introduced improvements worth not
less than P20,000.00 at the time of the filing of the complaint.
receipts and other papers related thereto.

On May 5, 1947, the same land covered by Original Certificate of Title No. 3019 was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein.
The deed of sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On May 22, 1947, Marcos Mata, through Attys. Abelardo Aportadera and
Gumercindo Arcilla, filed with the Court of First Instance of Davao a petition for the issuance of a new Owner's Duplicate of Original Certificate of Title No. 3019,
alleging as ground therefor the loss of said title in the evacuation place of defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5, 1947, the Court of First
Instance of Davao issued an order directing the Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of Marcos Mata
and declaring the lost title as null and void. On December 9, 1947, the second sale between Marcos Mata and Fermin Caram, Jr. was registered with the Register
of Deeds. On the same date, Transfer Certificate of Title No. 140 was issued in favor of Fermin Caram Jr. 5
On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with counterclaim admitting the existence of a private absolute deed of sale
of his only property in favor of Claro L. Laureta but alleging that he signed the same as he was subjected to duress, threat and intimidation for the plaintiff was the
commanding officer of the 10th division USFIP operating in the unoccupied areas of Northern Davao with its headquarters at Project No. 7 (Km. 60, Davao Agusan
Highways), in the Municipality of Tagum, Province of Davao; that Laureta's words and requests were laws; that although the defendant Mata did not like to sell his
property or sign the document without even understanding the same, he was ordered to accept P650.00 Mindanao Emergency notes; and that due to his fear of
harm or danger that will happen to him or to his family, if he refused he had no other alternative but to sign the document. 6
The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the Registry of Deeds regarding a document allegedly signed by him in favor
of his co-defendant Fermin Caram, Jr. but denies that he ever signed the document for he knew before hand that he had signed a deed of sale in favor of the
plaintiff and that the plaintiff was in possession of the certificate of title; that if ever his thumb mark appeared in the document purportedly alienating the property to
Fermin Caram, did his consent was obtained through fraud and misrepresentation for the defendant Mata is illiterate and ignorant and did not know what he was
signing; and that he did not receive a consideration for the said sale. 7
The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has no knowledge or information about the previous encumbrances,
transactions, and alienations in favor of plaintiff until the filing of the complaints. 8
The trial court rendered a decision dated February 29, 1964, the dispositive portion of which reads:

1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of Claro L. Laureta stands and prevails over the deed of sale,
Exhibit F, in favor of Fermin Caram, Jr.;
2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram, Jr.;
3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of Claro L. Laureta;
4. Directing Claro L. Laureta to secure the approval of the Secretary of Agriculture and Natural Resources on the deed, Exhibit A, after
Marcos Mata shall have acknowledged the same before a notary public;
5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City and Province of Davao the Owner's Duplicate of Original
Certificate of Title No. 3019 and the latter to cancel the same;
6. Ordering the Register of Deeds for the City and Province of Davao to cancel Transfer Certificate of Title No. T-140 in the name of Fermin
Caram, Jr.;
7. Directing the Register of Deeds for the City and Province of Davao to issue a title in favor of Claro L. Laureta, Filipino, resident of Quezon
City, upon presentation of the deed executed by Marcos Mata in his favor, Exhibit A, duly acknowledged by him and approved by the
Secretary of Agriculture and Natural Resources, and
8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata, the counterclaim of Caram, Jr., the answer in intervention,
counterclaim and cross-claim of the Mansacas.
The Court makes no pronouncement as to costs.
SO ORDERED.
The defendants appealed from the judgment to the Court of Appeals.

10

The appeal was docketed as CA-G.R. NO. 35721- R.

The Court of Appeals promulgated its decision on January 29, 1968 affirming the judgment of the trial court.

In his brief, the petitioner assigns the following errors:

11

I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT IRESPE AND APORTADERA WERE ATTORNEYS-IN-FACT
OF PETITIONER CARAM FOR THE PURPOSE OF BUYING THE PROPERTY IN QUESTION.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE EVIDENCE ADDUCED IN THE TRIAL COURT
CONSTITUTE LEGAL EVIDENCE OF FRAUD ON THE PART OF IRESPE AND APORTADERA AT TRIBUTABLE TO PETITIONER.
III
THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT KNOWLEDGE OF IRESPE AND
APORTADERA OF A PRIOR UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE TO PETITIONER AND EQUIVALENT IN
LAW OF REGISTRATION OF SAID SALE.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN ACTION FOR RECONVEYANCE ON THE GROUND OF
FRAUD PRESCRIBES WITHIN FOUR (4) YEARS.
The petitioner assails the finding of the trial court that the second sale of the property was made through his representatives, Pedro Irespe and Atty. Abelardo
Aportadera. He argues that Pedro Irespe was acting merely as a broker or intermediary with the specific task and duty to pay Marcos Mata the sum of P1,000.00
for the latter's property and to see to it that the requisite deed of sale covering the purchase was properly executed by Marcos Mata; that the Identity of the
property to be bought and the price of the purchase had already been agreed upon by the parties; and that the other alleged representative, Atty. Aportadera,
merely acted as a notary public in the execution of the deed of sale.
The contention of the petitioner has no merit. The facts of record show that Mata, the vendor, and Caram, the second vendee had never met. During the trial,

Thus, the sale of the property could have only been through
Caram's representatives, Irespe and Aportadera. The petitioner, in his answer, admitted that Atty. Aportadera acted as his
notary public and attorney-in-fact at the same time in the purchase of the property.
Marcos Mata testified that he knows Atty. Aportadera but did not know Caram.

12

13

The petitioner contends that he cannot be considered to have acted in bad faith because there is no direct proof showing that Irespe and Aportadera, his alleged
agents, had knowledge of the first sale to Laureta. This contention is also without merit.
The Court of Appeals, in affirming the decision of the trial court, said:

14

The trial court, in holding that appellant Caram. Jr. was not a purchaser in good faith, at the time he bought the same property from appellant
Mata, on May 5, 1947, entirely discredited the testimony of Aportadera. Thus it stated in its decision:
The testimony of Atty. Aportadera quoted elsewhere in this decision is hollow. There is every reason to believe that Irespe and he had known
of the sale of the property in question to Laureta on the day Mata and Irespe, accompanied by Leaning Mansaca, went to the office of Atty.
Aportadera for the sale of the same property to Caram, Jr., represented by Irespe as attorney-in-fact. Ining Mansaca was with the two
Irespe and Mata to engage the services 6f Atty. Aportadera in the annulment of the sale of his land to Laureta. When Leaning Mansaca
narrated to Atty. Aportadera the circumstances under which his property had been sold to Laureta, he must have included in the narration the
sale of the land of Mata, for the two properties had been sold on the same occassion and under the same circumstances. Even as early as
immediately after liberation, Irespe, who was the witness in most of the cases filed by Atty. Aportadera in his capacity as Provincial Fiscal of
Davao against Laureta, must have known of the purchases of lands made by Laureta when he was regimental commander, one of which
was the sale made by Mata. It was not a mere coincidence that Irespe was made guardian ad litem of Leaning Mansaca, at the suggestion of
Atty. Aportadera and attorney-in-fact of Caram, Jr.
The Court cannot help being convinced that Irespe, attorney-in-fact of Caram, Jr. had knowledge of the prior existing transaction, Exhibit A,
between Mata and Laureta over the land, subject matter of this litigation, when the deed, Exhibit F, was executed by Mata in favor of Caram,
Jr. And this knowledge has the effect of registration as to Caram, Jr. RA pp. 123-124)
We agree with His Honor's conclusion on this particular point, on two grounds the first, the same concerns matters affecting the credibility
of a witness of which the findings of the trial court command great weight, and second, the same is borne out by the testimony of Atty.
Aportadera himself. (t.s.n., pp. 187-190, 213-215, Restauro).
Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their actions have not satisfied the requirement of good faith. Bad faith is not
based solely on the fact that a vendee had knowledge of the defect or lack of title of his vendor. In the case of Leung Yee vs. F. L. Strong Machinery Co. and
Williamson, this Court held: 15

One who purchases real estate with knowledge of a defect or lack of title in his vendor can not claim that he has acquired title thereto in good
faith, as against the true owner of the land or of an interest therein, and the same rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his
vendor.
In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to have put them an inquiry. Both of them knew that Mata's certificate of

Added to this is the fact that

at the time of the second sale Laureta was already in possession of the land. Irespe and Aportadera should have
investigated the nature of Laureta's possession. If they failed to exercise the ordinary care expected of a buyer of real
estate they must suffer the consequences. The rule of caveat emptor requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendor's title takes all the risks and losses consequent to such
failure.
title together with other papers pertaining to the land was taken by soldiers under the command of Col. Claro L. Laureta.

16

17

The principle that a person dealing with the owner of the registered land is not bound to go behind the certificate and inquire into transactions the existence of

should not apply in this case. It was of common knowledge that at the time the soldiers of Laureta
took the documents from Mata, the civil government of Tagum was not yet established and that there were no officials to
ratify contracts of sale and make them registerable. Obviously, Aportadera and Irespe knew that even if Mata previously
had sold t he Disputed such sale could not have been registered.
which is not there intimated

18

There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad faith. Applying the principle of agency,
Caram as principal, should also be deemed to have acted in bad faith.
Article 1544 of the New Civil Code provides that:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recordered it in the Registry of
Property.
Should there be no inscription, the ownership shag pertain to the person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is good faith. (1473)
Since Caram was a registrant in bad faith, the situation is as if there was no registration at all.

19

The question to be determined now is, who was first in possession in good faith? A possessor in good faith is one who is not aware that there exists in his title or

Laureta was first in possession of the property. He is also a possessor in good faith.
It is true that Mata had alleged that the deed of sale in favor of Laureta was procured by force. Such defect, however,
was cured when, after the lapse of four years from the time the intimidation ceased, Marcos Mata lost both his rights to file
an action for annulment or to set up nullity of the contract as a defense in an action to enforce the same.
mode of acquisition any flaw which invalidates it.

20

21

Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit "F", is a voidable contract. Being a voidable contract, the action for
annulment of the same on the ground of fraud must be brought within four (4) years from the discovery of the fraud. In the case at bar, Laureta is deemed to have
discovered that the land in question has been sold to Caram to his prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded and entered
in the Original Certificate of Title by the Register of Deeds and a new Certificate of Title No. 140 was issued in the name of Caram. Therefore, when the present
case was filed on June 29, 1959, plaintiff's cause of action had long prescribed.
The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is not correct. I n order that fraud can be a ground for the annulment of
a contract, it must be employed prior to or simultaneous to the, consent or creation of the contract. The fraud or dolo causante must be that which determines or is
the essential cause of the contract. Dolo causante as a ground for the annulment of contract is specifically described in Article 1338 of the New Civil Code of the
Philippines as "insidious words or machinations of one of the contracting parties" which induced the other to enter into a contract, and "without them, he would not
have agreed to".
The second deed of sale in favor of Caram is not a voidable contract. No evidence whatsoever was shown that through insidious words or machinations, the
representatives of Caram, Irespe and Aportadera had induced Mata to enter into the contract.
Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the Philippines which provides that the action for annulment shall be brought
within four (4) years from the time of the discovery of fraud does not apply. Moreover, Laureta has been in continuous possession of the land since he bought it in
June 1945.
A more important reason why Laureta's action could not have prescribed is that the second contract of sale, having been registered in bad faith, is null and void.
Article 1410 of the Civil Code of the Philippines provides that any action or defense for the declaration of the inexistence of a contract does not prescribe.

submitted to this Court on March 13, 1978, the petitioner insists that the action of Laureta
against Caram has prescribed because the second contract of sale is not void under Article 1409 of the Civil Code of the
Philippines which enumerates the kinds of contracts which are considered void. Moreover, Article 1544 of the New Civil
Code of the Philippines does not declare void a second sale of immovable registered in bad faith.
In a Memorandum of Authorities

22

23

The fact that the second contract is not considered void under Article 1409 and that Article 1544 does not declare void a deed of sale registered in bad faith does
not mean that said contract is not void. Article 1544 specifically provides who shall be the owner in case of a double sale of an immovable property. To give full
effect to this provision, the status of the two contracts must be declared valid so that one vendee may contract must be declared void to cut off all rights which may
arise from said contract. Otherwise, Article 1544 win be meaningless.
The first sale in favor of Laureta prevails over the sale in favor of Caram.
WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is affirmed, without pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

MUOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold
the latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in
favor. The administrator of the estate of the went to court to have the sale declared uneanforceable and to recover
the disposed share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the
validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered
co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer
Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of
attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3,
1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters
Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The
deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint
docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided
share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her

estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled
and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal
undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party
defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant
Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party
complaint against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister
Gerundia died and they were substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half proindiviso share of Concepcion Rallos in the property in question, Lot 5983 of the
Cadastral Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title
No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names of
FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion
Rallos in the proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of
an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons
Realty Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon
Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the
regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia
Rallos, covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on
Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment
insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted

to earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same was denied in
a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to
the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in lot 5983 valid
although it was executed by the agent after the death of his principal? What is the law in this jurisdiction as to the
effect of the death of the principal on the authority of the agent to act for and in behalf of the latter? Is the fact of
knowledge of the death of the principal a material factor in determining the legal effect of an act performed after
such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder
consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered into in the name of
another by one who has no authority or the legal representation or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is
revoked by the other contracting party. 4 Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no authority or
legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one
party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf
in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of
the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person;
(3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates
from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death of the
principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis
supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of
the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in
thejuridical basis of agency which is representation Them being an in. integration of the personality of the principal
integration that of the agent it is not possible for the representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause for its

extinction. Laurent says that the juridical tie between the principal and the agent is severed ipso jure upon the death
of either without necessity for the heirs of the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and absolute revocation of
the authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent rule in American
Jurisprudence where it is well-settled that a power without an interest confer. red upon an agent is dissolved by the
principal's death, and any attempted execution of the power afterward is not binding on the heirs or representatives of the
deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the
agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative point
in issue in this litigation. It is the contention of respondent corporation which was sustained by respondent court that
notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling
the former's sham in the property is valid and enforceable inasmuch as the corporation acted in good faith in buying
the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it
has been constituted in the common interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos
was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is
valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death of the principal at the time he contracted with said agent.
These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the
time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be
inferred from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his
sister Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court when the latter stated that
Simon Rallos 'must have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both
his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion
Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge
on the part of the agent of the death of his principal; it is not enough that the third person acted in good faith. Thus in
Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil
Code sustained the validity , of a sale made after the death of the principal because it was not shown that the agent
knew of his principal's demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in
the words of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and
there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his
principal at the time he sold the property. The death 6f the principal does not render the act of an
agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1
SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is
no provision in the Code which provides that whatever is done by an agent having knowledge of the death of his
principal is void even with respect to third persons who may have contracted with him in good faith and without
knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in
Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows
a fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the
exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general
rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear import of its
terms for otherwise the courts will be involved in a process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of
attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the
province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the revocation
must be made known to them. But if the agency is general iii nature, without reference to particular
person with whom the agent is to contract, it is sufficient that the principal exercise due diligence to
make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on should be
made, it is the general opinion that all acts, executed with third persons who contracted in good faith,
Without knowledge of the revocation, are valid. In such case, the principal may exercise his right
against the agent, who, knowing of the revocation, continued to assume a personality which he no
longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency
which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this
case. On page six of this Opinion We stressed that by reason of the very nature of the relationship between principal
and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by operation of
law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's
exercise of authority is regarded as an execution of the principal's continuing will. 19 With death, the principal's will ceases
or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code
provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the meantime adopt
such measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the
death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is
not fatal to the cause of the estate of the principal

6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection,
respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land,
stating that if a person purchases a registered land from one who acquired it in bad faith even to the extent of
foregoing or falsifying the deed of sale in his favor the registered owner has no recourse against such innocent
purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and
Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner
of lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano
in his favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the
Register of Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in
order including the power of attorney. But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the
Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee
must be overruled. Agustin Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la Canters, a member of
the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form including the power of
attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the
proper notation of the encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of
registered lands placed by the registered owner thereof in the hands of another
operates as a representation to a third party that the holder of the transfer is
authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of coincidence bear the loss.
(pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with
one who admittedly was an agent of his sister and who sold the property of the latter after her death with full
knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of which are
clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling
in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part
provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument is presented
for registration shall be conclusive authority from the registered owner to the register of deeds to
enter a new certificate or to make a memorandum of registration in accordance with such
instruments, and the new certificate or memorandum Shall be binding upon the registered owner
and upon all persons claiming under him in favor of every purchaser for value and in good
faith: Provided however, That in all cases of registration provided by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud without prejudice, however, to the
right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the
Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the
principal were held to be "good", "the parties being ignorant of the death". Let us take note that the Opinion of
Justice Rogers was premised on the statement that the parties were ignorant of the death of the principal. We quote
from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the
death is a good payment. in addition to the case in Campbell before cited, the same judge Lord
Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment after the death of
principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to
receive them, has been held void when the principal was dead at the time of the payment. If, by this
case, it is meant merely to decide the general proposition that by operation of law the death of the
principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it
intended to say that his principle applies where there was 110 notice of death, or opportunity of twice
I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death
of the principal, which he did not know, and which by no possibility could he know? It would be unjust
to the agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in
ignorance of the death of his principal are held valid and binding upon the heirs of the latter. The
same rule holds in the Scottish law, and I cannot believe the common law is so unreasonable... (39
Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that
the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle, death revokes an
agency and renders null every act of the agent thereafter performed, yet that where a payment has
been made in ignorance of the death, such payment will be good. The leading case so holding is
that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this
view ii broadly announced. It is referred to, and seems to have been followed, in the case of Dick v.
Page,17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased
principal had received the benefit of the money paid, and therefore the representative of the estate
might well have been held to be estopped from suing for it again. . . . These cases, in so far, at least,
as they announce the doctrine under discussion, are exceptional. The Pennsylvania
Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not
quite, alone in announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J.
549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it
related to the particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of
his views on the general subject, than as the adjudication of the Court upon the point in question.
But accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands
alone among common law authorities and is opposed by an array too formidable to permit us to
following it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such
conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two exceptions
to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with

an interest (Art 1930), and (2) that the act of the agent was executed without knowledge of the death of the principal
and the third person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the
doctrine followed in Cassiday, and again We stress the indispensable requirement that the agent acted without
knowledge or notice of the death of the principal In the case before Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal Accordingly, the agent's act is unenforceable against the estate of
his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto
the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2
and 3 of this Opinion, with costs against respondent realty corporation at all instances.
So Ordered.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 76931

May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision of the Court of Appeals in CAG.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision of the Regional Trial Court of Manila, Branch IV, which dismissed the
complaint and granted therein defendant's counterclaim for agent's overriding commission and damages.
1

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering
passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives
(hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are reproduced, to wit:
WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines,
including any United States military installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger transportation. The services to be performed by
Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United States, neither
Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to be
performed hereunder for American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air passenger transportation
to be performed within the United States by other scheduled air carriers provided American does not provide
substantially equivalent schedules between the points involved.
xxx

xxx

xxx

4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less
commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on the
15th and last days of each month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on
exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the
property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to
American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or
its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air
Services or its sub-agents over American's services and any connecting through air transportation, when
made on American's ticket stock, equal to the following percentages of the tariff fares and charges:

(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation between points other than
those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding commission of 3%
of the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or
its sub-agents.
xxx

xxx

xxx

10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement
or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it
ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and
American may, without prejudice to any of its rights under this Agreement, take possession of any ticket
forms, exchange orders, traffic material or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air
Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control
in the event of any conflict with the provisions hereof.
xxx

xxx

xxx

13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to
transfer to the United States the funds payable by Orient Air Services to American under this Agreement.
Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter,
telegram or cable.
xxx

xxx

xxx

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly
remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40,
American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated
forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May
1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order averring the
aforesaid basis for the termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which there were available funds in the possession of the defendant, . . .
to the damage and prejudice of plaintiff."
4

In its Answer with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the
complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after application
thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that American Air's
precipitous conduct had occasioned prejudice to its business interests.
6

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in its
favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant
and against plaintiff dismissing the complaint and holding the termination made by the latter as affecting the
GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales agent
for passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is ordered to
pay defendant the balance of the overriding commission on total flown revenue covering the period from
March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing from January 1, 1981
until such reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the counterclaim up to the time of payment.
Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff.

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986,
affirmed the findings of the court a quo on their material points but with some modifications with respect to the
monetary awards granted. The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per
month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim
was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.

American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and arguing
for its reversal. The appellate court's decision was also the subject of a Motion for Partial Reconsideration by Orient
Air which prayed for the restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion and with respect to that of
Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's award
of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned. The
decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment
of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on the date of actual payment.
9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in G.R.
No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution of this Court dated 25 March 1987 both
petitions were consolidated, hence, the case at bar.
10

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. It is
the stand of American Air that such commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding commission of 3%
of the tariff fees and charges for all sales of transportation over American's services by Orient Air Servicesor
its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to
appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to the disputed
overriding commission based only on ticketed sales. This is supposed to be the clear meaning of the underscored
portion of the above provision. Thus, to be entitled to the 3% overriding commission, the sale must be made by
Orient Air and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the
total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are
necessarily by Orient Air."
11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions. The various stipulations in the contract must be read
together to give effect to all. After a careful examination of the records, the Court finds merit in the contention of
Orient Air that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to the 3%
overriding commission based on total revenue, or as referred to by the parties, "total flown revenue."
12

13

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and
marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In return
for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales agency
commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air
ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately observed that the precondition attached to the first type
of commission does not obtain for the second type of commissions. The latter type of commissions would accrue for
sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by such
carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such
overriding commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted to harmonize
the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air was the party
responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the ambiguity and could have avoided it by
the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure
words or stipulations in a contract shall not favor the party who caused the obscurity. To put it differently, when
14

several interpretations of a provision are otherwise equally proper, that interpretation or construction is to be
adopted which is most favorable to the party in whose favor the provision was made and who did not cause the
ambiguity. We therefore agree with the respondent appellate court's declaration that:
15

Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against
the party who drafted it.
16

We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court, on this
issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the
Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is entitled,
and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override. American's premise, therefore, for the cancellation of
the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to an
overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss or in
default of its obligations under the Agreement was, in fact, a situation where the latter acted in accordance with the
Agreementthat of retaining from the sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly
justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the
Agreement was, therefore, without cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of exemplary
damages and attorney's fees. This Court sees no error in such modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial
court. We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its general
sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement."
1wphi1

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its
personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a
contract whereby "a person binds himself to render some service or to do something in representation or on behalf
of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . (emphasis supplied) In an agent-principal
relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law
or by any court. The Agreement itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We,
therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales
agent of American Air.
17

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the respondent
Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against petitioner American
Air.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 66207 May 18, 1992

MAXIMINO SOLIMAN, JR., represented by his judicial guardian VIRGINIA C. SOLIMAN, petitioner,
vs.
HON. JUDGE RAMON TUAZON, Presiding Judge of Branch LXI, Regional Trial Court of Region III, Angeles City, and the REPUBLIC CENTRAL COLLEGES, represented by its
President, respondents.
Mariano Y. Navarro for Republic Central Colleges.
RESOLUTION

FELICIANO, J.:
On 22 March 1983, petitioner Soliman, Jr. filed a civil complaint for damages against private respondent Republic Central Colleges ("Colleges"), the R.L. Security Agency Inc. and one
Jimmy B. Solomon, a security guard, as defendants. The complaint alleged that:
. . . on 13 August 1982, in the morning thereof, while the plaintiff was in the campus ground and premises of the defendant, REPUBLIC CENTRAL COLLEGES, as
he was and is still a regular enrolled student of said school taking his morning classes, the defendant, JIMMY B. SOLOMON, who was on said date and hour in the
premises of said school performing his duties and obligations as a duly appointed security guard under the employment, supervision and control of his employerdefendant R.L. SECURITY AGENCY, INC., headed by Mr. Benjamin Serrano, without any provocation, in a wanton, fraudulent, reckless, oppressive or malevolent
manner, with intent to kill, attack, assault, strike and shoot the plaintiff on the abdomen with a .38 Caliber Revolver, a deadly weapon, which ordinarily such wound
sustained would have caused plaintiff's death were it not for the timely medical assistance given to him. The plaintiff was treated and confined at Angeles Medical
Center, Angeles City, and, as per doctor's opinion, the plaintiff may not be able to attend to his regular classes and will be incapacitated in the performance of his
usual work for a duration of from three to four months before his wounds would be completely healed. 1
Private respondent Colleges filed a motion to dismiss, contending that the complaint stated no cause of action against it. Private respondent argued that it is free from any liability for the
injuries sustained by petitioner student for the reason that private respondent school was not the employer of the security guard charged, Jimmy Solomon, and hence was not responsible
for any wrongful act of Solomon. Private respondent school further argued that Article 2180, 7th paragraph, of the Civil Code did not apply, since said paragraph holds teachers and heads
of establishment of arts and trades liable for damages caused by their pupils and students or apprentices, while security guard Jimmy Solomon was not a pupil, student or apprentice of the
school.
In an order dated 29 November 1983, respondent Judge granted private respondent school's motion to dismiss, holding that security guard Jimmy Solomon was not an employee of the
school which accordingly could not be held liable for his acts or omissions. Petitioner moved for reconsideration, without success.
In this Petition for Certiorari and Prohibition, it is contended that respondent trial judge committed a grave abuse of discretion when he refused to apply the provisions of Article 2180, as
well as those of Articles 349, 350 and 352, of the Civil Code and granted the school's motion to dismiss.
Under Article 2180 of the Civil Code, the obligation to respond for damage inflicted by one against another by fault or negligence exists not only for one's own act or omission, but also for
acts or omissions of a person for whom one is by law responsible. Among the persons held vicariously responsible for acts or omissions of another person are the following:
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
xxx xxx xxx
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils, their students or apprentices, so long as they
remain in their custody.
xxx xxx xxx
The first paragraph quoted above offers no basis for holding the Colleges liable for the alleged wrongful acts of security guard Jimmy B. Solomon inflicted upon petitioner Soliman, Jr.
Private respondent school was not the employer of Jimmy Solomon. The employer of Jimmy Solomon was the R.L. Security Agency Inc., while the school was the client or customer of the
R.L. Security Agency Inc. It is settled that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards, the agency is the employer of such

Liability for illegal or harmful acts committed by the security guards attaches to the employer agency, and
not to the clients or customers of such agency. As a general rule, a client or customer of a security agency has no hand
in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it; the duty
to observe the diligence of a good father of a family in the selection of the guards cannot, in the ordinary course of events,
be demanded from the client whose premises or property are protected by the security guards. The fact that a client
company may give instructions or directions to the security guards assigned to it, does not, by itself, render the client
responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests commonly envisaged in the contract for services entered
into with the security agency. There being no employer-employee relationship between the Colleges and Jimmy Solomon,
petitioner student cannot impose vicarious liability upon the Colleges for the acts of security guard Solomon.
guards or watchmen. 2

Since there is no question that Jimmy Solomon was not a pupil or student or an apprentice of the Colleges, he being in fact an employee of the R.L. Security Agency Inc., the other abovequoted paragraph of Article 2180 of the Civil Code is similarly not available for imposing liability upon the Republic Central Colleges for the acts or omissions of Jimmy Solomon.
The relevant portions of the other Articles of the Civil Code invoked by petitioner are as follows:
Art. 349. The following persons shall exercise substitute parental authority:
xxx xxx xxx
(2) Teachers and professors;
xxx xxx xxx
(4) Directors of trade establishments with regard to apprentices;
xxx xxx xxx
Art. 350. The persons named in the preceding article shall exercise reasonable supervision over the conduct of the child.
xxx xxx xxx
Art. 352. The relations between teacher and pupil, professor and student are fixed by government regulations and those of each school or institution. In no case
shall corporal punishment be countenanced. The teacher or professor shall cultivate the best potentialities of the heart and mind of the pupil or student.

invoked by petitioner, the Court held the owner and president of a school of arts and trades known as the
"Manila Technical Institute," Quezon Blvd., Manila, responsible in damages for the death of Dominador Palisoc, a student
of Institute, which resulted from fist blows delivered by Virgilio L. Daffon, another student of the Institute. It will be seen
that the facts of Palisoc v. Brillantes brought it expressly within the 7th paragraph of Article 2180, quoted above; but those
facts are entirely different from the facts existing in the instant case.
In Palisoc v. Brillantes, 4

Persons exercising substitute parental authority are made responsible for damage inflicted upon a third person by the child or person subject to such substitute parental authority. In the
instant case, as already noted, Jimmy Solomon who committed allegedly tortious acts resulting in injury to petitioner, was not a pupil, student or apprentice of the Republic Central
Colleges; the school had no substitute parental authority over Solomon.
Clearly, within the confines of its limited logic, i.e., treating the petitioner's claim as one based wholly and exclusively on Article 2180 of the Civil Code, the order of the respondent trial judge
was correct. Does it follow, however, that respondent Colleges could not be held liable upon any other basis in law, for or in respect of the injury sustained by petitioner, so as to entitle
respondent school to dismissal of petitioner's complaint in respect of itself?

The very recent case of the Philippine School of Business Administration (PSBA) v. Court of Appeals, 5

requires us to give a negative answer to that question.

In PSBA, the Court held that Article 2180 of the Civil Code was not applicable where a student had been injured by one who was an outsider or by one over whom the school did not
exercise any custody or control or supervision. At the same time, however, the Court stressed that an implied contract may be held to be established between a school which accepts
students for enrollment, on the one hand, and the students who are enrolled, on the other hand, which contract results in obligations for both parties:
When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which parties are
bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary
tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe
its rules and regulations.
Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its
primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and
other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb.
Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown
thereof. 6
In that case, the Court was careful to point out that:
In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between the school and Bautista had been breached thru
the former's negligence in providing proper security measures. This would be for the trial court to determine. And, even if there be a finding of negligence, the
same could give rise generally to a breach of contractual obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant
absent a contract. In fact, that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a contractual
relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently of the contract, unless the negligence occurs
under the circumstances set out in Article 21 of the Civil Code.
The Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-mentioned, for conceptually a school, like a common carrier,
cannot be an insurer of its students against all risks. This is specially true in the populous student communities of the so-called "university belt" in Manila where
there have been reported several incidents ranging from gang wars to other forms of hooliganism. It would not be equitable to expect of schools to anticipate all
types of violent trespass upon their premises, for notwithstanding the security measures installed, the same may still fail against an individual or group determined

to carry out a nefarious deed inside school premises and environs. Should this be the case, the school may still avoid liability by proving that the breach of its
contractual obligation to the students was not due to its negligence, here statutorily defined to be the omission of that degree of diligence which is required by the
nature of obligation and corresponding to the circumstances of person, time and place. 7
In the PSBA case, the trial court had denied the school's motion to dismiss the complaint against it, and both the Court of Appeals and this Court affirmed the trial court's order. In the case
at bar, the court a quo granted the motion to dismiss filed by respondent Colleges, upon the assumption that petitioner's cause of action was based, and could have been based, only on
Article 2180 of the Civil Code. As PSBA, however, states, acts which are tortious or allegedly tortious in character may at the same time constitute breach of a contractual, or other legal,
obligation. Respondent trial judge was in serious error when he supposed that petitioner could have no cause of action other than one based on Article 2180 of the Civil Code. Respondent
trial judge should not have granted the motion to dismiss but rather should have, in the interest of justice, allowed petitioner to prove acts constituting breach of an obligationex
contractu or ex lege on the part of respondent Colleges.
In line, therefore, with the most recent jurisprudence of this Court, and in order to avoid a possible substantial miscarriage of justice, and putting aside technical considerations, we consider
that respondent trial judge committed serious error correctible by this Court in the instant case.
ACCORDINGLY, the Court Resolved to GRANT DUE COURSE to the Petition, to TREAT the comment of respondent Colleges as its answer, and to REVERSE and SET ASIDE the Order
dated 29 November 1983. This case is REMANDED to the court a quo for further proceedings consistent with this Resolution.

B. Agency distinguished from other contacts

1. Agency vs. Partnership
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and between Mrs.
Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and
hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St.,
Manila for the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable with the party of the
part for the prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the herein appellant
Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to
Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected
with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing
down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12
and 13), the first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the
second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. It
further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this,
and to comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and,
finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of
the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint
wall filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees
answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without
prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated
June 8, 1963, granted permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo
ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S
COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST
WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING
THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA
FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O.
SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS
GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee TWS with
offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with TWS was one of a joint
business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a
imediately columnist had been in the travel business prior to the establishment of the joint business venture with
appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his
children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at
A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service,
Inc. for the prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan.
18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own,
separate office located at the Trade & Commerce Building; nor was she an employee thereof, having no participation in
nor connection with said business at the Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for
any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7%
commissions given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for
herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of
an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying
some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and
other expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for
appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June
18, 1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino
Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was
designated manager. 1

xxx xxx xxx

held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being
the true lessee, it was within its prerogative to terminate the lease and padlock the premises. It likewise found the
petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts
of her employer. The respondent Court of Appeal rendered an affirmance.
The trial court 2

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE
PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT
NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO
IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE
(ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE
APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND
ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF
BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE
WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND
RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA
RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT
COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of
see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the
knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant
supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the

Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA
was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the
lease executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between
the between parties was one of joint venture, but concede that "whatever might have been the true relationship between
Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into
their own hands, in reference to the padlocking now questioned.
Ermita branch office of the appellee Tourist World Service, Inc. 7

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties
was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the
Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have relied on the so-called right of
control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in

Subsequently, however, we have considered, in addition to the standard of right-of control, the existing
economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship.
reaching such end." 10

11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the
enterprise or as to the means used in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound
herself insolidum as and for rental payments, an arrangement that would be like claims of a master-servant relationship. True the respondent Court would later

that does not make her an employee of Tourist World, since in any case,
a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise,
assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not
employment.
minimize her participation in the lease as one of mere guaranty, 12

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable

Under these circumstances, it cannot be said

that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business,
obviously relied on her own gifts and capabilities.
to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla.

13

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going
to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking
successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said, employment is determined by the
right-of-control test and certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on
a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961,

in effect, accepting Tourist World

Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal
proprietary interest in the capital or property contributed and where each party exercises equal rights in the conduct of
the business. furthermore, the parties did not hold themselves out as partners, and the building itself was embellished
with the electric sign "Tourist World Service, Inc. in lieu of a distinct partnership name.
she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office

14

15

16

17

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she
must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of

In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World
Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla
herself based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the
ties had contemplated a principal agent relationship, rather than a joint managament or a partnership..
another. 18

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The

It appears that Lina

Sevilla is a bona fidetravel agent herself, and as such, she had acquired an interest in the business entrusted to her.
Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the
payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations.
Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that
extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot
be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina
Sevilla, to damages.
reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal.

19

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents. Anent the disconnection
issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch
office. 20Yet,

what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected.
Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner
of the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named
in the lease con-tract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As
this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist
World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in a bad light following
disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear
showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two
resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office
properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the respondent Canilao, on the pretext that it

It is strange indeed that Tourist World Service, Inc. did not find such
a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to
locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises.
was necessary to Protect the interests of the Tourist World Service. "

22

Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla
articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any
event, to elementary norms of justice and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be sentenced to pay
damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen conduct subsequent to the
cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage. 24

ART. 2219. Moral damages may be recovered in the following and analogous cases:
25

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service,
Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25

and P5,000.00 as nominal and/or

26

temperate damages, to be just, fair, and reasonable under the circumstances.

27

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby
REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the
petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and
for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.

2. Agency vs. Sales

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-56545 January 28, 1983
BERT OSMEA & ASSOCIATES, petitioners,
vs.
THE COURT OF APPEALS and SPOUSES PEDRO QUIMBO and LEONADIZA QUIMBO, respondents.

Siguion Reyna, Montecillo & Ongsiako for petitioners.

Hilario Davide, Jr., for private respondents.
RESOLUTION

MELENCIO-HERRERA, J.:
Sought to be reversed in this Petition for Review on certiorari is the Decision of respondent Court of Appeals in CA-G.R. No. 62601-R, entitled "Pedro Quimbo and
Leonadiza Quimbo vs. Carmen Siguenza and Helena Siguenza, Bert Osmea & Associates, Inc." sentencing defendants, jointly and severally, to pay damages to
the plaintiffs, who are the private respondents herein.
Upon a review of the evidence, we find as established: (1) that on June 3, 1971, a "Contract of Sale" over Lots 1 and 2, Block I, Phase II of the Clarita Subdivision,
Cebu City, for the total price of P15,200.00, was executed in favor of the Quimbo spouses. The sellers were petitioner company, developer of the subdivision, and
Carmen and Helena Siguenza, owners of the property, represented by petitioner. Antonio V. Osmea signed the contract on behalf of the company. Signing as
witness was one C. Siguenza.
(2) The spouses had intended to construct a house thereon inasmuch as their rented abode, for which they were paying P170.00 monthly, had become
inconvenient for their family. Plans for the house were drawn. The spouses were ready to pay the purchase price in full even before the due date of the first
installment and advised Helena Siguenza accordingly so that title in their names could be delivered to them. On the pretext that a road would traverse the lots
purchased, Helena proposed to exchange another lot (Lot 409) with the same area for the lots purchased by the spouses to which the latter hesitating agreed.
Until 1973, however, no title could be given the Quimbo spouses.
(3) It turned out that on December 15, 1969, or approximately a year and a half prior to the sale in the spouses' favor, Lots Nos. 1 and 2 had already been sold to
Dr. Francisco Maningo (Exhs. "G " and "G-1 "), and that Transfer Certificates of Title Nos. 48546 and 48547 were issued in favor of Irenea Maningo on September
21, 1970 (Exhs. "H" and "H-1 "), or about nine months before. the sale. Annotated on said titles were mortgages in favor of petitioner.
(4) Discovering this fact only in 1973, respondent spouses instituted this suit for Damages against petitioner company and the Siguenzas on March 25, 1974.
In its judgment, the lower Court ordered petitioner company and the Siguenzas to pay damages to respondent spouses as follows:
WHEREFORE, based on all the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendants
ordering the latter:
To pay, jointly and severally, the plaintiffs P3,040.00, with interest at the legal rate from June 2, 1971 until the same shall have been fully
paid; P100,000.00 as compensation for the pecuniary loss plaintiffs suffered for failure to construct their residential house; P5,610.00 as
reimbursement for the rentals plaintiffs paid from January 1972 to September 6, 1974; P50,000.00 as moral damages, P25,000.00 as
exemplary damages, P5,000.00 as attorney's fees; and the cost. 1
The Appellate Court affirmed the judgment of the Trial Court in toto. Hence, this recourse by petitioner company, advancing tile following arguments:
1) The Honorable Court of Appeals seriously erred in not having considered the contract as having been novated by virtue of the change in
the subject matter or object of the contract;
2) The courts below seriously erred for having found petitioner to have acted fraudulently where there is no evidence to support such a
finding;
3) The Court of Appeals committed serious error in law when it held petitioner jointly and severally liable to pay P100,000.00 as
compensation for the pecuniary loss suffered by Mrs. Quimbo;
4) The Court seriously erred in holding petitioner jointly and severally liable with the Siguenzas to pay moral damages to Quimbo, there being
no evidence showing fraud or bad faith perpetrated by petitioner;
5) The lower court seriously erred in holding petitioner liable to pay the sum of P5,610.00 as reimbursement for rentals because Quimbo was
no longer interested in the lots on which her house was supposed to have been constructed but sought only for reimbursement of the
downpayment;
6) The Court below erred in holding petitioner liable jointly and severally for exemplary damages, attorneys fees and costs;
7) The court seriously erred in fact and in law in holding petitioner jointly and severally with the Siguenzas to return the downpayment.
Except for some items of damages awarded, we affirm.

1) Petitioner's contention that in. as much as respondent spouses had agreed to exchange Lot 409 for Lots 1 and 2, the contract of sale had been novated and its
liability extinguished, in untenable. No new contract was ever executed between. petitioner and respondent spouses, notwithstanding Helena Siguenza's
assurances to that effect. As held by respondent Court:
This stand taken by appellant only reveals its misconception of novation. Novation is a contract containing two stipulations: one to extinguish
an existing obligation, the other to substitute a new one in its place. It requires the creation of a new contractual relation as well as the
extinguishment of the old. There must be a consent of all the parties to the substitution, resulting in the extinction of the old obligation and the
creation of a new valid one (Tiu Suico vs. Habana, 45 Phil. 707). 2
2) Fraud has been established. As the trial Court had concluded:
There is no question that the defendants have conveyed and disposed of Lots 1 and 2, Block I, Phase II of the Clarita Village Subdivision to
the plaintiffs at a time when they were no longer the owners thereof. At the time of the execution of the contract of sale, their only interest
thereon was a mortgage lien in the amount of P13,440.00. As mortgagee they did not have the right to sell the same. Helena and Carmen
Siguenza did not reveal this fact to the plaintiffs and the latter relied on their assurances that the same belong to them. Bert Osmea and
Associates, Inc. as developer and at the same time attorney-in-fact for Carmen and Helena Siguenza similarly concealed this fact. Their
efforts to cover up this fraud make the acts more detestable and obnoxious. Defendants demonstrated palpable malice, bad faith,
wantonness and incurable dishonesty. 3
1wph1.t

The finding of fraud in this case was a finding of fact and there are no factors which can justify a reversal thereof.
3) The award in the amount of P100,000.00 representing pecuniary loss for not having been able to build a P100,000.00 house should be eliminated. Respondent
spouses did not lose that amount. It was only the estimated cost of the house they were unable to construct. It was an expense item, not expected income.
4) The amount of P5,610.00 awarded representing rentals the spouses could have saved, from the time when the house was to be finished to the date when
respondent Leonadiza testified in Court (January 1972 to September 6, 1974), should also be eliminated for being speculative. If they had built their P100,000.00
house, thus avoiding the payment of rentals, they would, on the other hand, be losing interest or income from that amount. Evidence that the plaintiff could have
bettered his position had it not been for the defendant's wrongful act cannot serve as basis for an award of damages. 4
5) Fraud and bad faith by petitioner company and the Siguenzas having been established, the award of moral damages is in order. Moral damages should be
reduced, however, from P50,000.00 to P10,000.00.
6) Moral damages having been awarded, exemplary damages were also properly awarded.

They should be reduced, however, from P25,000.00

to P5,000.00.
7) The award of P5,000.00 as attorney's fees is affirmed inasmuch as respondent spouses were compelled to litigate for the protection of their interests.

8) The portion of the Decision requiring petitioners and the Siguenzas to return the downpayment of P3,040.00 is also justified. The Quimbo spouses are entitled
to the return of their downpayment, with interest at the legal rate from March 25, 1974 when the instant, suit was commenced. 7
9) Petitioner's plea for exception from liability for damages on the ground that it was a mere agent of the Siguenzas is untenable. The contract of sale describes
petitioner as seller together with the Siguenzas. In fact, petitioner was the lone signatory for the sellers in said contract. As held by respondent Court:
The contract ... is clear that appellant is one of the Seller-of the lots in question. We will not allow a variation of the terms of the written
contract by parole evidence, for there is never an allegation in the appellant's answer that Exhibit 6-Osmea does not express the true intent
of the parties or that it is suffering from a vice or mistake or imperfection. Further, appellant never asserted in its answer that it is a mere
agent of its co-defendant Helena. Indeed, the tenor of its Answer is one which shows its admission that it is a co-seller of all lots in
subdivision which it is developing. We take particular attention to appellant's admission in its answer to the allegations in par. 4, 8 and 9 of
appellees' complaint, which show that appellant was not an agent but a co-seller of the lots. 8
ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby ordered to pay private respondents the following sums: P3,040.00 with
interest at the legal rate from March 25, 1974 until fully paid; P10,000.00 as moral damages; P5,000.00 as exemplary damages; and P5,000.00 as attorney's fees.
Costs against petitioner company.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-25653 February 28, 1985

COMMISSIONER OF INTERNAL REVENUE, petitioner

vs.
MANILA MACHINERY & SUPPLY COMPANY and the COURT OF TAX APPEALS, respondents.

PLANA, J.:
Appeal by the Commissioner of Internal Revenue from the decision of the Court of Tax Appeals in CTA Case No. 1250 ordering the refund to respondent Manila
Machinery & Supply Co. of P 21,620.36 allegedly erroneously paid as commercial broker's percentage tax.
The following partial stipulation of facts outlines the two different modes of business operation of private respondent (petitioner in the CTA ):
(1) as sales representative of certain United States manufacturers and/or suppliers, petitioner's transactions or activities are outlined as
follows:
(1) Philippine buyer ascertains from petitioner whether or not a certain machinery or equipment it
desires to buy is available from the U.S. manufacturers or suppliers represented by the former
and, if available, requests for price quotations of desired machinery or equipment;
(2) If agreeable, Philippine buyer places purchase order either directly with the United States
manufacturer and/or supplier or with petitioner who forwards it to the U.S. manufacturer;
(3) Upon notification that the purchase order is accepted, the Philippine buyer opens with a local
bank a letter of credit in favor of the United States manufacturer or supplier to cover payment of
the goods ordered;
(4) United States manufacturer or supplier ships the goods to Philippine buyer and collects from
the U.S. correspondent of the local bank where the letter of credit was opened, payment of the
goods;
(5) United States manufacturer or supplier credits the petitioner for commission. (CTA rec., pp.
70-73.)
(2) as distributor of United States manufacturers and/or suppliers, its (petitioner's) transactions or activities are outlined as follows:
(1) Philippine buyer ascertains from petitioner whether or not a certain machinery or equipment
which the said buyer desires to purchase is available from the U.S. manufacturers or suppliers for
whom petitioner acts as distributor and, if available, requests for price quotation of the desired
machinery or equipment;
(2) Petitioner furnishes the Philippine buyer with price quotation based on price list f.o.b. factory
which is furnished petitioner and fixed by the United States manufacturer or supplier;
(3) If agreeable, Philippine buyer places the purchase order with the petitioner;
(4) Upon notice of the acceptance of the purchase order, the buyer opens with a local bank a
letter of credit in favor of the petitioner's agent in San Francisco, California, United States of
America to cover the price of the goods ordered;
(5) Petitioner prepares the purchase instructions in accordance with the purchase order of the
Philippine buyer and forwards the same to its agent in the United States;
(6) The said agent procures the goods from the U.S. manufacturer or supplier;
(7) United States manufacturer or supplier invoices goods for petitioner's agent in San Francisco,
California;
(8) Petitioner's agent prepares sales invoice of the petitioner and ships the goods to the
Philippine buyer. (CTA rec., pp. 70-73.)
It appears that during the tax period in question, respondent taxpayer realized an income of P 630,635.62 from both its activities as sales representative and as
distributor of American manufacturers/suppliers and paid thereon P 37,837.94 as broker's percentage tax on the assumption that the income consisted entirely of
commissions. Later however respondent sought a partial refund of P 21,620.36 on the ground that of the total income of P 630,635.62, P 360,339.35 was not

broker's commission but simply overprice or profit (plus exchange income on overprice) realized from ordinary sales of machineries and equipment it had
purchased from American companies.
After the request for refund had been denied by the Bureau of Internal Revenue, the taxpayer appealed to the Court of Tax Appeals from which it obtained as
aforesaid a favorable judgment, which is now assailed.
The single issue posed in this petition for review is whether the P 360,339.35 earned by respondent taxpayer in its capacity "as distributor" of American
machineries and equipment should be considered as commission subject to commercial broker's tax under the Tax Code or profit from sales which is not subject
thereto.
The merit of respondent's stand is clear on the face of the appealed decision Petitioner (taxpayer) contends that it is not a commercial broker within the definition provided in Section 194(t) of the Revenue Code, which reads:
(t) "Commercial broker" includes persons other than importers, manufacturer, producers, or bona fide employees, who, for compensation or
profit, sell or bring about sales for purchases of merchandise for other persons, or bring proposed buyers and sellers together, or negotiate
freights or other business for owners of vessels, or other means of transportation, or for the skippers, or consignors or consignees of freight
carried by vessels or other means of transportation. The term includes commission merchants.
One of the purposes of petitioner corporation, as stated in its articles of incorporation, is "to make and enter into all kinds of contracts, agreements, and obligation
with any persons, corporation or corporations, or other associations for the purchasing, acquiring, selling, or otherwise disposing of goods, wares, and
merchandise of all kinds, either as principal or agent, upon commission, consignment, or indent orders." (BIR rec., pp. 43- 48.) Petitioner is, therefore, authorized
to act either as principal or agent in the transaction of its business. However, the evidence of record regarding petitioner's transactions which gave rise to the
income in question indicates the status of petitioner as an independent dealer and not as a commercial broker. Petitioner's contracts with several U.S.
manufacturers indubitably show that it acted as an independent dealer. Pertinent portions of these contracts read:
Joy Manufacturing Company
l. Subject to the terms and conditions hereinafter set forth, the Company grants to the Distributor the exclusive right to
purchase for resale the following listed articles and machines. ..., manufactured or sold by the Company within the
territory indicated hereinafter. (Emphasis supplied; Distributor's Contract, CTA rec., p. 78.)
Briggs & Straton Corporation
Distributor' is an individual or firm under agreement with Briggs & Straton Corporation, whose principal business is the resale of products or
commodities at wholesale to Dealers, etc., ... . Distributor shall not act as the agent for the Company under this agreement, nor shall
Distributor have any right or power hereunder to act for or to bind the company in any respect or to pledge its credit ... (Emphasis supplied;
Distributor Agreement, CTA rec., p. 83.)
The Jeffrey Manufacturing Company
The purpose of this agreement is to effect through the Representative a wider sales outlet for the Manufacturer's products. This is to be
accomplished by the Representative purchasing certain products, hereinafter listed, and produced by the Manufacturer, for resale, and
diligently promoting their sale in the Representative's territory. (Emphasis supplied; Export Representative Agreement, CTA rec., p. 85.)
Toledo Scale Corporation
II. (a) To sell only to the Distributor Toledo Machines for use in the Distributor's territory, except the following
machines. . . .
IV. (d) The responsibility of the Company for merchandise ordered. by the Distributor ...shall end with its delivery f. o. b.
factory, all risks of fire, loss or damage after the shipment has been delivered f.o.b. factory or while in possession of
any transportation company ... , shall be borne by the Distributor.
V. (h) ... It is expressly the intention of the parties hereto that the Distributor's status is that of an independent
contractor. (Emphasis supplied; Export Distributor's Sales Agreement, CTA rec., pp. 90-93.)
Respondent cites the agreement of petitioner with the Toledo Scale Corporation (CTA rec., pp. 90-93.), which authorizes petitioner "to solicit
sales of" certain products of the latter corporation, as an indication of brokerage. But respondent merely quoted that portion wherein
petitioner is authorized to act as agent or representative but did not mention petitioner's equal authority to act as distributor or independent
dealer with respect to the same corporation.
A perusal of the records of the case at bar equally yields the conclusion that petitioner, through its agent, M.S. Smith in San Francisco,
California, U.S.A. (BIR rec., pp. 49- 50), was the purchaser and owner of the machineries it sent to the Philippine buyers. This conclusion is
established by the fact that when petitioner received purchase order from local buyers and there was no stock available, it sent the orders to

its agent in California and required the latter "to purchase from ..." the U.S. manufacturers or suppliers the items called for in the purchase
orders (See BIR rec., pp. 63, 79, 98, 111 & 124.) Petitioner was in turn paid through the letters of credit opened by the Philippine buyers with
local banks in favor of agent M.S. Smith. (See BIR rec., pp- 59-128.)
The facts (1) that petitioner shouldered the losses resulting from some of the transactions in questions (See BIR rec., pp. 21-22); (2) that if
petitioner had no stock available in the Philippines, it forwarded the purchase order to its agent in California who procured the machineries
from U.S. manufacturers (BIR rec., Exh. pp. 53-56); and (3) that the U.S. Manufacturers invoiced the goods to petitioner's agent in California
who prepared the sales invoice and shipped the goods to the Philippine buyers (See CTA rec., Stifacts, pp. 70-73) negate agency.
In effect, the instant petition controverts the factual findings of the court a quo. It is well settled that in passing upon petitions for review of the decisions of the
Court of Tax Appeals, this Court is generally confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly shown to be
unsupported by substantial evidence. (Rules of Court, Rule 44, Section 2. Republic Act 1125, Sections 18-19.) Substantial evidence has been construed to mean
not necessarily preponderant proof as is required in ordinary civil action, but such kind of "relevant evidence as a reasonable man might accept as adequate in
support of a conclusion." (De Lamera vs. Court of Agrarian Relations, et al., 17 SCRA 368.) There is no circumstance of record indicating that the findings of the
lower court are not supported by substantial evidence.
WHEREFORE, the appealed decision is affirmed.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49395 December 26, 1984
GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner
vs.
THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS PHILIPPINE CORPORATION,respondents.

ABAD SANTOS, J.:

This is a petition to review a decision of the defunct Court of Appeals which affirmed the judgment of the trial court whereby:
... judgment is hereby rendered in favor of the plaintiff [E.R. Squibb & Sons Philippine Corporation], ordering the defendant [Green Valley
Poultry & Allied Products, Inc.] to pay the sum of P48,374.74 plus P96.00 with interest at 6% per annum from the filing of this action; plus
attorney's fees in the amount of P5,000.00 and to pay the costs.
On November 3, 1969, Squibb and Green Valley entered into a letter agreement the text of which reads as follows:
E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green Valley Poultry & Allied Products, Inc. as a non-exclusive distributor
for Squibb Veterinary Products, as recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division Sales Supervisor.
As a distributor, Green Valley Poultry & Allied Products, Inc. wig be entitled to a discount as follows:
Feed Store Price (Catalogue)
Less 10%
Wholesale Price
Less 10%
Distributor Price
There are exceptions to the above price structure. At present, these are:
1. Afsillin Improved 40 lbs. bag

The distributor commission for this product size is 8% off P120.00

2. Narrow Spectrum Injectible Antibiotics
These products are subject to price fluctuations. Therefore, they are invoiced at net price per vial.
3. Deals and Special Offers are not subject to the above distributor price structure. A 5% distributor commission is allowed when the
distributor furnishes copies for each sale of a complete deal or special offer to a feedstore, drugstore or other type of account.
Deals and Special Offers purchased for resale at regular price invoiced at net deal or special offer price.
Prices are subject to change without notice. Squibb will endeavor to advise you promptly of any price changes. However, prices in effect at
the tune orders are received by Squibb Order Department will apply in all instances.
Green Valley Poultry & Allied Products, Inc. win distribute only for the Central Luzon and Northern Luzon including Cagayan Valley areas. We
will not allow any transfer or stocks from Central Luzon and Northern Luzon including Cagayan Valley to other parts of Luzon, Visayas or
Mindanao which are covered by our other appointed Distributors. In line with this, you will follow strictly our stipulations that the maximum
discount you can give to your direct and turnover accounts will not go beyond 10%.
It is understood that Green Valley Poultry and Allied Products, Inc. will accept turn-over orders from Squibb representatives for delivery to
customers in your area. If for credit or other valid reasons a turn-over order is not served, the Squibb representative will be notified within 48
hours and hold why the order will not be served.
It is understood that Green Valley Poultry & Allied Products, Inc. will put up a bond of P20,000.00 from a mutually acceptable bonding
company.
Payment for Purchases of Squibb Products will be due 60 days from date of invoice or the nearest business day thereto. No payment win be
accepted in the form of post-dated checks. Payment by check must be on current dating.
It is mutually agreed that this non-exclusive distribution agreement can be terminated by either Green Valley Poultry & Allied Products, Inc. or
Squibb Philippines on 30 days notice.
I trust that the above terms and conditions will be met with your approval and that the distributor arrangement will be one of mutual
satisfaction.
If you are agreeable, please sign the enclosed three (3) extra copies of this letter and return them to this Office at your earliest convenience.
Thank you for your interest and support of the products of E.R. Squibb & Sons Philippines Corporation. (Rollo, pp. 12- 13.)
For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court as aforesaid gave judgment in favor of Squibb which was affirmed by the
Court of Appeals.
In both the trial court and the Court of Appeals, the parties advanced their respective theories.
Green Valley claimed that the contract with Squibb was a mere agency to sell; that it never purchased goods from Squibb; that the goods received were on
consignment only with the obligation to turn over the proceeds, less its commission, or to return the goods ff not sold, and since it had sold the goods but had not
been able to collect from the purchasers thereof, the action was premature.
Upon the other hand, Squibb claimed that the contract was one of sale so that Green Valley was obligated to pay for the goods received upon the expiration of the
60-day credit period.
Both courts below upheld the claim of Squibb that the agreement between the parties was a sales contract.
We do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of sale, the liability of Green Valley is indubitable. Adopting Green
Valley's theory that the contract is an agency to sell, it is liable because it sold on credit without authority from its principal. The Civil Code has a provision exactly
in point. It reads:
Art. 1905. The commission agent cannot, without the express or implied consent of the principal, sell on credit. Should he do so, the principal
may demand from him payment in cash, but the commission agent shall be entitled to any interest or benefit, which may result from such
sale.
WHEREFORE, the petition is hereby dismissed; the judgment of the defunct Court of Appeals is affirmed with costs against the petitioner.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-20871 April 30, 1971

KER & CO., LTD., petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.
Ross, Selph and Carrascoso for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino Gatdula, Jr. for respondent.

FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a commercial broker under Section 194 (t) of the
National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands
in the way. The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent case of Commissioner of Internal

The decisive test, as therein set forth, is the retention of the ownership of the goods delivered to the
possession of the dealer, like herein petitioner, for resale to customers, the price and terms remaining subject to the
control of the firm consigning such goods. The facts, as found by respondent Court, to which we defer, unmistakably
indicate that such a situation does exist. The juridical consequences must inevitably follow. We affirm.
Revenue v. Constantino. 1

It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's
percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the
cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then
Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker. In the decision now under review,
promulgated on October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being
fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber International, the former being referred to as the Distributor and the latter specifically
designated as the Company. The contract was to apply to transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until

The shipments would cover products "for consumption in Cebu, Bohol,

Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being
precluded from disposing such products elsewhere than in the above places unless written consent would first be
obtained from the Company. Petitioner, as Distributor, is required to exert every effort to have the shipment of the
products in the maximum quantity and to promote in every way the sale thereof. The prices, discounts, terms of payment,
terms of delivery and other conditions of sale were subject to change in the discretion of the Company.
terminated by either party giving to the other sixty days' notice. 2

Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor will receive, accept and/or hold upon
consignment the products specified under the terms of this agreement in such quantities as in the judgment of the Company may be necessary for the successful
solicitation and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest with him. All
goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor
shall be in his name, in which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the provision of
paragraph 13 of this agreement, whether or not such sale price shall have been collected by the Distributor from the purchaser or purchasers, shall immediately be
paid and remitted by the Distributor to the Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4 of
the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to create any obligation or responsibility, express or
implied, in behalf of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6
All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor, required to accept such goods shipped as well
as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks

Shipments were to be invoiced at prices to

be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of the Company. Moreover,
carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 7

all resale prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval of the
Company and to change from time to time in its discretion. The dealer, as Distributor, is allowed a discount of ten percent
on the net amount of sales of merchandise made under such agreement. On a date to be determined by the Company,
the petitioner, as Distributor, was required to report to it data showing in detail all sales during the month immediately
preceding, specifying therein the quantities, sizes and types together with such information as may be required for
accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of
inventory and sales report. As Distributor, petitioner had to make payment on such invoice or invoices on due date with
the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with
this obligation. The Company, at its own expense, was to keep the consigned stock fully insured against loss or damage
by fire or as a result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor,
assumed full responsibility with reference to the stock and its safety at all times; and upon request of the Company at any
time, it was to render inventory of the existing stock which could be subject to change. There was furthermore this
equally tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment shall
be held by the Distributor for the account of the Company, without expense to the Company, until such time as provision
can be made by the Company for disposition."
9

10

11

12

13

The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor and vendee or of broker and principal. Not that
there would have been the slightest doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the agent or legal
representative of the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it should not possess to
ignore what is manifestly the role assigned to petitioner considering the instrument as a whole. That would be to lose sight altogether of what has been agreed
upon. The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an
agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the products of the Company only to certain persons or entities and
within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the
products, which remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to promote in every way the sale of the products (Par.
3); that sales made by petitioner are subject to approval by the company (Par. 12); that on dates determined by the rubber company, petitioner shall render a
detailed report showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14);
that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that upon request of the
rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par.
15); and that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company
until their disposition is provided for by the latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an independent

Hence its conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of
the parties in respect thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or
agency." We find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As
noted at the outset, we cannot heed petitioner's plea for reversal.
merchant." 14

15

1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than importers, manufacturers, producers, or bona fide
employees, who, for compensation or profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together,
or negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees of freight carried by

The controlling decision as to the test to be followed as

to who falls within the above definition of a commercial broker is that of Commissioner of Internal Revenue v.
Constantino. In the language of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership
of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were
subject to the company's control, the relationship between the company and the dealer is one of agency, ... ." An excerpt
from Salisbury v. Brooks cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of
sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty
may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the
transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the
transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the
property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and
receive the proceeds less the agent's commission upon sales made.' " The opinion relied on the work of Mechem on
Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on Sales, were likewise referred
to.
vessels or other means of transportation. The term includes commission merchants."

16

17

18

19

20

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or presence of these mutual requirements and
obligations on any theory other than that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in
the form of lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to Salisbury upon the specific
terms of the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced and for services as agent. These requirements and
stipulations are in tent with any other conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They
were placed there for some purpose, doubtless as the result of definite antecedent negotiations therefore, consummated by the final written expression of the

Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity
like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion
that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in
character. The Court of Tax Appeals decision now under review pays fealty to such an applicable doctrine.
agreement." 21

2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did such Court fail to appreciate in its true significance the
act and conduct pursued in the implementation of the contract by both the United States Rubber International and petitioner, as was contended in the second
assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly.
There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the parties. A reading thereof discloses that the
relationship arising therefrom was not one of seller and purchaser. If it were thus intended, then it would not have included covenants which in their totality would
negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so worded as to lead to no other conclusion than that the
control by the United States Rubber International over the goods in question is, in the language of the Constantino opinion, "pervasive". The insistence on a
relationship opposed to that apparent from the language employed might even yield the impression that such a mode of construction was resorted to in order that
the applicability of a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an expertise in view of its function being limited
solely to the interpretation of revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to
frustrate the objective for which administrative tribunals are created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the
staple of their specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care the decision under review with a view to
exposing what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands as to call for its reversal. Instead, what
cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave the imprimatur of its approval.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against petitioner.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-34338 November 21, 1984
LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as
minimum to two (2) years and four (4) months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case of
insolvency, and to pay the costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing
her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as
maximum, to indemnify the complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo)
The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner
and the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged.
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's
tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to
receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred
fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine
Pesos and 50/100 (P 799.50) will be given to her as soon as it was sold.
This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. The
appellant at that time was bringing a jeep, and the tobacco was loaded in the jeep and brought by the appellant. Of the total value of

P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three different times. Demands for the payment of the balance
of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further
testified that she had gone to the house of the appellant several times, but the appellant often eluded her; and that the "camarin" the
appellant was empty. Although the appellant denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she
wrote a letter to Salud Bantug which reads as follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera, magintay ka
hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng
marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta
lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera.
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. Huwag kang
mabahala at tiyak na babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy
Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967;
and she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount
was paid, the complainant filed a complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit:
1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and
"the obligation was therefore, immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against the theory of the
petitioner that the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended in
which case the only action that can be maintained is a petition to ask the court to fix the duration thereof;
2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New Civil Code does not apply" as against
the alternative theory of the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period
depends upon the will of the debtor in which case the only action that can be maintained is a petition to ask the court to fix the duration of the
period; and
3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as
against the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or,
that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the
courts may fix the duration of the obligation if it does not fix a period, does not apply.
Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold, the Court of
Appeals correctly resolved the matter as follows:
... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco, the appellant herself
admitted that there was an agreement that upon the sale of the tobacco she would be given something. The appellant is a businesswoman,
and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if
she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had
requested her to sell her tobacco, it would not have been the appellant who would have gone to the house of Ayroso, but it would have been
Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo)
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same
was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION
G.R. No. L-32320 July 16, 1979
NATIONAL RICE & CORN CORPORATION (NOW RICE & CORN ADMINISTRATION), petitioner,
vs.
THE HONORABLE COURT OF APPEALS, DAVAO MERCHANDISING CORPORATION, FIELDMEN'S INSURANCE COMPANY INC., CESAR B. CEBALLOS,
JESUS C. MARQUEZ and BARTOLOME CABANGBANG, respondents.

FERNANDEZ, J.:

1wph1.t

This is a petition for review by certiorari of the resolution of the Court of Appeals promulgated on January 23, 1970 in CA-G.R. No. 33127-R entitled "National Rice
& Corn Corporation, Plaintiff- Appellee, versus, Davao Merchandising Corporation, et al., Defendants-Appellants; Fieldmen's Insurance Co., Inc., Third-Party
Plaintiff-Appellant, versus, Cesar Ceballos, et al., Third-Party Defendants-Appellees" which reconsidered said court's decision promulgated on August 27,

by reversing the judgment of the trial court and "dismissing the complaint as premature and for lack of cause of
action, without pronouncement as to costs."
1969 1

The National Rice and Corn Corporation (NARIC) instituted in the Court of First Instance of Manila on February 9, 1962 against the Davao Merchandising
Corporation (DAMERCO) and Fieldmen's Insurance Co. Inc. an action for recovery of a sum of money representing the balance of the value of corn and rice
exported by the defendant Davao Merchandising Corporation, for and in behalf of the NARIC on a no-dollar remittance or barter basis, pursuant to a contract
whereby the defendant Davao Merchandising Corporation agreed to act as an agent of the plaintiff in so exporting such corn and rice and in importing collateral
goods in exchange therefor, and to buy from the plaintiff the said collateral goods.
The defendant Fieldmen's Insurance Co. Inc., filed an answer with a cross-claim against the Davao Merchandising Corporation.
With leave of court, the Fieldmen's Insurance Co. Inc. filed a third-party complaint against Cesar Ceballos, Jesus C. Marquez and Bartolome Cabangbang based
on the Indemnity Agreements.
The defendant, Davao Merchandising Corporation filed an answer with counterclaims for damages caused to its business standing and commercial credit
allegedly by plaintiff's false allegations and unjustified request for a writ of preliminary attachment. In the same answer, this said defendant alleged as special
defenses that its juridical relationship with the plaintiff is governed by a contract, Exhibit "A", wherein it was agreed that this defendant would "act as agent" of the
plaintiff "in exporting the quantity and kind of corn and rice" mentioned herein, "as well as in importing the collateral goods that will be imported thru barter on a
back to back letter of credit or no-dollar remittance basis"; that answering defendant had agreed "to buy the aforementioned collateral goods", not the corn grains
that were exported; that, therefore, this defendant had no obligation to plaintiff until after such collateral goods had been imported; that these defendants should
not be made to pay plaintiff, since the collateral goods worth more than US$480,000.00 had not been imported as a consequence of the suspension of barter
transactions and non-renewal of barter permits by the new administration; and that the promissory notes sued upon by the plaintiff do not reflect the true intent and
relationship of the parties and is wanting of consideration.
The writ of attachment which was issued on motion of the plaintiff was subsequently set aside.
The trial court rendered judgment in favor of the plaintiff, National Rice and Corn Corporation (NARIC) ordering the defendants, Davao Merchandising Corporation
and Fieldmen's Insurance Co. Inc., to pay, jointly and severally, to the plaintiff, the sum of P209,995.16 with interest at 8% per annum from September 1, 1961,
until said amount has been fully paid, plus the further sum of P10,000.00 as attorney's fees and the costs of the suit. On the cross-claim filed by defendant,
Fieldmen's Insurance Co. Inc., against its co-defendant, Davao Merchandising Corporation, and on the third-party complaint filed by Fieldmen's Insurance Co. Inc.
against Cesar B. Ceballos, Jesus C. Marquez and Bartolome Cabangbang, said Davao Merchandising Corporation and said third-party-defendants were ordered
to pay, jointly and severally, to Fieldmen's Insurance Co. Inc. whatever amount the latter may be obliged to pay the plaintiff under the judgment, plus 10% thereof
as attorney's fees and the costs of the suit. 3
The defendants, Davao Merchandising Corporation and Fieldmen's Insurance Co. Inc., appealed from the decision of the Court of First Instance of Manila to the
Court of Appeals.
The appeal was docketed as CA-G.R. No. 33127-R, On August 27, 1969, the Court of Appeals rendered its decision modifying the decision appealed from in that
the liability of the appellant, Davao Merchandising Corporation, was fixed at P199,690.97, with interest at 8% per annum from July 17, 1962, and the award of
attorney's fees in favor of the appellee, National Rice and Corn Corporation, was reduced to P2,000.00. 4
On motion for reconsideration filed by the defendant-appellant DAMERCO, the Court of Appeals promulgated a resolution on January 23, 1970, reversing the
judgment appealed from and rendering a new judgment dismissing the complaint as premature and for lack of cause of action, without pronouncement as to
costs. 5
The National Rice and Corn Corporation (now Rice and Corn Administration filed this petition for certiorari to review the resolution of the Court of Appeals
promulgated on January 23, 1970.
However, said petitioner did not file a brief but submitted the following manifestation:

t.hqw

COMES NOW the petitioner, through counsels and to this Honorable Court, most respectfully manifests:
1. That on August 24th instant, counsels for petitioner received a notice requiring that within thirty (30) days from receipt, to file printed brief,
furnishing copies thereof to the respondents;
2. That petitioner had already forwarded and attached to the petition twelve (12) copies each of the Record on Appeal, briefs of the parties,
as well as all pleadings touching on the issue(s) involved, as filed with the Court of Appeals;
3. That considering further that the principal issues are the interpretation of the contract, and/or in relation with the promissory notes issued,
the bonds posted, and the other evidence on record; and the correctness of the conclusion drawn therefrom, which issues have already been
extensively and exhaustively discussed in petitioner's brief and Motion for Reconsideration as filed with the Court of Appeals (Annex 'K' and
'F', petition), further invoking the reasons relied upon by the learned Trial Court in its decision (pp. 219-277, RA) and the first decision of the
respondent Court of Appeals (Annex 'A' petition) in support of petitioner's stand;
4. That considering finally that to make and prepare another brief, the contents of which is practically the same as those already discussed
as above-stated would be repetitions.
WHEREFORE, PREMISES CONSIDERED, it is respectfully manifested before this Honorable Court that herein petitioner is submitting the
case on the basis of the arguments contained in its Brief and Motion for Reconsideration as filed with the Court of Appeals as well as the
reasons relied upon by the Trial Court in its decision and the first decision of the respondent Court of Appeals, in support of its stand before
this Honorable Court.
Quezon City, Philippines, September 7, 1970.

t.hqw

Respectfully Submitted:
F. R. BAUTISTA & F.G. CORDOBA, JR.

t.hqw

Counsels for the Petitioner

c/o Legal Department, RCA
424 Quezon Blvd. Ext. Quezon City
By:

t.hqw

FRANCISCO G. CORDOBA, JR. 6

The petition for certiorari alleges that the Court of Appeals erred:

t.hqw

(a): In reversing its first decision, Annex 'A' hereof, and in denying petitioner's motion for reconsideration, Annex 'F' hereof, upholding in effect
respondents theory in the interpretation of the contract, and/or in relation to the other evidences, mostly documentary in nature, in arriving at
the conclusion that respondent Damerco acted merely as an agent in the exportation of the corn and importation of the collateral goods and
to buy the goods only upon their arrival in the Philippines, and not that of a sale as contended by herein petitioner.
(b). That the conclusion drawn are premised on wrong assumptions, contrary to the evidence and the evident intention of the parties to the
contract. 7
The petitioner has not made a clear showing that the Court of Appeals erred in setting aside its original decision and rendering a new judgment dismissing the
complaint as premature and for lack of cause of action. It is not disputed that the Davao Merchandising Corporation merely acted as an agent of the National Rice
and Corn Corporation (NARIC) in exporting the rice and corn in question. This fact is admitted in the counter-statement of facts of the National Rice and Corn

It is also a fact that because of the change of administration in the

government, barter transactions were suspended. Hence, DAMERCO was not able to import the remaining collateral
goods worth about US$480,000.00.
Corporation in its appellee's brief filed with the Court of Appeals.

The Court of Appeals found in its resolution promulgated on January 23, 1970 that the contract in question, Exhibit "A" or "1", sustains the contention of the Davao
Merchandising Corporation 1 that the intention of the parties was for the Davao Merchandising Corporation to act (1) as agent of the NARIC (National Rice and
Corn Corporation) in the exportation of the corn and rice, and (2) as the purchaser of the collateral goods to be imported from the proceeds of the sale of the corn
and rice because:
t.hqw

Clearly from the preamble of said contract, bids were previously called for the purchase of corn and rice to be exported as well as of the
imported commodities that will be brought in, but said biddings did not succeed in attracting good offers. That was in July and August of
1959. Subsequently, herein defendant Damerco made an offer not a bid, which the President of the Philippines, the Cabinet and the Naric

Board of Directors accepted as the most advantageous to the Naric Now, to be sure, the contract designates the Naric as the seller and the
Damerco as the buyer. These designations, however, are merely nominal, since the contract thereafter sets forth the role of the "buyer"
(Damerco)' "as agent of the seller" in exporting the quantity and kind of corn and rice as well as in importing the collateral goods thru barter
on a back to back letter of credit or no-dollar arrangements with other government agencies as authorized by the Cabinet Directive dated
October 13, 1959, and "to pay the aforementioned collateral goods ... " (Exhibits 1-A and 1-B.)
The foregoing provisions of the contract plainly support the contention of the Damerco that what it committed to do was to buy the collateral
goods, which will be paid from the proceeds of the corn and rice exported on a no-dollar or back to back letter of credit arrangement per the
Naric Charter which authorizes it to engage in barter agreements and so import such goods tax free (RA 633). It appears that the Naric had
on stock eight thousand metric tons of corn which it could not dispose of due to its poor quality. This was the prime consideration why NARIC
called for bids for its exportation. Now, as the preamble of the contract Exhibit A states, the Naric called for bids for the purchase of the corn
and rice. It wanted a good price therefor in order to avoid losses. But precisely because of the poor quality of the corn, a direct purchase of
said corn even with the privilege of importing commodities did not attract good offers. That was where Damerco came in with its offer to act
as agent in the exportation of the corn, with the agent answering for the price thereof and shouldering all expenses incidental thereto,
provided it can import commodities, paying the NARIC therefor from the price it offered for the corn. In other words, the primary consideration
of Damerco was not the purchase of the corn but the purchase of the commodities to be imported from the proceeds of the corn. Note that
since the corn would be exported on a no-dollar or back to back letter of credit, the Damerco would actually receive NO money either in
dollars or in pesos for the corn exported. This arrangement, i.e., barter or no-dollar transaction had a dual purpose. First, it will facilitate
exportation because otherwise no foreigner would buy the corn at the price asked by the NARIC especially if the same were to be paid here
in dollars. Secondly, the DAMERCO can easily recover its expenses of exportation and at the same time make a modest profit from the
collateral goods - essential semi- essential and none essential exported in the proportion fixed by the Central Bank. On the other hand, the
NARIC gets better than the market price for its corn and at the same time avoids the risks and expenses of exportation which it would
otherwise take and pay if it were to export the corn itself, not to mention the fact that it did not attract good offers under its previous invitation
to bid whereby the bidder would directly purchase the corn and rice.
This, then, is the background of the transaction between the parties. The importation and purchase of the Damerco of the collateral goods
was the main consideration in its entering into the contract. For how else explain its purchase of the NARIC corn which nobody else wanted?
Indeed, the mode of payment supports the theory of herein defendant DAMERCO. Damerco was (1) to open a domestic letter of credit in the
amount of Seven Hundred Twenty Thousand Pesos (P720,000.00) representing half of 8,000 metric tons of corn, which domestic letter of
credit shall be available to the NARIC drawing therefrom through sight draft without recourse 50% of the value of the letter of credit 30
days after the issuance of the export permit or the effectivity of the contract, whichever is later shall be cashed; and the remaining 50% shall
be cashed in the same manner 90 days after the issuance of the export permit or the effectivity of the contract, whichever is later; and (2) to
cause the establishment of a foreign letter or letters of credit covering at least the sum of $360,000.00 representing half of the cost of 8,000
metric tons of corn in favor of the NARIC which shall be made available to the latter on sight draft or drafts without recourse, accompanied by
shipping documents, in the following proportions: 50% of the value of the letter or letters of credit shall be cashed; and 60 days after the
issuance of the export permit or the effectivity of the contract, whichever is later, the remaining 50% of the said letter or letters of credit shall
be cashed (Par. 4 [a] Exhibit 1).
Note that the availability of said letter or letters of credit to the NARIC was dependent upon the issuance of the export permit. The payment
therefor depended on the importation of the collateral goods, that is after its arrival as estimated to take from 30 to 90 days. Indeed, the
contract sought to be enforced under the barter negotiations has reciprocal stipulations, which must be given force and effect (Rule 130, Sec.
9, Rules of Court; Luna vs. Linstoc 74 Phil. 15; Colmenar vs. Cosca, 76 Phil. 857). And the contract being onerous, any doubt shall be settled
in favor of the greatest reciprocity of interests (Art. 1378, Civil Code; Liong vs. Aguilar, et al., 48 O.G. 1041; Perez vs. Cortez, 15 Phil. 211;
De la Cruz et al. vs. Tanguilat, 47 O.G. 4300).
There is no question that almost half of the collateral goods were imported and the Damerco paid for the collateral goods as they were
received. However, and it is not disputed by plaintiff, due to the inferior quality of the corn, it had to be replaced with more acceptable stock
(pp. 28-30, tsn., June 17, 1963). This caused such delay that the letters of credit expired without the NARIC being able to draw the full
amount therefrom. This is an important point to bear in mind particularly in determining the reason behind the issuance of the checks. ... 9
The contract between the NARIC and the DAMERCO, Exhibit "A", is bilateral and gives rise to a reciprocal obligation. The said contract, Exhibit "A", consists of
two parts: (1) the exportation by the DAMERCO as agent for the NARIC of the rice and corn; and (2) the importation of collateral goods by barter on a back to back
letter of credit or no-dollar remittance basis. It is evident that the DAMERCO would not have entered into the agreement were it not for the stipulation as to the
importation of the collateral goods which it could purchase. The DAMERCO expected to make a modest profit out of its purchase of the collateral goods thereby
covering up whatever expenses and losses it may incur in the exportation of the rice and corn. Under paragraph 9 of the contract, Exhibit "A", all expenses incident
to the exportation of the corn and rice such as taxes, levies, fees, charges, labor for haulage and losses shall be for the account of DAMERCO, as well as
expenses incident to importation. The contract also provided that DAMERCO should mill the palay at its own expense [Par. 3 (b)] It is iniquitous to compel the
DAMERCO to make a full accounting of the purchase price of the rice and corn exported without first requiring the NARIC now succeeded by Rice and Corn
Administration, to secure from the proper government agency the license to enable the DAMERCO to import the remaining collateral goods. It would be unfair, to
say the least, because then the DAMERCO would suffer a loss consisting of the substantial expenses incurred in the exportation of the rice and corn without the
corresponding expected profits from the remaining collateral goods worth about US$480,000.00. This was thoroughly explained by the Court of Appeals thus:
t.hqw

It appears that we were also misled to believe that the Damerco was buying the corn because the contract provides that the price of the corn
subject matter thereof shall be one hundred and eighty (P180.00) pesos, Philippine Currency, per ton or P1,440,000.00 for the 8,000 metric
tons "As Is" F.O.B. Cebu. A closer look at the pertinent provisions of the contract, however, reveals that said price was given tentatively for
the purpose of fixing the price in barter. Indeed, paragraph 3(c) of the contract provides that the C & F Manila price of the imported
commodities shall be equal to the total peso price offered for the corn in consideration of the high price offered by Damerco for said corn.
Then it sets the value of the imported commodities not to exceed the sum of P2,880,000.00 equivalent to the peso value of the corn and rice
product. It should likewise be stressed that the aforesaid exportation and importation was on a "no-dollar remittance basis". In other words,
the agent, herein defendant Damerco, was not to be paid by its foreign buyer in dollars but in commodities. Damerco could not get paid

unless the commodities were imported, and Damerco was not exporting and importing on its own but as agent of the plaintiff, because it is
the latter alone which could export and import on barter basis according to its charter (Sec. 3, Republic Act 663). Thus, unless Damerco was
made an agent of the plaintiff, the former could not export the corn and rice nor import at the same time the collateral goods. This was
precisely the intention of the parties, that is, the high price offered by the Damerco was in consideration of its privilege of buying the collateral
goods. The contract itself clearly provides the Damerco was to export the rice and corn, AND TO BUY THE collateral goods. There is nothing
in the contract providing unconditionally that Damerco was buying the rice and corn. Indeed, if the main consideration was simply the
purchase of the corn, there would be no necessity to execute such a complicated contract. To be more specific, if the agreement was just a
sale of corn to Damerco, the contract need not specify that Damerco was to buy the collateral goods.
xxx xxx xxx
But the fact is the Damerco was able to export all the rice and corn and had indeed paid for the collateral commodities as they were
received. Having exported all the corn on a no-dollar or barter agreement at its expense, Damerco has complied with what was incumbent
upon it under the contract. It had imported almost half of the commodities stipulated with about $480,000.00 worth of commodities yet to ba
brought into the country when barter transactions were stopped by a new succeeding administration. Of the P1,428,451.13, value of the corn
exported, only P199,690.97 remains unliquidated (Exhibit M), as of July 16, 1962, as found in our decision sought to be considered. This
means that defendant as of July 16, 1962 must have paid in advance some P760,309.03 on the collateral goods yet to be imported. To our
mind therefore, this act of the Government left the Damerco, and the NARIC for that matter, holding so to speak the proverbial bag. Equity
then is on Damerco's side. Indeed, by suspending barter transactions, the Government actually prevented the Damerco from realizing profits
by the eventual sale of the collateral goods worth $480,000.00 equivalent then to more than P960,000.00.
We have heretofore shown that the checks issued as well as the promissory notes now made the basis of the complaint were issued
for the purpose of securing the unpaid part of the price of the corn and as guaranty that Damerco will purchase the corresponding collateral
goods. When the letters of credit lapsed due to delay imputable to NARIC and not to Damerco, the latter replaced them with postdated
checks merely as a token of good faith. This had to be done because the NARIC was left without security on the 'cost of the corn Indeed, the
very contract itself speaks clearly of the intention of the parties in such wise that Damerco's role was to be an agent of the NARIC in
exporting the corn and importing the collateral goods, and the payment dovetailed with the arrival of the collateral goods. Even the
subsequent set of extending the period of the promissory notes to nine months, strongly argues in favor of this intention. When said
promissory notes were executed, the Government had not yet suspended barter transactions, hence the nine-month extension believed
sufficient to effect the importation of the remaining collateral goods. Had not the Government suspended barter transactions, there is no
doubt the Damerco would have been able to bring in those collateral goods, fully paid for except some P200,000.00.
Therefore, as we see it, Damerco executed the promissory notes only as a token of good faith that it win abide by its agreement to import the
collateral goods in exchange for the corn exported, and to buy the same upon its arrival in the Philippines. Its only purpose was to give the
NARIC some sort of security while the unimported collateral goods have not yet been actually brought into the country. The promissory notes
were clearly intended to hold the Damerco to its obligation to import and buy the collateral goods. However, this obligation became
unenforceable when the importation of the collateral goods became legally impossible due to the suspension of barter transactions and the
refusal to renew the barter permit by the government of which NARIC (succeeded by the Rice and Corn Administration [NCA] Sec. 13, RA
3452), was an agency. It was not the fault of the Damerco that if failed to import the collateral goods, on which it must have paid
P760,309.03, leaving a balance of almost P200,000.00 (Exhibit M). It was the duty of the NARIC now RCA, to bring in those collateral goods
and make the necessary representations therefor with the Republic of the Philippines. Until such importation, the obligation of Damerco to
pay the promissory notes is unenforceable (Article 1266, Civil Code); hence the present action is premature. 10
It is clear that if after DAMERCO had spent big sums incident to carrying out the purpose of the contract, the importation of the remaining collateral goods worth
about US$480,000.00 could not be effected due to suspension by the government under a new administration of barter transactions, the NARIC (now Rice and
Corn Administration) ought to make the necessary representations with the government to enable DAMERCO to import the said remaining collateral goods. The
contract, Exhibit "A", has reciprocal stipulations which must be given force and effect. 11

where the President of the Philippines acting through his Cabinet cancelled arbitrarily a
license to import goods under "no-dollar remittance basis", the Supreme Court said:
In Customs Commissioner vs. Auyong Hian

12

t.hqw

... In fact, if the cancellation were to prevail, the importer would stand to lose the license fee he paid amounting to P12,000.00, plus the value
of the shipment amounting to P21,820.00. This is grossly inequitable. Moreover, 'it has been held in a great number of cases that a permit be
revoked ... where, on the faith of it, the owner has incurred material expense.
The Court of Appeals did not err in holding that the NARIC (now RCA) has no cause of action until it has secured the necessary import permit and it brings in the
remaining collateral goods worth about US$480,000.00.
WHEREFORE, the petition for review is denied and the resolution of the Court of Appeals promulgated on January 23, 1970, appealed from is hereby affirmed,
without pronouncement as to costs.
SO ORDERED.

3. Lease of Work of Service

4. Agent v. Independent Contractor

SEE Manila Memorial Park Cemetery, Inc. vs. Pedro L. Linsangan, G.R. No. 151319, November 22, 2004
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-55764 February 16, 1982
SOCIAL SECURITY SYSTEM, petitioner,
vs.
COURT OF APPEALS and MANILA COSMOS AERATED WATER FACTORY, INC., respondents.

ABAD SANTOS, J:
This is a petition to review a decision of the Court of Appeals in Social Security System, et al. vs. Manila Cosmos Aerated Water Factory, Inc., CA-G.R. No. SP
03296-R, adverse to the petitioner. The antecedent facts consist of the following:
In a petition filed with the Social Security Commission SSC the Social Security System (SSS) together with Jose Concepcion, Manuel Chan, Manuel Ong, Roberto
Lai, Arturo Gonzales, William Co, Federico Marcial, Santiago Mancuba, Jesus Crelencia, Alfredo So and Pedro Aquino, the individual petitioners were sought to be
declared employees of Manila Cosmos AerAted Water Factory, Inc. (Cosmos) and not independent contractors under the following Agreement to Peddle Soft
Drinks.
1. The MANUFACTURER shall provide the PEDDLER with a delivery truck to be used by the latter, under his own responsibility, exclusively
in the sales of the products of the former purchased by the PEDDLER from the MANUFACTURER;
2. The PEDDLER himself shall carefully and in strict observance to traffic regulations, drive the truck furnished him by the MANUFACTURER
or should he employ a driver or helpers, such driver or helpers shall be his employees under his direction and responsibility, and not that of
the MANUFACTURER, and their compensation including salaries, wages, overtime pay, separation pay, bonus or other remunerations and
privileges shall be for the PEDDLERS own account;
3. The PEDDLER shall be responsible for any damage to property, death or injuries to persons or damage to the truck used by him caused
by his own acts or that of his driver and helpers;
4. The PEDDLER shall secure at his own expense all necessary license and permits required by law or ordinance, and shall bear any and all
expenses which may be incurred by him in the sales of the MANUFACTURER'S products, covered by this contract;
5. All goods soft drinks) purchased by the PEDDLER shall be charged to him at a factory price of P0.86 per case of the 6.6 oz. size, exwarehouse; PROVIDED, However, that, if the PEDDLER purchases a total of not less than 200 cases of the 6.5 oz. size a day, he shall be
entitled to a dealer's discount of P7.30;
6. Upon the execution of this agreement, the PEDDLER shall give a cash bond in the amount of P500.00 against which the
MANUFACTURER shall charge the PEDDLER with any unpaid account at the end of the day or with any damage to the truck or other
account which is properly chargeable to the PEDDLER; within 30 days after termination of this agreement, the cash bond, after deducting
proper charges, shall be returned to the PEDDLER;
7. The PEDDLER shall liquidate and pay his account at the end of each day, and his failure to do so shall subject his cash bond or so much
thereof as may be necessary to such set offs and payments as shall be proper against the accounts in question;
8. This contract shall be effective only up to December 31, 1962 and supersedes any or all other previous contracts that may have been
entered into between the parties; However, either of the parties may terminate the same upon seven (7) days prior notice to the other;
9. Upon the termination of this agreement, unless the same is renewed, the delivery truck and such other equipment furnished by the
MANUFACTURER to the PEDDLER shall be returned by the latter in good order and workable condition, ordinary wear and tear excepted,
and shall promptly settle his outstanding account if any, with the manufacturer. (Rollo, pp. 24-25.)
The status of the individual petitioners was important because if they were employees of Cosmos and not independent contractors, then Cosmos would have "to
pay the employer's share of premium contributions (employer's and employees' share) for and in behalf of the delivery helpers, as employees of respondent

corporation, plus the penalties thereon for late remittance of premium contributions, covering the period of delinquency from the respective dates of their coverage
up to the present" as prayed for in the petition.
After hearing, the SSC rendered a resolution in favor of the SSS and the peddlers holding that an employer-employee relationship existed between Cosmos and
the peddlers. Cosmos appealed to the Court of Appeals and in a decision promulgated on October 16, 1979, that Court affirmed the resolution of the SSC.
However, upon a motion for reconsideration, the Court of Appeals on October 13, 1980, set aside its previous decision and reversed the resolution of the SSC.
Hence, the instant appeal where the petitioner is the SSS alone; the individual peddlers have not seen fit to appeal.
We could have dismissed the instant petition by minute resolution because precedents warrant such an action. But to put an end to litigations of this sort and
arrest what Cosmos calls judicial harassment, a decision is in order.
In Mafinco Trading Corporation vs.Ople, et al. No. L-37790, March 25, 1976, 70 SCRA 139, the question was whether there was an employer- employee
relationship under the terms of a peddling contract in words almost Identical to the one quoted above. This Court, thru Mr. Justice Aquino said:
A restatement of the provisions of the peddling contract is necessary in order to find out whether under that instrument Repomanta and
Moralde were independent contractors or mere employees of Mafinco.
Under the peddling contract, Mafinco would provide the peddler with a delivery truck to be used in the distribution of Cosmos soft drinks (Par.
1). Should the peddler employ a driver and helpers, he would be responsible for their compensation and social security contributions and he
should comply with applicable labor laws "in relation to his employees" (Par. 2).
The peddler would be responsible for any damage to persons or property or to the truck caused by his own acts or omissions or those of his
driver and helpers (Par. 3). Mafinco would bear the cost of gasoline and maintenance of the truck (Par. 4). The peddler would secure at his
own expense the necessary licenses and permits and bear the expenses to be incurred in the sale of Cosmos products (Par. 5).
The soft drinks would be charged to the peddler at P2.52 per case of 24 bottles, ex-warehouse. Should he purchase at least 250 cases a
day, he would be entitled to a peddler's discount of eleven pesos (Par. 6). The peddler would post a cash bond in the sum of P1,500 to
answer for his obligations to Mafinco (Par. 7) and another cash bond of P1,000 to answer for his obligations to his employees (Par. 11). He
should liquidate his accounts at the end of each day (Par. 8). The contract would be effective up to May 31, 1973. Either party might
terminate it upon five days prior notice to the other (Par. 9).
We hold that under their peddling contracts of Repomanta and Moralde were not employees of Mafinco but were independent contractors as
found by the NLRC and its fact-finder and by the committee appointed by the Secretary of labor to look into the status of Cosmos and
Mafinco peddlers. They were distributors of Cosmos soft drinks with their own capital and employees. Ordinarily, an employee or a mere
peddler does not execute a formal contract of employment. He is simply hired and he works under the direction and control of the employer.
Repomanta and Moralde voluntarily executed with Mafinco formal peddling contracts which indicate the manner in which they would sell
Cosmos soft drinks. That circumstance signifies that they were acting as independent businessmen. They were free to sign or not to sign that
contract. If they did not want to sell Cosmos products under the conditions defined in that contract; they were free to reject it.
But having signed it, they were bound by its stipulations and the consequences thereof under existing labor laws. One such stipulation is the
right of the parties to terminate the contract upon five days' prior notice (Par. 9). Whether the termination in this case was an unwarranted
dismissal of an employee, as contended by Repomanta and Moralde, is a point that cannot be resolved without submission of evidence.
Using the contract itself as the sole criterion, the termination should perforce be characterized as simply the exercise of a right freely
stipulated upon by the parties.
In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection
and engagement of the employee; (2) the payment of wages: (3) the power of dismissal: and (4) the power to control the employees' conduct
although the latter is flip, most important element (Viaa Al-Lagadan and Piga 99 Phil, 406, 411, Citing 35 Am. Jur. 445).
On the other hand, an independent contractor is "one who exercise independent employment and contracts to do a piece of work according
to his own methods and without being subject to control of his employer except as to the result of the work" (Mansal vs. P.P. Gocheco
Lumber Co., 96 Phil. 941).
Among the factors to be considered are whether the contractor is carrying on an independent business; whether the work is part of the
employer's general business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign
the performance of the work to another; the power to terminate the relationship; the existence of a contract for the performance of a specified
piece of work; the control and supervision of the work; the employer's powers and duties with respect to the hiring, firing, and payment of the
contractor's servants; the control of the premises; the duty to supply the premises, tools, appliances, material and labor; and the mode,
manner, and terms of payment. (56 C.J.S. 46).
Those tests to determine the existence of an employer-employee relationship or whether the person doing a particular work for another is an
independent contractor cannot be satisfactorily applied in the instant case. It should be obvious by now that the instant case is a
penumbral, sui generis case lying on the shadowy borderline that separates an employee from an independent contractor.

In determining whether the relationship is that of employer and employee or whether one is an independent contractor, "each case must be
determined on its own facts and all the features of the relationship are to be considered" (56 C.J.S. 45). We are convinced that on the basis
of the peddling contract, no employer-employee relationship was created. (At pp. 161-163, emphasis supplied.)
We hold that conformably to Mafinco, the peddling contract involved in the instant petition makes the peddler an independent contractor. Additionally, We have
taken into account the fact that the individual petitioners before the SSC who were the principal beneficiaries of the petition have become indifferent to their cause.
WHEREFORE, the judgment of the Court of Appeals is hereby affirmed. Costs against the petitioner.
SO ORDERED.

5. Negotorium Gestio
6. Agent vs. Servant
7. Agency vs. Loan

JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF

THE PHILIPPINE ISLAND, Respondent.
CASTRO, J.:
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter
referred to as the petitioner) for review of the decision of the Court of Appeals
in C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank of the
Philippine Islands (hereinafter referred to as the respondent).
From April 2, 1959 to May 18, 1959, ten checks with a total face value of
P8,030.58 were deposited by the petitioner in its current account with the
respondent bank. The particulars of these checks are as follows:
1. Drawn by the Delta Engineering Service upon the Pacific Banking
Corporation and payable to the Inter-Island Gas Service Inc. or order:
Date Check Exhibit
Deposited Number Amount Number
4/2/59 B-352680 P500.00 18
4/20/59 A-156907 372.32 19
4/24/59 A-156924 397.82 20

5/4/59 B-364764 250.00 23

5/6/59 B-364775 250.00 24
2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and
payable to the Inter-Island Gas Service, Inc. or bearer:
4/13/59 B-335063 P 2108.70 21
4/27/59 B-335072 P2210.94 22
3. Drawn by the Luzon Tinsmith & Company upon the China Banking
Corporation and payable to the Inter-Island Gas Service, Inc. or bearer:
5/18/59 VN430188 P940.80 25
4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank
and payable to the Inter-Island Gas Service, Inc. order:
5/14/59 1860160 P 500.00 26
5/18/59 1860660 P 500.00 27
All the foregoing checks, which were acquired by the petitioner from one
Antonio J. Ramirez, a sales agent of the Inter-Island Gas and a regular bettor
at jai-alai games, were, upon deposit, temporarily credited to the petitioner's
account in accordance with the clause printed on the deposit slips issued by
the respondent and which reads:
"Any credit allowed the depositor on the books of the Bank for checks or drafts
hereby received for deposit, is provisional only, until such time as the proceeds
thereof, in current funds or solvent credits, shall have been actually received
by the Bank and the latter reserves to itself the right to charge back the item
to the account of its depositor, at any time before that event, regardless of
whether or not the item itself can be returned."
About the latter part of July 1959, after Ramirez had resigned from the InterIsland Gas and after the checks had been submitted to inter-bank clearing, the

Inter-Island Gas discovered that all the indorsements made on the checks
purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were
merely authorized to deposit checks issued payable to the said company) as
well as the rubber stamp impression thereon reading "Inter-Island Gas
Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised the
petitioner, the respondent, the drawers and the drawee-banks of the said
checks about the forgeries, and filed a criminal complaint against Ramirez with
the Office of the City Fiscal of Manila. 1
The respondent's cashier, Ramon Sarthou, upon receipt of the latter of InterIsland Gas dated August 31, 1959, called up the petitioner's cashier, Manuel
Garcia, and advised the latter that in view of the circumstances he would debit
the value of the checks against the petitioner's account as soon as they were
returned by the respective drawee-banks.
Meanwhile, the drawers of the checks, having been notified of the forgeries,
demanded reimbursement to their respective accounts from the draweebanks, which in turn demanded from the respondent, as collecting bank, the
return of the amounts they had paid on account thereof. When the draweebanks returned the checks to the respondent, the latter paid their value which
the former in turn paid to the Inter-Island Gas. The respondent, for its part,
debited the petitioner's current account and forwarded to the latter the checks
containing the forged indorsements, which the petitioner, however, refused to
accept.
On October 8, 1959 the petitioner drew against its current account with the
respondent a check for P135,000 payable to the order of the Mariano Olondriz
y Cia. in payment of certain shares of stock. The check was, however,
dishonored by the respondent as its records showed that as of October 8,
1959 the current account of the petitioner, after netting out the value of the
checks P8,030.58) with the forged indorsements, had a balance of only
P128,257.65.
The petitioner then filed a complaint against the respondent with the Court of
First Instance of Manila, which was however dismissed by the trial court after
due trial, and as well by the Court of Appeals, on appeal.
Hence, the present recourse.

The issues posed by the petitioner in the instant petition may be briefly stated
as follows:
(a) Whether the respondent had the right to debit the petitioner's current
account in the amount corresponding to the total value of the checks in
question after more than three months had elapsed from the date their value
was credited to the petitioner's account:(b) Whether the respondent is
estopped from claiming that the amount of P8,030.58, representing the total
value of the checks with the forged indorsements, had not been properly
credited to the petitioner's account, since the same had already been paid by
the drawee-banks and received in due course by the respondent; and(c) On
the assumption that the respondent had improperly debited the petitioner's
current account, whether the latter is entitled to damages.
These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it debited the
petitioner's account. When the petitioner deposited the checks with the
respondent, the nature of the relationship created at that stage was one of
agency, that is, the bank was to collect from the drawees of the checks the
corresponding proceeds. It is true that the respondent had already collected
the proceeds of the checks when it debited the petitioner's account, so that
following the rule in Gullas vs. Philippine National Bank 2 it might be argued
that the relationship between the parties had become that of creditor and
debtor as to preclude the respondent from using the petitioner's funds to make
payments not authorized by the latter. It is our view nonetheless that no
creditor-debtor relationship was created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3
"When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority."

Since under the foregoing provision, a forged signature in a negotiable

instrument is wholly inoperative and no right to discharge it or enforce its
payment can be acquired through or under the forged signature except against
a party who cannot invoke the forgery, it stands to reason, upon the facts of
record, that the respondent, as a collecting bank which indorsed the checks to
the drawee-banks for clearing, should be liable to the latter for
reimbursement, for, as found by the court a quo and by the appellate court,
the indorsements on the checks had been forged prior to their delivery to the
petitioner. In legal contemplation, therefore, the payments made by the
drawee-banks to the respondent on account of the said checks were
ineffective; and, such being the case, the relationship of creditor and debtor
between the petitioner and the respondent had not been validly effected, the
checks not having been properly and legitimately converted into cash. 4
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court
ruled that it is the obligation of the collecting bank to reimburse the draweebank the value of the checks subsequently found to contain the forged
indorsement of the payee. The reason is that the bank with which the check
was deposited has no right to pay the sum stated therein to the forger "or
anyone else upon a forged signature." "It was its duty to know," said the
Court, "that [the payee's] endorsement was genuine before cashing the
check." The petitioner must in turn shoulder the loss of the amounts which the
respondent; as its collecting agent, had to reimburse to the drawee-banks.
We do not consider material for the purposes of the case at bar that more than
three months had elapsed since the proceeds of the checks in question were
collected by the respondent. The record shows that the respondent had acted
promptly after being informed that the indorsements on the checks were
forged. Moreover, having received the checks merely for collection and deposit,
the respondent cannot he expected to know or ascertain the genuineness of all
prior indorsements on the said checks. Indeed, having itself indorsed them to
the respondent in accordance with the rules and practices of commercial
banks, of which the Court takes due cognizance, the petitioner is deemed to
have given the warranty prescribed in Section 66 of the Negotiable
Instruments Law that every single one of those checks "is genuine and in all
respects what it purports to be.".
The petitioner was, moreover, grossly recreant in accepting the checks in

question from Ramirez. It could not have escaped the attention of the
petitioner that the payee of all the checks was a corporation the Inter-Island
Gas Service, Inc. Yet, the petitioner cashed these checks to a mere individual
who was admittedly a habitue at its jai-alai games without making any inquiry
as to his authority to exchange checks belonging to the payee-corporation. In
Insular Drug Co. vs. National 6 the Court made the pronouncement that.
". . . The right of an agent to indorse commercial paper is a very responsible
power and will not be lightly inferred. A salesman with authority to collect
money belonging to his principal does not have the implied authority to
indorse checks received in payment. Any person taking checks made payable
to a corporation, which can act only by agents, does so at his peril, and must
abide by the consequences if the agent who indorses the same is without
authority." (underscoring supplied)
It must be noted further that three of the checks in question are crossed
checks, namely, exhs. 21, 25 and 27, which may only be deposited, but not
encashed; yet, the petitioner negligently accepted them for cash. That two of
the crossed checks, namely, exhs. 21 and 25, are bearer instruments would
not, in our view, exculpate the petitioner from liability with respect to them.
The fact that they are bearer checks and at the same time crossed checks
should have aroused the petitioner's suspicion as to the title of Ramirez over
them and his authority to cash them (apparently to purchase jai-alai tickets
from the petitioner), it appearing on their face that a corporate entity the
Inter Island Gas Service, Inc. was the payee thereof and Ramirez delivered
the said checks to the petitioner ostensibly on the strength of the payee's
cashiers' indorsements.
At all events, under Section 67 of the Negotiable Instruments Law, "Where a
person places his indorsement on an instrument negotiable by delivery he
incurs all the liability of an indorser," and under Section 66 of the same statute
a general indorser warrants that the instrument "is genuine and in all respects
what it purports to be." Considering that the petitioner indorsed the said
checks when it deposited them with the respondent, the petitioner as an
indorser guaranteed the genuineness of all prior indorsements thereon. The
respondent which relied upon the petitioner's warranty should not be held
liable for the resulting loss. This conclusion applied similarly to exh. 22 which
is an uncrossed bearer instrument, for under Section 65 of the Negotiable

Instrument Law. "Every person negotiating an instrument by delivery . . .

warrants (a) That the instrument is genuine and in all respects what it
purports to be." Under that same section this warranty "extends in favor of no
holder other than the immediate transferee," which, in the case at bar, would
be the respondent.
The provision in the deposit slip issued by the respondent which stipulates that
it "reserves to itself the right to charge back the item to the account of its
depositor," at any time before "current funds or solvent credits shall have been
actually received by the Bank," would not materially affect the conclusion we
have reached. That stipulation prescribes that there must be an actual receipt
by the bank of current funds or solvent credits; but as we have earlier
indicated the transfer by the drawee-banks of funds to the respondent on
account of the checks in question was ineffectual because made under the
mistaken and valid assumption that the indorsements of the payee thereon
were genuine. Under article 2154 of the New Civil Code "If something is
received when there is no right to demand it and it was unduly delivered
through mistake, the obligation to return it arises." There was, therefore, in
contemplation of law, no valid payment of money made by the drawee-banks
to the respondent on account of the questioned checks.
ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at
petitioner's cost.
8. Agency vs. Guardianship
9. Agency v. Brokerage
10. Agency v. Judicial Administration
11. Ship Agent
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48264 February 21, 1980
SWITZERLAND GENERAL INSURANCE COMPANY, LTD., petitioner,
vs.

HON. PEDRO A. RAMIREZ, Presiding Judge of the Court of First Instance of Manila, Branch XXX, OYAMA
LINES, CITADEL LINES and MABUHAY BROKERAGE CO., INC., respondents.
Manuel N. Camacho, for petitioner.
Bito, Misa & Lozada for respondents Oyama Lines and Citadel Lines.
Gregorio Gonzales for respondent Company.

ANTONIO, J.:
Petition for review of the decision, dated February 24, 1978 of the Court of First Instance of Manila in Civil Case No.
100704, entitled "Switzerland General Insurance Co., Ltd. v. Oyama Lines and Citadel Lines, and/or Mabuhay
Brokerage Co., Inc."
On December 24, 1975, petitioner, a foreign insurance company authorized to do business in the Philippines thru its
agent, F. E. Zuellig Inc., filed an admiralty case (Civil Case No. 100704) against private respondents Oyama
Shipping Co., Ltd. (referred to as Oyama Lines), a foreign firm doing business in the Philippines, and Citadel Lines,
Inc. which is the local agent of private, respondent Oyama Shipping Co., Inc. and/or Mabuhay Brokerage Co., Inc.
The complaint alleged that on December 21, 1974, 60,000 bags of Urea Nitrogen were shipped from Niihama
Japan, on board the S/S St. Lourdes", claimed to be owned and operated by defendant Citadel Lines, Inc. The
goods were consigned to Borden International Phils., Inc., and insured by petitioner for the sum of P9,319,105.00
against all risks.
The shipment was discharged from the vessel S/S "St. Lourdes" shipside into lighters owned by Mabuhay
Brokerage Company, Inc., but when the same was subsequently delivered to and received by the consignee, it was
found to have sustained losses and/or damage amounting to P38.698.94. This amount was paid by petitioner
insurance company to the consignee/assured, by virtue of which payment it became subrogated to the rights of the
latter.
Petitioner made repeated demands against herein private respondents for payment of the aforesaid losses or
damaged but no payment was made and, uncertain in whose custody the goods were damaged, impleaded the
private respondents as alternative defendants to determine their respective liability.
Defendant Citadel Lines, Inc. filed an Answer with Compulsory Counterclaim and Cross-claim, interposing special
and affirmative defenses and alleging that defendant Citadel Lines was merely the civil agent in the Philippines for
the Japanese firm Oyama Shipping Co., Ltd., which was the charterer of the vessel S/S "St. Lourdes", said vessel
being owned by Companies Maritime de Brios, Sociedad Anonima a Panamanian corporation. It was further alleged
that the principal agency relationship between the said Oyama Shipping Co., Ltd. and defendant Citadel Lines, Inc.
was terminated on August 21, 1975 when the Tokyo District Court declared and decreed the insolvency of the said
Oyama Shipping Co., Ltd.
It was argued that defendant Citadel Lines "has always acted as an agent of a disclosed principal and, therefore, the
herein defendant is without any liability at all" in connection with the plaintiff's claim.
By way of cross-claim, defendant Citadel Lines alleged that the loss/damaged to the cargo took place while the
latter was being delivered to the consignee thereof by the Mabuhay Brokerage, Inc. and said corporation should be
held liable therefor, as well as for all damages suffered and expenses incurred by defendant Citadel Lines as a

result of the filing of the suit. Defendant likewise interposed a counterclaim for damages against plaintiff Switzerland
General Insurance Company, Ltd. (herein petitioner).
Defendant Oyama Shipping Co. Ltd. likewise filed its Answer, denying the material averments of the complaint,
alleging that it ceased to be represented in the Philippines upon the declaration of its insolvency by the Tokyo Court;
that it was a mere charterer of the S/S "St. Lourdes" which is owned by Companies Maritime de Brios, Sociedad
Anonima a Panamanian corporation; that due to the insolvency of Oyama Shipping Co. Ltd., the case as against it
should be dismissed, the remedy for the plaintiff being to file its claim before the insolvency court in Tokyo, Japan.
Further, it imputed the loss or damage to the shipment to the shipper, Sumitomo Shoji Kaisha, Ltd. for failing to
provide seaworthy packages for the goods, and/or the Mabuhay Brokerage for failure to exercise utmost diligence
after it took possession of the cargo from the vessel S/S "St. Lourdes". Finally, it was averred that plaintiff's reinsurer
had already paid the plaintiff's claim and, hence, said reinsurer is the real party to the action, and that assumming
defendant Oyama Shipping Co., Ltd. to be liable, its liability is limited to the amount of the loss in relation to the total
amount of the freight of the goods, which if computed, would be a much lower amount. It was prayed that the
complaint be dismissed as against this defendant.
After trial on the merits, respondent court rendered a decision, dated February 23, 1978, in favor of petitioner as
against therein defendant Oyama Shipping Co., Ltd., but absolving Citadel Lines, Inc. and Mabuhay Brokerage Co.,
Inc. from liability. The decision reads, in part, as follows:
Since in the case at bar there is no question that the shipment in question has suffered loss or
damage while in the custody of the carrier, the herein defendant Oyama Line, but it has not adduced
evidence to prove that it was caused by any of those factors or reasons exempting it from liability,
particularly that the bags became torn or burst and the contents spilled because of the character of
the shipment or defects in the packing or in the containers, or the nature or defect of the article itself.
the defendant Oyama Line, as carrier, cannot avoid liability to the consignee or its subrogee the
plaintiff herein.
The defendant Oyama Line pleads prescription of the plaintiff's cause of action under Article 366 of
the Code of Commerce. The defense is untenable. to begin with, the required claim that the owner of
merchandise is supposed to make within 24 hours from receipt is but in the nature of a limitation
upon his right to recovery and the burden of proof is accordingly on the carrier to show that the
limitation is reasonable and in proper form or without the time stated (Southern Lines, Inc. vs. Court
of Appeals, 4 SCRA 258, 261-262). And it is incumbent upon the said defendant to prove its defense,
particularly that no such claim was filed within the required period. Without such proof of a negative
allegation, which it has failed to adduce, the pleader must suffer defeat under the rules of evidence
(section 1, Rule 131, Revised Rules of Court). Be that as it may, the survey report submitted in
evidence by the plaintiff states that after completion of delivery the consignee signified its 'intention
to file a claim for the full value of the loss sustained by the shipment' (Exhibits 1, 1-1 to 1-5), a fact
that has not at all been refuted by the defendant Oyama Line.
The fact that the defendant Oyama Line has been declared insolvent by the Tokyo District Court of
Japan since August 21, 1975, is no defense at all. For such declaration of insolvency, even under
Philippine Laws, does not bar recovery of damages based on contract. Neither can it successfully
ward off liability on a claim that it is a mere charterer of the carrying vessel, having represented on
the face of the bill of lading as the carrier itself (Exhibit A; Exhibit 1-Oyama) And even if it is but a
charterer of the vessel that it claims it is, it cannot avoid its liability as a carrier for loss and damage
suffered by the goods it has transported.
As a mere agent in the Philippines of the defendant Oyama Line, the defendant Citadel Line (see
paragraph 1, complaint) cannot be held liable for the damages recoverable from its principal. But for

failure to substantiate it, its counterclaim against the plaintiff should be dismissed. So must its
crossclaim against its co-defendant brokerage company be dismissed since it has not at all been
held liable to the plaintiff.
Neither can the defendant Mabuhay Brokerage Company, Inc. be held answerable for the loss and
damage sustained by the cargo in question while still in custody of the carrying vessel, for obvious
reasons. Nor can it be made liable, jointly and severally, with the defendant Oyama Line for further
loss and damage to the contents of the torn or burst bags turned over to its custody in that condition
in view of the required extraordinary diligence that it has observed to prevent further loss or damage
to them. According to the defendant brokerage's witness, Virgilio de Jesus, as soon as the bags in
bad order were received from the lighters they were tied and the torn parts sewed the falsity of which
the plaintiff has failed to prove.
WHEREFORE, the Court hereby renders judgment in favor of the plaintiff Switzerland General
Insurance Company, Ltd. and against the defendant Oyama Line, ordering the latter to pay the
former the amount of P38,698.94, with interest thereon at the legal rate from the date of the filing of
the complaint on December 24, 1975, until fully paid, P5,000.00 as attorney's fees and the costs of
the suit. The plaintiff's complaint against the defendants Citadel Line and Mabuhay Brokerage
Company, Inc. are dismissed. So is the defendant Citadel Lines' counterclaim against the plaintiff
and crossclaim against its co-defendant brokerage company dismissed.
Petitioner filed a Motion for Reconsideration of the aforesaid decision insofar as it absolves respondents Citadel
Lines, Inc. and Mabuhay Brokerage Co., Inc. from liability, but said Motion for Reconsideration was denied on April
21, 1979; hence, the instant petition for review.
The main issue raised in the instant petition is whether or not respondent Citadel Lines, Inc., the local agent of a
foreign ocean going vessel, the S/S "St. Lourdes", may be held primarily liable for the loss/damage found to have
been sustained by subject shipment while on board and/or still in the custody of the said vessel.
Petitioner contends that respondent Citadel Lines, Inc., being the ship agent for the vessel S/S "St. Lourdes", is
liable under the pertinent provisions of the Code of Commerce and applicable jurisprudence.
Respondent Citadel Lines, Inc., in its Comment to the petition, alleges that the lower court had made a finding that it
is a mere agent of Oyama Shipping Co., Ltd., and not a ship agent, and this, being a finding of fact, can no longer
be questioned in the instant proceedings. Further, it argues that the provisions of the Code of Commerce relied
upon by petitioner are applicable to a ship agent, but not to a mere agent like private respondent, and that granting
that it is a ship agent, it contends that it should not be held liable because the principal, Oyama Shipping Co., Ltd.
has been declared insolvent. it is claimed that petitioner, upon being informed of the insolvency of the Oyama
Shipping Co., Ltd., should have filed its claim before the Trustee of the Oyama Shipping Co., Ltd. in Japan.
In fine, private respondents do not dispute that a ship agent is liable to third persons under certain circumstances as
provided in the Code of Commerce, but insists that it is not a ship agent but a mere agent and hence, not liable.
We find the instant petition meritorious the error of the lower court lies in its application of the general rule on agency
to the case a quo, when the applicable law is contained in the pertinent provisions of the Code of Commerce as
applied in relevant decisions of this Court. Its finding. therefore, that respondent Citadel Lines, Inc. was a mere
agent of Oyama Shipping Co., Ltd. was a result of its erroneous application of the law of agency to the instant case.
Considering the relationship of the parties, respondent Citadel Lines, Inc. cannot be considered as a "mere agent"
under the civil law on agency as distinguished from a ship agent, within the context of the Code of Commerce. In Yu
Biao Sontua & Co. v. Ossorio, 1 for example, it was held that the doctrines having reference to the relations Between
principal and agent cannot be applied in the case of ship agents and ship owners. For this reason, respondent cannot

validly claim that the court a quo made a finding of fact which is conclusive upon this Court. A ship agent, according to
Article 586 of the Code of Commerce, is the person entrusted with the provisioning of a vessel or who represents her in
the port in which she happens to be." (Emphasis supplied.)

It is not disputed by the private respondent that it is the local representative in the Philippines of the Oyama
Shipping Co., Ltd. and, as alleged by petitioner, upon arrival of the vessel S/S "St. Lourdes" in Manila, it took charge
of the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name, for the purpose of
evidencing discharge of cargoes and the conditions thereof from the vessel to the arrastre operators and/or unto
barges/lighters, and that claims against the vessel S/S "St. Lourdes" for losses/damages sustained by shipments
were in fact filed and processed by respondent Citadel Lines, Inc. These facts point to the inevitable conclusion that
private respondent is the entity that represents the vessel in the port of Manila and hence is a ship agent within the
meaning and context of Article 586 of the Code of Commerce.
The Code of Commerce provides, among others, that the ship agent shall also be liable for the indemnities in favor
of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he
may exempt himself therefrom by abandoning the vessel with all her equipments and the freightage he may have
earned during the voyage. (Article 587).
In addition, Article 618 of the same Code states:
Art. 618. The captain shall be civilly liable to the ship agent and the latter to the third persons who
may have made contracts with the former
1. For all the damages sufferred by the vessel and its cargo by reason of want of skill or negligence
on his part. If a misdemeanor or crime has been committed he shall be liable in accordance with the
Penal Code.
2. For all the thefts and robberies committed by the crew, reserving his right of action against the
guilty parties.
3. For the losses, fines, and confiscations imposed on account of violation. of the laws and
regulations of customs, police, health, and navigation
4. For the losses and damages caused by mutinies on board the vessel or by reason of faults
committed by the crew in the service and defense of the same, if he does not prove Chat, he made
full use of his authority to prevent or avoid them.
5. For those arising by reason of a misuse of powers and non-fulfillment of the duties which pertain
to him in accordance with Articles 610 and 612.
6. For those arising by reason of his going out of his course or taking a course which, in the opinion
of the officers of the vessel, at a meeting attended by the shippers or super cargoes who may be on
board, he should not have taken without sufficient cause.
No exception whatsoever shall exempt him from his obligation.
7. For those arising by reason of his voluntarily entering a port other than his destination, with the
exception of the cases or without the formalities referred to in Article 612.
8. For those arising by reason of the non-observance of the provisions contained in the regulations
for lights and maneuvers for the purpose of preventing collisions.

The foregoing provisions have been repeatedly applied by this Court in various cases, among them: Pons y
Compaia v. La Compania Maritima; 2 Behn, Meyer & Co. v. McMicking, et al.: 3 Yu Biao Sontua & Co. v. Ossorio, 4Wing
Kee Compradoring Co. v. Bark "Monongahela" 5 and The American Insurance Co., Inc. v. Macondray & Co., Inc. 6
In Pons v. La Compania Maritima, supra, it was held that for damages resulting to merchandize in transit due to
negligence of the officers of the ship, a cause of action arises against the owners or agents of the vessels which
may be prosecuted by the shipper or consignor the damaged goods.
At any rate, the liabilities of the ship agent are not disputed by private respondent. It appearing that the Citadel Lines
is the ship agent for the vessel S/S "St. Lourdes" at the port of Manila, it is, therefore, liable to the petitioner,
solidarily with its principal, Oyama Shipping Co., Ltd., in an amount representing the value of the goods lost and or
damaged, amounting to P38,698.94, which was likewise the amount paid by petitioner, as insurer, to the insured
consignee As found by the court a quo, there has been no proof presented to show that the officers of the vessel, in
whose custody the goods were lost or damaged, are exempt from liability therefrom and that the damage was
caused by factors and circumstances exempting them from liability.
The insolvency of Oyama Lines has no bearing on the instant case insofar as the liability of Citadel Lines, Inc. is
concerned. The law does does not make the liability of the ship agent dependent upon the solvency or insolvency of
the ship owner.
WHEREFORE, the decision appealed from is modified, and private respondent Citadel Lines, Inc. is hereby ordered
to pay, solidarily with its principal, Oyama Lines (Oyama Shipping Co., LTD.), the amount of P38,698.94, with
interest thereon at the legal rate from the date of the filing of the complaint on December 24, 1975 until fully paid,
P5,000.00 as attorney's fees and the costs of suit. The rest of the decision is affirmed. No pronouncement as to
costs.
SO ORDERED.
C. Kinds of Agency
1. As to construction (Articles 1869- 1870, 1872)

[G.R. No. 142950. March 26, 2001]

EQUITABLE
PCI
BANK,
formerly
EQUITABLE
CORPORATION, petitioner, vs. ROSITA KU, respondent.

BANKING

DECISION
KAPUNAN, J.:

Can a person be evicted by virtue of a decision rendered in an ejectment case where she was not joined as a
party? This was the issue that confronted the Court of Appeals, which resolved the issue in the negative. To hold
the contrary, it said, would violate due process. Given the circumstances of the present case, petitioner Equitable
PCI Bank begs to differ. Hence, this petition.
On February 4, 1982, respondent Rosita Ku, as treasurer of Noddy Dairy Products, Inc., and Ku Giok
Heng, as Vice-President/General Manager of the same corporation, mortgaged the subject property to the
Equitable Banking Corporation, now known as Equitable PCI Bank to secure Noddy Inc.s loan to

Equitable. The property, a residential house and lot located in La Vista, Quezon City, was registered in
respondents name.
Noddy, Inc. subsequently failed to pay the loan secured by the mortgage, prompting petitioner to foreclose
the property extrajudicially. As the winning bidder in the foreclosure sale, petitioner was issued a certificate of
sale. Respondent failed to redeem the property. Thus, on December 10, 1984, the Register of Deeds canceled
the Transfer Certificate of Title in the name of respondent and a new one was issued in petitioners name.
On May 10, 1989, petitioner instituted an action for ejectment before the Quezon City Metropolitan Trial
Court (MeTC) against respondents father Ku Giok Heng. Petitioner alleged that it allowed Ku Giok Heng to
remain in the property on the condition that the latter pay rent. Ku Giok Hengs failure to pay rent prompted the
MeTC to seek his ejectment. Ku Giok Heng denied that there was any lease agreement over the property.
On December 8, 1994, the MeTC rendered a decision in favor of petitioner and ordered Ku Giok Heng to,
among other things, vacate the premises. It ruled:

x x x for his failure or refusal to pay rentals despite proper demands, the defendant had not
established his right for his continued possession of or stay in the premises acquired by the plaintiff
thru foreclosure, the title of which had been duly transferred in the name of the plaintiff. The
absence of lease agreement or agreement for the payment of rentals is of no moment in the light of
the prevailing Supreme Court ruling on the matter. Thus: It is settled that the buyer in foreclosure
sale becomes the absolute owner of the property purchased if it is not redeemed during the period
of one (1) year after the registration of the sale is as such he is entitled to the possession of the
property and the demand at any time following the consolidation of ownership and the issuance to
him of a new certificate of title. The buyer can, in fact, demand possession of the land even during
the redemption period except that he has to post a bond in accordance with Section 7 of Act No.
3155 as amended. Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. Upon proper application and proof of title, the issuance of a writ of possession
becomes a ministerial duty of the court. (David Enterprises vs. IBAA[,] 191 SCRA 116).[1]
Ku Giok Heng did not appeal the decision of the MeTC. Instead, he and his daughter, respondent Rosita
Ku, filed on December 20, 1994, an action before the Regional Trial Court (RTC) of Quezon City to nullify the
decision of the MeTC. Finding no merit in the complaint, the RTC on September 13, 1999 dismissed the same
and ordered the execution of the MeTC decision.
Respondent filed in the Court of Appeals (CA) a special civil action for certiorari assailing the decision of
the RTC. She contended that she was not made a party to the ejectment suit and was, therefore, deprived of due
process. The CA agreed and, on March 31, 2000, rendered a decision enjoining the eviction of respondent from
the premises.
On May 10, 2000, Equitable PCI Bank filed in this Court a motion for an extension of 30 days from May
10, 2000 or until June 9, 2000 to file its petition for review of the CA decision. The motion alleged that the
Bank received the CA decision on April 25, 2000.[2] The Court granted the motion for a 30-day extension counted from the
expiration of the reglementary period and conditioned upon the timeliness of the filing of [the] motion [for extension]. [3]

On June 13, 2000,[4] Equitable Bank filed its petition, contending that there was no need to name respondent
Rosita Ku as a party in the action for ejectment since she was not a resident of the premises nor was she in
possession of the property.
The petition is meritorious.
Generally, no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are
not bound by judgment rendered by the court. [5] Nevertheless, a judgment in an ejectment suit is binding not
only upon the defendants in the suit but also against those not made parties thereto, if they are:
a) trespassers, squatters or agents of the defendant fraudulently occupying the property to frustrate the
judgment;
b) guests or other occupants of the premises with the permission of the defendant;
c) transferees pendente lite;
d) sub-lessees;
e) co-lessees; or
f) members of the family, relatives and other privies of the defendant.[6]
Thus, even if respondent were a resident of the property, a point disputed by the parties, she is nevertheless
bound by the judgment of the MeTC in the action for ejectment despite her being a non-party
thereto. Respondent is the daughter of Ku Giok Heng, the defendant in the action for ejectment.
Respondent nevertheless claims that the petition is defective. The bank alleged in its petition that it
received a copy of the CA decision on April 25, 2000. A Certification dated June 6, 2000 issued by the Manila
Central Post Office reveals, however, that the copy was duly delivered to and received by Joel Rosales
(Authorized Representative) on April 24, 2000.[7] Petitioners motion for extension to file this petition was filed
on May 10, 2000, sixteen (16) days from the petitioners receipt of the CA decision (April 24, 2000) and one (1)
day beyond the reglementary period for filing the petition for review (May 9, 2000).
Petitioner however maintains its honest representation of having received [a copy of the decision] on April
25, 2000.[8] Appended as Annex A to petitioners Reply is an Affidavit[9] dated October 27, 2000 and executed by
Joel Rosales, who was mentioned in the Certification as having received the decision. The Affidavit states:

(1) I am an employee of Unique Industrial & Allied Services, Inc. (Unique) a corporation duly
organized and existing under Philippine laws with principal place of business at 1206 Vito Cruz St.,
Malate, Manila, and I am assigned with the Equitable PCI Bank, Mail and Courier Department,
Equitable PCI Bank Tower II, cor. Makati Avenue and H.V. dela Costa St., Makati City, Metro
Manila;
(2) Under the contract of services between the Bank and Unique, it is my official duty and
responsibility to receive and pick-up from the Manila Central Post Office (CPO) the various mails,

letters, correspondence, and other mail matters intended for the banks various departments and
offices at Equitable Bank Building, 262 Juan Luna St., Binondo, Manila. This building, however,
also houses various other offices or tenants not related to the Bank.
(3) I am not the constituted agent of Curato Divina Mabilog Niedo Magturo Pagaduan Law Office
whose former address is at Rm. 405 4/F Equitable Bank Bldg., 262 Juan Luna St., Binondo,
Manila, for purposes of receiving their incoming mail matters; neither am I any such agent of the
various other tenants of the said Building. On occasions when I receive mail matters for said law
office, it is only to help them receive their letters promptly.
(4) On April 24, 2000, I received the registered letter sent by the Court of Appeals, covered by
Registry Receipt No. 125234 and Delivery No. 4880 (copy of envelope attached as Annex A)
together with other mail matters, and brought them to the Mail and Courier Department;
(5) After sorting out these mail matters, on April 25, 2000, I erroneously recorded them on page
422 of my logbook as having been received by me on said dated April 25, 2000 (copy of page 422
is attached as Annex B).
(6) On April 27, 2000, this letter was sent by the Mail and Courier Department to said Law Office
whose receiving clerk Darwin Bawar opened the letter and stamped on the Notice of Judgment
their actual date of receipt: April 27, 2000 (copy of the said Notice with the date so stamped is
attached as Annex C).
(7) On May 8, 2000, Atty. Roland A. Niedo of said law office inquired from me as to my actual
date of receipt of this letter, and I informed him that based on my logbook, I received it on April 25,
2000.
(8) I discovered this error only on September 6, 2000, when I was informed by Atty. Niedo that
Postmaster VI Alfredo C. Mabanag, Jr. of the Central Post Office, Manila, issued a certification that
I received the said mail on April 24, 2000.
(9) I hereby confirm that this error was caused by an honest mistake.
Petitioner argues that receipt on April 25, 2000 by Joel Rosales, who was not an agent of its counsels law
office, did not constitute notice to its counsel, as required by Sections 2 [10] and 10,[11] Rule 13 of the Rules of
Court. To support this contention, petitioner cites Philippine Long Distance Telephone Co. vs. NLRC.[12] In said
case, the bailiff served the decision of the National Labor Relations Commission at the ground floor of the
building of the petitioner therein, the Philippine Long Distance Telephone Co., rather than on the office of its
counsel, whose address, as indicated in the notice of the decision, was on the ninth floor of the building. We
held that:

x x x practical considerations and the realities of the situation dictate that the service made by the
bailiff on March 23, 1981 at the ground floor of the petitioners building and not at the address of

record of petitioners counsel on record at the 9 floor of the PLDT building cannot be considered a
valid service. It was only when the Legal Services Division actually received a copy of the decision
on March 26, 1981 that a proper and valid service may be deemed to have been made. x x x.
th

Applying the foregoing provisions and jurisprudence, petitioner submits that actual receipt by its counsel
was on April 27, 2000, not April 25, 2000. Following the argument to its logical conclusion, the motion for
extension to file the petition for review was even filed two (2) days before the lapse of the 15-day reglementary
period. That counsel treated April 25, 2000 and not April 27, 2000 as the date of receipt was purportedly
intended to obviate respondents possible argument that the 15-day period had to be counted from April 25,
2000.
The Court is not wholly convinced by petitioners argument. The Affidavit of Joel Rosales states that he is
not the constituted agent of Curato Divina Mabilog Nedo Magturo Pagaduan Law Office. An agency may be
express but it may also be implied from the acts of the principal, from his silence, or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
[13]
Likewise, acceptance by the agent may also be express, although it may also be implied from his acts which
carry out the agency, or from his silence or inaction according to the circumstances.[14] In this case, Joel Rosales
averred that [o]n occasions when I receive mail matters for said law office, it is only to help them receive their
letters promptly, implying that counsel had allowed the practice of Rosales receiving mail in behalf of the
former. There is no showing that counsel had objected to this practice or took steps to put a stop to it. The facts
are, therefore, inadequate for the Court to make a ruling in petitioners favor.
Assuming the motion for extension was indeed one day late, petitioner urges the Court, in any event, to
suspend its rules and admit the petition in the interest of justice. Petitioner invokesPhilippine National Bank vs.
Court of Appeals,[15] where the petition was filed three (3) days late. The Court held:

It has been said time and again that the perfection of an appeal within the period fixed by the rules
is mandatory and jurisdictional. But, it is always in the power of this Court to suspend its own
rules, or to except a particular case from its operation, whenever the purposes of justice require
it. Strong compelling reasons such as serving the ends of justice and preventing a grave miscarriage
thereof warrant the suspension of the rules.
The Court proceeded to enumerate cases where the rules on reglementary periods were
suspended. Republic vs. Court of Appeals [16] involved a delay of six days; Siguenza vs. Court of Appeals,
[17]
thirteen days; Pacific Asia Overseas Shipping Corporation vs. NLRC,[18] one day; Cortes vs. Court of Appeals,
[19]
seven days; Olacao vs. NLRC,[20] two days; Legasto vs. Court of Appeals,[21] two days; and City Fair
Corporation vs. NLRC,[22] which also concerned a tardy appeal.
The Court finds these arguments to be persuasive, especially in light of the merits of the petition.
WHEREFORE, the petition is GIVEN DUE COURSE and GRANTED. The decision of the Court of
Appeals is REVERSED.
SO ORDERED.

epublic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-40242 December 15, 1982
DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE CORDERO, together with his wife, NICETAS ALTERA, RAMON CONDE, together with his
wife, CATALINA T. CONDE, respondents.

MELENCIO-HERRERA, J.:

(CA-G.R. No. 48133- R) affirming the judgment of the Court of

First Instance of Leyte, Branch IX, Tacloban City (Civil Case No. B-110), which dismissed petitioner's Complaint for
Quieting of Title and ordered her to vacate the property in dispute and deliver its possession to private respondents
Ramon Conde and Catalina Conde.
An appeal by certiorari from the Decision of respondent Court of Appeals

The established facts, as found by the Court of Appeals, show that on 7 April 1938. Margarita Conde, Bernardo Conde and the petitioner Dominga Conde, as heirs
of Santiago Conde, sold with right of repurchase, within ten (10) years from said date, a parcel of agricultural land located in Maghubas Burauen Leyte, (Lot 840),
with an approximate area of one (1) hectare, to Casimira Pasagui, married to Pio Altera (hereinafter referred to as the Alteras), for P165.00. The "Pacto de Retro
Sale" further provided:
... (4) if at the end of 10 years the said land is not repurchased, a new agreement shall be made between the parties and in no case title and
ownership shall be vested in the hand of the party of the SECOND PART (the Alteras).
xxx xxx xxx (Exhibit "B")
On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the Alteras "subject to the right of redemption by Dominga Conde, within ten (10) years
counting from April 7, 1983, after returning the amount of P165.00 and the amounts paid by the spouses in concept of land tax ... " (Exhibit "1"). Original Certificate
of Title No. N-534 in the name of the spouses Pio Altera and Casimira Pasagui, subject to said right of repurchase, was transcribed in the "Registration Book" of
the Registry of Deeds of Leyte on 14 November 1956 (Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras, signed a document in the Visayan dialect, the English translation of which
reads:
MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH REPURCHASE WHICH DOCUMENT GOT LOST
WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents of Burauen Leyte, Philippines, after having been duly sworn
to in accordance with law free from threats and intimidation, do hereby depose and say:
1. That I, PIO ALTERA bought with the right of repurchase two parcels of land from DOMINGA CONDE, BERNARDO
CONDE AND MARGARITA CONDE, all brother and sisters.
2. That these two parcels of land were all inherited by the three.
3. That the document of SALE WITH THE RIGHT OF REPURCHASE got lost in spite of the diligent efforts to locate the
same which was lost during the war.
4. That these two parcels of land which was the subject matter of a Deed of Sale with the Right of Repurchase consists
only of one document which was lost.
5. Because it is about time to repurchase the land, I have allowed the representative of Dominga Conde, Bernardo
Conde and Margarita Conde in the name of EUSEBIO AMARILLE to repurchase the same.
6. Now, this very day November 28, 1945, 1 or We have received together with Paciente Cordero who is my son-in-law
the amount of ONE HUNDRED SIXTY-FIVE PESOS (P165. 00) Philippine Currency of legal tender which was the
consideration in that sale with the right of repurchase with respect to the two parcels of land.

That we further covenant together with Paciente Cordero who is my son-in-law that from this day the said Dominga Conde, Bernardo Conde
and Margarita Conde will again take possession of the aforementioned parcel of land because they repurchased the same from me. If and
when their possession over the said parcel of land be disturbed by other persons, I and Paciente Cordero who is my son-in-law will defend in
behalf of the herein brother and sisters mentioned above, because the same was already repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or signature to our respective names below this document or
memorandum this 28th day of November 1945 at Burauen Leyte, Philippines, in the presence of two witnesses.
PIO ALTERA (Sgd.) PACIENTE CORDERO
WITNESSES:
1. (SGD.) TEODORO C. AGUILLON
To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor Casimira Pasagui, was a signatory to the deed. Petitioner maintains that because Pio
Altera was very ill at the time, Paciente Cordero executed the deed of resale for and on behalf of his father-in-law. Petitioner further states that she redeemed the
property with her own money as her co-heirs were bereft of funds for the purpose.
The pacto de retro document was eventually found.
On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and Catalina T. Conde, who are also private respondents herein. Their relationship
to petitioner does not appear from the records. Nor has the document of sale been exhibited.
Contending that she had validly repurchased the lot in question in 1945, petitioner filed, on 16 January 1969, in the Court of First Instance of Leyte, Branch IX,
Tacloban City, a Complaint (Civil Case No. B-110), against Paciente Cordero and his wife Nicetas Altera, Ramon Conde and his wife Catalina T. Conde, and
Casimira Pasagui Pio Altera having died in 1966), for quieting of title to real property and declaration of ownership.
Petitioner's evidence is that Paciente Cordero signed the Memorandum of Repurchase in representation of his father-in-law Pio Altera, who was seriously sick on
that occasion, and of his mother-in-law who was in Manila at the time, and that Cordero received the repurchase price of P65.00.
Private respondents, for their part, adduced evidence that Paciente Cordero signed the document of repurchase merely to show that he had no objection to the
repurchase; and that he did not receive the amount of P165.00 from petitioner inasmuch as he had no authority from his parents-in-law who were the vendees-aretro.
After trial, the lower Court rendered its Decision dismissing the Complaint and the counterclaim and ordering petitioner "to vacate the property in dispute and
deliver its peaceful possession to the defendants Ramon Conde and Catalina T. Conde".
On appeal, the Court of Appeals upheld the findings of the Court a quo that petitioner had failed to validly exercise her right of repurchase in view of the fact that
the Memorandum of Repurchase was signed by Paciente Cordero and not by Pio Altera, the vendee-a-retro, and that there is nothing in said document to show
that Cordero was specifically authorized to act for and on behalf of the vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case is before us on review.
There is no question that neither of the vendees-a-retro signed the "Memorandum of Repurchase", and that there was no formal authorization from the vendees
for Paciente Cordero to act for and on their behalf.
Of significance, however, is the fact that from the execution of the repurchase document in 1945, possession, which heretofore had been with the Alteras, has
been in the hands of petitioner as stipulated therein. Land taxes have also been paid for by petitioner yearly from 1947 to 1969 inclusive (Exhibits "D" to "D-15";
and "E"). If, as opined by both the Court a quo and the Appellate Court, petitioner had done nothing to formalize her repurchase, by the same token, neither have
the vendees-a-retro done anything to clear their title of the encumbrance therein regarding petitioner's right to repurchase. No new agreement was entered into by
the parties as stipulated in the deed of pacto de retro, if the vendors a retro failed to exercise their right of redemption after ten years. If, as alleged, petitioner
exerted no effort to procure the signature of Pio Altera after he had recovered from his illness, neither did the Alteras repudiate the deed that their son-in-law had
signed. Thus, an implied agency must be held to have been created from their silence or lack of action, or their failure to repudiate the agency. 2
Possession of the lot in dispute having been adversely and uninterruptedly with petitioner from 1945 when the document of repurchase was executed, to 1969,

That petitioner merely took advantage of

the abandonment of the land by the Alteras due to the separation of said spouses, and that petitioner's possession was in
the concept of a tenant, remain bare assertions without proof.
when she instituted this action, or for 24 years, the Alteras must be deemed to have incurred in laches.

Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the disputed property in 1965, assuming that there was, indeed, such a sale,
cannot be said to be purchasers in good faith. OCT No. 534 in the name of the Alteras specifically contained the condition that it was subject to the right of
repurchase within 10 years from 1938. Although the ten-year period had lapsed in 1965 and there was no annotation of any repurchase by petitioner, neither had
the title been cleared of that encumbrance. The purchasers were put on notice that some other person could have a right to or interest in the property. It behooved

Ramon Conde and Catalina Conde to have looked into the right of redemption inscribed on the title, and particularly the matter of possession, which, as also
admitted by them at the pre-trial, had been with petitioner since 1945.
Private respondent must be held bound by the clear terms of the Memorandum of Repurchase that he had signed wherein he acknowledged the receipt of
P165.00 and assumed the obligation to maintain the repurchasers in peaceful possession should they be "disturbed by other persons". It was executed in the
Visayan dialect which he understood. He cannot now be allowed to dispute the same. "... If the contract is plain and unequivocal in its terms he is ordinarily bound
thereby. It is the duty of every contracting party to learn and know its contents before he signs and delivers it." 4
There is nothing in the document of repurchase to show that Paciente Cordero had signed the same merely to indicate that he had no objection to petitioner's right
of repurchase. Besides, he would have had no personality to object. To uphold his oral testimony on that point, would be a departure from the parol evidence
rule 5

and would defeat the purpose for which the doctrine is intended.
... The purpose of the rule is to give stability to written agreements, and to remove the temptation and possibility of perjury, which would be
afforded if parol evidence was admissible. 6

In sum, although the contending parties were legally wanting in their respective actuations, the repurchase by petitioner is supported by the admissions at the pretrial that petitioner has been in possession since the year 1945, the date of the deed of repurchase, and has been paying land taxes thereon since then. The
imperatives of substantial justice, and the equitable principle of laches brought about by private respondents' inaction and neglect for 24 years, loom in petitioner's
favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and petitioner is hereby declared the owner of the disputed
property. If the original of OCT No. N-534 of the Province of Leyte is still extant at the office of the Register of Deeds, then said official is hereby ordered to cancel
the same and, in lieu thereof, issue a new Transfer Certificate of Title in the name of petitioner, Dominga Conde.
No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30831 & L-31176 November 21, 1979
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE HONORABLE COURT OF APPEALS (Third Division) and DELFIN PEREZ, substituted by his heirs, respondents; JOAQUIN DE CASTRO and
GRACIANA PASIA, petitioners, vs. THE HONORABLE COURT OF APPEALS (Third Division) and DELFIN PEREZ, substituted by his heirs, respondents.
C.E. Medina & Associates for Phil. National Bank.
Jose W. Diokno and Sergio L. Guadiz for other petitioners.
Ilagan & Bolcan for private respondent.

MELENCIO-HERRERA, J.:
These two Petitions seek a review on certiorari of the same Decision of the Court of Appeals promulgated on June 6, 1969 in CA-G.R. No. 32934-R, entitled
"Delfin Perez vs. Philippine National Bank, et al.," which reversed the Decision-dated March 20, 1963 of the Court of First Instance of Davao, Branch II, in Civil
Case No. 3064, with the same title.
There is no dispute as to the following facts:
The spouses Leandro Solomon and Leocadia Bustamante (Solomon spouses, for short) were the registered owners of Lot No. 230 of the cadastral survey of
Davao, with an area of 126,497 square meters, situated in the Municipality (now city) of Davao, and registered under Original Certificate of Title No. 152 of the
Registry of Deeds of Davao. 1
In 1932, the Solomon spouses mortgaged the land in favor of the Banco Nacional Filipino, now the Philippine National Bank (briefly referred to as the Bank), to
secure a loan of five hundred pesos (P500.00) For failure to pay the loan on maturity, the mortgage was foreclosed, the property was sold at public auction, and a

It was not until "June 27, 1958, 4 P.M.", however, that the
Certificate of Sale was registered, OCT No. 152 cancelled, and in its stead, TCT No. 8042 issued in the name of the Bank.
Certificate of Sale was executed in favor of the Bank on December 28, 1934.

The next day, after the execution of the Certificate of Sale, or on December 29, 1934, the Solomon spouses and the Bank, represented by Amado F. Cortes,
Manager of the Davao Branch entered into a contract denominated as "Promesa de Venta" whereby the Bank, as the owner of the property, bound itself to sell to
the Solomon spouses for the consideration of P802.26, all its rights, title and interest to said property, the said amount to be payable in eight equal annual
amortizations commencing on December 29, 1935; and that upon full payment of the amortizations, the Bank would execute a final deed of sale in favor of the
Solomon spouses. Possession of the property was likewise turned over to said spouses upon the execution of the contract. Further, it was stipulated that if the
Solomon spouses should fail to pay any of the amortizations or to comply with any provision, the contract shall be automatically rescinded and cancelled and all
payments made by the spouses shall be considered as rentals for the use and occupation of the property, and the Bank shall be free to take possession of the
land and sell it to a third person. 3
Payments were regularly made by the Solomon spouses under said contract except for the seventh and eighth amortizations due on December 29, 1941 and on
December 29, 1942, respectively, thus leaving an outstanding balance of P217.23.
War broke out on December 8, 194 1. Leandro Solomon died on January 8, 1943 and Leocadia Bustamante died on March 20, 1943. Delfin Perez as sole heir of
the deceased spouses (he being the son of Leocadia Bustamante by her first husband Jose Perez, and the stepson of Leandro Solomon), succeeded into the
possession of the land in question. 4
On March 12, 1948, or approximately seven (7) years after default, Delfin Perez offered to pay the last two amortizations plus accrued interest, with the request
that a Deed of Sale be executed in his favor, which offer was rejected by the Bank Manager, Amado Lagdameo on the ground that the "Promesa de Venta" was
executed by the Bank in favor of the Solomon spouses. Upon suggestion of the Bank Manager, Delfin Perez filed an action in Court for a declaration of heirship.
On September 25, 1956, the Court of First Instance of Davao, in Special Case No. l441, declared him as the sole and only heir of the Solomon spouses. 5
On May 9, 1957, Delfin Perez notified the Bank of the Court Order declaring him as such heir and manifested his desire to pay off the remaining obligation of his
deceased parents. On June 13, 1957, upon request of Delfin Perez, the Bank Manager, B. Maceda, issued a statement of account on the loan of the deceased
spouses showing that the total amount due the Bank as of June 15, 1957 was P535.45, and informed Delfin Perez that "as soon as (he) could cause full payment

Delfin Perez offered to pay the balance but the Bank 'manager asked
him to increase the price. On June 26, 1958, Delfin Perez wrote the Bank asking that he be allowed to buy the land in
question for P600.00. This was followed by another letter, dated July 22, 1958, wherein Perez reiterated his offer, this time
for P3,000.00, accompanied by a tender of payment, of P300.00. Perez at the same time requested that the Bank permit
him to pay the said sum of P3,000.00 in ten (10) years, in ten (10) equal installments with interest at 8% per annum.
of the above account, (they) shall cause the release of the mortgage.

On August 8, 1958, the Bank, through its Manager, B. Maceda, wrote Perez a letter informing him of the comment of the head office on his "offer to purchase" the
former property of the deceased spouses to the effect that although the amount offered covers fully the total claim of the Bank, yet it is too low compared to the
market value of the property; and of the suggestion of the head office that Perez should be prevailed upon to improve his offer and reduce the term of payment
from ten (10) to five (5) years only. The Manager also asked Perez to give his opinion on the matter. 9
On August 15, 1958, Perez wrote the Bank that he was raising his "offer to buy" from P3,000.00 to P5,000.00 payable in five (5) years or in five (5) equal yearly
installments with 8% interest per annum. The offer of P5,000.00 was later increased to P7,000.00 and finally to P8,000.00. However, all these offers were turned
down by the Bank. 10
On October 6, 1958, Perez had his adverse claim inscribed on the Bank's Certificate of Title.

11

On May 18, 1959, the Bank advised Perez that a third party was offering to buy the property for P13,500.00 and asked him if he would equal the offer. Delfin Perez
failed to equal the offer. On July 1, 1959, the Bank sold the property of the spouses, Joaquin de Castro and Graciana Pasia, and on July 2, 1959, 'Transfer
Certificate of Title No. T-8583 was issued in the name of the De Castro spouses. 12
Upon learning that the Bank had sold the property, Perez filed, on July 7, 1959, a Complaint for Specific Performance and Damages against the Bank, which was
amended on July 21,1959, Lo include the De Castro spouses as defendants (Civil Case No. 3064, CFI, Davao, Branch 11, "Delfin Perez vs. Philippine National

The Complaint, as amended, prayed that the Bank be ordered to accept from Perez payment of the
outstanding balance in the amount of P535.45 in accordance with the document "Promesa de Venta" which allegedly is, in
effect, a perfected contract of sale; that the Register of Deeds of Davao be ordered to cancel Transfer Certificate of Title
No. 8042, and, in lieu thereof, to issue another in the name of Perez; and that defendants be ordered to pay Perez, jointly
and severally, the amount of P1,000.00 as actual damages and P2,000.00 as attorney's fees.
Bank, et al.,). 13

14

On July 9, 1959, the Bank wrote Perez informing him of the disapproval of his ofter to purchase the property and returning to him, by way of a manager's check,
the amount of P800.00 which represented the "earnest money " for said offer to buy. 15
The Bank filed an Answer on July 16, 1959, and an Amended Answer on August 1, 1959, both with counterclaims. The Bank alleged principally that the "Promesa
de Venta" had been automatically rescinded and cancelled upon the failure of the Solomon spouses to pay the last two installments; that it had afforded Perez all
the opportunity to reacquire the property but he tailed to do so; that as registered owner of the property, it had the perfect right to sell the same; that it sold the land
to the De Castro spouses after negotiations with Perez for his repurchase of the property failed.

The spouses alleged that they were

purchasers in good faith, for valuable consideration, since Perez's adverse claim was not even inscribed at the back of the
duplicate copy of TCT No. T-8042, which was in the possession of the Bank at the time the property was sold. By way of
counterclaim, they prayed that Perez be ordered to vacate the land; to account for the produce since July 1, 1959, and to
pay reasonable rentals for the use and occupation of the land at P400.00 per month. On their cross- claim, they prayed
that the Bank be ordered to refund the sum of P13,500.00 plus expenses and attorney's fees in the event that the Bank is
declared without title to the property in question.
On August 4, the De Castro spouses present their Answer with counterclaim and a cross-claim against the Bank. 16

After due hearing, the Court of First Instance of Davao rendered a Decision, dated March 20, 1963, dismissing Perez's Complaint and resolving the counterclaim
of the De Castro spouses by ordering Perez to vacate the land in litigation and to deliver possession thereof to the De Castro spouses. 17
Perez appealed to the Court of Appeals (CA-G.R. No. 32934-R), which in a Decision * promulgated on June 6, 1969, reversed the trial Court's Decision; declared
null and void the sale of the property in question by the Bank in favor of the De Castro spouses stating that they were not buyers in good faith since their title,
issued only on July 7, 1959, carried the annotation of adverse claim; ordered the Bank to return to the De Castro spouses the price the latter paid for the land,
without any interest, "the latter being in possession of the property;" and allowed Perez to redeem or purchase the said property, upon payment of the last two
installments due thereon, with interest at the rate stipulated in the "Promesa de Venta. 18

The De Castro spouses also

moved for reconsideration but their Motion was likewise denied by the Court of Appeals in its Resolution of September 18,
1969.
The Bank moved for reconsideration but this was denied by the Court of Appeals in its Resolution of July 22, 1969.

19

20

Hence, these Petitions for Review on certiorari separately filed by the Bank and the De Castro spouses against the Court of Appeals and Delfin Perez.

that pursuant to their agreement with the Bank's counsel, they were adopting the
same grounds relied upon by the Bank in its Petition in L-30831 due to. the unity and inseparability of their causes and
defenses. The Do Castro spouses reiterated in their Brief (p. 2) that they were adopting the Brief filed by the Bank,
although they added two additional assignments of error (infra).
The De Castro spouses manifested in their Petition

21

On February 3, 1977, this Court received a Manifestation from Perez's counsel that Perez had died. On March 16, 1979, the Heirs of Perez also manifested that

That Motion petition is hereby granted and Perez's heirs hereby

deemed substituted for him namely, Leona Vda. de Perez, Lourdes P. Copas Milagros P. Barrera Trinidad P. Alberto, Soto,
Mercedes, Carlito, Ricardo and Lailrente all surnamed Perez (pp. 144, Rollo of L-30831).
he died on July 1, 1976 and prayed that they be substituted in his stead.

22

The errors assigned by both sets of petitioners read:

I
RESPONDENT COURT ERRED IN APPLYING ARTICLE 1191 OF THE NEW CIVIL CODE TO THE CASE AT BAR
II
RESPONDENT COURT ERRED IN NOT FINDING OR DECLARING THAT THE 'PROMESA DE VENTA' WAS AUTOMATICALLY
RESCINDED BY THE FAILURE OF THE VENDEES THEREIN TO COMPLY WITH THE TERMS AND %- CONDITIONS THEREOF.
III
RESPONDENT COURT ERRED IN NOT UPHOLDING PARAGRAPH 8 OF THE PROMESA DE VENTA'.
IV
RESPONDENT COURT ERRED IN HOLDING PETITIONER IN ESTOPPEL.
V
RESPONDENT COURT ERRED IN HOLDING THAT THE BASIC ISSUE IN THE PRESENT CASE IS WHETHER DELFIN PEREZ MAY
STILL REDEEM THE PROPERTY SUBJECT OF THE PROMESA DE VENTA.
VI

RESPONDENT COURT ERRED IN APPLYING THE RULE REQUIRING REGISTRATION OF CERTIFICATE OF SALE TO START
RUNNING OF REDEMPTION PERIOD.
VII
RESPONDENT COURT ERRED IN ALLOWING RESPONDENT DELFIN PEREZ THE RIGHT OF REDEMPTION OR OF PURCHASE.
VIII
RESPONDENT COURT ERRED IN DECLARING NULL AND VOID THE SALE OF THE PROPERTY IN QUESTION BY PETITIONER IN
FAVOR OF SPOUSES DE CASTRO AND PASIA.
IX
RESPONDENT COURT ERRED IN ORDERING THE RETURN OF THE PRICE PAID BY THE SPOUSES DE CASTRO AND PASIA FOR
THE LAND IN QUESTION.
X
RESPONDENT COURT ERRED IN REVERSING THE DECISION OF THE TRIAL COURT. 23
The two additional Assignments of Error made by the De Castro spouses read:
FIRST ADDITIONAL ASSIGNMENT OF ERROR
"RESPONDENT COURT ERRED IN FINDING THAT SPOUSES DE CASTRO AND PASIA HAD BEEN IN POSSESSION OF THE PROPERTY.
SECOND ADDITIONAL ASSIGNMENT OF ERROR
"ASSUMING, WITHOUT ADMITTING THAT THE SALE OF THE PROPERTY IN QUESTION BY THE PHILIPPINE NATIONAL BANK IN FAVOR OF THE
SPOUSES DE CASTRO AND PASIA WAS NULL AND VOID AND, THEREFORE, THE PRICE PAID FOR THE PROPERTY SHOULD BE RETURNED
RESPONDENT COURT ERRED IN ORDERING THE RETURN OF THE PRICE WITHOUT ANY INTEREST. 24
On equitable principles, particularly on the ground of estoppel, we must rule against petitioner Bank. "The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to
whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed

bee without its aid injustice might result'. It has n applied by this Court wherever
and whenever special circumstances of a case so demand.
to aid the law in the administration of justice where,

25

26

Applied to the case at bar, these special circumstances may be stated thus: Firstly the clear intendment of the Bank was to allow the Solomon spouses to
reacquire ownership of the property. Thus, the day after the Certificate of Sale was issued in favor of the Bank, the latter executed the "Promesa de Venta" in favor
of the Solomon spouses giving the latter eight years within which to reacquire their land. During those eight years, the spouses were allowed to remain in
continued possession of the subject property. Secondly, notwithstanding the sale in its favor in 1934, the Bank did not register the same until June 27, 1958, or 24
years later. And from the death of his last surviving parent in 1943, the Bank never disturbed Perez's possession of the property. 'Thirdly, when on March 12, 1948,
Perez offered to pay the last two amortizations on the land, plus accrued interest, with the request that a Deed of Sale be executed in his favor, his offer was
rejected by the Bank Manager, Amado Lagdameo, not on the ground that the "Promesa de Venta " had been automatically rescinded and the right to redeem was
lost, as now alleged by petitioners, but on the ground that the "Promesa de Venta" was executed by the Bank in favor of the Solomon spouses. It was, in fact,
suggested by the Bank Manager that Perez file an action in Court for declaration of heirship, which the latter did, and on September 25, 1956, the Court of First
Instance of Davao in Special Case No. 441, declared him as the sole and only heir of the Solomon spouses. Perez notified the Bank on May 9, 1957 of that Court
Order and again manifested his desire to pay off the remaining obligation of his deceased parents. upon Perez' request, the Bank Manager, this time, B. Maceda,
issued a statement of account on the loan showing that the total amount due as of June 15, 1957 was P535.45, and informed Perez that "as soon as (he) could
cause full payment of the above account, (they) shall cause the release of the mortgage." Perez relied on this commitment, offered to pay the outstanding balance
but the Bank Manager asked him to increase the "price" offered. Perez made subsequent tenders until his offer reached the amount of P8,000.00 but the Bank still
refused to allow him to redeem the same. In other words, during all the ten years of negotiation the Bank led Perez to believe that he would be allowed to redeem
the property, only to renege on that commitment when it sold the property for P13,500.00 to the De Castro spouses.
Perez justifiably and reasonably relied upon the assurance of the Bank's Manager that he would be allowed to pay the remaining obligation of his deceased
parents and he acted on that basis. Even fair dealing alone would have requited the Bank to abide by its representations, but Id did not. Clearly, the equities of the
case are with Perez.
The Bank's argument that it is not bound by the acts of its Branch Manager in Davao, is not well taken for well settled is the rule that if a private corporation
intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent
authority is real as to innocent third persons dealing in good faith with such officers or agents. 27

The Bank's reliance and insistence on the automatic rescission clause contained in the "Promesa de Venta" should not be controlling. In the first place, by snowing
the Solomon spouses and after them, their son Perez, to be in continued possession of the property and by not registering the sale until years later, the Bank itself
was not adhering strictly to its terms. Secondly, our rulings upholding the validity of automatic rescission clauses contained in contracts to sell industrial and
commercial real estate on installments upon failure to pay the stipulated installments, and allowing the retention or forfeiture as rentals of the installments
previously paid, should not be made applicable to the present case because the "Promesa de Venta" was not essentially a contract to sell real estate on

Thirdly, the
record shows that the Solomon spouses religiously paid their annual installments and it was only due to the outbreak of
the war and their untimely deaths in 1941 and 1943, respectively, that they failed to make payments of the last two
amortizations which became due in December, 1941 and December, 1942. The non-fulfillment of the obligation was not of
their own making, and they can be exempted from responsibility therefor under Article 1174 of the Civil Code. War, or its
effects, or other factors which could not have been foreseen or avoided by a party to a contract, such as uncertain
condition of peace and order then prevailing which the Court may take judicial notice of are deemed sufficient causes that
could justify the non-fulfillment of a contract and exempt the party from responsibility. Fourthly, breach may be
considered slight. The original loan secured by the subject property was P500.00; the redemption price agreed upon in the
"Promesa de Venta" was P802.26; while the outstanding balance in December, 1941 was P217.23 only. The obligation
may be said to have been substantially performed. The original loan was almost paid up by the Solomon spouses and
could have been paid but for the war and their supervening deaths during the Japanese occupation.
installments but was more of a contract for the redemption of the mortgaged property of the Solomon spouses foreclosed by petitioner Bank.

28

29

30

Worthy of note also is the fact that the Bank registered the sheriff's Certificate of Sale of the foreclosed property, which was issued on December 28, 1934, only on
"June 27, 1958, 4 P.M." OCT No. 152 in the name of the Solomon spouse was also cancelled only on said date and TCT No. 8042 issued in the name of the Bank.
"The redemption period, for purposes of determining the time when a final deed of sale may be executed or issued and the ownership of file registered land
consolidated in the purchaser at an extrajudicial foreclosure sale under Act 3135, should be reckoned from the date of registration of the certificate of sale in the

Consequently, the right of redemption could still be

validly exercised within one year from June 27, 1958, the date of registration. From the facts before us, Perez offered to
redeem the property as early as March 12, 1948.
office of the register of deeds concerned and not from the date of the public auction sale."

31

One last point. From December 28, 1934, the date when the Bank acquired the subject property in an extra-judicial foreclosure sale, up to July 1, 1959, the date
when it sold the same to the De Castro spouses, petitioner Bank held the property for more than twenty- four (24) years, in violation of Section 39 of Act No. 2612,
the law of its creation, which provides:
SEC. 39. The National Bank is hereby authorized to purchase and own such real estate as may be necessary for the purpose of carrying on
its business. It is also authorized to hold such real estate as it may find necessary to acquire in the collection of debts due to the said bank or
to its branches; but real estate acquired in the collection of debts shall be sold by the said bank within three years after the date of its
acquisition.
and the provision of the subsequent PNB Charter, RA 1300, which took effect on June 16, 1955 (as amended), whereby the period of disposal of real estate
acquired in the collection of debts is within 5 years after the date of its acquisition.
The subsequent sale of the property to the De Castro spouses cannot prevail over the adverse claim of Perez, which was inscribed on the Bank's Certificate of
Title on October 6, 1958. That should have put said spouses on notice and they can claim no better legal right over and above that of Perez. The Transfer
Certificate of Title issued in the spouses' names on July 7, 1959 (Exhs. V, V-1-a) also carried the said annotation of adverse claim. Consequently, they are not
entitled to any interest on the price they paid for the property.
WHEREFORE, we hereby affirm the judgment of the Court of Appeals with the following modifications:
a) The Philippine National Bank is ordered to accept from Delfin Perez, or the heirs who have herein been substituted for him the sum of
P535.45, the total amount due the Bank as of June 15, 1957, and, after receipt thereof, to execute the corresponding Deed of Sale in favor of
Perez;
b) The Register of Deeds of Davao is ordered to cancel Transfer Certificate of Title Nos. 8042 and T-8583 in the name of the Philippine
National Bank and the De Castro spouses, respectively, and to issue a new one in the name of Delfin Perez; his heirs, who have been
substituted for him, may pursue the necessary legal steps for the transfer of the property in their names.
c) The Philippine National Bank is further ordered to return to the De Castro spouses the price of P13,500.00, which they paid for the
property.
With costs against petitioners.
SO ORDERED.

2. As to form (Arts. 1873, 1874)

[G.R. No. 122544. 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 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.
DECISION
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 Intermediate Appellate Court [3] (now Court of Appeals) rendered a
decision[4] stating that:

"x x x, 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 of 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 thereafter 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. 46487 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 plaintiff-appellant,
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 partial reconsideration (Civil Case No. Q-45541) by respondent Court of
Appeals,[10] petitioners 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. Petitioners 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. 3829155 (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[13] for 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 plaintiffappellant (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 nonpayment 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 per 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 arguendothat 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 lessees 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 respondents 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 coowners 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
agents 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.
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.
SO ORDERED.

[G.R. No. 118375. October 3, 2003]

CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA

QUEAO, respondents.
DECISION
TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of
the Sixteenth Division of the respondent Court of Appeals promulgated on 21 December
1994 , which affirmed in toto the decision handed down by the Regional Trial Court (RTC)
of Pasay City.
[1]

[2]

The case arose when on 11 August 1981, private respondent Aurora Queao (Queao)
filed a complaint before the Pasay City RTC for cancellation of a Real Estate
Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC
rendered a decision, declaring the questioned Real Estate Mortgage void, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld the RTC decision,
Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao
Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate
Resources Financing Corporation. She also issued her own Filmanbank Check No.
065314, to the order of Queao, also dated 11 August 1980 and for the amount of Ninety
Five Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute the
loan granted by Naguiat to Queao.
[3]

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August
1980 in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles
covering the mortgaged properties. On the same day, the mortgage deed was notarized,
and Queao issued to Naguiat a promissory note for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00), with interest at 12% per annum, payable on 11
September 1980. Queao also issued a Security Bank and Trust Company check,
postdated 11 September 1980, for the amount of TWO HUNDRED THOUSAND PESOS
(P200,000.00) and payable to the order of Naguiat.
[4]

[5]

Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On the following day, 12 September 1980, Queao requested
Security Bank to stop payment of her postdated check, but the bank rejected the request
pursuant to its policy not to honor such requests if the check is drawn against insufficient
funds.
[6]

On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding

settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt)
met with Naguiat. At the meeting, Queao told Naguiat that she did not receive the
proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who
purportedly was Naguiats agent.
[7]

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of
Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three days
before the scheduled sale, Queao filed the case before the Pasay City RTC, seeking the
annulment of the mortgage deed. The trial court eventually stopped the auction sale.
[8]

[9]

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners duplicates of
her titles to the mortgaged lots. Naguiat appealed the decision before the Court of
Appeals, making no less than eleven assignments of error. The Court of Appeals
promulgated the decision now assailed before us that affirmed in toto the RTC
decision. Hence, the present petition.
[10]

Naguiat questions the findings of facts made by the Court of Appeals, especially on the
issue of whether Queao had actually received the loan proceeds which were supposed to
be covered by the two checks Naguiat had issued or indorsed. Naguiat claims that being a
notarial instrument or public document, the mortgage deed enjoys the presumption that
the recitals therein are true. Naguiat also questions the admissibility of various
representations and pronouncements of Ruebenfeldt, invoking the rule on the non-binding
effect of the admissions of third persons.
[11]

The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an appeal
bycertiorari. Under Rule 45 which governs appeal by certiorari, only questions of law may
be raised as the Supreme Court is not a trier of facts. The resolution of factual issues is
the function of lower courts, whose findings on these matters are received with respect
and are in fact generally binding on the Supreme Court. A question of law which the
Court may pass upon must not involve an examination of the probative value of the
evidence presented by the litigants. There is a question of law in a given case when the
doubt or difference arises as to what the law is on a certain state of facts; there is a
question of fact when the doubt or difference arises as to the truth or the falsehood of
alleged facts.
[12]

[13]

[14]

[15]

[16]

Surely, there are established exceptions to the rule on the conclusiveness of the
findings of facts of the lower courts. But Naguiats case does not fall under any of the
exceptions. In any event, both the decisions of the appellate and trial courts are supported
by the evidence on record and the applicable laws.
[17]

Against the common finding of the courts below, Naguiat vigorously insists that Queao
received the loan proceeds. Capitalizing on the status of the mortgage deed as a public
document, she cites the rule that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is correct in ruling that the
presumption of truthfulness of the recitals in a public document was defeated by the clear
and convincing evidence in this case that pointed to the absence of consideration. This
Court has held that the presumption of truthfulness engendered by notarized documents is
rebuttable, yielding as it does to clear and convincing evidence to the contrary, as in this
case.
[18]

[19]

On the other hand, absolutely no evidence was submitted by Naguiat that the checks
she issued or endorsed were actually encashed or deposited. The mere issuance of the
checks did not result in the perfection of the contract of loan. For the Civil Code provides
that the delivery of bills of exchange and mercantile documents such as checks shall
produce the effect of payment only when they have been cashed. It is only after the
checks have produced the effect of payment that the contract of loan may be deemed
perfected. Art. 1934 of the Civil Code provides:
[20]

An accepted promise to deliver something by way of commodatum or simple

loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected only upon
the delivery of the object of the contract. In this case, the objects of the contract are the
[21]

loan proceeds which Queao would enjoy only upon the encashment of the checks signed
or indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would
have certainly presented the corresponding documentary evidence, such as the returned
checks and the pertinent bank records. Since Naguiat presented no such proof, it follows
that the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by
Ruebenfeldt on the ground that they could not bind her following the res inter alia acta
alteri nocere non debet rule. The Court of Appeals rejected the argument, holding that
since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls
under a recognized exception to the rule. Still, Naguiat insists that Ruebenfeldt was not
her agent.
[22]

Suffice to say, however, the existence of an agency relationship between Naguiat and
Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of
Appeals, Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed
Ruebenfeldt to withhold from Queao the checks she issued or indorsed to Queao, pending
delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on
the loan application of Queaos friend, Marilou Farralese, and it was in connection with that
transaction that Queao came to know Naguiat. It was also Ruebenfeldt who
accompanied Queao in her meeting with Naguiat and on that occasion, on her own and
without Queao asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00
payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan
agreement.
[23]

[24]

The Court of Appeals recognized the existence of an agency by estoppel citing Article
1873 of the Civil Code. Apparently, it considered that at the very least, as a consequence
of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos
impression. In that situation, the rule is clear. One who clothes another with apparent
authority as his agent, and holds him out to the public as such, cannot be permitted to
deny the authority of such person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the honest belief that he is what he
appears to be. The Court of Appeals is correct in invoking the said rule on agency by
estoppel.
[25]

[26]

[27]

More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to
Queao were never encashed or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the courts a quo that the
lender did not remit and the borrower did not receive the proceeds of the loan. That being
the case, it follows that the mortgage which is supposed to secure the loan is null and
void. The consideration of the mortgage contract is the same as that of the principal
contract from which it receives life, and without which it cannot exist as an independent
contract. A mortgage contract being a mere accessory contract, its validity would depend
on the validity of the loan secured by it.
[28]

[29]

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs
against petitioner.
SO ORDERED.
[G.R. No. 111448. January 16, 2002]

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,

vs. DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and
MIDAS DEVELOPMENT CORPORATION, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and
the Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in CAG.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a
registered owner of a parcel of commercial lot consisting of 2,094 square meters, located
at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is
covered by Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the
Province of Rizal.
[1]

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of
Dieselman, issued a letter denominated as "Authority To Sell Real Estate" to Cristeta N.
Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized
Polintan "to look for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per
square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority
from Dieselman to sell the lot.
[2]

In turn, Cristeta Polintan, through a letter dated May 19, 1988, authorized Felicisima
("Mimi") Noble to sell the same lot.
[3]

[4]

Felicisima Noble then offered for sale the property to AF Realty & Development, Inc.
(AF Realty) at P2,500.00 per square meter. Zenaida Ranullo, board member and vicepresident of AF Realty, accepted the offer and issued a check in the amount of
P300,000.00 payable to the order of Dieselman. Polintan received the check and signed
an "Acknowledgement Receipt" indicating that the amount of P300,000.00 represents the
partial payment of the property but refundable within two weeks should AF Realty
disapprove Ranullo's action on the matter.
[5]

[6]

On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo
asked Polintan for the board resolution of Dieselman authorizing the sale of the
property.However, Polintan could only give Ranullo the original copy of TCT No. 39849,
the tax declaration and tax receipt for the lot, and a photocopy of the Articles of
Incorporation of Dieselman.
[7]

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt

of the said P300,000.00 as "earnest money" but required AF Realty to finalize the sale
at P4,000.00 per square meter. AF Realty replied that it has paid an initial down payment
of P300,000.00 and is willing to pay the balance.
[8]

[9]

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from
AF Realty the return of the title of the lot earlier delivered by Polintan.
[10]

Claiming that there was a perfected contract of sale between them, AF Realty filed
with the Regional Trial Court, Branch 160, Pasig City a complaint for specific performance
(Civil Case No. 56278) against Dieselman and Cruz, Jr.. The complaint prays that
Dieselman be ordered to execute and deliver a final deed of sale in favor of AF Realty. In
its amended complaint, AF Realty asked for payment of P1,500,000.00 as compensatory
damages; P400,000.00 as attorneys fees; and P500,000.00 as exemplary damages.
[11]

[12]

In its answer, Dieselman alleged that there was no meeting of the minds between the
parties in the sale of the property and that it did not authorize any person to enter into
such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas)
executed a Deed of Absolute Sale of the same property. The agreed price was
P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down
payment and deposited the balance of P5,300,000.00 in escrow account with the
PCIBank.
[13]

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion
for Leave to Intervene in Civil Case No. 56278. Midas alleged that it has purchased the

property and took possession thereof, hence Dieselman cannot be compelled to sell and
convey it to AF Realty. The trial court granted Midas' motion.
After trial, the lower court rendered the challenged Decision holding that the acts of
Cruz, Jr. bound Dieselman in the sale of the lot to AF Realty. Consequently, the perfected
contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial court
also held that Midas acted in bad faith when it initially paid Dieselman P500,000.00 even
without seeing the latter's title to the property. Moreover, the notarial report of the sale was
not submitted to the Clerk of Court of the Quezon City RTC and the balance of
P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not established.
[14]

The dispositive portion of the trial courts Decision reads:

WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute
and deliver to plaintiffs the final deed of sale of the property covered by the Transfer Certificate of
Title No. 39849 of the Registry of Deed of Rizal, Metro Manila District II, including the
improvements thereon, and ordering defendants to pay plaintiffs attorneys fees in the amount of
P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise dismissed
"SO ORDERED.

[15]

Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral,
compensatory and exemplary damages, and in dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding
that a contract of sale between Dieselman and AF Realty was perfected. Midas further
averred that there was no bad faith on its part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment
of the trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to
sell the subject property to AF Realty, the sale was not perfected; and that the Deed of
Absolute Sale between Dieselman and Midas is valid, there being no bad faith on the part
of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr. jointly and
severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as
exemplary damages; and P100,000.00 as attorney's fees.
[16]

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the
parties, promulgated an Amending Decision, the dispositive portion of which reads:
WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense
that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages
and attorneys fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said
P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs.
"SO ORDERED.

[17]

AF Realty now comes to this Court via the instant petition alleging that the Court of
Appeals committed errors of law.
The focal issue for consideration by this Court is who between petitioner AF Realty
and respondent Midas has a right over the subject lot.
The Court of Appeals, in reversing the judgment of the trial court, made the following
ratiocination:
From the foregoing scenario, the fact that the board of directors of Dieselman never authorized,
verbally and in writing, Cruz, Jr. to sell the property in question or to look for buyers and negotiate
the sale of the subject property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the
sale of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any
authority which he himself did not have. Nemo dat quod non habet. In the same manner, Felicisima
Noble could not have possessed authority broader in scope, being a mere extension of Polintans
purported authority, for it is a legal truism in our jurisdiction that a spring cannot rise higher than its
source. Succinctly stated, the alleged sale of the subject property was effected through persons who
were absolutely without any authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial
payment of the purchase price of the subject property is equally untenable. The sale of land through
an agent without any written authority is void.
xxxxxxxxx
"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the
records bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of lis
pendens was subsequently annotated on the title of the property by plaintiffs on 15 August
1988. However, this subsequent annotation of the notice of lis pendens certainly operated
prospectively and did not retroact to make the previous sale of the property to Midas a conveyance

in bad faith. A subsequently registered notice of lis pendens surely is not proof of bad faith. It must
therefore be borne in mind that the 30 July 1988 deed of sale between Midas and Dieselman is a
document duly certified by notary public under his hand and seal. x x x. Such a deed of sale being
public document acknowledged before a notary public is admissible as to the date and fact of its
execution without further proof of its due execution and delivery (Bael vs. Intermediate Appellate
Court, 169 SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to prove the defects and lack of
consent in the execution thereof, the evidence must be strong and not merely preponderant x x x.
[18]

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents appointed
by it. Thus, contracts or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating
to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the corporation.
[19]

[20]

[21]

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority
from the board of directors of respondent Dieselman to sell or to negotiate the sale of the
lot, much less to appoint other persons for the same purpose. Respondent Cruz, Jr.s lack
of such authority precludes him from conferring any authority to Polintan involving the
subject realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the
collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the
purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be
ratified where, as here, there is acceptance of the benefits involved. In this case the
receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of
the lot effectively binds respondent Dieselman.
[22]

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency
under the Civil Code takes precedence. This is well stressed in Yao Ka Sin Trading vs.
Court of Appeals:
[23]

Since a corporation, such as the private respondent, can act only through its officers and agents, all
acts within the powers of said corporation may be performed by agents of its selection; and,

except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the relation of agency for a
natural person govern the officer or agent of a corporation, of whatever status or rank, in
respect to his power to act for the corporation; and agents when once appointed, or members
acting in their stead, are subject to the same rules, liabilities, and incapacities as are agents of
individuals and private persons. (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
ART. 1874. When a sale of 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. (Emphasis
supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were
not authorized by respondent Dieselman to sell its lot, the supposed contract is void.Being
a void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the
Civil Code, thus:
ART. 1409. The following contracts are inexistent and void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived. (Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to respondent Midas is
unquestionable. As aptly noted by the Court of Appeals, the sale was authorized by a
board resolution of respondent Dieselman dated May 27, 1988.
[24]

The Court of Appeals awarded attorney's fees and moral and exemplary damages in
favor of petitioner AF Realty and against respondent Cruz, Jr.. The award was made by
reason of a breach of contract imputable to respondent Cruz, Jr. for having acted in bad
faith. We are no persuaded. It bears stressing that petitioner Zenaida Ranullo, board
member and vice-president of petitioner AF Realty who accepted the offer to sell the
property, admitted in her testimony that a board resolution from respondent Dieselman
authorizing the sale is necessary to bind the latter in the transaction; and that respondent
Cruz, Jr. has no such written authority. In fact, despite demand, such written authority was
not presented to her. This notwithstanding, petitioner Ranullo tendered a partial payment
for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for
damages and attorney's fees.
[25]

[26]

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED with MODIFICATION in the sense that the award of damages and
attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF
Realty its partial payment of P300,000.00. Costs against petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-39822 January 31, 1978
ANTONIO E. PRATS, doing business under the name of Philippine Real Estate Exchange, petitioner,
vs.
HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE NATIONAL BANK, respondents.

FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R. No. 45974-R entitled"Antonio E. Prats, doing business under the name of
Philippine Real Estate Exchange, vs. Alfonso Doronila and the Philippine National Bank", the dispositive part of which reads:
In view of all the foregoing, it is our considered opinion and so hold that the decision of the lower court be, as it is hereby reversed, and the
complaint, dismissed. On appellant's counterclaim, judgment is hereby rendered directing appellee to pay attorney's fees in the sum of
P10,000 to appellant, no moral damages as therein claimed being awarded for lack of evidence to justify the same. The injunction issued by
the lower court on the P2,000,000.00 cash deposit of the appellant is hereby lifted. No special pronouncement as to costs.
SO ORDERED. 1
On September 23, 1968 Antonio E. Prats, doing business under the name of "Philippine Real Estate Exchange" instituted against Alfonso Doronila and Philippine
National Bank Civil Case No. Q-12412 in the Court of First Instance of Rizal at Quezon City to recover a sum of money and damages.
The complaint stated that defendant Alfonso Doronila was the registered owner of 300 hectares of land situated in Montalban, Rizal, covered by Transfer
Certificates of Title Nos. 77011, 77013, 216747 and 216750; that defendant Doronila had for sometime tried to sell his aforesaid 300 hectares of land and for that
purpose had designated several agents; that at one time, he had offered the same property to the Social Security System but failed to consummate any sale; that
his offer to sell to the Social Security System having failed, defendant Doronila on February 14, 1968 gave the plaintiff an exclusive option and authority in writing
to negotiate the sale of his aforementioned property, which exclusive option and authority the plaintiff caused to be published in the Manila Times on February 22,
1968; that it was the agreement between plaintiff and defendant Doronila that the basic price shall be P3.00 per square meter, that plaintiff shall be entitled to a
commission of 10% based on P2.10 per square meter or at any price finally agreed upon and if the property be sold over and above P3.00 per square meter, the
excess shall be created and paid to the plaintiff in addition to his 10% commission based on P2.10 per square meter; that as a result of the grant of the exclusive
option and authority to negotiate the sale of his 300 hectares of land situated in Montalban, Rizal in favor of the plaintiff, the defendant Doronila, on February 20,
1968, wrote a letter to the Social Security System withdrawing his previous offer to sell the same land and requesting the return to him of all papers concerning his
offered property that the Social Security System, complying with said request of defendant Doronila, returned all the papers thereon and defendant Doronila, in
turn gave them to the plaintiff as his duly authorized real estate broker; that by virtue of the exclusive written option and authority granted him and relying upon the
announced policy of the President of the Philippines to promote low housing program the plaintiff immediately worked to negotiate the sale of defendant Doronila's
300 hectares of land to the Social Security System, making the necessary contacts and representations to bring the parties together, namely, the owner and the
buyer, and bring about the ultimate sale of the land by defendant Doronila to the Social Security System; that on February 27, 1968, after plaintiff had already
contacted the Social Security System, its Deputy Administrator, Reynaldo J. Gregorio, wrote a letter to defendant Doronila inviting the latter to a conference
regarding the property in question with Administrator Teodoro, Chairman Gaviola and said Reynaldo J. Gregorio on March 4, 1968 at 10:00 o'clock in the morning,
stating that the SSS would like to take up the offer of the lot; that having granted plaintiff the exclusive written option and authority to negotiate the sale of his 300
hectares of land, defendant Doronila in a letter dated February 28, 1968 declined the invitation extended by the Social Security System to meet with its
Administrator and Chairman and requested them instead "to deal directly" with the plaintiff, that on March 16, 1968, at the suggestion of defendant Doronila, the
plaintiff wrote a letter to the Social Security System to the effect that plaintiff would be glad to sit with the officials of the Social Security System to discuss the sale
of the property of the defendant Doronila; that on March 18, 1968, the Social Security System sent a telegram to defendant Doronila to submit certain documents
regarding the property offered; that on May 6, 1968, a written offer to sell the 300 hectares of land belonging to defendant Doronila was formally made by the
plaintiff to the Social Security System and accordingly, on May 7, 1968, the Social Security System Administrator dispatched the following telegram to defendant
Doronila: "SSS considering purchase your property for its housing project Administrator Teodoro"; that a few days thereafter, the plaintiff accompanied the
defendant Doronila to the China Banking Corporation to arrange the matter of clearing payment by chock and delivery of the titles over the property to the Society
Security System; that having been brought together by the plaintiff, the defendant Doronila and the offices of the Society Security System, on May 29, 1968 and on

June 4, 1968, met at the office of the SSS Administrator wherein the price for the purchase of the defendant Doronila's 300 hectares of land was, among others,
taken up; that on June 20, 1968, the Social Security Commission passed Resolution No. 636 making a counter-offer of P3.25 per square meter subject to an
appraise report; that on June 27, 1968, Resolution No. 662 was adopted by the Social Security Commission authorizing the Toples & Harding (Far East) Inc. to
conduct an appraisal of the property and to submit a report thereon; that pursuant thereto, the said company submitted its appraisal report specifying that the
present value of the property is P3.34 per square meter and that a housing program development would represent the highest and best use thereof, that on July
18, 1968, the Social Security Commission, at its regular meeting, taking note of the favorable appraisal report of the Toples'& Harding (Far East) Inc., passed
Resolution No. 738, approving the purchase of defendant Doronila's 300 hectares of land in Montalban, Rizal at a price of P3.25 per square meter or for a total
purchase price of Nine Million Seven Hundred Fifty Thousand Pesos (P9,750,000.00), appropriating the said amount for the purpose and authorizing the SSS
Administrator to sign the necessary documents to implement the said resolution; that on July 30, 1968, defendant Doronila and the Social Security System
executed the corresponding deed of absolute sale over the 300 hectares of land in Montalban, Rizal covered by Transfer Certificate of Title Nos. 77011, 77013,
216747 and 216750 under the terms of which the total price of P9,750,000.00 shall be payable as follows: (a) 60% of the agreed purchase price, or Five Million
Eight Hundred Fifty Thousand Pesos (P5,860,000.00) immediately after signing the deed of sale. and (b) the balance of 40% of the agreed price, or Three Million
Nine Hundred Thousand Pesos (P3,900,000.00) thirty days after the signing of the deed of absolute sale; that on August 21, 1968, after payment of the purchase
price, the deed absolute sale executed by defendant Doronila in favor of the Social Security System was presented for registration in the Office of the Register of
Deeds of Rizal, and Transfer Certificates of Title Nos. 926574, 226575, 226576 and 226577 in the name of the Social Security System were issued; that defendant
Doronila has received the full purchase price for his 300 hectares of land in the total amount of P9,750,000.00, which amount he deposited in his bank Account No.
0012-443 with the defendant Philippine National Bank; that on September 17, 1968, the plaintiff presented his statement to, and demanded of defendant Doronila
the payment of his processional fee as real estate broker as computed under the agreement of February 14, 1968 in the total amount of P1,380,000.00; that
notwithstanding such demand, the defendant Doronila, in gross and evident bad faith after having availed of the services of plaintiff as real estate broker, refused
to pay the professional fees due him; that as a result of defendant Doronila's gross and evident bad faith and unjustified refusal to pay plaintiff the professional fees
due him under the agreement, the latter has suffered and continues to suffer mental anguish, serious anxiety, and social humiliation for which defendant Doronila
shall be held liable to pay moral damages; and, that by reason likewise of the aforesaid act of defendant Doronila, the plaintiff has been compelled to file this
action and to engage the services of counsel at a stipulated professional fee of P250,000.00.
In his answer filed on November 18, 1968, the defendant Doronila alleged that when the plaintiff offered the answering defendant's property to the Social Security
System on May 6, 1968, said defendant had already offered his property to, and had a closed transaction or contract of sale of, said property with the Social
Security System; that the letter agreement had become null and void because defendant Doronila had not received any written offer from any prospective buyers
of the plaintiff during the agreed period of 60 days until the last day of the authorization which was April 13, 1968 counting from February 14, 1968; that it is not
true that plaintiff brought together defendant Doronila and the officials of the Social Security System to take up the purchase price of defendant Doronila's property
for the simple reason that the plaintiff's offer was P6.00 per square meter and later on reduced to P4.50 per square meter because the SSS Chairman had already
a closed transaction with the defendant Doronila at the price of P3.25 per square meter and that the offer of the plaintiff was refused by the officials of the Social
Security System; and that defendant Doronila did not answer the statement of collection of the plaintiff because the latter had not right to demand the payment for
services not rendered according to the agreement of the parties. The answering defendant interposed a counterclaim for damages and attorney's fees.
On January 18, 1969, the plaintiff and defendant Alfonso Doronila submitted the following stipulation of facts:
STIPULATION OF FACTS
COME NOW the plaintiff and defendant DORONILA, through their respective undersigned counsel, and to this Honorable Court by way of
abbreviating the proceeding i the case at bar, without prejudice to presentation of explanatory evidence, respectfully submit the following
STIPULATION OF FACTS.
1.
The defendant Doronila was the registered owner of 300 hectares of land, situated in Montalban, Rizal, covered by Transfer Certificates of
Title Nos. 77011, 77013, 216747 (formerly TCT No. 116631) and 216750 (formerly TCT No. 77012).
2.
That on July 3, 1967, defendant DORONILA under his letter (marked Annex "1" of the answer) addressed to the SSS Chairman, offered his
said property to the Social Security System (SSS) at P4.00 per square meter.
That on July 17, 1967 (Annex "2" of the Answer) the SSS Chairman, Mr. Ramon C. Gaviola, Jr., replied to defendant DORONILA, as follows:
This will acknowledge your letter of July 3rd, 1967 relative to your offer for sale of your real estate property.
In this regard, may I please be informed as to how many hectares, out of the total 300 hectares offered, are located in
Quezon City and how many hectares are located in Montalban, Rizal. Likewise, as regards your offer of P4.00 per
square meter, would there be any possibility that the same be reduced to P3.25 per square meter Finally and before I
submit your proposal for process it is requested that the NAWASA certify to the effect that they have no objection to
having this parcel of land subdivided for residential house purposes.
Thank you for your offer and may I hear from you at the earliest possible time.
2-a

That on July 19, 1967, defendant DORONILA wrote a letter (a xerox copy, attached hereto marked as Annex "2-a" for DORONILA) to
NAWASA, and that in reply thereto, on July 25, 1967, the NAWASA wrote the following letter (Xerox copy attached hereto to be marked as
Annex "2-b" for DORONILA) to defendant DORONILA.
In connection with your proposed subdivision plan of your properties adjacent to our Novaliches Watershed, this Office
would like to impose the following conditions:
1. Since your property is an immediate boundary of our Novaliches Watershed, a 20-meter road should be constructed
along our common boundary.
2. That no waste or drainage water from the subdivision should flow towards the watershed.
3. That the liquid from the septic tanks or similar waste water should be treated before it is drained to the Alat River
above our Alat Dam.
The above conditions are all safeguards to the drinking water of the people of Manila and Suburbs. It is therefore
expected that we all cooperate to make our drinking water safer from any pollution.
3.
That on July 19, 1967, defendant DORONILA wrote another letter (marked as Annex '3' on his Answer) addressed to the SSS Chairman, Mr.
Ramon Gaviola Jr., stating, among others, the following:
In this connection, I have your counter-offer of P3.25 per square meter against my offer of P4.00 per square meter,
although your counter-offer is lower comparing to the prices of adjacent properties, I have to consider the difference as
my privilege and opportunity to contribute or support the Presidential policy to promote low cost housing in this country
particularly to the SSS members by accepting gladly your counter-offer of P3.25 per square meter with the condition
that it should be paid in cash and such payment shall be made within a period of 30 days from the above stated date
(2nd paragraph of letter dated July 18, 1967, Annex "3" of the Answer).
3.a
That on August 10, 1967, the SSS Chairman, Mr. Ramon Gaviola Jr., wrote the following (Xerox copy attached hereto and marked as Annex
'2-c' for DORONILA: addressed to defendant DORONILA:
With reference to your letter, dated July 1967, please be informed that the same is now with the Administrator for study
and comment. The Commission will act on receipt of information re such studies.
With the assurance that you will be periodically informed of developments, we remain.
3-b
That on October 30, 1967, Mr. Pastor B. Sajorda, 'By authority of Atty. Alfonso Doronila, property owner', wrote the following request (Xerox
copy attached hereto and marked as Annex '2-d' for DORONILA) addressed to Realtor Vicente L. Narciso for a certification regarding the
actual prices of DORONILA's property, quoted as follows:
May I have the honor to request for your certification as a member of the Board of Realtor regarding the actual prices of
my real estate raw-land properties described as Lots 3-B-7, 26B, 6 and 4-C-3 all adjacent to each other, containing a
total area of 3,000,000 square meters, all registered in the name of Alfonso Doronila, covered by T.C.T. Nos. 116631,
77013, 77011, and 77012, located at Montalban, Rizal, all adjacent to the Northern portion of the NAWASA properties
in Quezon City including those other surrounding adjacent properties and even those properties located before
reaching my own properties coming from Manila.
This request is purposely made for my references in case I decided to sell my said properties mentioned above.
3-c
That on November 3, 1967, Realtor Vicente Narciso wrote the following reply (Xerox copy attached hereto and marked as Annex 2 for
DORONILA) to Mr. Pastor B. Sajorda:
As per your request dated October 30, 1967, regarding prices of raw land, it is my finding that the fair market value of
raw land in the vicinity of the NAWASA properties at Quezon City and Montalban, Rizal. including the properties of Atty.
Alfonso Doronila. more particularly known as lots 3-B-7, 26-B, and 4-C-3 containing approximately 3,000,000 square
meters is P3.00 to P3.50 per square meter.

Current prices before reaching Doronila's property range from P6.00 to P7.00 per square meter.
4.
That on February 14, 1968, defendant DORONILA granted plaintiff an exclusive option and authority (Annex 'A' of the complaint), under the
following terms and conditions:
1. The price of the property is THREE (P3.00) PESOS per square meter.
2. A commission of TEN (10%) PERCENT will be paid to us based on P2.10 per square meter, or at any price that you
DORONILA finally agree upon, and all expenses shall be for our account, including preparation of the corresponding
deed of conveyance, documentary stamps and registration fee, whether the sale is causes directly or indirectly by us
within the time of this option. If the property is sold over and above P3.00 per square meter, the excess amount shall be
credited and paid to the herein workers. In addition to the 10% commission based on P2.10 per square meter, provided
the brokers shall pay the corresponding taxes to the owner of the excess amount over P3.00 per square meter, unless
paid by check which would then be deductible as additional expenses.
3. This exclusive option and authority is good for a period of sixty (60) days from the date of your conformity; provided,
however, that should negotiations have been started with a buyer, said period is automatically extended until said
negotiations is terminated, but not more than fifteen (15) days;
4. The written offers must be made by the prospective buyers, unless they prefer to have us take the offer for and in
their behalf some buyers do not want to be known in the early stages of the negotiations:
5. If no written offer is made to you until the last day of this authorization, this option and authority shall expire and
become null and void;
6. It is clearly understood that prospective buyers and all parties interested in this property shall be referred to us, and
that you will not even quote a price directly to any agent or buyer. You agree to refer all agents or brokers to us
DURING the time this option is in force; and
7. There are some squatters occupying small portions of the property, which fact will be reported to the prospective
buyers, and said squatters will be removed at our expense. (Annex "A" of the complaint)
Very truly yours,
PHILIPPINE REAL ESTATE EXCHANCE
(Sgd) ANTONIO E. PRATS
General manager
CONFORME:
(Sgt.) ALFONSO DORONILA
Date: February 14, 1968
5.
That on February 19, 1968, plaintiff wrote the following letter to defendant DORONILA (Annex "4" of the Answer), quoted as follows:
February 19, 1968
Don Alfonso Doronila
Plaza Ferguzon
Ermita, Manila
Dear Don Alfonso:

In view of the exclusive option extended to us for the sale of your property consisting 300 hectares located at Montalban, Rizal, we earnestly
request that you take immediate steps to withdraw any and all papers pertaining to this property offered to the SOCIAL SECURITY SYSTEM
Very truly yours,
PHILIPPINE REAL
ESTATE EXCHANGE
(Sgd) ANTONIO E. PRATS
General Manager
AEP/acc
RECEIVED ORIGINAL
By: (Sgd.) ROGELIO DAPITAN
6.
That on February 20, 1968, pursuant to the letter dated February 19, 1968 of plaintiff, defendant DORONILA wrote a letter (Annex 'B' of the
complaint) to the SSS Administrator stating:
In as much as the SSS has not acted on my offer to sell a 300 hectare lot located in Montalban, Rizal, for the last five
(5) months I respectfully requested for the return of all my papers concerning this offered property.
7.
That on February 27, 1968, defendant DORONILA received the following letter (Annex "C" of the complaint) from the SSS Deputy
Administrator, Mr. Reynaldo J. Gregorio, to wit:
May I take this opportunity of inviting you in behalf of Administrator Teodoro, to meet with him, Chairman Gaviola and myself on Friday,
March 4, 10:00 A.M. lot offer.
Thanks and regards.
8.
That on February 28, 1968, defendant DORONILA wrote the following letter (Annex "D" of the complaint) to the SSS Deputy Administrator:
Thank you for your invitation to meet Administrator Teodoro, Chairman Gaviola and your goodself, to take up my former
offer to sell my property to the Social Security System.
Since the SSS had not acted on my offer dated July 19, 1967, more than seven (7) months ago, I have asked for the
return of my papers, as per my letter of February 20, 1968, and which you have kindly returned to me.
As of February 20, 1968, I gave the Philippine Real Estate Exchange an exclusive option and authority to negotiate the
sale of this 300 hectare land, and I am no longer at liberty to negotiate its sale personally; I shall therefore request you
communicate directly with the Philippine Real Estate Exchange, P. O. Box 84, Quezon City, and deal with them directly
if you are still interested in my property.
With my kind personal regards, I am
9.
That on March 16, 1968, plaintiff, acting upon the letter of defendant DORONILA dated February 28, 1968 (Annex 'D' for plaintiff), wrote the
following letter to SSS Administrator:
Don Alfonso Doronila, owner of the 300 hectare land located at Montalban, Rizal, adjoining the Quezon City boundary,
has informed us that the Administrator of the SOCIAL SECURITY' SYSTEM, through Mr. Reynaldo J. Gregorio, has

invited him to meet with the Administrator and Chairman Gaviola to take up the former offer to sell his property to the
SSS.
In his letter to the Administrator dated February 20, 1968 (which has been received by the SSS on the same day), Mr.
Doronila advised you that as of February 20,1968, he gave the PHILIPPINE REAL ESTATE EXCHANGE (PHILREX)
the exclusive option and authority to negotiate the sale of his 300 hectare land in Montalban, and that he is no longer at
liberty to negotiate its sale personally, and that, if you are still interested in the property, the SSS should communicate
directly with the PHILIPPINE REAL ESTATE EXCHANGE.
It is by virtue of this arrangement that Mr. Doronila now refers to us invitation and his reply to the SSS and has
requested us to get in touch with you.
While, at present we have several prospective buyers interested in this property, we shall, in compliance with the
request of Mr. Doronila, be happy to sit down with you and Chairman Ramon Gaviola, Jr.
Please let us know when it will be convenient to hold the conference.
10.
That on April 18, 1968, defendant DORONILA extended the plaintiff exclusive option and authority to expire May 18, 1968.(annex 'B'
Reply letter of Doronila to SSS Deputy Administrator dated May 8, 1968).
11.
That on May 6,1968, plaintiff made a formal written offer to the Social Security System to sell the 300 hectares land of defendant DORONILA
at the price of P6.00 per square meter, Xerox copy of which bearing the stamp or receipt of Social Security System is attached hereof as
Annex "D" plaintiff.
12.
That on May 16, 1968 the defendant DORONILA received the following telegram (Annex 'E' of the complaint) form the SSS Administrative,
reading:
SSS CONSIDERING PURCHASE YOUR PROPERTY FOR ITS HOUSING PROJECT
13.
That on May 18, 1968, after plaintiff exclusive option and authority had been extended, plaintiff wrote the following letter (Annex "A" Reply'
of plaintiff's REPLY TO ANSWER) to defendant DORONILA, to wit:
CONFIDENTIAL
In our conference last Monday, May 13, 1968, you have been definitely advised by responsible parties that the SOCIAL
SECURITY SYSTEM is acquiring your 300-hectare land at Montalban, Rizal, adjoining the Quezon City Boundary
and that said property will be acquired in accordance with the exclusive option and authority you gave the PHILIPPINE
REAL ESTATE EXCHANCE. You were assured in that conference that the property will be acquired definitely, but, as it
has been mentioned during the conference, it may take from 30 to 60 days to have all the papers prepared and to
effect the corresponding payment. The telegram from the SSS confirming these negotiations has already been
received by you, a copy of which you yourself have kindly furnished us.
Pursuant to paragraph 3 of the terms of the option that you have kindly extended, we still have fifteen days more from today, May 18, 1968,
within which to finish the negotiations for the sale of your property to the SSS. For your convenience, we quote the pertinent portion of
paragraph 3 of the option:
... provided, however, that should negotiation have been started with a buyer, said period is automatically extended
until said negotiation is terminated, but no more than fifteen (15) days.
Please be assured that we will do our very best to complete these negotiations for the sale of your property within this
fifteen-day period. In the meantime' we hope you will also observe the provisions of paragraph 6 of the exclusive option
you have extended to us.
14.

That on May 18, 1968, plaintiff wrote the following letter (Xerox copy attached and marked hereof as Annex 'H' for plaintiff) addressed
defendant DORONILA, to wit:
By virtue of the exclusive option and authority you have granted the PHILIPPINE REAL ESTATE EXCHANGE to
negotiate the sale of your 300-hectare land located at Montalban, Rizal, adjoining the Quezon City boundary, which
properties are covered by Transfer Certificate of Titles Nos. 116631, 77011, 77012 and 77013, of the Registry of Deeds
for the Province of Rizal, we hereby make a firm offer, for and in behalf of our buyer, to purchase said property at the
price of FOUR PESOS AND FIFTY CENTAVOS (P4.50) per square meter, or the total amount of THIRTEEN MILLION
FIVE HUNDRED THOUSAND (P13,500,000.00) PESOS, Philippine Currency, payable in Cash and D.B.P. Progress
Bonds, on a ratio to be decided between you and our principal.
To expedite the negotiations, we suggest that we sit down sometime early next week with our principal to take up the
final arrangement and other details in connection with the purchase of the subject property.
To give you further assurance of the validity of this offer, we refer you to the CHINA BANKING CORPORATION (Trust
Department) who has already been apprised of these negotiations, to which ]sank we strongly recommend that this
transaction be coursed through, for your own security and protection.
15.
That on May 30, 1968, plaintiff wrote the following letter (Xerox copy attached hereto, and marked as Annex 'I' for plaintiff) to defendant
DORONILA, quoted as follows:
This is to advise you that the SOCIAL SECURITY SYSTEM agreed to purchase your 300-hectare land located at
Montalban, Rizal, which purchase can be conformed by the Chairman of the SOCIAL SECURITY COMMISSION. The
details will have to be taken up between you and the Chairman, and we suggest that you communicate with the
Chairman at your earliest convenience.
This negotiation was made by virtue of the exclusive option and authority you have granted the PHILIPPINE REAL
ESTATE EXCHANGE, which option is in full force and effect, and covers the transaction referred above.
16.
That on June 6,1968, defendant DORONILA wrote the following letter (Annex" 7" for DORONILA), to the plaintiff, to wit:
I have to inform you officially, that I have not received any written offer from the SSS or others, to purchase my
Montalban property of which you were given an option and exclusive authority as appearing in your letter- contract
dated February 14, 1968, during the 60 days of your exclusive authority which expired on April 14, 1968, nor during the
extension which was properly a new exclusive authority of 30 days from April 18, which expired on May 18, 1968, nor
during the provided 15 days grace, in case that you have closed any transaction to terminate it during that period,
which also expired on June 3, 1968.
As stated in said letter, we have the following condition:
5. If no written offer is made to you until the last day of this authorization, this option and authority shall expire and
becomes null and void.
As I have informed you, that on April 16, 1968 or two days after your option expired I have signed an agreement to sell
my property to a group of buyers to whom I asked later that the effectivity of said agreement will be after your new
authority has expired will be on June 2, 1968, and they have accepted; As your option has expired, and they know that
there was no written offer made by the SSS for any price of my property, aside of their previous letter announcing me
that they are ready to pay, I was notified on June 4, 1968 by their representative, calling my attention but our
agreement; that is why I am writing you, that having expired your option and exclusive authority to offer for sale my said
property, I notified only this afternoon said to comply our agreement.
Hoping for your consideration on the matter, as we have to be guided by contracts that we have to comply, I hereby
express to you my sincere sentiments.
17.
That on June 19, 1968, defendant DORONILA wrote the following letter (Annex "5" of the Answer) to the SSS Administrator, renewing his
offer to sell his 300 hectare land to the SSS at P4.00 per square meter, to wit:

This is to renew my offer to sell my properties located at Montalban, Rizal Identified as Lot Nos. 3-B-7, 26-8, 6, and 4C-3 registered in my name in the office of the Registry of Deeds of Rizal under T.C.T. Nos. 116631, 77013, 77011 and
216750, containing a total area of 300 hectares or 3,000,000 square meters.
You will recall that last year, I offered to the Social Security System the same properties at the price of Four (P4.00)
pesos per square meter. After 3 ocular inspection of Chairman Gaviola one of said inspections accompanied by
Commissioner Arroyo and after receiving the written apprisal report of Manila realtor Vicente L. Narciso, the System
then made a counter-offer of Three pesos and twenty-five (P3.25) per square meter which I accepted under the
condition that the total amount be paid within a period of thirty (30) days from the date of my acceptance (July 19,
1967). My acceptance was motivated by the fact that within said period of time I had hoped to purchase my sugarcane
hacienda in Iloilo with the proceeds I expected from the sale. No action was however taken by the System thereon.
Recently the same properties were offered by Antonio E. Prats of the Philippine Real Estate Exchange to the
Presidential Assistant on Housing, at the price of six pesos (p6.00) per square meter, who referred it to the System, but
against no action had been taken by the System.
Considering the lapse of time since our original offer during which prices of real estate have increased considerably, on
the one hand and in cooperation with the System's implementation of our government's policy to provide low cost
houses to its members, on the other hand, I am renewing my offer to sell my properties to the system only at the same
price of P4.00 per square meter, or for a total amount of twelve million pesos (P12,000,000.00), provided the total
amount is paid in cash within a period of fifteen (15) days from this date.
18.
That on June 20, 1968, the Social Security Commission passed Resolution No. 636 by which the SSS formalized its counter-offer of P3.25
per square meter. (See Annex 'F' of the complaint)
19.
That on June 25, 1968, the SSS Administrator, Mr. Gilberto Teodoro, wrote the following reply letter (Annex '6' of the Answer) to defendant
DORONILA, to wit:
This has reference to your letter dated June 19, 1966 renewing your offer to sell your property
located at Montalban, Rizal containing an area of 300 hectares at P4.00 per square meter.
Please be informed that the said letter was submitted for the consideration of the Social Security
Commission at its last meeting on June 20, 1968 and pursuant to its Resolution No. 636, current
series, it decided that the System reiterate its counter-offer for P3.25 per square meter subject to
a favorable appraisal report by a reputable appraisal entity as regards particularly to price and
housing project feasibility. Should this counter-offer be acceptable to you, kindly so indicate by
signing hereunder your conformity thereon.
Trusting that the foregoing sufficiently advises you on the matter, I remain
Very truly yours,
GILBERTO TEODORO
Administrator
CONFORME: With condition that the sale will be consummated within Twenty (20) days from this date.
ALFONSO DORONILA
Returned and received the original by
June
25/68
Admtr's
Office
20.

That on June 27, 1968, the Social Security Commission passed Resolution No. 662 authorizing the Toples & Harding (Far East) to conduct
an appraisal of the property of defendant DORONILA and to submit a report thereon. (See Annex 'F' of the complaint)
21.
That on July 17, 1968, the Social Security Commission taking note of the report of Toples & Harding (Far East), passed Resolution No. 736,
approving the purchase of the 300 hectare land of defendant DORONILA, at the price of P3.25 per square meter, for a total purchase price of
NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), and appropriating the said amount of money for the
purpose. (See Annex 'F' of the complaint).
22.
That on July 30, 1968, defendant DORONILA executed the deed of absolute sale (Annex "C" of the complaint) over his 300-hectare land,
situated in Montalban, Rizal, covered by TCT Nos. 77011, 77013, 216747 (formerly TCT No. 116631) and 216750 (formerly TCT No. 77012),
in favor of the Social Security System, for the total purchase price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS
(P9,750,000.00), Philippine currency, which deed of sale was presented for registration in the Office of the Register of Deeds of Fiscal on
August 21, 1968.
23.
That defendant DORONILA had received the full purchase price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS
(P9,750,000.00), Philippine Currency, in two installments.
24.
That on September 17, 1968, plaintiff presented his STATEMENT OF ACCOUNT, dated September 16, 1968 (Xerox copy of which is
attached hereto and marked as Annex plaintiff' to defendant DORONILA for the payment of his professional services as real estate broker in
the amount of P1,380,000.00, as computed on the basis of the letter-agreement, Annex "A" of the complaint, which defendant failed to pay.
Manila, for Quezon City, January 18,1968.
Respectfully submitted:
CRISPIN D. BAIZAS & ASSOCIATES
and A.N. BOLINAO, JR.
By: (Sgd.)
Counsel for the plaintiff
Suite 305, ShurdutBldg.
Intramuros, Manila
(Sgd.) E. V. Obon
Atty. EUGENIO V. OBON
Counsel for the defendant
9 West Point Street
Quezon City
ALFONSO DORONILA
Counsel for the defendant
428 Plaza de Ferguson
Ermita, Manila 2

The trial court rendered its decision dated December 12, 1969, the initiative part of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering defendant Alfonso Doronila, under the first cause of action, to pay
to plaintiff the sum of P1,380,000.00 with interest thereon at the rate of 6% per annum from September 23, 1968 until fully paid; and under
the second Cause of Action, to pay plaintiff the sum of P200,000.00 as moral damages; the sum of P100,000.00 as exemplary damages; the
sum of P150,000.00 as attorney's fees, including the expenses of. litigation and costs of this suit.
The writ of preliminary injunction issued in this case is hereby made permanent; and the defendant Philippine National Bank is hereby
ordered to pay to the plaintiff the amount of P1,380,000.00 and interest on the P1,380,000.00 to be computed separately out of the
P2,000,000.00 which it presently holds under a fixed time deposit.
SO ORDERED.
December 12, 1969, Quezon City, Philippines.
(SGD.) LOURDES P. SAN DIEGO
Judge3
The defendant appealed to the Court of Appeals where the appeal was docketed as CA-G.R. No. 45974-R.
In a decision promulgated on September 19, 1974, the Court of Appeals reversed the derision of the trial court and dismissed the complaint because:
In any event, since it has been found that the authority of appellee expired on June 2, 1968, rather than June 12, 1968 as the lower court
opined, the inquiry would be whether up to that time, a written offer was made by appellee in behalf of the SSS. The stipulation is clear on
this point. There should be a written offer by the prospective buyer or by appellee for or in their behalf, and that if no such written offer is
made until the last day of the authorization, the option and authority shall expire and become null and void. Note that the emphasis is placed
on the need of a written offer to save the authority from an automatic termination on the last day of the authorization. We note such emphasis
with special significance in receive of the condition relative to automatic extension of not more than 15 days if negotiations have been
started. The question then is when are negotiations deemed started In the light of the provisions just cited, it should be when a response is
given by the prospective buyer showing fits interest to buy the property when an offer is made by the seller or broker and make an offer of
the price. Strictly, therefore, prior to May 29, 1968, there were no negotiations yet started within contemplation of the letter-agreement of
brokerage (Exh. A). Nevertheless appellant extended appellee's exclusive authority to on May 18, 1968 (par. 10, Stipulation of Facts; R.A. p.
89), which was automatically extended by 15 days under their agreement, to expire on June 2, 1968, if the period extended up to May 18,
1968 a necessary authority. For, it may even be considered as taking the of the 15-days automatic extension, since appellee's pretension is
that negotiations have been started within the original period of 60 days. Appellant in fixing the expiry date on June 2, 1968, has thus made a
liberal concession in favor of appellee, when he chose not to the extension up to May 18, 1968 as the automatic extension which ougth to
have been no more than 15 days, but which he stretched twice as long. 4
The petitioner assigned the following errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER WAS NOT THE EFFICIENT PROCURING
CAUSE IN BRING ABOUT THE SALE OF PRIVATE RESPONDENT DORONILA'S LAND TO THE SSS.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE WAS FAILURE ON THE PART OF HEREIN
PETITIONER TO COMPLY WITH THE TERMS AND CONDITIONS OF HIS CONTRACT WITH PRIVATE RESPONDENT.
III
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT ENTITLED TO HIS COMMISSION.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN AWARDING ATTORNEY'S FEES TO PRIVATE RESPONDENT DORONILA
INSTEAD OF AFFIRMING THE AWARD OF MORAL AND EXEMPLARY DAMAGES AS WELL As ATTORNEY FEES TO PETITIONER.

The Court in its Resolution of May 23, 1975 originally denied the petition for lack of merit but upon petitioner's motion for reconsideration and supplemental petition
invoking equity, resolved in its Resolution of August 20, 1975 to give due course thereto.

From the stipulation of facts and the evidence of record, it is clear that the offer of defendant Doronila to sell the 300 hectares of land in question to the Social
Security System was formally accepted by the System only on June 20, 1968 after the exclusive authority, Exhibit A, in favor of the plaintiff, petitioner herein, had
expired. The respondent court's factual findings that petitioner was not the efficient procuring cause in bringing about the sale proceeding from the fact of
expiration of his exclusive authority) which are admittedly final for purposes of the present petition, provide no basis law to grant relief to petitioner. The following
pertinent excerpts from respondent court's extensive decision amply demonstrate this:
It is noted, however, that even in his brief, when he said
According to the testimony of the plaintiff-appellee a few days before May 29, 1968, he arranged with Mr. Gilberto
Teodoro, SSS Administrator, a meeting with the defendant Manila. He talked with Mr. Teodoro over the telephone and
fixed the date of the meeting with defendant-appellant Doronila for May 29, 1968, and that he was specifically
requested by Mr. Teodoro not to be present at the meeting, as he, Teodoro, wanted to deal directly with the defendantappellant alone. (Tsn., pp. 4446, March 1, 1969). Finding nothing wrong with such a request, as the sale could be
caused directly or indirectly (Exh. 'A'), and believing that as a broker all that he needed to do to be entitled to his
commission was to bring about a meeting between the buyer and the seller as to ripen into a sale, plaintiff-appellee
readily acceded to the request.
appellee is not categorical that it was through his efforts that the meeting took place on inlay 29, 1968. He refers to a telephone call he made
"a few days before May 29, 1968," but in the conversation he had with Mr. Teodoro, the latter requested him not to be present in the meeting.
From these facts, it is manifest that the SSS officials never wanted to be in any way guided by, or otherwise subject to, the mediation or
intervention of, appellee relative to the negotiation for the purchase of the property. It is thus more reasonable to conclude that if a meeting
was held on May 29, 1968, it was done independently, and not by virtue of, appellee's wish or efforts to hold such meeting. 6

xxx xxx xxx

... It is even doubtful if he tried to make any arrangement for meeting at all, because on May 18, 1968, he told appellant:
... we hereby make a firm offer, for and in behalf of our buyer, to purchase said property at the price of Four Pesos and
Fifty Centavos (P4.50) per square meter ....
As this offer is evidently made in behalf of buyer other than the SSS which had never offered the price of P4.50 per square meter, appellee
could not have at the same time arranged a meeting between the SSS officials and appellant with a view to consummating the sale in favor
of the SSS which had made an offer of only PS.25 per sq. m. and thus lose the much bigger profit he would realize with a higher price of
P4.50 per sq. meter. This 'firm offer' of P4.50 per sq. m. made by appellee betrayed his lack of any efficient intervention in the negotiations
with the SSS for the purchase by it of appellant's property ... 7
xxx xxx xxx
... This becomes more evident when it is considered that on May 6, 1968 he was making his first offer to sell the property at P6.00 per sq. m.
to the SSS to which offer he received no answer. It is this cold indifference of the SSS to him that must have prompted him to look for other
buyers, resulting in his making the firm offer of 714.50 per sq. m. on May 18, 1968, a fact which only goes to show that for being ignored by
the SSS, he gave up all effort to deal with the SSS. ... 8
xxx xxx xxx
... For him to claim that it was he who aroused the interest of the SSS in buying appellant's property is to ignore the fact that as early as
June, (July) 1967, the SSS had directly dealt with appellant to such an extent that the price of P3.25 as offered by the SSS was accepted by
appellant, the latter imposing only the condition that the price should be paid in cash, and within 30 days from the date of the acceptance. It
can truly be said then that the interest of SSS to acquire the property had been sufficiently aroused for there to be any need for appellee to
stimulate it further. Appellee should know this fact for according to him, the 10-day grace period was agreed upon to give the SSS a chance
to pay the price of the land at P3.25 per sq. m., as a "compromise" to appellant's insistence that the SSS be excluded from appellee's option
or authority to sell the land. 9
... There should be a written offer by the prospective buyer or by appellee for or in their behalf, and that if no such written offer is made until
the last day of the authorization, the option and authority shall expired and become null and void. ... Yet, no such written offer was made. ... 10
In equity, however, the Court notes that petitioner had Monthly taken steps to bring back together respondent Doronila and the SSS, among which may be
mentioned the following:
In July, 1967, prior to February 14, 1968, respondent Doronila had offered to sell the land in question to the Social Security System Direct negotiations were made
by Doronila with the SSS. The SSS did not then accept the offer of Doronila. Thereafter, Doronila executed the exclusive authority in favor of petitioner Prats on
February 14, 1968.
Prats communicated with the Office of the Presidential Housing Commission on February 23, 1968 offering the Doronila property. Prats wrote a follow-up letter on
April is, 1968 which was answered by the Commission with the suggestion that the property be offered directly to the SSS. Prats wrote the SSS on March 16,
1968, inviting Chairman Ramon Gaviola, Jr. to discuss the offer of the sale of the property in question to the SSS. On May 6, 1968, Prats made a formal written

offer to the Social Security System to self the 300 hectare land of Doronila at the price of P6.00 per square meter. Doronila received on May 17, 1968 from the
SSS Administrator a telegram that the SSS was considering the purchase of Doronilas property for its housing project. Prats and his witness Raagas testified that
Prats had several dinner and lunch meetings with Doronila and/or his nephew, Atty. Manuel D. Asencio, regarding the progress of the negotiations with the SSS.
Atty. Asencio had declared that he and his uncle, Alfonso Doronila, were invited several times by Prats, sometimes to luncheons and sometimes to dinner. On a
Sunday, June 2, 1968, Prats and Raagas had luncheon in Sulu Hotel in Quezon City and they were joined later by Chairman Gaviola of the SSS.
The Court has noted on the other hand that Doronila finally sold the property to the Social Security System at P3.25 per square meter which was the very same
price counter-offered by the Social Security System and accepted by him in July, 1967 when he alone was dealing exclusively with the said buyer long before
Prats came into the picture but that on the other hand Prats' efforts somehow were instrumental in bringing them together again and finally consummating the
transaction at the same price of P3.25 square meter, although such finalization was after the expiration of Prats' extended exclusive authority. Still such price was
higher than that stipulated in the exclusive authority granted by Doronila to Prats.
Under the circumstances, the Court grants in equity the sum of One Hundred Thousand Pesos (P100,000.00) by way of compensation for his efforts and
assistance in the transaction, which however was finalized and consummated after the expiration of his exclusive authority and sets aside the P10,000.00
attorneys' fees award adjudged against him by respondent court.
WHEREFORE, the derision appealed from is hereby affirmed, with the modification that private respondent Alfonso Doronila in equity is ordered to pay petitioner
or his heirs the amount of One Hundred Thousand Pesos (P100,000.00) and that the portion of the said decision sell petitioner Prats to pay respondent Doronila
attorneys' fees in the sum of P10,000.00 is set aside.
The lifting of the injunction issued by the lower court on the P2,000,000.00 cash deposit of respondent Doronila as ordered by respondent court is hereby with the
exception of the sum of One Hundred Thousand Pesos (P100,000.00) which is ordered segregated therefrom to satisfy the award herein given to petitioner, the
lifting of said injunction, as herein ordered, is immediately executory upon promulgation hereof.
No pronouncement as to costs.

3. As to cause (Art. 1875)

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 94753. April 7, 1993.

MANOTOK BROTHERS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL TRIAL COURT OF
MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE; APPLICATION IN CASE AT BAR.
In an earlier case, this Court ruled that when there is a close, proximate and causal connection between the agent's
efforts and labor and the principal's sale of his property, the agent is entitled to a commission. We agree with
respondent Court that the City of Manila ultimately became the purchaser of petitioner's property mainly through the
efforts of private respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was signed by
the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be noted that the
ordinance was approved on April 26, 1968 when private respondent's authorization was still in force. Moreover, the
approval by the City Mayor came only three days after the expiration of private respondent's authority. It is also

worth emphasizing that from the records, the only party given a written authority by petitioner to negotiate the sale
from July 5, 1966 to May 14, 1968 was private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No. 94753 sought relief from this
Court's Resolution dated May 3, 1989, which reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals). Considering the
manifestation of compliance by counsel for petitioner dated April 14, 1989 with the resolution of March 13, 1989
which required the petitioner to locate private respondent and to inform this Court of the present address of said
private respondent, the Court Resolved to DISMISS this case, as the issues cannot be joined as private
respondent's and counsel's addresses cannot be furnished by the petitioner to this court." 1
In addition, petitioner prayed for the issuance of a preliminary injunction to prevent irreparable injury to itself pending
resolution by this Court of its cause. Petitioner likewise urged this Court to hold in contempt private respondent for
allegedly adopting sinister ploy to deprive petitioner of its constitutional right to due process.
Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the entry of judgment made on
May 3, 1989 in case G.R. No. 78898; admitted the amended petition; and issued a temporary restraining order to
restrain the execution of the judgment appealed from.
The amended petition 3 admitted, by this Court sought relief from this Court's Resolution abovequoted. In the
alternative, petitioner begged leave of court to re-file its Petition for Certiorari 4 (G.R. No. 78898) grounded on the
allegation that petitioner was deprived of its opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner herein (then defendant-appellant) is the owner of
a certain parcel of land and building which were formerly leased by the City of Manila and used by the Claro M.
Recto High School, at M.F. Jhocson Street, Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized herein private respondent Salvador Saligumba to
negotiate with the City of Manila the sale of the aforementioned property for not less than P425,000.00. In the same
writing, petitioner agreed to pay private respondent a five percent (5%) commission in the event the sale is finally
consummated and paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private respondent for 120 days.
Thereafter, another extension was granted to him for 120 more days, as evidenced by another letter 7 dated June
26, 1967.
Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino Manotok, its President, as
signatory, authorized private respondent to finalize and consummate the sale of the property to the City of Manila for
not less than P410,000.00. With this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26, 1968, passed Ordinance No. 6603, appropriating
the sum of P410,816.00 for the purchase of the property which private respondent was authorized to sell. Said
ordinance however, was signed by the City Mayor only on May 17, 1968, one hundred eighty three (183) days after
the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property. The initial payment of P200,000.00
having been made, the purchase price was fully satisfied with a second payment on April 8, 1969 by a check in the
amount of P210,816.00.
Notwithstanding the realization of the sale, private respondent never received any commission, which should have
amounted to P20,554.50. This was due to the refusal of petitioner to pay private respondent said amount as the
former does not recognize the latter's role as agent in the transaction.

Consequently, on June 29, 1969, private respondent filed a complaint against petitioner, alleging that he had
successfully negotiated the sale of the property. He claimed that it was because of his efforts that the Municipal
Board of Manila passed Ordinance No. 6603 which appropriated the sum for the payment of the property subject of
the sale.
Petitioner claimed otherwise. It denied the claim of private respondent on the following grounds: (1) private
respondent would be entitled to a commission only if the sale was consummated and the price paid within the period
given in the respective letters of authority; and (2) private respondent was not the person responsible for the
negotiation and consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president for 1967-1968 of
the Claro M. Recto High School. As a counterclaim, petitioner (then defendant-appellant) demanded the sum of
P4,000.00 as attorney's fees and for moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts undertaken by him to ensure the
consummation of the sale. He recounted that it first began at a meeting with Rufino Manotok at the office of
Fructuoso Ancheta, principal of C.M. Recto High School. Atty. Dominador Bisbal, then president of the PTA, was
also present. The meeting was set precisely to ask private respondent to negotiate the sale of the school lot and
building to the City of Manila. Private respondent then went to Councilor Mariano Magsalin, the author of the
Ordinance which appropriated the money for the purchase of said property, to present the project. He also went to
the Assessor's Office for appraisal of the value of the property. While these transpired and his letters of authority
expired, Rufino Manotok always renewed the former's authorization until the last was given, which was to remain in
force until May 14, 1968. After securing the report of the appraisal committee, he went to the City Mayor's Office,
which indorsed the matter to the Superintendent of City Schools of Manila. The latter office approved the report and
so private respondent went back to the City Mayor's Office, which thereafter indorsed the same to the Municipal
Board for appropriation. Subsequently, on April 26, 1968, Ordinance No. 6603 was passed by the Municipal Board
for the appropriation of the sum corresponding to the purchase price. Petitioner received the full payment of the
purchase price, but private respondent did not receive a single centavo as commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the authority of private respondent
regarding the transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he followed up the sale
from the start with Councilor Magsalin until after it was approved by the Mayor on May 17, 1968. He. also said that
he came to know Rufino Manotok only in August, 1968, at which meeting the latter told him that he would be given a
"gratification" in the amount of P20,000.00 if the sale was expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was an agreement between the two of them
regarding the "gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965 to 1967 but he never offered
to help in the acquisition of said property. Moreover, he testified that Huelgas was aware of the fact that it was
private respondent who was negotiating the sale of the subject property.
Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered judgment sentencing petitioner
and/or Rufino Manotok to pay unto private respondent the sum of P20,540.00 by way of his commission fees with
legal interest thereon from the date of the filing of the complaint until payment. The lower court also ordered
petitioner to pay private respondent the amount of P4,000.00 as and for attorney's fees. 9
Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed the said ruling of the trial
court. 10
Its Motion for Reconsideration having been denied by respondent appellate court in a Resolution dated June 22,
1987, petitioner seasonably elevated its case on Petition for Review on Certiorari on August 10, 1987 before this
Court, docketed as G.R. No. 78898.

Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987 ordering private respondent
to comment on said Petition.
It appearing that the abovementioned Resolution was returned unserved with the postmaster's notation "unclaimed",
this Court in another Resolution 12 dated March 13, 1989, required petitioner to locate private respondent and to
inform this Court of the present address of private respondent within ten (10) days from notice. As petitioner was
unsuccessful in its efforts to locate private respondent, it opted to manifest that private respondent's last address
was the same as that address to which this. Court's Resolution was forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's case on the ground that the
issues raised in the case at bar cannot be joined. Thus, the above-entitled case became final and executory by the
entry of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said judgment before the court of
origin. Upon discovery of said development, petitioner verified with the court of origin the circumstances by which
private respondent obtained knowledge of the resolution of this Court. Sensing a fraudulent scheme employed by
private respondent, petitioner then instituted this instant Petition for Relief, on August 30, 1990. On September 13,
1990, said petition was amended to include, in the alternative, its petition to re-file its Petition for Certiorari (G.R. No.
78898).
The sole issue to be addressed in this petition is whether or not private respondent is entitled to the five percent
(5%) agent's commission.
It is petitioner's contention that as a broker, private respondent's job is to bring together the parties to a transaction.
Accordingly, if the broker does not succeed in bringing the minds of the purchaser and the vendor to an agreement
with respect to the sale, he is not entitled to a commission.
Private respondent, on the other hand, opposes petitioner's position maintaining that it was because of his efforts
that a purchase actually materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to any commission as he was not successful in
consummating the sale between the parties, for the sole reason that when the Deed of Sale was finally executed,
his extended authority had already expired. By this alone, one might be misled to believe that this case squarely
falls within the ambit of the established principle that a broker or agent is not entitled to any commission until he has
successfully done the job given to him. 13
Going deeper however into the case would reveal that it is within the coverage of the exception rather than of the
general rule, the exception being that enunciated in the case of Prats vs. Court of Appeals. 14 In the said case, this
Court ruled in favor of claimant-agent, despite the expiration of his authority, when a sale was finally consummated.
In its decision in the abovecited case, this Court said, that while it was respondent court's (referring to the Court of
Appeals) factual findings that petitioner Prats (claimant-agent) was not the efficient procuring cause in bringing
about the sale (prescinding from the fact of expiration of his exclusive authority), still petitioner was awarded
compensation for his services. And We quote:
"In equity, however, the Court notes that petitioner had diligently taken steps to bring back together respondent
Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that Doronila finally sold the property to the Social Security System at P3.25
per square meter which was the very same price counter-offered by the Social Security System and accepted by
him in July, 1967 when he alone was dealing exclusively with the said buyer long before Prats came into the picture
but that on the other hand Prats' efforts somehow were instrumental in bringing them together again and finally

consummating the transaction at the same price of P3.25 per square meter, although such finalization was after the
expiration of Prats' extended exclusive authority.
xxx xxx xxx
Under the circumstances, the Court grants in equity the sum of One hundred Thousand Pesos (P100,000.00) by
way of compensation for his efforts and assistance in the transaction, which however was finalized and
consummated after the expiration of his exclusive authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein, with more reason, should be paid his commission,
While in Prats vs. Court of Appeals, the agent was not even the efficient procuring cause in bringing about the sale,
unlike in the case at bar, it was still held therein that the agent was entitled to compensation. In the case at bar,
private respondent is the efficient procuring cause for without his efforts, the municipality would not have anything to
pass and the Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close, proximate and causal connection between the
agent's efforts and labor and the principal's sale of his property, the agent is entitled to a commission.
We agree with respondent Court that the City of Manila ultimately became the purchaser of petitioner's property
mainly through the efforts of private respondent. Without discounting the fact that when Municipal Ordinance No.
6603 was signed by the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be
noted that the ordinance was approved on April 26, 1968 when private respondent's authorization was still in force.
Moreover, the approval by the City Mayor came only three days after the expiration of private respondent's authority.
It is also worth emphasizing that from the records, the only party given a written authority by petitioner to negotiate
the sale from July 5, 1966 to May 14, 1968 was private respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it heavily anchors its justification for
the denial of private respondent's claim, does not apply squarely to the instant petition. Claimant-agent in said case
fully comprehended the possibility that he may not realize the agent's commission as he was informed that another
agent was also negotiating the sale and thus, compensation will pertain to the one who finds a purchaser and
eventually effects the sale. Such is not the case herein. On the contrary, private respondent pursued with his goal of
seeing that the parties reach an agreement, on the belief that he alone was transacting the business with the City
Government as this was what petitioner made it to appear.
While it may be true that Filomeno Huelgas followed up the matter with Councilor Magsalin, the author of Municipal
Ordinance No. 6603 and Mayor Villegas, his intervention regarding the purchase came only after the ordinance had
already been passed when the buyer has already agreed to the purchase and to the price for which said property
is to be paid. Without the efforts of private respondent then, Mayor Villegas would have nothing to approve in the
first place. It was actually private respondent's labor that had set in motion the intervention of the third party that
produced the sale, hence he should be amply compensated.
WHEREFORE, in the light of the foregoing and finding no reversible error committed by respondent Court, the
decision of the Court of Appeals is hereby AFFIRMED. The temporary restraining order issued by this Court in its
Resolution dated October 1, 1990 is hereby lifted.
SO ORDERED.

SEE - Prats v. CA, G.R. No. L-39822, January 31, 1978

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-25463 April 4, 1975

EMERITO M. RAMOS, petitioner,

vs.
THE HONORABLE COURT OF APPEALS (Special First Division) and CESARIO P. CALANOC, respondents.
Tanada, Carreon and Taada for petitioner.
Francisco Gonzales III for private respondent.

MAKALINTAL, C.J.:

+.wph!1

Petitioner Emerita M. Ramos seeks a review of the decision of the Court of Appeals in its case CA-G.R. No. 28032, affirming the decision of the Court of First
Instance of Manila (Branch XII) in its Civil Case No. 24070 entitled "Cesario Calanoc vs. Emerito M. Ramos and Farm Implement & Machinery Co."
The facts as found by the appellate court are as follows: About the latter part of 1953 Emerito M. Ramos, a businessman engaged in the import-export trade and
using the firm name FIMCO (Farm Implement & Machinery Co.), entered into a contract with the Board of Liquidators of the Philippine Government for the
purchase of 20,000 tons of rice from the now defunct National Rice and Corn Corporation (NARIC) at the rate of P404.00 per metric ton, F.O.B. Manila. The rice
was in turn to be sold by Emerito M. Ramos to the Nippon Trading Co., Ltd. in Japan, which firm made available to the FIMCO through the Bank of Tokyo the sum
of $136.00 for every ton of rice shipped to Japan. The arrangement was for the Bank of Tokyo, in representation of the Nippon Trading Co., Ltd., to effect the
transfer to Japanese shippers/suppliers of sufficient dollars to cover the value of merchandise to be purchased by FIMCO's customers in the Philippines. To make
up for the difference between the purchase price of the NARIC rice in Philippine pesos and the selling price in dollars at the rate of two-to-one, the Central Bank of
the Philippines granted FIMCO an allocation of $66.00 for every metric ton of rice shipped to Japan.
FIMCO entered into several contracts with local merchants for the resale to them of the imported goods which were forthcoming as a result of the above-stated

Cesario P.
Calanoc, plaintiff in the lower court, claiming that Emerito M. Ramos had engaged his services to procure purchasers for
the imported goods and that he was directly instrumental in bringing about the contracts in question, instituted an action to
recover his alleged agreed commissions of 2% on the contract with Wellington & Co. and 1% on those with the
International Mercantile Co.
transactions. One such contract was concluded with Mrs. Salustiana Dee, or Wellington & Co., in the amount of $1,333.000.00 or P2,666,000.00. 1

After trial the Court of First Instance of Manila rendered judgment ordering Emerito M. Ramos to pay plaintiff commissions in the amount of P53,320.00 on the first
transaction, and in the amounts of P10,000.00, P4,040.00 and P180.00, respectively, on the other three, or a total of P67,540.00, plus interest at the legal rate
from the date of the filing of the complaint until fully paid. Defendant was also ordered to pay plaintiff the sum of P10,000.00 by way of attorney's fees, plus the
costs. Emerito M. Ramos appealed to the Court of Appeals, which rendered, on May 20, 1965, a judgment of affirmance on the following findings:
t.hqw

Plaintiff declared that sometime in 1953, he went to Ramos' suite at the Manila Hotel upon the latter's invitation. Appellant asked Calanoc to
bond him in the amount of P400,000.00, and to look for importers of merchandise from Japan. Appellant told Calanoc to sell the merchandise
at a mark-up price of twenty-three percent of the invoice value of the importation and that the overprice would constitute his commission.
Plaintiff was introduced to Mrs. Salustiana Dee, the owner of Wellington & Co., by Jose Ang Uco. He explained to the prospective buyer the
terms of the contract between FIMCO and the NARIC. In order to verify the existence of the barter agreement, Mrs. Dee instructed the
plaintiff to cable her supplier in Kobe, Japan, the Lam Tai Trading, Co., as well as the Nippon Trading Co., FIMCO's representative in Tokyo.
During this period of verification, Mrs. Dee was in frequent communication with the plaintiff and Ang Uco either by telephone or by
conferences in the broker's office. Plaintiff also explained to Mrs. Dee that she was to open two letters of credit, one local and the other a
dollar letter of credit; that she was to pay the customs tax, the sales tax and the clearance duties at the Bureau of Customs: that the
municipal license tax was to be paid by Mr. Ramos, and that she was to pay a premium of 25% mark-up on the value of her imported
commodities. Calanoc, accordingly informed appellant that Mrs. Dee had agreed to pay a premium of 25% and that, therefore, after
deducting the 23% required mark-up, he (plaintiff) had a commission of 2% on said transaction.
xxxxxxxxxxxx.
Jose Ang Uco testified that he introduced Mrs. Salustiana Dee to Calanoc as a prospective buyer of imported merchandise. Together, the
three of them went to Mr. Recto of the Equitable Bank who explained to Mrs. Dee about the banking procedure involved in the transaction.
Thereafter, he and the plaintiff were in frequent communication with Mrs. Dee until the latter went directly to Ramos and closed the contract
in question without their presence. Mrs. Dee had agreed to pay him a 2% commission on the transaction. ...
xxxxxxxxxxxx.
Plaintiff's testimony also finds corroboration in appellant's own admission that in engaging the broker's services he specified that the latter's
compensation would consist of the excess of the required 23% mark-up price.

In the appellate court's thinking, there was "a clear preponderance of evidence that in compliance with his undertaking to procure purchasers for appellant's
merchandise, he produced the importers, Wellington & Co. .. and as a result of his efforts said companies entered into the contracts in question with the
defendant-appellant (thereby entitling plaintiff) to recover the commissions claimed by him as compensation for his successful efforts."
Only two errors are attributed by the petitioner to the appellate court, there being no issue raised regarding the affirmance of the awards made by the trial court in
favor of Cesario Calanoc in connection with the transaction concluded by the petitioner with the International Mercantile Company. Petitioner contends: (1) that the
Court of Appeals "erred in holding petitioner Emerito M. Ramos liable to respondent Cesario P. Calanoc for the sum of P53,320.00, representing a commission of
2% of the contract price of P2,666,000.00 in the sale made by petitioner Ramos to Wellington & Company, instead of only P13,330.00, representing the 1/2%
overprice actually paid by the buyer to the petitioner Ramos in excess of the 23% mark-up price of the invoice value of the importation notwithstanding the express
finding made by the respondent Court itself, ... that the contract existing between petitioner Ramos and respondent Calanoc was to sell the merchandise to any
buyer, at a mark-up price of 23% of the invoice value of the importation, and that any overprice actually received by petitioner Ramos, above the stated 23%
premium, would accrue to respondent Calanoc as his commission;" and (2) that the Court of Appeals "erred in holding petitioner Emerito M. Ramos liable to
respondent Cesario P. Calanoc for the sum of P10,000.00, by way of attorney's fees, in the absence of any specific finding by the Honorable respondent Court that
petitioner Ramos had acted in gross and evident bad faith in refusing to accede to respondent Calanoc's demand and defending himself from the complaint filed
against him."
The preliminary question which poses itself in connection with the first assigned error is whether this Court may make its own findings of fact independently of
those made by the Court of Appeals. The general rule is that the appellate court's findings are conclusive, but this rule is not without some recognized exceptions,
such as: (1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures (Joaquin vs. Navarro, 93 Phil. 257); (2) when the inference
made is manifestly mistaken, absurd or impossible (Luna vs. Linatoc, 74 Phil. 15); (3) where there is a grave abuse of discretion (Buyco vs. People, 51 O.G.
2929); (4) when the judgment is based on a misapprehension of facts (Cruz vs. Sosing, 94 Phil. 26); and (5) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same are contrary to the admission of both appellant and appellee (Evangelista vs. Alto, 103 Phil. 401). See
also Garcia vs. Court of Appeals, et al., 33 SCRA 622; Roque vs. Buan, 21 SCRA 642.
Several circumstances compel Us to go into the record of this case in order to find out whether or not it falls within any of the exceptions above-stated. First, the
findings of both the trial court and the Court of Appeals are in the nature of conclusions, without citation of the specific evidence on which they are based; and
second, the facts set forth in the petition as well as in the petitioner's main brief, with the corresponding references to the record, are not materially denied or
disputed by the private respondent. These facts are necessary for a clear understanding and proper resolution of the issue of how much private respondent
Calanoc is entitled to as commission in the Wellington & Company transaction.
According to the trial court it was convinced that "plaintiff actually was engaged by defendant to look for buyers on commission basis; that plaintiff was directly
instrumental in bringing about the contract with Wellington & Company in the amount of $1,333,000.00 or P2,666,000.00, ... ; that defendant agreed to pay plaintiff
2% on the Wellington & Company transaction ... " The Court of Appeals proceeded on the same theory and even adopted as its own the following observation of
the trial court:
t.hqw

The court deplores the actuations of defendant and Mrs. Dee in completely bypassing plaintiff when they were ready to finalize their contract
to avoid having to pay to plaintiff his due, after the latter had exerted a lot of effort and spent a lot of time in bringing them together.
Defendant was able to make an additional 1/2% profit and Mrs. Dee saved 3-1/2% but the ruse did not add to the business stature of the
parties concerned.
In our view, the position adopted by both the trial court and the Court of Appeals, on the basis of their own findings of fact, is not justified. The contract between
Ramos and Calanoc is quite explicit: the arrangement was for Calanoc to sell the merchandise to any buyer at a mark-up price of 23% over the invoice value of
the importation and any overprice successfully collected above the stated 23% would accrue to Calanoc as his commission. The amount of such commission was
therefore fluid, depending upon the overprice obtained above the 23% mark-up price of the invoice value set by Ramos.
The decision of the Court of Appeals is evidently based on the assumption that since Calanoc was the efficient agent who brought about the Wellington & Co.
contract, it follows that he was entitled to the 2% commission which he claims was the overprice he secured for Ramos' merchandise. The assumption is not borne
out by the record. As already observed, and this was confirmed by the Court of Appeals, the arrangement was for Calanoc "to sell the merchandise at a mark-up
price of twenty-three percent of the invoice value of the importation and the overprice would constitute his commission." Nothing in the agreement guaranteed
Calanoc a fixed commission, which depended upon the overprice the buyer would pay. And it is a fact, undisputed by Calanoc that what Ramos received in the
Wellington & Co. transaction in excess of his original 23% mark-up price was only P13,330.00 and not P53,320.00, the amount claimed and awarded by the trial
court and the Court of Appeals.
The one feature of this case which militates most strongly against the conclusions arrived at by the courts below is that they did not necessarily follow from the
facts established. Calanoc never brought the buyer, Mrs. Salustiana Dee, to Ramos. The agreement, if any, regarding the 25% buying price was made solely
between Calanoc and Mrs. Dee. Ramos did not intervene nor participate in any manner in that supposed agreement. While it is true, as Calanoc claims, that he
informed petitioner that Mrs. Dee had already agreed to pay the 25% premium, there is absent in the records of this case any evidence to show that Mrs. Dee
confirmed such agreement with petitioner and that the latter could have bound her to it. Petitioner had fixed for himself a 23% mark-up, allowing anything over that
amount as commission. If Mrs. Dee changed her mind and refused to pay the 25% premium, and paid only 23-1/2%, that was her prerogative; petitioner had
neither the duty nor the right to compel her to contract for more than what she was willing to pay, when she was ready to meet his price.
t.hqw

.... a broker is never entitled to commissions for unsuccessful efforts. The risk of failure is wholly his. The reward comes only with his
success. That is the plain contract and contemplation of the parties. The broker may devote his time and labor, and expend his money with
ever so much of devotion to the interest of his employer, and yet if he fails, if without effecting an agreement or accomplishing a bargain, he
abandons the effort, or his authority is fairly and in good faith terminated, he gains no right to commissions. .. He may have introduced to
each other parties who otherwise would have never met; he may have created impressions, which under later and more favorable
circumstances naturally lead to and materially assist in the consummation of a sale; he may have planted the very seed from which others
reap the harvest; but all that gives him no claim. It was part of his risk that failing himself, not successful in fulfilling his obligation, others
might be left to some extent to avail themselves of the fruit of his labors. .. in such a case the principal violates no right of the broker by

selling to the first party who offers the price asked, and it matters not that sale is to the very party with whom the broker had been
negotiating. He failed to find or produce a purchaser upon the terms prescribed in his employment, and the principal was under no obligation
to wait longer that he might make further efforts. The failure therefore and its consequences were the risk of the broker only however must be
taken with one important and necessary limitation If the efforts of the broker are rendered a failure by the fault of the employer; if capriciously
he changes his mind after the purchaser, ready and willing, and consenting to the prescribed terms, is produced; or if the latter declines to
complete the contract because of some defect of title in the ownership of the seller, some unremoved encumbrance, some defect which is
the fault of the latter, then the broker does not lose his commissions. And that upon the familiar principle that no one can avail himself of nonperformance of a condition precedent who has himself occasioned its non-performance. But this limitation is not even an exception to the
general rule affecting the broker's right for it goes on the ground that the broker has done his duty, that he has brought buyer and seller to an
agreement, but that the contract is not consummated and fails through the after-fault of the seller." (Danon vs. Brimo & Co., 42 Phil. 133,139141).
It is significant that in his complaint Calanoc does not attribute bad faith, fraud or fault to Ramos. All that he claims is that since he had informed Ramos of Mrs.
Dee's alleged commitment to pay a 25% mark-up, the latter had consequently lost the right to reduce it. But as already observed, there is no showing that such a
commitment to Calanoc was a contract which Ramos himself could enforce against Mrs. Dee, or that she was ready and willing to pay him the 25% mark-up,
despite which he accepted only 23-1/2%, And certainly, if she was, vis-a-vis Ramos, willing to pay only 23-1/2%, he was not precluded from accepting it without
being liable to Calanoc for the difference.
In the absence of independent proof that the non-payment by Mrs. Dee of the 25% premium over the mark-up price was due to the fault, fraud or bad faith of
Ramos, we are not prepared to share the Court of Appeals' view in this regard. He gained nothing by the reduction, and it cannot be presumed that he accepted it
in order to cause prejudice to Calanoc.
The trial court awarded in favor of Calanoc attorney's fees in the amount of P10,000.00. This was affirmed by the Court of Appeals in view of its findings,
established here to be not really indubitable, that Ramos acted in evident bad faith in refusing to satisfy Calanoc's claim. Considering the nature and extent of the
services rendered by respondent Calanoc's counsel both in the trial and appellate courts, coupled with the admitted refusal of Ramos to satisfy Calanoc's initial
claim for the commissions he earned to which Calanoc was later on found to be entitled although the amount involved in the Wellington & Co. transaction was
considerably lessened the attorney's fees both in the lower court and appellate courts should be fixed at P6,000.00. This may be done motu proprio by this
Court under Article 2208 of the Civil Code, which provides that attorney's fees may be recovered in the instances therein enumerated and in "any other case where
the Court deems it just and equitable that attorney's fees... should be recovered," provided the amount thereof be reasonable in all cases. (See: Bank of America
vs. Araneta, 40 SCRA 144; Balmes vs. Suson, 28 SCRA 304).
PREMISES CONSIDERED, the Court of Appeals' decision under review is hereby modified by reducing the amount for which petitioner Ramos is liable to pay to
respondent Calanoc on the Wellington & Co. transaction from P53,320.00 (2%) to P13,330.00 (1/2%) which latter figure represents the amount actually received
by petitioner in excess of his original 23% mark-up; the attorney's fees awarded in favor of Calanoc is likewise reduced from P10,000.00 to P6,000.00. In all other
respects the decision is affirmed, with no special pronouncement as to costs.

4. As to extent of authority (Arts. 1876, 1877, 1881, 1882)

[G. R. No. 140164. September 6, 2002]

DIONISIA L. REYES, petitioner, vs. RICARDO L. REYES, LAZARO L. REYES,

NARCISO L. REYES and MARCELO L. REYES, respondents.
DECISION
QUISUMBING, J.:

This petition assails the decision dated September 20, 1999 of the Court of Appeals in CA-G.R.
SP No. 47033, which reversed that of the Department of Agrarian Reform Adjudication Board
(DARAB-Central Office) in DARAB Case No. 3625. The DARAB-Central Office had affirmed the ruling
of the Provincial Adjudicator, DARAB-Region III in Case No. 249-Bul-91, declaring petitioner Dionisia
L. Reyes the lawful agricultural lessee of a parcel of land in Bulacan owned by the late
Marciano Castro, and thus she is entitled to security of tenure.
[1]

After a thorough review of the records including the memoranda of the parties, we find this
petition meritorious.

The parties are among the nine children of the late Felizardo J. Reyes, who prior to his death was
the agricultural tenant of the land subject of this uncivil dispute over tenancy rights. The core question
in this petition is, who among the parties should be considered the lawful and rightful tenant of the
Castro property? The DARAB ruled in favor of petitioner, the appellate court held otherwise.
As disclosed by the record, the instant case stemmed from a complaint for reinstatement with
damages filed with the DARAB Region III Office by Dionisia Reyes on April 22, 1991 against her four
younger brothers, herein respondents. She alleged that her father, the late Felizardo Reyes, was the
tenant of a two-hectare agricultural lot in Parulan, Plaridel, Bulacan, owned by Marciano Castro. After
her fathers death on February 17, 1989, she and Marciano Castro, through the latters son and
attorney-in-fact, Ramon R. Castro, executed a leasehold contract naming her as the agricultural
lessee of the property. However, sometime before the start of the planting of the dry season crop in
1989, herein respondents forcibly entered the area and occupied a one-hectare portion of the
property. They claimed to be the tenants thereof. Respondents then paid rent to the Castros overseer,
Armando Duran, and continued to occupy half of the property to petitioners damage and prejudice.
In their answer, respondents denied Dionisias claim that she was the bona fide leasehold tenant.
They claimed that they inherited the lease rights to the property from their deceased father.
Respondents pointed out that petitioner was a woman who could not possibly work or till the land by
herself. They likewise averred that they were the ones actually cultivating the portion occupied by
them. Hence, petitioners claim to be the lawful agricultural lessee had no basis, either in fact or in law.
After attempts to amicably solve the dispute failed, the DARAB Provincial Adjudicator (PARAD)
ruled for petitioner, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering respondents Ricardo Reyes, Lazaro Reyes, Narciso Reyes and
Marcelo Reyes to respect the tenurial status of herein petitioner Dionisia Reyes
over the disputed landholding;
2. Ordering respondents to return the one-hectare portion which had been
taken forcibly and to cease and desist from molesting, interfering, occupying
petitioners peaceful possession over the disputed landholding;
3. No pronouncement as to costs.
SO ORDERED.

[2]

Respondents then seasonably appealed the PARADs judgment to the DARAB-Central Office. In
its decision of September 1, 1997, however, the DARAB-Central Office disposed of the appeal as
follows:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for

lack of merit and the subject decision AFFIRMED.

SO ORDERED.

[3]

In affirming the ruling of the PARAD, the DARAB Central Office found that pursuant to the
agricultural lease contract entered into between Dionisia and the Castros, the former was designated
by the latter to substitute the late Felizardo Reyes as tenant. It held:

When an agricultural tenant dies, the choice for the substitute tenant is given
to the land owner. It is the latter who has the option to place a new tenant of
his choice on the land. That choice is, however, not absolute as it shall be
exercised from among the surviving compulsory heirs of the deceased tenant.
Hence, the surviving heirs cannot preempt that choice by deciding among
themselves who shall take-over the cultivation or opting to cultivate the land
collectively. It is only when the landowner fails to exercise such right, or waive
the same, that the survivors may agree among themselves regarding the
cultivation. The law is specific on the matter as so provided in Section 9,
Republic Act No. 3844
[4]

xxx
Neither is their argument that Plaintiff-Appellee, being a woman, is not capable
of discharging the demands of farming, valid. This Board finds said argument
anachronistic with the changing times of great awareness of the potentials of
women. Women today are found manning our commerce and industry, and
agriculture is no exception.
[5]

In accordance with Section 54 of the Comprehensive Agrarian Reform Law (R. A. No. 6657),
respondents elevated the case to the Court of Appeals, which docketed their appeal as CA-G.R. SP
No. 47033. On appeal, respondents changed their theory. They abandoned their argument that they
had inherited the tenancy rights of their late father and instead postulated that an implied tenancy had
been created when the Castros overseer accepted rentals totaling 40 cavans of palay from them on
behalf of the owner. As earlier stated, the appellate court reversed the decision of the DARAB-Central
Office. The decretal portion of its decision reads:
[6]

WHEREFORE, premises considered, the petition is hereby GRANTED. The

respondent is ordered to respect the tenurial status of petitioners over the one
(1) hectare portion of the two (2) hectare-property of Ramon R. Castro situated
in Barangay Parulan, Plaridel, Bulacan.
No costs.
SO ORDERED.

[7]

The Court of Appeals held that an implied tenancy existed between herein respondents and the
landowner because:

In point of time, Ricardo Reyes actual possession and cultivation of the subject
property came earlier than the possession of respondent Dionisia Reyes by
virtue of the said leasehold contract executed on November 6, 1989. Further,
Armando Duran testified that he served as the overseer of the subject property
from the period 1967 to 1993, since the time of Antonio Castro, after which,
during the time of Marciano Castro up to the time of the administration of the
subject property by Ramon R. Castro who inherited the same (TSN July 12,
1994, pp. 3, 9; Rollo, pp. 98, 104). In effect, Armando Duran was still the
overseer of the subject property after the death of Felizardo Reyes on February
17, 1989 and was still the overseer of the subject property when he allowed
petitioners to continue the tenancy thereof left by the late Felizardo. The fact
that Armando Duran was the overseer for a period of sixteen (16) years, the
petitioners were made to believe of his authority from the Castro family
relative to the administration of the subject property. On this account, the
acquiescence of Duran in allowing or permitting petitioner Ricardo Reyes to
posses and cultivate of the one (1) hectare subject property immediately after
the death of Felizardo is binding to the Castro family including Ramon Castro,
the new landowner.
[8]

The appellate court then went on to rule that by virtue of this implied tenancy created in favor of
herein respondents, the leasehold contract between the Castros and petitioner could be made
effective only on the other one - hectare portion of the disputed property.
Hence, the instant petition, anchored on the following assignment of errors:
A.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR OF LAW IN DISREGARDING THE

SUBSTANTIAL EVIDENCE RULE BY OVERTURNING THE BINDING FINDINGS OF FACT OF
THE DARAB PROVINCIAL ADJUDICATOR AND THE NATIONAL DARAB ITSELF.
B.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR OF LAW IN HOLDING, WITHOUT

BASIS IN FACT AND LAW, BUT MERELY ON THE BASIS OF ILLOGICAL SURMISE AND
MANIFESTLY MISTAKEN INFERENCE, THAT HEREIN RESPONDENTS WERE MADE TO
BELIEVE THAT THE OVERSEER HAD AUTHORITY FROM THE LANDOWNER TO INSTITUTE
TENANT/S FOR THE LAND, UPON THE BARE PREMISE THAT THE OVERSEER WAS SUCH
FOR 16 YEARS.
C.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR OF LAW IN HOLDING, WITHOUT

BASIS IN FACT AND LAW, BUT MERELY ON THE BASIS OF ILLOGICAL SURMISE AND
MANIFESTLY MISTAKEN INFERENCE, THAT THE ACQUIESCENCE OF THE OVERSEER TO
RICARDO REYES POSSESSION AND CULTIVATION OF THE 1-HECTARE PORTION OF THE
LAND IMMEDIATELY AFTER THE DEATH OF THE ORIGINAL TENANT IS BINDING ON THE
LANDOWNER.
D.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR OF LAW IN HOLDING, WITHOUT

BASIS IN FACT AND LAW, BUT MERELY ON THE BASIS OF ILLOGICAL SURMISE AND
MANIFESTLY MISTAKEN INFERENCE THAT AN IMPLIED TENANCY WAS ESTABLISHED
BETWEEN THE LANDOWNER AND HEREIN RESPONDENTS RICARDO L. REYES, ET AL.,
UPON THE BARE PREMISE THAT THE OVERSEER HAD ALLOWED THEM TO CONTINUE THE
LEASEHOLD RELATION LEFT BY THE ORIGINAL TENANT AS TO THE 1-HECTARE PORTION
OF THE LAND.
E.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR OF LAW IN HOLDING, WITHOUT

BASIS IN FACT AND LAW, BUT MERELY ON THE BASIS OF ILLOGICAL SURMISE AND
MANIFESTLY MISTAKEN INFERENCE, THAT HEREIN PETITIONER DIONISIA L. REYES
CANNOT BE CONSIDERED A TENANT EVEN IF SO DESIGNATED IN A WRITTEN CONTRACT,
UPON THE BARE PREMISE THAT THE 1-HECTARE PORTION OF THE LAND WAS IN THE
ACTUAL POSSESSION OF HEREIN RESPONDENTS RICARDO L. REYES, ET AL.
F.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR OF LAW IN HOLDING, WITHOUT

BASIS IN FACT AND LAW, BUT MERELY ON THE BASIS OF ILLOGICAL SURMISE AND
MANIFESTLY MISTAKEN INFERENCE, THAT HEREIN RESPONDENTS RICARDO L. REYES,
ET AL. HAVE SQUARELY MET THE REQUIREMENTS OF THE LAW FOR THE EXISTENCE OF
A TENANCY RELATIONSHIP BETWEEN THEM AND THE LANDOWNER.[9]

The grounds relied upon by petitioner can be reduced to only two issues, to wit:

(1) Did the Court of Appeals err in disregarding the substantial evidence rule
with respect to the DARAB findings?
(2) Did the appellate court commit a reversible error of law in finding that
respondents had satisfactorily met the requirements of a tenancy relationship?
At the outset, respondents are reminded of the time-honored rule that in the interests of fair play
and substantial justice, a party is barred from changing his theory of the case on appeal.
On the first issue, petitioner pleads that in agrarian cases, the power of appellate review is limited
to questions of law and findings of fact of the DARAB, when supported by substantial evidence, shall
be binding upon the Court of Appeals. Hence, the appellate court cannot make its own findings of fact

and substitute the same in lieu of the findings of the DARAB, unless there was grave abuse of
discretion on the part of the DARAB. Consequently, it was error for the appellate court to make its
own finding that respondent Ricardo Reyes assumed possession and cultivation of the land from the
time Felizardo died. Petitioner points out that this finding by the Court of Appeals contradicted the
finding of the DARAB that petitioner Dionisia Reyes took over the cultivation of the property after their
fathers death. Petitioner further stresses that the finding by the appellate court of Ricardos previous
possession runs counter to the finding of the DARAB that Ricardo was a mere usurper who forcibly
took over the disputed one-hectare portion. The appellate court also erred in finding that Ricardo and
other respondents were made to believe that overseer Duran had authority to bind the Castro family
to allow them to possess and cultivate the lot. This is because the DARAB found that Durans
authority was limited only to collecting rentals from tenants duly appointed by the Castros, and Duran
was in bad faith in accepting two rentals from Ricardo and his co-respondents.
Respondents argue that Duran being the overseer of the landowner is an extension of the latters
personality as an agent of the Castros. Ramon Castro, who succeeded after Marciano Castros death,
in allowing his overseer to accept agricultural rentals from respondents is now estopped from denying
that the latter are his tenants. Moreover, they should be given the opportunity to work the land since
this is after all what their late father, Felizardo, wanted before his demise.
In Malate vs. Court of Appeals, we held that:

In appeals in agrarian cases, the only function required of the Court of Appeals
is to determine whether the findings of fact of the Court of Agrarian Relations
are supported by substantial evidence. And substantial evidence has been
defined to be such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion and its absence is not shown by stressing
that there is contrary evidence on record, direct or circumstantial, and where
the findings of fact of the agrarian court are supported by substantial evidence,
such findings are conclusive and binding on the appellate court.
[10]

Stated differently, the appellate court cannot make its own findings of fact and substitute the
same for the findings of fact of the DARAB.
A perusal of the assailed decision clearly shows that nowhere did the Court of Appeals rule that
the findings of fact of the DARAB Region III Provincial Adjudicator or the DARAB-Central Office were
unsupported by substantial evidence. Nor did the appellate court hold that said findings were made
with grave abuse of discretion on the part of the agrarian quasi-judicial agencies. An examination of
the record categorically shows that the findings of fact of the DARAB were supported by substantial
evidence. Perforce, theMalate ruling must apply to the instant case. The finding of the DARAB that
petitioner, by virtue of the contract of agricultural leasehold entered into between her and the Castros,
is the substitute tenant of the latter in lieu of her deceased father, is binding upon the appellate court
and this Court. Equally conclusive upon the court a quo and this Court is the finding by the DARAB
that respondents were mere usurpers who failed to present any proof as to the existence of a tenancy
relationship between them and the Castro family.

On the second issue, the appellate court found that an implied tenancy was created when Duran,
the ex-overseer of the Castros, acquiesced in the taking over and cultivation of a one-hectare portion
of the land. It went on to rule that the Castros were estopped from denying this implied tenancy in
view of the fact that they had allowed Duran, as their agent, to accept rentals from respondents.
Before us, petitioner asserts that Duran cannot be deemed an implied agent of the Castros under
Article 1869 of the Civil Code since there are neither acts nor omissions of either Marciano Castro or
Ramon Castro from which to imply an agency. She also submits that there is no estoppel to bind the
Castros to the acts of Duran, since the former had no knowledge of the assumption by Duran of their
authority. Furthermore, the landowners made no false representations or deception vis-vis respondents. Hence, the elements of estoppel are not present in this instance.
[11]

Respondents aver that an implied tenancy existed in view of the fact that Duran was undisputably
the overseer of the landowner. They add that Duran, as overseer, accepted 20 cavans of palay as
rentals on October 17, 1990 and another 20 cavans on April 1, 1991 from Ricardo. Receipt of these
rentals was properly documented. Duran then delivered the rentals to Elena Castro, sister of
Ramon, who in turn delivered the rentals to the latter. An implied tenancy was created between
respondents and Ramon, said the respondents, since Duran as overseer of the landholding was the
extension of the personality of the landowner. They aver that in effect, a delivery of rentals to Duran
was a delivery to an agent of the landowner. They argue that having accepted the rental payments
made to his agent, Ramon is now estopped from denying the existence of an implied tenancy
between him and respondents.
[12]

We find respondents contentions far from persuasive.

The present dispute involves an agricultural leasehold. The governing law is R.A. No. 3844,
which, except for Section 35 thereof, was not specifically repealed by the passage of the
Comprehensive Agrarian Reform Law of 1988 (R.A. No. 6657), but was intended to have suppletory
effect to the latter law. Under R.A. 3844, two modes are provided for in the establishment of an
agricultural leasehold relation: (1) by operation of law in accordance with Section 4 of the said act; or
(2) by oral or written agreement, either express or implied. By operation of law simply means the
abolition of the agricultural share tenancy system and the conversion of share tenancy relations into
leasehold relations. The other method is the agricultural leasehold contract, which may either be oral
or in writing. In the instant case, it is not disputed that an agricultural leasehold contract was entered
into between petitioner and Ramon Castro. Respondents, however, insist that an agricultural
leasehold contract over a one-hectare portion of the landholding arose as a result of the actions of
Ramons overseer, who must be viewed as the latters agent. They conclude that because of this
implied leasehold, the application of the contract between petitioner and the landowner should be
limited to the remaining portion of the property.
[13]

[14]

[15]

Respondents reasoning is flawed. While undoubtedly Duran was an agent of Ramon, he was not
a general agent of the latter with respect to the landholding. The record shows that as overseer,
Durans duties and responsibilities were limited to issu(ing) receipt(s), selling mangoes and bamboo
trees and all other things saleable. Thus, by his own admission, Duran was a special agent under
Article 1876 of the Civil Code. Durans duties and responsibilities as a special agent do not include
the acceptance of rentals from persons other than the tenant so designated by the landowner. Durans
[16]

[17]

authority as a special agent likewise excludes the power to appoint tenants or successor-tenants.
Clearly, Duran acted beyond the limits of his authority as an agent. We cannot agree with the Court of
Appeals did that since Duran had been the overseer of the Castros for 16 years, he thereby made
respondents believe he had full authority from the Castro family relative to the administration of the
subject property. Regardless of the number of years that Duran had been the overseer of the Castros,
there is absolutely no showing that he was ever authorized to appoint tenants or successor-tenants
for the Castros, nor to accept rentals from the persons he would appoint. Absent substantial evidence
to show Durans authority from the Castros to give consent to the creation of a tenancy relationship,
his actions could not give rise to an implied tenancy. In fact, Duran admitted that he was aware of the
existence of the leasehold contract between petitioner and the Castros, naming the former as the
successor-tenant to the property. Since an implied tenancy between the same landowners and
respondents is incompatible with this express and written leasehold contract and given the absolute
lack of substantial evidence to support the existence of an implied tenancy, the express tenancy
contract must be maintained.
[18]

Respondents contend, however, that Ramon Castro, having received the 40 cavans from Duran,
is now estopped to deny the existence of an implied tenancy. We find nothing in the records, however,
to support respondents stance. Duran testified that he did not deliver the palay rentals to Ramon, but
to his sister, who in turn told him that she had forwarded the palay to Ramon. Duran had no
personal knowledge that Ramon received the rentals which the former had allegedly delivered to the
latters sister. His testimony with respect to the receipt by Ramon of the rentals is hearsay and has no
probative value. The receipts issued to respondents do not bear the name and signature of Ramon
Castro. Given these circumstances, Ramon Castro cannot be deemed estopped from denying the
existence of a tenancy relationship between him and respondents.
[19]

One final note. Respondents original stance before the DARAB that they had inherited or
succeeded to the tenancy rights of their late father is likewise erroneous. As correctly found by the
DARAB:

Defendants-Appellants should not confuse the law on succession provided for

in the Civil Code of the Philippines with succession in agrarian cases. In the
former, (the) statute spreads the estate of the deceased throughout his heirs;
while in agrarian laws, the security of tenure of the deceased tenant shall pass
on to only one (1) heir in the manner provided for in Section 9
[20]

We are thus constrained to conclude that respondents original stance as well as new theory of
implied tenancy is without merit.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. SP
No. 47033 is REVERSED and SET ASIDE. The judgment of the DARAB in DARAB Case No. 3625
affirming the decision of the Provincial Adjudicator of DARAB Region III in DARAB Case No. 249-Bul91 is hereby REINSTATED. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 129039. September 17, 2002]

SIREDY ENTERPRISES, INC. petitioner, vs. HON. COURT OF APPEALS and

CONRADO DE GUZMAN, respondents.
DECISION
QUISUMBING, J.:

Before us is a petition for review seeking to annul the decision dated April 26, 1996 of
the Court of Appeals in CA-G.R. CV No. 30374, reversing the decision of the Regional
Trial Court of Malolos, Bulacan, and the resolution dated April 22, 1997, denying
petitioners motion for reconsideration.
[1]

[2]

The following are the facts as found by the Court of Appeals, undisputed by the
parties and adopted by petitioner:
[3]

[4]

Private respondent Conrado De Guzman is an architect-contractor doing business

under the name and style of Jigscon Construction. Herein petitioner Siredy Enterprises,
Inc. (hereafter Siredy) is the owner and developer of Ysmael Village, a subdivision in Sta.
Cruz, Marilao, Bulacan. The president of Siredy is Ismael E. Yanga.
[5]

[6]

As stated in its Articles of Incorporation, the primary corporate purpose of Siredy is to

acquire lands, subdivide and develop them, erect buildings and houses thereon, and sell,
lease or otherwise dispose of said properties to interested buyers.
[7]

[8]

[9]

Sometime before October 1978, Yanga executed an undated Letter of Authority,

hereunder reproduced verbatim:

KNOW ALL MEN BY THESE PRESENTS:

That I, DR. ISMAEL E. YANGA, SR., of legal age, Filipino, married, resident of and with Postal
address at Poblacion, Bocaue, Bulacan and duly authorized to execute this LETTER OF
AUTHORITY, do hereby authorize MR. HERMOGENES B. SANTOS of legal age, Filipino,
married, resident of and with Postal Address at 955 Banawe St., Quezon City to do and execute all
or any of the following acts:
1. To negotiate and enter into contract or contracts to build Housing Units on our subdivision lots in
Ysmael Village, Sta. Rosa, Marilao, Bulacan. However, all proceeds from said contract or contracts
shall be deposited in my name, payments of all obligation in connection with the said contract or
contracts should be made and the remainder will be paid to MR. HERMOGENES B. SANTOS.
2. To sell lots on our subdivisions and;

3. To represent us, intercede and agree for or make agreements for all payments in our favor,
provided that actual receipts thereof shall be made by the undersigned.
(SGD) DR. ISMAEL E. YANGA, SR.
For myself and in my capacity as President
of SIREDY ENTERPRISE,
INCORPORATED
PRINCIPAL
On October 15, 1978, Santos entered into a Deed of Agreement with De
Guzman. The deed expressly stated that Santos was representing Siredy Enterprises, Inc.
Private respondent was referred to as contractor while petitioner Siredy was cited as
principal.
[10]

In said Deed of Agreement we find the following stipulations:

1.) That, the PRINCIPAL has contracts with different SSS members employed with different domestic
entities to build for them 2-bedroom single housing units and 4-bedroom duplex housing units;
2.) That, the site of the said housing project is at YSMAEL VILLAGE, Bo. Sta. Rosa, Marilao, Bulacan
owned and developed by SIREDY ENTERPRISES and Mr. Ismael E. Yanga, Sr.;
3.) That, the PRINCIPAL has contracted to build the said units at the amount of FORTY FIVE
THOUSAND (P45,000.00) PESOS for the 2-bedroom single and SIXTY NINE THOUSAND
(P69,000.00) PESOS, Philippine Currency for the duplex residences;
4.) That, the CONTRACTOR intends to build for the PRINCIPAL eighty (80) units singles and eighteen
(18) units duplex residences at the cost above mentioned or a lump sum total of FOUR MILLION,
EIGHT HUNDRED FORTY TWO THOUSAND (P4,842,000.00) PESOS, Philippine Currency;
5.) That, the CONTRACTOR agrees to supply all Construction Materials, labor, tools and equipments
necessary for the completion of the said housing units;
6.) That, the PRINCIPAL agrees to pay all necessary permits and papers in accordance with
Government rules and regulations;
7.) That, the PRINCIPAL agrees to supply water and electrical facilities needed during the time of
construction;
8.) That, the manner of payment shall be in accordance with SSS releases. Should the SSS fail to pay
the PRINCIPAL, the PRINCIPAL is still in obligation to pay the CONTRACTOR for whatever
accomplishments the CONTRACTOR have finished provided, that the failure of the SSS to pay is
not due to defective work of the CONTRACTOR;

9.) That, the CONTRACTOR promises to finish the project at the rate of TEN (10) units in THIRTY
(30) days or a total of THREE HUNDRED (300) working days;
10.) That, the integral part of this CONTRACT are:

a. Plans and Specifications

b. Subdivision Plan indicating the Lot location of each unit
c. Authority of the National Housing Authority;
11.) That, the CONTRACTOR agree[s] to start work on the housing units thirty (30) days after signing
of this CONTRACT.

NOW THEREFORE, for and in consideration of the amount of FOUR MILLION, EIGHT
HUNDRED FORTY TWO THOUSAND (P4,842,000.00) PESOS, Philippine Currency, the
PARTIES agree and herein set their hands on the date and place above-mentioned.
xxx
From October 1978 to April 1990, De Guzman constructed 26 residential units at
Ysmael Village. Thirteen (13) of these were fully paid but the other 13 remained
unpaid.The total contractual price of these 13 unpaid houses is P412,154.93 which was
verified and confirmed to be correct by Santos, per an Accomplishment Billing that the
latter signed.
[11]

De Guzman tried but failed to collect the unpaid account from petitioner. Thus, he
instituted the action below for specific performance against Siredy, Yanga, and Santos
who all denied liability.
During the trial, Santos disappeared and his whereabouts remain unknown.
In its defense, petitioner presented testimonial evidence to the effect that Siredy had
no contract with De Guzman and had not authorized Santos to enter into a contract with
anyone for the construction of housing units at Ysmael Village.
The trial court agreed with petitioner based on the doctrine of privity of contract and
gave the following rationale:
[12]

The Deed of Agreement (Exh. A and A-1) clearly reflects that the said contract was entered into by
and between plaintiff De Guzman, on one hand, and defendant Hermogenes B. Santos as purported
authorized representative of defendant Siredy Enterprises, on the other. Plainly and clearly enough,
defendants Siredy Enterprises and Ismael Yanga, Sr. were neither parties nor signatories to the
same. It does not bear any legal significance that Dr. Yanga appears to have signed the Letter of

Authority (Exh. B) designating defendant Santos as the authorized representative for myself and as
president of the Siredy Enterprises, Inc. For the evidentiary fact remains that Siredy Enterprises and
Dr. Yanga had absolutely had nothing to do with the fulfillment of the terms and conditions
stipulated in the Deed of Agreement, much less had they benefited in any perceptible degree
therefrom.
In the light of the foregoing circumstances, Siredy Enterprises and Dr. Yanga cannot be held liable
in favor of the plaintiff in any manner whatsoever respecting the unpaid residential units
constructed by the plaintiff. This is as it should be, because contracts take effect only between the
parties, their assigns and heirs, except only in the cases provided for by law. (Art. 1311, Civil Code
of the Philippines). Not one of the exceptions obtains in this case.
[13]

Thus, the trial court disposed of the case as follows:

WHEREFORE, premises considered, judgment is hereby rendered:
a) directing defendant Hermogenes B. Santos to pay unto plaintiff Conrado de Guzman the amount of
P412,154.93 as actual damages with legal interest thereon from the filing of the complaint on July
29, 1982 until the same shall have been fully paid, and P25,000.00 as attorneys fees, plus costs;
b) dismissing the above-entitled case as against defendants Siredy Enterprises, Inc. and Dr. Ismael
Yanga, Sr.

SO ORDERED.

[14]

On appeal, De Guzman obtained a favorable judgment from the Court of Appeals. The
appellate court held that the Letter of Authority duly signed by Yanga clearly constituted
Santos as Siredys agent, whose authority included entering into a contract for the
building of housing units at Ysmael Village. Consequently, Siredy cannot deny liability for
the Deed of Agreement with private respondent De Guzman, since the same contract was
entered into by Siredys duly designated agent, Santos. There was no need for Yanga
himself to be a signatory to the contract, for him and Siredy to be bound by the terms
thereof.
[15]

Hence, the Court of Appeals held:

WHEREFORE, We find merit in the appeal and We hereby REVERSE the appealed Decision. In its
stead, we render the following verdict: Appellee Siredy Enterprises. Inc. is ordered to pay appellant
Conrado de Guzman cost (sic) and P412,154.93 as actual damage plus legal interest thereon from
the filing of the Complaint on July 29, 1982 until full payment thereof. All other claims and
counterclaims are dismissed.
SO ORDERED.

[16]

Petitioner Siredy Enterprises, Inc. now comes to us via a petition for review on
certiorari under Rule 45 of the Rules of Court, on the following grounds:
[17]

I. RESPONDENT COURT ERRED IN HOLDING THAT A VALID AGENCY WAS CONSTITUTED

DESPITE THE FACT THAT PETITIONER WAS NOT INVOLVED IN THE CONSTRUCTION
BUSINESS;
II. RESPONDENT COURT ERRED IN FAILING TO CONSIDER A VITAL PROVISION IN THE DEED
OF AGREEMENT (PAR. 8), WHEN IT RENDERED ITS DECISION; and
III. RESPONDENT COURT ERRED IN FAILING TO CONSIDER THAT PRIVATE RESPONDENT
WAS NOT ENTITLED TO HIS CLAIM AS HE WAS THE PARTY WHO VIOLATED THE
CONTRACT.[18]

We find two main issues presented for resolution: First, whether or not Hermogenes B.
Santos was a duly constituted agent of Siredy, with authority to enter into contracts for the
construction of residential units in Ysmael Village and thus the capacity to bind Siredy to
the Deed of Agreement; and Second, assuming arguendo that Siredy was bound by the
acts of Santos, whether or not under the terms of the Deed of Agreement, Siredy can be
held liable for the amount sought to be collected by private respondent De Guzman.
By the relationship of agency, one party called the principal authorizes another called
the agent to act for and in his behalf in transactions with third persons. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. He who acts through another acts
himself.
[19]

Was Santos then an agent of Siredy? Was he acting within the scope of his authority?
Resolution of the first issue necessitates a review of the Letter of Authority executed
by Ismael E. Yanga as president of Siredy in favor of Santos. Within its terms can be
found the nature and extent of the authority granted to Santos which, in turn, determines
the extent of Siredys participation in the Deed of Agreement.
On its face, the instrument executed by Yanga clearly and unequivocally constituted
Santos to do and execute, among other things, the act of negotiating and entering into
contract or contracts to build Housing Units on our subdivision lots in Ysmael Village, Sta.
Rosa, Marilao, Bulacan. Nothing could be more express than the written stipulations
contained therein.
[20]

It was upon the authority of this document that De Guzman transacted business with
Santos that resulted in the construction contract denominated as the Deed of Agreement.

However, petitioner denies any liability by stating that: (1) the nature of Siredys
business did not involve the construction of housing units since it was merely engaged in
the selling of empty lots; (2) the Letter of Authority is defective, and hence needed
reformation; (3) Santos entering into the Deed of Agreement was invalid because the
same was in excess of his authority; and (4) there is now implied revocation of such Letter
of Authority.
Testifying on the nature of the business and the business practices of Siredy, its owner
Yanga testified that Siredy was interested only in the sale of lots. It was up to the buyers,
as owners, to construct their houses in the particular style they prefer. It was allegedly
never the practice of the company to sell lots with houses already erected thereon. On the
basis of the foregoing testimony, petitioner states that despite the letter of authority, it is
quite certain that such provision would go against the nature of the business of Siredy as
the same has absolutely no capability of undertaking such a task as constructing houses.
[21]

However, the self-serving contention of petitioner cannot stand against the

documentary evidence clearly showing the companys liability to De Guzman. As we stated
in the case of Cuizon vs. Court of Appeals:
[22]

As it is, the mere denial of petitioner cannot outweigh the strength of the documentary evidence
presented by and the positive testimony of private respondents. As a jurist once said, I would
sooner trust the smallest slip of paper for truth than the strongest and most retentive memory ever
bestowed on moral man.
[23]

Aside from the Letter of Authority, Siredys Articles of Incorporation, duly approved by
the Securities and Exchange Commission, shows that Siredy may also undertake to erect
buildings and houses on the lots and sell, lease, or otherwise dispose of said properties to
interested buyers. Such Articles, coupled with the Letter of Authority, is sufficient to have
given De Guzman reason to believe that Santos was duly authorized to represent Siredy
for the purpose stated in the Deed of Agreement. Petitioners theory that it merely sold lots
is effectively debunked.
[24]

Thus, it was error for the trial court to have ignored the Letter of Authority. As correctly
held by the Court of Appeals:
There is absolutely no question that the Letter of Authority (Exhibit B) executed by appellee Yanga
constituted defendant Santos as his and appellee Siredys agent. As agent, he was empoweredinter
alia to enter into a contract to build housing units in the Ysmael Village. This was in furtherance of
appellees business of developing and subdividing lands, erecting houses thereon, and selling them
to the public.
xxx

[25]

We find that a valid agency was created between Siredy and Santos, and the authority
conferred upon the latter includes the power to enter into a construction contract to build
houses such as the Deed of Agreement between Santos and De Guzmans Jigscon
Construction. Hence, the inescapable conclusion is that Siredy is bound by the contract
through the representation of its agent Santos.
The basis of agency is representation, that is, the agent acts for and in behalf of the principal on
matters within the scope of his authority (Art, 1881) and said acts have the same legal effect as if
they were personally done by the principal. By this legal fiction of representation, the actual or
legal absence of the principal is converted into his legal or juridical presence.
[26]

Moreover, even if arguendo Santos mandate was only to sell subdivision lots as Siredy
asserts, the latter is still bound to pay De Guzman. De Guzman is considered a third party
to the agency agreement who had no knowledge of the specific instructions or
agreements between Siredy and its agent. What De Guzman only saw was the written
Letter of Authority where Santos appears to be duly authorized. Article 1900 of the Civil
Code provides:
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within
the scope of the agents authority, if such act 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 the agent.
The scope of the agents authority is what appears in the written terms of the power of
attorney. While third persons are bound to inquire into the extent or scope of the agents
authority, they are not required to go beyond the terms of the written power of attorney.
Third persons cannot be adversely affected by an understanding between the principal
and his agent as to the limits of the latters authority. In the same way, third persons need
not concern themselves with instructions given by the principal to his agent outside of the
written power of attorney.
The essence of agency being the representation of another, it is evident that the
obligations contracted are for and on behalf of the principal. This is what gives rise to the
juridical relation. A consequence of this representation is the liability of the principal for the
acts of his agent performed within the limits of his authority that is equivalent to the
performance by the principal himself who should answer therefor.
[27]

Petitioner belatedly asserts, however, that the Letter of Authority was defective as it
allegedly failed to reduce into writing the real intentions of the parties, and insists on its
reformation.

Such an argument deserves scant consideration. As found by the Court of Appeals,

being a doctor of medicine and a businessman, Yanga knew the meaning and import of
this document and had in fact admitted having signed it. As aptly observed by the Court of
Appeals, there is no evidence that ante litem, he abrogated the Letter of Authority and
withdrew the power conferred on Santos.
Siredys contention that the present case is in effect a revocation of the Letter of
Authority also deserves scant consideration. This is a patently erroneous claim
considering that it was, in fact, private respondent De Guzman who instituted the civil case
before the RTC.
With regard to the second issue put forth by petitioner, this Court notes that this issue
is being raised for the first time on appeal. From the trial in the RTC to the appeal before
the Court of Appeals, the alleged violation of the Deed of Agreement by Conrado de
Guzman was never put in issue. Heretofore, the substance of petitioners defense before
the courts a quo consisted of its denial of any liability under the Deed of Agreement.
As we held in the case of Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc.:

[28]

It must be borne in mind that a question that was never raised in the courts below cannot be
allowed to be raised for the first time on appeal without offending basic rules of fair play, justice
and due process. Such an issue was not brought to the fore either in the trial court or the appellate
court, and would have been disregarded by the latter tribunal for the reasons previously stated. With
more reason, the same does not deserve consideration by this Court.
[29]

WHEREFORE, this petition is DENIED for lack of merit. The Decision of the Court of
Appeals dated April 26, 1996, in CA-G.R. CV No. 30374, is hereby AFFIRMED. Petitioner
Siredy Enterprises, Inc. is ordered to pay Conrado de Guzman actual damages in the
amount of P412,154.93, with legal interest thereon from the time the case was filed until
its full payment. Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-67889 October 10, 1985
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO, respondents.
Payawal, Jimenez & Associates for petitioners.

Nelson A. Loyola for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Intermediate Appellate Court affirming in toto the judgment of the Court of First Instance of Manila, Branch XXI,
which ordered the petitioner to pay respondent the thirty percent (30%) commission on 15,666 pieces of Philippine flags worth P936,960.00, moral damages,
attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the then Department of Education and Culture, hereinafter called
Department, to purchase without public bidding, one million pesos worth of national flags for the use of public schools throughout the country. The respondent was
able to expedite the approval of the purchase by hand-carrying the different indorsements from one office to another, so that by the first week of September, 1974,
all the legal requirements had been complied with, except the release of the purchase orders. When Nacianceno was informed by the Chief of the Budget Division
of the Department that the purchase orders could not be released unless a formal offer to deliver the flags in accordance with the required specifications was first
submitted for approval, she contacted the owners of the United Flag Industry on September 17, 1974. The next day, after the transaction was discussed, the
following document (Exhibit A) was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United Flag Industry to deal with any entity or organization, private or government in
connection with the marketing of our products-flags and all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The next day, on October 17, 1974, the respondent's authority to
represent the United Flag Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment of P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of
P23,900.00 or five percent (5%) of the amount received, to the respondent as payment of her commission. The latter allegedly protested. She refused to accept
the said amount insisting on the 30% commission agreed upon. The respondent was prevailed upon to accept the same, however, because of the assurance of
the petitioners that they would pay the commission in full after they delivered the other half of the order. The respondent states that she later on learned that
petitioner Siasat had already received payment for the second delivery of 7,833 flags. When she confronted the petitioners, they vehemently denied receipt of the
payment, at the same time claiming that the respondent had no participation whatsoever with regard to the second delivery of flags and that the agency had
already been revoked.
The respondent originally filed a complaint with the Complaints and Investigation Office in Malacaang but when nothing came of the complaint, she filed an action
in the Court of First Instance of Manila to recover the following commissions: 25%, as balance on the first delivery and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the plaintiff the sum of P281,988.00, minus the sum
P23,900.00, with legal interest from the date of this decision, and ordering the defendants to pay jointly and solidarily the sum of P25,000.00
as moral damages, and P25,000.00 as attorney's fees, also with legal interest from the date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for reconsideration was denied, the petitioners went to this Court on a
petition for review on August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following arguments: first, the authorization making the respondent the petitioner's
representative merely states that she could deal with any entity in connection with the marketing of their products for a commission of 30%. There was no specific
authorization for the sale of 15,666 Philippine flags to the Department; second, there were two transactions involved evidenced by the separate purchase orders
and separate delivery receipts, Exhibit 6-C for the purchase and deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery on November 6,
1974. The revocation of agency effected by the parties with mutual consent on October 17, 1974, therefore, forecloses the respondent's claim of 30% commission
on the second transaction; and last, there was no basis for the granting of attorney's fees and moral damages because there was no showing of bad faith on the
part of the petitioner. It was respondent who showed bad faith in denying having received her commission on the first delivery. The petitioner's counterclaim,
therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a motion for reconsideration, however,this Court give due course to the petition on
November 14, 1984.

After a careful review of the records, we are constrained to sustain with some modifications the decision of the appellate court.
We find respondent's argument regarding respondent's incapacity to represent them in the transaction with the Department untenable. There are several kinds of
agents. To quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal; agent is one authorized to do all acts for his principal which can
lawfully be delegated to an agent. So far as such a condition is possible, such an agent may be said to have universal authority. (Mec. Sec.
58).
A general agent is one authorized to do all acts pertaining to a business of a certain kind or at a particular place, or all acts pertaining to a
business of a particular class or series. He has usually authority either expressly conferred in general terms or in effect made general by the
usages, customs or nature of the business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the business of his principal of a particular kind or in a particular place, would, for this
reason, be ordinarily deemed a general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act upon some particular occasion. lie acts usually in accordance with
specific instructions or under limitations necessarily implied from the nature of the act to be done. (Mec. Sec. 61) (Padilla, Civil Law The Civil
Code Annotated, Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the agreement between the petitioners and the respondent to deduce that the 'latter
was instituted as a general agent. Indeed, it can easily be seen by the way general words were employed in the agreement that no restrictions were intended as to
the manner the agency was to be carried out or in the place where it was to be executed. The power granted to the respondent was so broad that it practically
covers the negotiations leading to, and the execution of, a contract of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between the parties was entered into under fraudulent representation because respondent
"would not disclose the agency with which she was supposed to transact and made the petitioner believe that she would be dealing with The Visayas", and that
"the petitioner had known of the transactions and/or project for the said purchase of the Philippine flags by the Department of Education and Culture and precisely
it was the one being followed up also by the petitioner."
If the circumstances were as claimed by the petitioners, they would have exerted efforts to protect their interests by limiting the respondent's authority. There was
nothing to prevent the petitioners from stating in the contract of agency that the respondent could represent them only in the Visayas. Or to state that the
Department of Education and Culture and the Department of National Defense, which alone would need a million pesos worth of flags, are outside the scope of the
agency. As the trial court opined, it is incredible that they could be so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court states that "when the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there can be between the parties and their successors-in-interest, no evidence of the
terms of the agreement other than the contents of the writing", except in cases specifically mentioned in the same rule. Petitioners have failed to show that their
agreement falls under any of these exceptions. The respondent was given ample authority to transact with the Department in behalf of the petitioners. Equally
without merit is the petitioners' proposition that the transaction involved two separate contracts because there were two purchase orders and two deliveries. The
petitioners' evidence is overcome by other pieces of evidence proving that there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget Commission on September 3, 1974 (Exhibit "C") attests to the fact that out of
the total budget of the Department for the fiscal year 1975, "P1,000,000.00 is for the purchase of national flags." This is also reflected in the Financial and Work
Plan Request for Allotment (Exhibit "F") submitted by Secretary Juan Manuel for fiscal year 1975 which however, divided the allocation and release of the funds
into three, corresponding to the second, third, and fourth quarters of the said year. Later correspondence between the Department and the Budget Commission
(Exhibits "D" and "E") show that the first allotment of P500.000.00 was released during the second quarter. However, due to the necessity of furnishing all of the
public schools in the country with the Philippine flag, Secretary Manuel requested for the immediate release of the programmed allotments intended for the third
and fourth quarters. These circumstances explain why two purchase orders and two deliveries had to be made on one transaction.
The petitioners' evidence does not necessarily prove that there were two separate transactions. Exhibit "6" is a general indorsement made by Secretary Manuel for
the purchase of the national flags for public schools. It contains no reference to the number of flags to be ordered or the amount of funds to be released. Exhibit "7"
is a letter request for a "similar authority" to purchase flags from the United Flag Industry. This was, however, written by Dr. Narciso Albarracin who was appointed
Acting Secretary of the Department after Secretary Manuel's tenure, and who may not have known the real nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a substantial part of the government's supply procurement process would have
been repeated. In this case, what were issued were mere indorsements for the release of funds and authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners' contention that respondent Nacianceno is not entitled to the stipulated commission on the
second delivery because of the revocation of the agency effected after the first delivery. The revocation of agency could not prevent the respondent from earning
her commission because as the trial court opined, it came too late, the contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle, this Court held:
We do not mean to question the general doctrine as to the power of a principal to revoke the authority of his agent at will, in the absence of a
contract fixing the duration of the agency (subject, however, to some well defined exceptions). Our ruling is that at the time fixed by the

manager of the plaintiff company for the termination of the negotiations, the defendant real estate agent had already earned the commissions
agreed upon, and could not be deprived thereof by the arbitrary action of the plaintiff company in declining to execute the contract of sale for
some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by cancelling the agency and, thereafter, dealing directly with the buyer. (Infante v.
Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49 O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to show that the general law of contracts the equitable principle of estoppel. and
the expense of another, uphold payment of compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's commission on the first delivery was fully paid. The evidence does not sustain the
respondent's claim that the petitioners paid her only 5% and that their right to collect another 25% commission on the first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and Investigation Office to help her collect her commission, her statement under oath referred
exclusively to the 30% commission on the second delivery. The statement was emphatic that "now" her demand was for the 30% commission on the (second)
release of P469,980.00. The demand letter of the respondent's lawyer dated November 13, 1984 asked petitioner Siasat only for the 30% commission due from
the second delivery. The fact that the respondent demanded only the commission on the second delivery without reference to the alleged unpaid balance which
was only slightly less than the amount claimed can only mean that the commission on the first delivery was already fully paid, Considering the sizeable sum
involved, such an omission is too glaringly remiss to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the handwritten words "Fully Paid", inscribed above it.
The respondent contested her signature as a forgery, Handwriting experts from two government agencies testified on the matter. The reason given by the trial
court in ruling for the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private respondent signed her name as "Tessie Nacianceno" while in this particular instance,
she signed as "T. Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in the manner the respondent signed her name can not be considered
as conclusive proof that the questioned signature is a forgery. The mere fact that the respondent signed thirteen documents using her full name does not rule out
the possibility of her having signed the notation "Fully Paid", with her initial for the given came and the surname written in full. What she was signing was a mere
acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed authorization letter (Exhibit "5-A"), the petitioners presented as witness Mr. Francisco
Cruz. Jr., a senior document examiner of the Philippine Constabulary Crime laboratory. In rebuttal, the respondent presented Mr. Arcadio Ramos, a junior
document examiner of the National Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases involving forgery are applicable. Forgery cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one consistent with the defendant's innocence and another indicative of his
guilt, that which is favorable to the accused should be considered. The constitutional presumption of innocence continues until overthrown by
proof of guilt beyond reasonable doubt, which requires moral certainty which convinces and satisfies the reason and conscience of those
who are to act upon it. (People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would constitute the sole ground for conviction and there is equally convincing expert
testimony to the contrary, the constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan and People of the Philippines, 134
SCRA 105). In the present case, the circumstances earlier mentioned taken with the testimony of the PC senior document examiner lead us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in bad faith when they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient facts. To support a judgment for damages, facts which justify the
inference of a lack or absence of good faith must be alleged and proven. (Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to conclude that the revocation of the agency was deliberately effected by the petitioners to avoid payment of the
respondent's commission. What appears before us is only the petitioner's use in court of such a factual allegation as a defense against the respondent's claim.
This alone does not per se make the petitioners guilty of bad faith for that defense should have been fully litigated.

Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate
Appellate Court, 129 SCRA 736).
We therefore, rule that the award of P25,000.00 as moral damages is without basis.
The additional award of P25,000.00 damages by way of attorney's fees, was given by the courts below on the basis of Article 2208, Paragraph 2, of the Civil Code,
which provides: "When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interests;"
attorney's fees may be awarded as damages. (Pirovano et al. v. De la Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of attorney's fees. For one thing, the respondent did not come to court with completely
clean hands. For another, the petitioners apparently believed they could legally revoke the agency in the manner they did and deal directly with education officials
handling the purchase of Philippine flags. They had reason to sincerely believe they did not have to pay a commission for the second delivery of flags.
We cannot close this case without commenting adversely on the inexplicably strange procurement policies of the Department of Education and Culture in its
purchase of Philippine flags. There is no reason why a shocking 30% of the taxpayers' money should go to an agent or facilitator who had no flags to sell and
whose only work was to secure and handcarry the indorsements of education and budget officials. There are only a few manufacturers of flags in our country with
the petitioners claiming to have supplied flags for our public schools on earlier occasions. If public bidding was deemed unnecessary, the Department should have
negotiated directly with flag manufacturers. Considering the sad plight of underpaid and overworked classroom teachers whose pitiful salaries and allowances
cannot sometimes be paid on time, a P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly unnecessary but a scandalous waste of public
funds as well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners are ordered to pay the respondent the amount of ONE HUNDRED
FOURTY THOUSAND NINE HUNDRED AND NINETY FOUR PESOS (P140,994.00) as her commission on the second delivery of flags with legal interest from the
date of the trial court's decision. No pronouncement as to costs.
SO ORDERED.

5. As to third persons (Art. 1911)

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 30831

September 2, 1929

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
TAN ONG SZE, Viuda de Tan Toco, defendant-appellant.
Soriano and Nepomuceno for appellant.
Roman J. Lacson for appellee.
STATEMENT
The plaintiff is a domestic corporation with its principal office and place of business in the City of Manila. The defendant is a Chinese citizen.
The complaint alleges that the defendant received from the plaintiff a loan of P300,000, for which she executed and delivered to the plaintiff her certain promissory
note dated May 23, 1922, a copy of which is set out and made a parts of the complaint. That to secure its payment with interests thereon at the rate of 9 per cent
per annum, the defendant executed to the plaintiff a mortgage on certain real property in the City and Province of Iloilo, which instrument was duly registered in the
registry of deeds of that province, a copy of which is attached to, and made a part of, the complaint, marked Exhibit A. That the mortgage provided that if the terms
or conditions, the plaintiff could foreclose it, for which it should receive the further sum of 10 per cent of the amount due and owing for and on account of attorney's
fees, expenses and costs. That the amount of defendant's debt to the plaintiff with interest until November 14, 1924, was P357,075.80, no part of which has been
paid, and the plaintiff prays for judgment against the defendant for the amount of the debt with interest and attorney's fees, and that the property described in the
mortgage be sold and the proceeds of sale applied to the satisfaction of the debt, and for the judgment over for any deficiency which may remain, and for costs.
For answer the defendant made a general and specific denial under oath as to the genuineness and execution of both the note and the mortgage and of the debt.
At the first trial the lower court dismissed the complaint for and on account of the failure of the plaintiff to present the original document, the power of attorney, upon
which its action was based. From that judgment the plaintiff appealed to this court which on December 31, 1927, 1 sustained that decision of the lower court upon
the legal questions involved, but due to the importance of the case and in the interest of justice, it ordered a new trial, and remanded the case to the lower court,
with leave to the plaintiff to present the power of attorney and such other evidence as it might have and wish to present. A second trial was then had, and the lower
court rendered judgment in favor of the plaintiff and against the defendant for the sum of P414,333.35, with interest at the rate of P66.67 a day from April 1, 1927,
and for the further sum of 5 per cent of that amount as attorney's fees, and that the defendant should pay the judgment on or before November 18, 1928, and for
failure to do so, the property described in the mortgage should be sold and the proceeds of sale applied to the satisfaction of the judgment, and for any deficiency,
the plaintiff might have judgment over, for which execution should issue, and also for costs.

On appeal the defendant assigns the following errors:

I. The trial court erred in declaring that the power of attorney, Exhibit K, conferred upon Tan Bunco the authority to borrow money and mortgage the
defendant's properties.
II. The trial court erred in assuming that Tan Bunco has mortgaged the defendant's properties to the plaintiff, has executed the promissory note, Exhibit
B, and has received the value thereof.
III. The trial court erred in not declaring that even supposing that the mortgage, Exhibit E, and the promissory note, Exhibit B had been executed by Tan
Bunco, nevertheless, the defendant is not liable for the amount of said note and the mortgage does not affect her properties.
IV. The trial court erred in declaring that the defendant has ratified the acts of Tan Bunco and has been benefited by them.
V. The trial court erred in not dismissing the complaint, in sentencing the defendant to pay to the plaintiff the amounts stated in its judgement and in
ordering the foreclosure sale of the defendant's properties upon her failure to pay said amounts in full.

JOHNS, J.:p
The defendant at all the times alleged was the owner of two parcels of land in the City and Province of Iloilo, known as lots Nos. 279 and 572, of the Iloilo cadastral
survey, evidenced by certificate of title No. 329. September 14, 1916, in Amoy, China, she executed before the United States Vice Consul at that place the power
of attorney, known in the record as Exhibit K, in which she made and constituted Tan Bunco as her attorney-in-fact, the material provisions of which are as follows:
Know all men by these presents,
That I, Tan Ong Sze (Chinese characters) widow of late Tan Tek Co (Chinese characters) of Ng Chung Village in the Tong An District, Chuancho, Perfecture, who
died in H.T. 2d year 8th month 3d day (6th September, 1910) have made ordained, constituted and appointed, and by these presents do make, ordain, constitute
and appoint Tan Bunco (Chinese characters) to be my lawful attorney of the shop Hock Bee (Chinese characters) at Iloilo, Philippine Islands, . . . and also for me
and in my name to sign, seal and execute, and as my act and deed, deliver, any lease, any other deed for the conveying and real or personal property or other
matter or thing wherein I am or may be personally interested or concerned. And I do hereby further authorize and empower my said attorney to substitute and
appoint any other attorney or attorneys under him, for the purpose aforesaid and the same again and pleasure to revoke (and generally for me and in my name to
do, perform and execute all and every other lawful and reasonable acts and things whatsoever as fully and effectually as I the said Tan Ong Sze () might or
could do if personally present. And I do hereby ratify and confirm all and whatsoever my said attorneys or attorney or his or their substitute or substitutes, or any of
them, shall lawfully do, or cause to be done, in or about the premises, by virtue of these presents. It is apparent that a clerical error was made in the preparation of
the instrument or an error was made in its translation, and in so far as it is material to this opinion, it should read:
1 . . . and also for me and in my name to sign, seal and execute, and as my act and deed, deliver any lease, any other deed for conveying any real or
personal property or other matter or thing wherein I am or may be personally interested or concerned;
2 . . . and also for me and my name to sign, seal and execute, and as my act and deed, deliver any lease, any other deed for the conveying of any real
or personal property or other matter or thing wherein I am or may be personally interested or concerned.
It is very apparent that the words "for the conveying and real or personal property" should read for the conveying of real or personal property." That is to say, the
defendant executed a power of attorney to Tan Bunco in which she vested him with the power "for me and in my name to sign, seal and execute, and as my act
and deed, deliver any lease, any other deed for conveying any real or personal property" or "any other deed for the conveying of any real or personal property."
Plaintiff's complaint is founded upon the promissory note, known in the record as Exhibit B, which purports to have been executed in Iloilo on May 23, 1922, by her
attorney-in-fact under and by virtue of the power of attorney above described, and the mortgage which purports to have executed to plaintiff to secure the payment
of the note, known in the record as Exhibit E.
The question is thus squarely presented whether or not under his power the attorney-in-fact had the authority to execute the promissory note or to execute the
mortgage on real property to secure its payment. It will be noted that the language used in the power of attorney is confined and limited to the authority "to sign,
seal and execute, and as my act and deed, deliver any lease, any other deed of conveying any real or personal property," or "to sign, seal and execute, as my act
and deed, deliver any lease, any other deed for the conveying of any real or personal property." Hence, does this power carry with it and imply the authority of the
attorney- in-fact to borrow money and to execute the promissory note to the defendant and mortgage her real property to secure its payment?
In an exhaustive opinion the lower court held that the power to convey real property carried with it the power to mortgage, and the defendant was liable on both the
note and the mortgage.
Cyclopedia of Law and Procedure, vol. 31, p. 1390, says:
(II) TO MORTGAGE OR PLEDGE. Authority to mortgage the property of a principal is rarely to be inferred. It is not to be implied from general authority
to manage, or even to sell, the principal's property.
Under which, in the notes, decisions are cited from the Supreme Courts of California, Florida, Kansas, Missouri, South Carolina, and Texas, and it is said:

The power to sell and convey lands as a general rule carries no implied power to charge the principal with the responsibilities and liabilities of a
mortgagor. (Citing decisions from the Supreme Courts of Kansas, Michigan, Minnesota, North Dakota, Wisconsin, and a large number of English
authorities.)
And on page 1395, it is said:
(IV) TO LEND OR BORROW MONEY. Power to lend or borrow money, like most other special power of an agent, it is not to be inferred without clear
evidence of such a grant.
And on page 1396, it is said:
. . . And when the authority is conferred whether expressly or impliedly, it must be exercised within the limits prescribed, and burdens assumed by the
agent but not authorized by the principal cannot bind the latter. . . . No authority to borrow money is to be implied from a power to lend, nor merely from
a power to act for the principal in his business generally or in other specific matters.
And in the notes, it is said:
. . . The authority to borrow money, conferred on an agent, must be created by express terms or necessarily implied from the nature of the agency, for
authority to borrow money is one of the most dangerous powers a principal can confer upon an agent.
Thus such power is not to be implied from the power to manage the principal's business, even though with authority to buy goods on credit (Hayness
vs. Carpenter, 86 Mo. App., 30; Bickford vs. Menier, 107 N.Y., 490; 14 N.E., 438 (reversing 36 Hun., 446); Weekes vs. A.F. Shapleigh hardware Co., 23
Tex. Civ. App., 577; 57 S. W.., 67; Spooner vs. Thompson, 48 Vt., 259 ), or from authority to draw checks to make the payments for property bought by
the agent (Mordhurst vs. Boies, 24 Iowa, 99).
Ruling Case Law, vol. 21, p. 885, says:
An instrument empowering an attorney, among other things, 'to buy and sell real estate, and in my name to receive and execute all necessary contracts
and conveyances therefor,' does not authorize such attorney to sell and convey lands to which, as the record shows, the principal had acquired title
before execution of the power. . . . The attorney may not mortgage the property; nor has he authority to execute an option.
The case of Hawzhurst vs. Rathgeb (51 Pacific, 846), decided by the Supreme Court of California, is square in point. The syllabus laid down this rule:
2. The language, in a power of attorney, to sell, transfer and release two certain mortgages . . .; to endorse and transfer the notes secured by said
mortgages; to sell and transfer my claims for said notes and mortgages . . .; and to receive payments . . . and give acquittances thereof,' confers the
power to sell and transfer the title to the securities absolutely, or to collect them, but does not confer power to pledge them.
3. The act of an attorney in fact in pledging securities, when his authority only gave him power to sell or collect, is void.
And the opinion says:
The effect of this language was to confer a power to sell and transfer the title to the securities absolutely, or if not so sold, to collect them from the estate
of Kunz. There is nothing in the language which by any proper construction purports to confer a power to pledge or hypothecate the securities for any
purpose, or to borrow money thereon. The words 'sell and transfer,' as there used, are of no broader signification than the words 'sell and convey,' used
with reference to a conveyance of real estate ; and the latter, employed as the operative words in a power to convey land, do not carry authority to
mortgage or otherwise dispose of the property.
The case of Minnesota Stoneware Co. vs. McCrossen, 110 Wisconsin, 316; 84 American State Reports, p. 927, in the syllabus says:
A POWER OF ATTORNEY TO SELL AND CONVEY real estate does not include a power to mortgage.
POWER OF ATTORNEY INTERPRETATION. A written instrument, not ambiguous either in its literal sense or in the application of its language to
the subject or purpose thereof, must be taken to mean what it says.
In that case the language in the power was this:
In my name, place and stead to sell and convey any real estate and personal property which I may now own or may hereafter acquire in the State of
Wisconsin and Washington.
Construing which, the court, on page 928 of the opinion says:
The power of attorney was a mere power to sell and convey, importing authority to sell out for cash and not power to mortgage. That is elementary:
Jones on Mortgages, sec. 129; Devlin on Deeds, sec. 363a; Morris vs. Watson, 15 Minn., 212; Colesbury vs. Dart, 61 Ga., 620; Wood vs. Goodridge, 6
Cush., 117; 52 Am. Dec., 771; Hoyt vs. Jaques, 129 Mass., 286; Perry on Trusts, sec. 768. No departure from such general rule, worthy of
consideration, we venture to say, can be found.
And in the case of Campbell vs. Foster Home Association, 26 L. R. A.., p. 117; 163 Pa., 609, the Supreme Court of the States says:
1. A power to mortgage land is not included in a power of attorney to sell and convey, uncoupled with any interest in the land or the fund.

And on page 122, among other authorities, the opinion quotes with approval the decision of Justice Cooley, in Jeffrey vs. Hursh (49 Mich., 31) in which it is said:
J. M. Hursh had power to sell the land, but not to mortgage it. The power is not to be extended by construction. The principal determines for himself
what authority he will confirm upon his agent, and there can be no implication from his authorizing a sale of his lands that he intends that his agent may
at discretion charge him with the responsibilities and duties of a mortgagor.
In fact the authorities are overwhelming that the power to sell and convey does not carry with it or imply the power to borrow money or to execute a mortgage on
real property.
The lower court in its opinion holds that, legally speaking, a mortgage is a conveyance and that the power to convey carries with it the power to mortgage. The
theory is not sustained by any authority. By its express terms and provisions the instrument itself, upon which plaintiff relies, provides for the foreclosure of the
mortgage, and the whole purpose and tenor of plaintiff's complaint is to foreclose the mortgage. If in truth and in fact it was a conveyance of the legal title to the
property, there would be no reason why the plaintiff should apply to the court to foreclose it as a mortgage.
The authorities cited in the opinion of the lower court are not point, and that is specially true of 47 California, 242, 2in which the syllabus says:
CONSTRUCTION OF POWER OF ATTORNEY. A power of attorney in which the principal authorizes the agent to make contracts, to settle
outstanding debts, and generally to do all things that concern his interest in any way, real and personal, to use the principal's name to release others, to
bind the principal as he may deem proper and expedient, and making the agent as his general attorney and agent, and ratifying and confirming
whatever the attorney may do by virtue of the power, authorizes the attorney to execute a lease of the principal's real estate for a term exceeding one
year, and to execute any instrument affecting the real estate of the principal, unless, it may be, a conveyance of it.
It will be noted that this case was decided in January, 1874.
Note the marked distinction between the powers conferred in that case and in this. Yet it was there held that the agent did not have the power to convey. The case
was decided in January, 1874
The lower court also cites 46 California, 603, 3 from a reading of which it will be found that the real question involved in that case was the priority of mortgages
which involved the construction of section 1215 of the Code which defines the terms of the conveyance:
As embracing every instrument in writing by which any estate or interest in real property is created, aliened, mortgaged or incumbered, or by which the
title to any property maybe affected, except wills.
It did not involve the construction of a power of attorney, and neither of those cases are even mentioned in the decision of that court above quoted, which was
rendered January 5, 1898.
The case of Golinsky vs. Allison (46 Pacific, 295), also decided by the Supreme Court of California on October 7,1896, is a square in point. The syllabus says:
1. A power of attorney to an agent authorizing him to 'superintend' property of his principals, and to 'preserve, manage, sell, and dispose of' the same,
and to 'manage, work, sell, and dispose of' other property, did not confer authority on the agent to execute a promissory note in the name of his
principals, or to mortgage their property to secure the same, though the note was given in settlement of an antecedent debt contracted by the agent in
the management of the property.
And in the opinion it is said:
A power of attorney, like any other instrument, is to be construed according to the natural import of its language; and the authority which the principal
has conferred upon his agent is not to be extended by implication beyond the natural and ordinary significance of the terms in which that authority has
been given. The attorney has only such authority as the principal has chosen to confer upon him, and one dealing with him must ascertain at his own
risk whether his acts will bind the principal. By the above letter of attorney given by Allison and Sackett to Barron, he had the authority to 'superintend'
the property of his principals, and to ' preserve, manage, sell, and dispose of the same, and also to locate mill sites, mining claims, and water rights,
and to manage, work, sell, and dispose of them.' A power to sell and convey real estate does not authorize the attorney to mortgage it. (Jeffrey vs.
Hursh, 49 Mich., 31;12 N. W. ., 898; Wood vs. Goodridge, 6 Cush., 117; Brown vs. Rouse, 93 Cal., 237; 28 Pac., 1044.) For an exhaustive discussion of
the subject, see Campbell vs. Association (163 Pa. St., 609; 30 Atl., 222,224). 'The power is not to be extended by construction. The principal
determines for himself what authority he will confer upon his agent, and there can be no implication, from his authorizing a sale of his lands, that he
intends that his agent may, at discretion, charged him with the responsibilities and duties of a mortgagor.
No authority of any court has been cited and none will ever be found holding that a power "to sign, seal, and execute, and as may act and deed, deliver, any lease,
any other deed for conveying any real or personal property" or "to sign, seal, and execute, and as my act and deed, deliver, any lease, any other deed for
conveying of any real or personal property," or any similar language, standing alone and within itself, carries with it or implies the power to borrow money or to
execute a real mortgage to secure the payment of a debt.
The trial court also found that by her actions and conduct, the defendant had ratified and approved the acts of her agent in the execution of both the note and the
mortgage. Upon that point, we have read and reread the record, and there is no legal evidenced to sustain that finding. In fact there is nothing in the record which
shows or tends to show that the defendant ever knew of the execution or the existence of the note or the mortgage, or that she ever had any knowledge of the
transaction in question.
With all due respect to the exhaustive opinion of the lower court, we are clearly of the opinion that it is fundamentally wrong, and that there is no legal principle
upon which can be sustained, from which it follows that the judgment from the lower court must be reversed. It is true that on the former appeal and in the interest
of justice, this case was remanded to the lower court, with leave to the plaintiff to introduced the power of attorney in question and any other evidence which it
might have to sustain its cause of action and that there should be an end to litigation. Be that as it may, the amount involved is now about one half million pesos,
and it is apparent that the Bank acted in good faith.

The judgment of the lower court is reversed and the complaint is dismissed, but for such reasons and in the interest of justice, such dismissal is without prejudice
to any legal rights or remedies, of any kind or nature, which the plaintiff may have against the defendant, with costs in favor of the appellant. So ordered.

D. Special Power of Attorney (Arts. 1878, 1879, 1880)

[G.R. No. 148775. January 13, 2004]

SHOPPERS PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner,

vs. EFREN P. ROQUE, respondent.
DECISION
VITUG, J.:

On 23 December 1993, petitioner Shoppers Paradise Realty & Development

Corporation, represented by its president, Veredigno Atienza, entered into a twenty-five
year lease with Dr. Felipe C. Roque, now deceased, over a parcel of land, with an area of
two thousand and thirty six (2,036) square meters, situated at Plaza Novaliches, Quezon
City, covered by Transfer of Certificate of Title (TCT) No. 30591 of the Register of Deeds
of Quezon City in the name of Dr. Roque. Petitioner issued to Dr. Roque a check for
P250,000.00 by way of reservation payment. Simultaneously, petitioner and Dr. Roque
likewise entered into a memorandum of agreement for the construction, development and
operation of a commercial building complex on the property. Conformably with the
agreement, petitioner issued a check for another P250,000.00 downpayment to Dr.
Roque.
The contract of lease and the memorandum of agreement, both notarized, were to be
annotated on TCT No. 30591 within sixty (60) days from 23 December 1993 or until 23
February 1994. The annotations, however, were never made because of the untimely
demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994 constrained
petitioner to deal with respondent Efren P. Roque, one of the surviving children of the late
Dr. Roque, but the negotiations broke down due to some disagreements.In a letter, dated
3 November 1994, respondent advised petitioner to desist from any attempt to enforce the
aforementioned contract of lease and memorandum of agreement.On 15 February 1995,
respondent filed a case for annulment of the contract of lease and the memorandum of
agreement, with a prayer for the issuance of a preliminary injunction, before Branch 222 of
the Regional Trial Court of Quezon City. Efren P. Roque alleged that he had long been the
absolute owner of the subject property by virtue of a deed of donation inter vivos executed
in his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and
that the late Dr. Felipe Roque had no authority to enter into the assailed agreements with
petitioner. The donation was made in a public instrument duly acknowledged by the donorspouses before a notary public and duly accepted on the same day by respondent before
the notary public in the same instrument of donation. The title to the property, however,

remained in the name of Dr. Felipe C. Roque, and it was only transferred to and in the
name of respondent sixteen years later, or on 11 May 1994, under TCT No. 109754 of the
Register of Deeds of Quezon City.Respondent, while he resided in the United States of
America, delegated to his father the mere administration of the property. Respondent
came to know of the assailed contracts with petitioner only after retiring to the Philippines
upon the death of his father.
On 9 August 1996, the trial court dismissed the complaint of respondent; it explained:
Ordinarily, a deed of donation need not be registered in order to be valid between the
parties. Registration, however, is important in binding third persons. Thus, when Felipe Roque
entered into a leased contract with defendant corporation, plaintiff Efren Roque (could) no longer
assert the unregistered deed of donation and say that his father, Felipe, was no longer the owner of
the subject property at the time the lease on the subject property was agreed upon.
The registration of the Deed of Donation after the execution of the lease contract did not affect the
latter unless he had knowledge thereof at the time of the registration which plaintiff had not been
able to establish. Plaintiff knew very well of the existence of the lease. He, in fact, met with the
officers of the defendant corporation at least once before he caused the registration of the deed of
donation in his favor and although the lease itself was not registered, it remains valid considering
that no third person is involved. Plaintiff cannot be the third person because he is the successor-ininterest of his father, Felipe Roque, the lessor, and it is a rule that contracts take effect not only
between the parties themselves but also between their assigns and heirs (Article 1311, Civil Code)
and therefore, the lease contract together with the memorandum of agreement would be conclusive
on plaintiff Efren Roque. He is bound by the contract even if he did not participate
therein. Moreover, the agreements have been perfected and partially executed by the receipt of his
father of the downpayment and deposit totaling to P500,000.00.
[1]

The Trial court ordered respondent to surrender TCT No. 109754 to the Register of Deeds
of Quezon City for the annotation of the questioned Contract of Lease and Memorandum
of Agreement.
On appeal, the Court of Appeals reversed the decision of the trial court and held to be
invalid the Contract of Lease and Memorandum of Agreement. While it shared the view
expressed by the trial court that a deed of donation would have to be registered in order to
bind third persons, the appellate court, however, concluded that petitioner was not a
lessee in good faith having had prior knowledge of the donation in favor of respondent,
and that such actual knowledge had the effect of registration insofar as petitioner was
concerned. The appellate court based its findings largely on the testimony of Veredigno
Atienza during cross-examination, viz;

Q. Aside from these two lots, the first in the name of Ruben Roque and the second, the subject of the
construction involved in this case, you said there is another lot which was part of development
project?
A. Yes, this was the main concept of Dr. Roque so that the adjoining properties of his two sons, Ruben
and Cesar, will comprise one whole. The other whole property belongs to Cesar.
Q. You were informed by Dr. Roque that this property was given to his three (3) sons; one to Ruben
Roque, the other to Efren, and the other to Cesar Roque?
A. Yes.
Q. You did the inquiry from him, how was this property given to them?
A. By inheritance.
Q. Inheritance in the form of donation?
A. I mean inheritance.
Q. What I am only asking you is, were you told by Dr. Felipe C. Roque at the time of your transaction
with him that all these three properties were given to his children by way of donation?
A. What Architect Biglang-awa told us in his exact word: Yang mga yan pupunta sa mga anak. Yong
kay Ruben pupunta kay Ruben. Yong kay Efren palibhasa nasa America sya, nasa pangalan pa
ni Dr. Felipe C. Roque.

xxxxxxxxx
Q. When was the information supplied to you by Biglang-awa? Before the execution of the Contract of
Lease and Memorandum of Agreement?
A. Yes.
Q. That being the case, at the time of the execution of the agreement or soon before, did you have
such information confirmed by Dr. Felipe C. Roque himself?
A. Biglang-awa did it for us.
Q. But you yourself did not?
A. No, because I was doing certain things. We were a team and so Biglang-awa did it for us.
Q. So in effect, any information gathered by Biglang-awa was of the same effect as if received by you
because you were members of the same team?
A. Yes.[2]

In the instant petition for review, petitioner seeks a reversal of the decision of the Court
of Appeals and the reinstatement of the ruling of the Regional Trial Court; it argues that
the presumption of good faith it so enjoys as a party dealing in registered land has not
been overturned by the aforequoted testimonial evidence, and that, in any event,
respondent is barred by laches and estoppel from denying the contracts.
The existence, albeit unregistered, of the donation in favor of respondent is
undisputed. The trial court and the appellate court have not erred in holding that the nonregistration of a deed of donation does not affect its validity. As being itself a mode of
acquiring ownership, donation results in an effective transfer of title over the property from
the donor to the donee. In donations of immovable property, the law requires for its
validity that it should be contained in a public document, specifying therein the property
donated and the value of the charges which the donee must satisfy. The Civil Code
provides, however, that titles of ownership, or other rights over immovable property, which
are not duly inscribed or annotated in the Registry of Property (now Registry of Land Titles
and Deeds) shall not prejudice third persons. It is enough, between the parties to a
donation of an immovable property, that the donation be made in a public document but, in
order to bind third persons, the donation must be registered in the registry of Property
(Registry of Land Titles and Deeds). Consistently, Section 50 of Act No. 496 (Land
Registration Act), as so amended by Section 51 of P.D. No. 1529 (Property Registration
Decree), states:
[3]

[4]

[5]

[6]

SECTION 51. Conveyance and other dealings by registered owner.- An owner of registered land
may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing
laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are
sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will
purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but
shall operate only as a contract between the parties and as evidence of authority to the Register of
Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third
persons are concerned, and in all cases under this Decree, the registration shall be made in the
office of the Register of Deeds for the province or city where the land lies. (emphasis supplied)
A person dealing with registered land may thus safely rely on the correctness of the
certificate of title issued therefore, and he is not required to go beyond the certificate to
determine the condition of the property but, where such party has knowledge of a prior
existing interest which is unregistered at the time he acquired a right thereto, his
knowledge of that prior unregistered interest would have the effect of registration as
regards to him.
[7]

[8]

The appellate court was not without substantial basis when it found petitioner to have
had knowledge of the donation at the time it entered into the two agreements with Dr.
Roque. During their negotiation, petitioner, through its representatives, was apprised of
the fact that the subject property actually belonged to respondent.
It was not shown that Dr. Felipe C. Roque had been an authorized agent of
respondent.
In a contract of agency, the agent acts in representation or in behalf of another with the
consent of the latter. Article 1878 of the Civil Code expresses that a special power of
attorney is necessary to lease any real property to another person for more than one
year. The lease of real property for more than one year is considered not merely an act of
administration but an act of strict dominion or of ownership. A special power of attorney is
thus necessary for its execution through an agent.
[9]

The Court cannot accept petitioners argument that respondent is guilty of

laches. Laches, in its real sense, is the failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence, could or should
have been done earlier; it is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned or
declined to assert it.
[10]

Respondent learned of the contracts only in February 1994 after the death of his
father, and in the same year, during November, he assailed the validity of the
agreements.Hardly, could respondent then be said to have neglected to assert his case
for unreasonable length of time.
Neither is respondent estopped from repudiating the contracts. The essential elements
of estoppel in pais, in relation to the party sought to be estopped, are: 1) a clear conduct
amounting to false representation or concealment of material facts or, at least, calculated
to convey the impression that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; 2) an intent or, at least, an expectation,
that this conduct shall influence, or be acted upon by, the other party; and 3) the
knowledge, actual or constructive, by him of the real facts. With respect to the party
claiming the estoppel, the conditions he must satisfy are: 1) lack of knowledge or of the
means of knowledge of the truth as to the facts in question; 2) reliance, in good faith, upon
the conduct or statements of the party to be estopped; and 3) action or inaction based
thereon of such character as to change his position or status calculated to cause him
injury or prejudice. It has not been shown that respondent intended to conceal the actual
facts concerning the property; more importantly, petitioner has been shown not to be
totally unaware of the real ownership of the subject property.
[11]

[12]

Altogether, there is no cogent reason to reverse the Court of Appeals in its assailed
decision.
WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals
declaring the contract of lease and memorandum of agreement entered into between Dr.
Felipe C. Roque and Shoppers Paradise Realty & Development Corporation not to be
binding on respondent is AFFIRMED. No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 148116

April 14, 2004

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners,

vs.
MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B. TICZON,
represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON,
JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 64940, which reversed and set aside the June 23, 1999
Decision2 of the Regional Trial Court of Pasig City, Branch 68, in Civil Case No. 65629, as well as its Resolution dated April 30, 2001 denying the petitioners
motion for reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon3 are the owners of a parcel of land located in San Pablo City, covered by Transfer Certificate of Title (TCT) No. T-36766 of the
Register of Deeds of San Pablo City.4 On the other hand, the heirs of Paz Ticzon Eleosida, represented by Gregorio T. Eleosida, are the owners of a parcel of land
located in San Pablo City, covered by TCT No. 36754, also of the Register of Deeds of San Pablo City. 5
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, offered to sell to the petitioners, Antonio K. Litonjua and Aurelio
K. Litonjua, Jr., the parcels of land covered by TCT Nos. 36754 and 36766. The petitioners were shown a locator plan and copies of the titles showing that the
owners of the properties were represented by Mary Mediatrix Fernandez and Gregorio T. Eleosida, respectively. The brokers told the petitioners that they were
authorized by respondent Fernandez to offer the property for sale. The petitioners, thereafter, made two ocular inspections of the property, in the course of which
they saw some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez and the two brokers at the petitioners office in Mandaluyong City. 6 The
petitioners and respondent Fernandez agreed that the petitioners would buy the property consisting of 36,742 square meters, for the price of P150 per square
meter, or the total sum of P5,098,500. They also agreed that the owners would shoulder the capital gains tax, transfer tax and the expenses for the documentation
of the sale. The petitioners and respondent Fernandez also agreed to meet on December 8, 1995 to finalize the sale. It was also agreed upon that on the said
date, respondent Fernandez would present a special power of attorney executed by the owners of the property, authorizing her to sell the property for and in their
behalf, and to execute a deed of absolute sale thereon. The petitioners would also remit the purchase price to the owners, through respondent Fernandez.
However, only Agapito Fisico attended the meeting. He informed the petitioners that respondent Fernandez was encountering some problems with the tenants and
was trying to work out a settlement with them. 7 After a few weeks of waiting, the petitioners wrote respondent Fernandez on January 5, 1995, demanding that their
transaction be finalized by January 30, 1996. 8
When the petitioners received no response from respondent Fernandez, the petitioners sent her another Letter 9dated February 1, 1996, asking that the Deed of
Absolute Sale covering the property be executed in accordance with their verbal agreement dated November 27, 1995. The petitioners also demanded the
turnover of the subject properties to them within fifteen days from receipt of the said letter; otherwise, they would have no option but to protect their interest
through legal means.

Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14, 1996 10 and clarified her stand on the matter in this wise:
1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I do not recall we ever discussed about them.
Nonetheless, I made an assurance at that time that there was no liens/encumbrances and tenants on my property (TCT 36755).
2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of Absolute Sale. The truth of the matter is that you were the one
who emphatically stated that you would prepare a Contract to Sell and requested us to come back first week of December as you would be leaving the
country then. In fact, what you were demanding from us was to apprise you of the status of the property, whether we would be able to ascertain that
there are really no tenants. Ms. Alimario and I left your office, but we did not assure you that we would be back on the first week of December.
Unfortunately, some people suddenly appeared and claiming to be "tenants" for the entire properties (including those belonging to my other relatives.)
Another thing, the Barangay Captain now refuses to give a certification that our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the appearance of "alleged tenants" who are demanding for a
one-hectare share, my cousin and I have thereby changed our mind and that the sale will no longer push through. I specifically instructed her to inform
you thru your broker that we will not be attending the meeting to be held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all problems are fully settled. We have not demanded
and received from you any earnest money, thereby, no obligations exist. In the meantime, we hope that in the future we will eventually be able to
transact business since we still have other properties in San Pablo City.11
Appended thereto was a copy of respondent Fernandez letter to the petitioners dated January 16, 1996, in response to the latters January 5, 1996 letter. 12
On April 12, 1996, the petitioners filed the instant Complaint for specific performance with damages 13 against respondent Fernandez and the registered owners of
the property. In their complaint, the petitioners alleged, inter alia, the following:
4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land covered by Transfer Certificates of Title Nos. 36766 and 36754
measuring a total of 36,742 square meters in Barrio Concepcion, San Pablo City. After a brief negotiation, defendants committed and specifically
agreed to sell to plaintiffs 33,990 square meters of the two (2) aforementioned parcels of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the titling of the subject property in plaintiffs names would be for defendants account.
(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the aforementioned 33,990 square meters of land in plaintiffs office on 8
December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free from all liens and encumbrances and that no squatters or
tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants, pursued the purchase of the subject parcels of lands. On 5
January 1996, plaintiffs sent a letter of even date to defendants, setting the date of sale and payment on 30 January 1996.
7.1 Defendants received the letter on 12 January 1996 but did not reply to it.
8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding execution of the Deed of Sale.
8.1 Defendants received the same on 6 February 1996. Again, there was no reply. Defendants thus reneged on their commitment a second
time.
9. On 14 February 1996, defendant Fernandez sent a written communication of the same date to plaintiffs enclosing therein a copy of her 16 January
1996 letter to plaintiffs which plaintiffs never received before. Defendant Fernandez stated in her 16 January 1996 letter that despite the meeting of
minds among the parties over the 33,990 square meters of land for P150.00 per square meter on 27 November 1995, defendants suddenly had a
change of heart and no longer wished to sell the same. Paragraph 6 thereof unquestionably shows defendants previous agreement as abovementioned and their unjustified breach of their obligations under it.
10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract to sell.
11. Plaintiffs intended to use the subject property for their subdivision project to support plaintiffs quarry operations, processing of aggregate products
and manufacture of construction materials. Consequently, by reason of defendants failure to honor their just obligations, plaintiffs suffered, and continue
to suffer, actual damages, consisting in unrealized profits and cost of money, in the amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants fraudulent actuations for which reason defendants are liable to
plaintiffs for moral damages in the amount of at least P1.5 Million.
13. By reason of defendants above-described fraudulent actuations, plaintiffs, despite their willingness and ability to pay the agreed purchase price,
have to date been unable to take delivery of the title to the subject property. Defendants acted in a wanton, fraudulent and malevolent manner in
violating the contract to sell. By way of example or correction for the public good, defendants are liable to plaintiff for exemplary damages in the amount
of P500,000.00.

14. Defendants bad faith and refusal to honor their just obligations to plaintiffs constrained the latter to litigate and to engage the services of
undersigned counsel for a fee in the amount of at least P250,000.00. 14
The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering the respondents to
(a) Secure at defendants expense all clearances from the appropriate government agencies that will enable defendants to comply with their obligations
under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed upon by the parties;
(c) Solidarily pay the plaintiffs the following amounts:
1. P5,000,000.00 in actual damages;
2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorneys fees.15
On July 5, 1996, respondent Fernandez filed her Answer to the complaint. 16 She claimed that while the petitioners offered to buy the property during the meeting of
November 27, 1995, she did not accept the offer; thus, no verbal contract to sell was ever perfected. She specifically alleged that the said contract to sell was
unenforceable for failure to comply with the statute of frauds. She also maintained that even assuming arguendothat she had, indeed, made a commitment or
promise to sell the property to the petitioners, the same was not binding upon her in the absence of any consideration distinct and separate from the price. She,
thus, prayed that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in the amount of not less than P2,000,000.00 and exemplary damages
in the amount of not less than P500,000.00 and attorneys fees and reimbursement expenses of litigation in the amount of P300,000.00. 17
On September 24, 1997, the trial court, upon motion of the petitioners, declared the other respondents in default for failure to file their responsive pleading within
the reglementary period.18 At the pre-trial conference held on March 2, 1998, the parties agreed that the following issues were to be resolved by the trial court: (1)
whether or not there was a perfected contract to sell; (2) in the event that there was, indeed, a perfected contract to sell, whether or not the respondents breached
the said contract to sell; and (3) the corollary issue of damages. 19
Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the properties in San Pablo City "on a best offer basis." She was later
informed by Alimario that the petitioners were interested to buy the properties. On November 27, 1995, along with Alimario and another person, she met with the
petitioners in the latters office and told them that she was at the conference merely to hear their offer, that she could not bind the owners of the properties as she
had no written authority to sell the same. The petitioners offered to buy the property at P150 per square meter. After the meeting, respondent Fernandez requested
Joy Marquez to secure a barangay clearance stating that the property was free of any tenants. She was surprised to learn that the clearance could not be secured.
She contacted a cousin of hers, also one of the owners of the property, and informed him that there was a prospective buyer of the property but that there were
tenants thereon. Her cousin told her that he was not selling his share of the property and that he was not agreeable to the price of P150 per square meter. She no
longer informed the other owners of the petitioners offer. Respondent Fernandez then asked Alimario to apprise the petitioners of the foregoing developments,
through their agent, Agapito Fisico. She was surprised to receive a letter from the petitioners dated January 5, 1996. Nonetheless, she informed the petitioners that
she had changed her mind in pursuing the negotiations in a Letter dated January 18, 1996. When she received petitioners February 1, 1996 Letter, she sent a
Reply-Letter dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in favor of the petitioners on June 23, 1999, 20 the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of plaintiffs ANTONIO K. LITONJUA and AURELIO K. LITONJUA
and against defendants MARY MEDIATRIX T. FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN
DOES and JANE DOES; HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON, EVANGELINE
JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed upon by the parties and to secure all clearances from the
concerned government agencies and removal of any tenants from the subject property at their expense to enable defendants to comply with
their obligations under the perfected agreement to sell; and
2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as and by way of attorneys fees. 21
On appeal to the Court of Appeals, the respondents ascribed the following errors to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED CONTRACT OF SALE OF THE TWO LOTS ON NOVEMBER 27,
1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF SALE AS CLAIMED BY PLAINTIFFS-APPELLEES
ANTONIO LITONJUA AND AURELIO LITONJUA WAS UNENFORCEABLE.

III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-APPELLANT FERNANDEZ DATED JANUARY 16, 1996 WAS A
CONFIRMATION OF THE PERFECTED SALE AND CONSTITUTED AS WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF ATTORNEY WAS REQUIRED IN ORDER THAT DEFENDANTAPPELLANT FERNANDEZ COULD NEGOTIATE THE SALE ON BEHALF OF THE OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING ATTORNEYS FEES IN THE DISPOSITIVE PORTION OF THE DECISION WITHOUT STATING THE
BASIS IN THE TEXT OF SAID DECISION.22
On February 28, 2001, the appellate court promulgated its decision reversing and setting aside the judgment of the trial court and dismissing the petitioners
complaint, as well as the respondents counterclaim. 23 The appellate court ruled that the petitioners failed to prove that a sale or a contract to sell over the property
between the petitioners and the private respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The petitioners submit the following issues for the Courts resolution:
A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE BENEFITED BY THE ASSAILED DECISION OF THE COURT OF
APPEALS.24
The petition has no merit.
The general rule is that the Courts jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. As the
findings of fact of the appellate court are deemed continued, this Court is not duty-bound to analyze and calibrate all over again the evidence adduced by the
parties in the court a quo.25 This rule, however, is not without exceptions, such as where the factual findings of the Court of Appeals and the trial court are
conflicting or contradictory.26 Indeed, in this case, the findings of the trial court and its conclusion based on the said findings contradict those of the appellate court.
However, upon careful review of the records of this case, we find no justification to grant the petition. We, thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert that there was a perfected contract of sale between the petitioners as buyers and the
respondents-owners, through respondent Fernandez, as sellers. The petitioners contend that the perfection of the said contract is evidenced by the January 16,
1996 Letter of respondent Fernandez.27 The pertinent portions of the said letter are as follows:
[M]y cousin and I have thereby changed our mind and that the sale will no longer push through. I specifically instructed her to inform you thru your
broker that we will not be attending the meeting to be held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all problems are fully settled. We have not
demanded and received from you any earnest money, thereby, no obligations exist 28
The petitioners argue that the letter is a sufficient note or memorandum of the perfected contract, thus, removing it from the coverage of the statute of frauds. The
letter specifically makes reference to a sale which respondent Fernandez agreed to initially, but which the latter withdrew because of the emergence of some
people who claimed to be tenants on both parcels of land. According to the petitioners, the respondents-owners, in their answer to the complaint, as well as
respondent Fernandez when she testified, admitted the authenticity and due execution of the said letter. Besides, when the petitioner Antonio Litonjua testified on
the contract of sale entered into between themselves and the respondents-owners, the latter did not object thereto. Consequently, the respondents-owners thereby
ratified the said contract of sale. The petitioners thus contend that the appellate courts declaration that there was no perfected contract of sale between the
petitioners and the respondents-owners is belied by the evidence, the pleadings of the parties, and the law.
The petitioners contention is bereft of merit. In its decision, the appellate court ruled that the Letter of respondent Fernandez dated January 16, 1996 is hardly the
note or memorandum contemplated under Article 1403(2)(e) of the New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or secondary evidence of its contents:

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein.29
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said to constitute the note or memorandum evidencing the
agreement of the parties to enter into a contract of sale as it is very clear that defendant-appellant as seller did not accept the condition that she will be

the one to pay the registration fees and miscellaneous expenses and therein also categorically denied she had already committed to execute the deed
of sale as claimed by the plaintiffs-appellees. The letter, in fact, stated the reasons beyond the control of the defendant-appellant, why the sale could no
longer push through because of the problem with tenants. The trial court zeroed in on the statement of the defendant-appellant that she and her
cousin changed their minds, thereby concluding that defendant-appellant had unilaterally cancelled the sale or backed out of her previous commitment.
However, the tenor of the letter actually reveals a consistent denial that there was any such commitment on the part of defendant-appellant to sell the
subject lands to plaintiffs-appellees. When defendant-appellant used the words "changed our mind," she was clearly referring to the decision to sell the
property at all (not necessarily to plaintiffs-appellees) and not in selling the property to herein plaintiffs-appellees as defendant-appellant had not yet
made the final decision to sell the property to said plaintiffs-appellees. This conclusion is buttressed by the last paragraph of the subject letter stating
that "we are no longer selling the property until all problems are fully settled." To read a definite previous agreement for the sale of the property in favor
of plaintiffs-appellees into the contents of this letter is to unduly restrict the freedom of the contracting parties to negotiate and prejudice the right of
every property owner to secure the best possible offer and terms in such sale transactions. We believe, therefore, that the trial court committed a
reversible error in finding that there was a perfected contract of sale or contract to sell under the foregoing circumstances. Hence, the defendantappellant may not be held liable in this action for specific performance with damages. 30
In Rosencor Development Corporation vs. Court of Appeals,31 the term "statute of frauds" is descriptive of statutes which require certain classes of contracts to be
in writing. The statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations, depending for their
existence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to
be charged. The statute is satisfied or, as it is often stated, a contract or bargain is taken within the statute by making and executing a note or memorandum of the
contract which is sufficient to state the requirements of the statute. 32The application of such statute presupposes the existence of a perfected contract. However,
for a note or memorandum to satisfy the statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must
contain the names of the parties, the terms and conditions of the contract and a description of the property sufficient to render it capable of identification. 33 Such
note or memorandum must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or
some other writing to which it refers or within which it is connected, without resorting to parol evidence. 34 To be binding on the persons to be charged, such note or
memorandum must be signed by the said party or by his agent duly authorized in writing.35
In City of Cebu v. Heirs of Rubi,36 we held that the exchange of written correspondence between the parties may constitute sufficient writing to evidence the
agreement for purposes of complying with the statute of frauds.
In this case, we agree with the findings of the appellate court that there was no perfected contract of sale between the respondents-owners, as sellers, and the
petitioners, as buyers.
There is no documentary evidence on record that the respondents-owners specifically authorized respondent Fernandez to sell their properties to another,
including the petitioners. Article 1878 of the New Civil Code provides that a special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration, 37 or to create or convey real rights over immovable
property,38 or for any other act of strict dominion.39 Any sale of real property by one purporting to be the agent of the registered owner without any authority therefor
in writing from the said owner is null and void. 40The declarations of the agent alone are generally insufficient to establish the fact or extent of her authority. 41 In this
case, the only evidence adduced by the petitioners to prove that respondent Fernandez was authorized by the respondents-owners is the testimony of petitioner
Antonio Litonjua that respondent Fernandez openly represented herself to be the representative of the respondents-owners, 42 and that she promised to present to
the petitioners on December 8, 1996 a written authority to sell the properties. 43 However, the petitioners claim was belied by respondent Fernandez when she
testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one of the owners of the properties, and I was just there to listen to his proposal because that time,
we were just looking for the best offer and I did not have yet any written authorities from my brother and sisters and relatives. I cannot agree on
anything yet since it is just a preliminary meeting, and so, I have to secure authorities and relate the matters to my relatives, brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested me to come back on the first week of December and in the
meantime, I should make an assurance that there are no tenants in our properties, sir. 44
The petitioners cannot feign ignorance of respondent Fernandez lack of authority to sell the properties for the respondents-owners. It must be stressed that the
petitioners are noted businessmen who ought to be very familiar with the intricacies of business transactions, such as the sale of real property.
The settled rule is that persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it. 45 In this case, respondent
Fernandez specifically denied that she was authorized by the respondents-owners to sell the properties, both in her answer to the complaint and when she
testified. The Letter dated January 16, 1996 relied upon by the petitioners was signed by respondent Fernandez alone, without any authority from the respondentsowners. There is no evidence on record that the respondents-owners ratified all the actuations of respondent Fernandez in connection with her dealings with the
petitioners. As such, said letter is not binding on the respondents as owners of the subject properties.
Contrary to the petitioners contention, the letter of January 16, 1996 46 is not a note or memorandum within the context of Article 1403(2) because it does not
contain the following: (a) all the essential terms and conditions of the sale of the properties; (b) an accurate description of the property subject of the sale; and, (c)
the names of the respondents-owners of the properties. Furthermore, the letter made reference to only one property, that covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the specific area of the properties they were seeking to buy. In their complaint, they alleged to have
agreed to buy from the respondents-owners 33,990 square meters of the total acreage of the two lots consisting of 36,742 square meters. In their Letter to
respondent Fernandez dated January 5, 1996, the petitioners stated that they agreed to buy the two lots, with a total area of 36,742 square meters. 47 However, in
their Letter dated February 1, 1996, the petitioners declared that they agreed to buy a portion of the properties consisting of 33,990 square meters. 48 When he
testified, petitioner Antonio Litonjua declared that the petitioners agreed to buy from the respondents-owners 36,742 square meters at P150 per square meter or
for the total price of P5,098,500.49

The failure of respondent Fernandez to object to parol evidence to prove (a) the essential terms and conditions of the contract asserted by the petitioners and, (b)
her authority to sell the properties for the respondents-registered owners did not and should not prejudice the respondents-owners who had been declared in
default.50
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the appellate court is AFFIRMEDIN TOTO. Costs against the petitioners.
SO ORDERED.

[G.R. No. 137471. January 16, 2002]

GUILLERMO ADRIANO, petitioner, vs. ROMULO PANGILINAN, respondent.

DECISION
PANGANIBAN, J.:

Loss brought about by the concurrent negligence of two persons shall be borne by the
one who was in the immediate, primary and overriding position to prevent it. In the present
case, the mortgagee -- who is engaged in the business of lending money secured by real
estate mortgages -- could have easily avoided the loss by simply exercising due diligence
in ascertaining the identity of the impostor who claimed to be the registered owner of the
property mortgaged.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
November 11, 1998 Decision of the Court of Appeals (CA) in CA-GR CV No. 44558.The
dispositive portion of the CA Decision reads as follows:
[1]

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET
ASIDE, and another entered dismissing the complaint instituted in the court below. Without costs in
this instance.
[2]

Also questioned is the February 5, 1999 CA Resolution denying petitioners Motion for
Reconsideration.
[3]

The CA reversed the Regional Trial Court (RTC) of San Mateo, Rizal (Branch 76) in
Civil Case No. 845, which disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring the real estate
mortgage constituted on the property described in and covered by TCT No. 337942 of the Registry
of Deeds for the Province of Rizal, in the name of Guillermo Adriano, to be null and void and of no
force and effect, and directing defendant Romulo Pangilinan to reconvey or deliver to herein
plaintiff Guillermo Adriano the aforesaid title after causing and effecting a discharge and
cancellation of the real estate mortgage annotated on the said title. No pronouncement as to costs.

Defendants counterclaim is dismissed for want of basis.

[4]

The Facts
The undisputed facts of the case are summarized by the Court of Appeals as follows:
[Petitioner] Guillermo Adriano is the registered owner of a parcel of land with an area
of three hundred four (304) square meters, more or less, situated at Col. S. Cruz,
Geronimo, Montalban, Rizal and covered by Transfer Certificate of Title No. 337942.
Sometime on November 23, 1990[, petitioner] entrusted the original owners copy of
the aforesaid Transfer Certificate of Title to Angelina Salvador, a distant relative, for the
purpose of securing a mortgage loan.
Without the knowledge and consent of [petitioner], Angelina Salvador mortgaged the
subject property to the [Respondent] Romulo Pangilinan. After a time, [petitioner] verified
the status of his title with the Registry of Deeds of Marikina, Metro Manila, and was
surprised to discover that upon the said TCT No. 337942 was already annotated or
inscribed a first Real Estate Mortgage purportedly executed by one Guillermo Adriano
over the aforesaid parcel of land, together with the improvements thereon, in favor of the
[Respondent] Romulo Pangilinan, in consideration of the sum of Sixty Thousand Pesos
(P60,000.00). [Petitioner] denied that he ever executed the deed of mortgage, and
denounced his signature thereon as a forgery; he also denied having received the
consideration of P60,000.00 stated therein.
[Petitioner] thereafter repeatedly demanded that [respondent] return or reconvey to
him his title to the said property and when these demands were ignored or disregarded,
he instituted the present suit.
[Petitioner] likewise filed a criminal case for estafa thru falsification of public document
against [Respondent] Romulo Pangilinan, as well as against Angelina Salvador, Romy de
Castro and Marilen Macanaya, in connection with the execution of the allegedly falsified
deed of real estate mortgage: this was docketed as Criminal Case No. 1533-91 of the
Regional Trial Court of San Mateo, Rizal, Branch 76.
[Respondent] in his defense testified that he [was] a businessman engaged in the
buying and selling as well as in the mortgage of real estate properties; that sometime in
the first week of December, 1990 Angelina Salvador, together with Marilou Macanaya and
a person who introduced himself as Guillermo Adriano, came to his house inquiring on
how they could secure a loan over a parcel of land; that he asked them to submit the
necessary documents, such as the owners duplicate of the transfer certificate of title to the
property, the real estate tax declaration, its vicinity location plan, a photograph of the

property to be mortgaged, and the owners residence certificate; that when he conducted
an ocular inspection of the property to be mortgaged, he was there met by a person who
had earlier introduced himself as Guillermo Adriano, and the latter gave him all the original
copies of the required documents to be submitted; that after he (defendant) had verified
from the Registry of Deeds of Marikina that the title to the property to be mortgaged was
indeed genuine, he and that person Guillermo Adriano executed the subject real estate
mortgage, and then had it notarized and registered with the Registry of Deeds. After that,
the alleged owner, Guillermo Adriano, together with Marilou Macanaya and another
person signed the promissory note in the amount of Sixty Thousand Pesos (P60,000.00)
representing the appraised value of the mortgage property. This done, he (defendant)
gave them the aforesaid amount in cash.
[Respondent] claimed that [petitioner] voluntarily entrusted his title to the subject
property to Angelina Salvador for the purpose of securing a loan, thereby creating a
principal-agent relationship between the plaintiff and Angelina Salvador for the aforesaid
purpose. Thus, according to [respondent], the execution of the real estate mortgage was
within the scope of the authority granted to Angelina Salvador; that in any event TCT No.
337942 and the other relevant documents came into his possession in the regular course
of business; and that since the said transfer certificate of title has remained with
[petitioner], the latter has no cause of action for reconveyance against him.
[5]

In his appeal before the CA, respondent contended that the RTC had erred (1) in
holding that petitioners signature on the Real Estate Mortgage was a forgery and (2) in
setting aside and nullifying the Mortgage.
[6]

Ruling of the Court of Appeals

The CA ruled that when a mortgagee relies upon a Torrens title and lends money in all
good faith on the basis of the title standing in the name of the mortgagor, only to discover
one defendant to be an alleged forger and the other defendant to have by his negligence
or acquiescence made it possible for fraud to transpire, as between two innocent persons,
the mortgagee and one of the mortgagors, the latter who made the fraud possible by his
act of confidence must bear the loss.
[7]

It further explained that even conceding for the sake of argument that the appellants
signature on the Deed of First Real Estate Mortgage was a forgery, and even granting that
the appellee did not participate in the execution of the said deed of mortgage, and was not
as well aware of the alleged fraud committed by other persons relative to its execution, the
undeniable and irrefutable fact remains that the appellee did entrust and did deliver his
Transfer Certificate of Title No. 337942 covering the subject property, to a distant relative,

one Angelina Salvador, for the avowed purpose of using the said property as a security or
collateral for a real estate mortgage debt of loan.
[8]

Hence, this present recourse.

[9]

The Issues
In his Memorandum, petitioner raises the following issues for our consideration:
[10]

Whether or not consent is an issue in determining who must bear the loss if a mortgage contract
is sought to be declared a nullity[;]
and
II

Whether or not the Motion for Reconsideration filed by the petitioner before the Court of
Appeals should have been dismissed[.]
[11]

This Courts Ruling

The Petition is meritorious.
First Issue: Effect of Mortgage by Non-Owner
Petitioner contends that because he did not give his consent to the real estate
mortgage (his signature having been forged), then the mortgage is void and produces no
force and effect.
Article 2085 of the Civil Code enumerates the essential requisites of a mortgage, as
follows:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for that purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property. (1857) (Italics supplied)
In the case at bar, not only was it proven in the trial court that the signature of the
mortgagor had been forged, but also that somebody else -- an impostor -- had pretended
to be the former when the mortgagee made an ocular inspection of the subject
property. On this point, the RTC held as follows:
The falsity attendant to the subject real estate mortgage is evidenced not only by herein plaintiffs
vehement denial of having entered into that contract with defendant, but also by a comparison
between the signature of the debtor-mortgagor appearing in the said mortgage contract, and
plaintiffs signatures appearing in the records of this case. Even to the naked eye, the difference is
glaring, and there can be no denying the fact that both signatures were not written or affixed by one
and the same person. The falsity is further infe[r]able from defendants admission that the plaintiff
in this case who appeared in court [was] not the same person who represented himself as the owner
of the property (TSN, pp. 7, 11, June 21, 1993 hearing) and who therefore was the one who signed
the contract as the debtor-mortgagor.
[12]

The CA did not dispute the foregoing finding, but faulted petitioner for entrusting to
Angelina Salvador the TCT covering the property. Without his knowledge or consent,
however, she caused or abetted an impostors execution of the real estate mortgage.
Even conceding for the sake of argument that the appellees signature on the Deed of First Real
Estate Mortgage (Exh. B; Original Record, pp. 56-58) was a forgery, and even granting that the
appellee did not participate in the execution of the said deed of mortgage, and was not as well
aware of the alleged fraud committed by other persons relative to its execution, the undeniable and
irrefutable fact remains that the appellee did entrust and did deliver his Transfer Certificate of Title
No. 337942 (Exh. A; Original Record, pp. 53-55) covering the subject property, to a distant
relative, one Angelina Salvador, for the avowed purpose of using the said property as a security or
collateral for a real estate mortgage debt of loan. x x x
[13]

Be that as it may, it is clear that petitioner who is undisputedly the property owner -- did
not mortgage the property himself. Neither did he authorize Salvador or anyone else to do
so.
In Parqui v. Philippine National Bank, this Court affirmed the trial courts ruling that a
mortgage was invalid if the mortgagor was not the property owner:
[14]

After carefully considering the issue, we reach the conclusion that His Honors decision was correct.
One of the essential requisites of a valid mortgage, under the Civil Code is that the thing pledged or
mortgaged be owned by the person who pledges or mortgages it (Art. 1857, par. 2); and there is no

question that Roman Oliver who pledged the property to the Philippine National Bank did not own
it. The mortgage was consequently void.
[15]

Second Issue: Concurrent Negligence of the Parties

The CA reversed the lower court, because petitioner had been negligent in entrusting
and delivering his TCT No. 337942 to his distant relative Angelina Salvador, who
undertook to find a money lender. Citing Blondeau v. Nano and Philippine National Bank
v. CA, it then applied the bona fide purchaser for value principle.
[16]

[17]

Both cases cited involved individuals who, by their negligence, enabled other persons
to cause the cancellation of the original TCT of the disputed property and the issuance of
a new one in their favor. Having obtained TCTs in their names, they conveyed the subject
property to third persons, who in Blondeau was a bona fide purchaser while in Philippine
National Bank was an innocent mortgagee for value. It should be stressed that in both
these cases, the seller and the mortgagor were the registered owners of the subject
property; whereas in the present case, the mortgagor was an impostor, not the registered
owner.
It must be noted that a Torrens certificate serves as evidence of an indefeasible title to
the property in favor of the person whose name appears therein. Moreover,
theTorrens system does not create or vest title. It only confirms and records title already
existing and vested. It does not protect a usurper from the true owner. It cannot be a
shield for the commission of fraud. It does not permit one to enrich himself at the expense
of another.
[18]

[19]

Thus, we ask these questions: Was petitioner negligent in entrusting and delivering his
TCT to a relative who was supposed to help him find a money lender? And if so, was such
negligence sufficient to deprive him of his property?
To be able to answer these questions and apply the holding in Philippine National
Bank, it is crucial to determine whether herein respondent was an innocent mortgagee for
value. After a careful review of the records and pleadings of the case, we hold that he is
not, because he failed to observe due diligence in the grant of the loan and in the
execution of the real estate mortgage.
[20]

Respondent testified that he was engaged in the real estate business, including the
grant of loans secured by real property mortgages. Thus, he is expected to ascertain the
status and condition of the properties offered to him as collaterals, as well as to verify the
identities of the persons he transacts business with. Specifically, he cannot simply rely on
a hasty examination of the property offered to him as security and the documents backing

them up. He should also verify the identity of the person who claims to be the registered
property owner.
[21]

Respondent stated in his testimony that he had been engaged in the real estate
business for almost seven years. Before the trial court, he testified on how he had
approved the loan sought and the property mortgaged:
[22]

Q Mr. witness, you stated earlier that you are a businessman. Will you please inform the Hon.
Court what kind of business you are engaged in?
A First, as a businessman, I buy and sell real estate properties, sir, and engaged in real estate
mortgage, sir.
Q In relation to your buy and sell business, Mr. witness, how many clients have you had since you
started?
A Since I started in 1985, I have [had] almost 30 to 50 clients, sir.

xxxxxxxxx
Q Will you inform the Court, Mr. [W]itness, how are you found by your clients?
A I advertise it in the newspapers, sir.
Q And what is the frequency of this advertisement in the newspapers?
A One whole week in every month, sir.
Q Let us go specifically [to] the real estate mortgage, Mr. [W]itness, which has relation to this case.
Will you inform the Court how you go about this business, meaning, if you have any procedure
that you follow?
A As soon as my client go[es] to our house, I usually give them the requirements, sir.
Q And what are these requirements?
A I usually require them to submit to me at least a machine copy of the title, the location plan with
vicinity, the real estate tax, the tax declaration, the picture of the property and the Res. Cert. of
the owner, sir.
Q And when these documents are given to you, what else do you do, if any?
A When they present to me the machine copy, I require them to visit the place for the ocular
inspection for the appraisal of the property, sir.
Q What other steps, if any?
A After that ocular inspection, sir, appraising the property, I usually tell them to come back
after one week for verification of the title in the Register of Deeds, sir.

Q Will you inform the Court how you verif[ied] the title with the Register of Deeds?
A I got a certified true copy from the Register of Deeds, sir.
Q Certified true copy of what, Mr. witness?
A The owners duplicate title [to] the property, sir.
Q Will you inform the Court why you asked for these documents?
A To see to it that the title [was] genuine, sir.

xxxxxxxxx
Q You mentioned Residence Certificate. Why did you ask for a Residence Certificate?
A To fully identify the alleged owner, sir.
Q So, when the machine copies of these documents x x x were given to you [as you said], what did
you do next, if any?
A x x x [O]cular inspection, sir, that is my standard procedure. After they gave me all the requirements,
we usually go there for the ocular inspection for the appraisal of the property, sir.
Q So, you went to the house itself?
A Yes, sir.
Q Did you go there alone or were you with somebody else?
A With the[ir] group x x x, sir, the one [which] came to our house. The two of them were Marilou
Macanaya and Angelina Salvador.
Q And when you went to the house, what did you see?
A I saw a man there x x x who posed as Guillermo Adriano and gave me all the original copies of the
requirements, sir.
Q Did you get to enter the house?
A As an architect, as soon as I [saw] the house, I already knew what [was] the appraisal, sir, and I
knew already the surroundings of the property.
Q So, you did not need to go inside the house?
A Inside the house, not anymore, sir, we talked only inside the property.
Q And this person who gave you the original documents is the owner of the house?

A I assumed it, sir, [that] he [was] the owner. (Emphasis supplied)

[23]

On cross[-]examination, he made a clarification:

Q Mr. Pangilinan, will you state again what business are you engaged [in]?
A First, as an Architect, I do design and build and as a businessman, I do the buy and sell of real
properties and engag[e] in mortgage contract, sir.
Q Actually, it is in the mortgage business that you practically have the big bulk of your business. Isnt
it?
A Yes, sir.[24]

It is quite clear from the testimony of respondent that he dismally failed to verify
whether the individual executing the mortgage was really the owner of the property.
The ocular inspection respondent conducted was primarily intended to appraise the
value of the property in order to determine how much loan he would grant. He did not
verify whether the mortgagor was really the owner of the property sought to be
mortgaged. Because of this, he must bear the consequences of his negligence.
In Uy v. CA, the Court through Mr. Justice Jose A. R. Melo made the following
significant observations:
[25]

Thus, while it is true, as asserted by petitioners, that a person dealing with registered lands need not
go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee
cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that
he acted in good faith under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up to the fact that such defect exists, or his willful closing of
his eyes to the possibility of the existence of a defect in the vendors or mortgagors title, will not
make him an innocent purchaser for value, if it afterwards develops that the title was in fact
defective, and it appears that he had such notice of the defect as would have led to its discovery had
he acted with the measure of precaution which may be required of a prudent man in a like situation.
[26]

Indeed, there are circumstances that should put a party on guard and prompt an
investigation of the property being mortgaged. Citing Torres v. CA, the Court continued
as follows:
[27]

x x x [T]he value of the property, its principal value being its income potential in the form of
monthly rentals being located at the corner of Quezon Boulevard and Raon Street, Manila, and the
registered title not yielding any information as to the amount of rentals due from the building, much
less on who is collecting them, or who is recognized by the tenants as their landlord - it was held
that any prospective buyer or mortgagee of such a valuable building and land at the center of
Manila, if prudent and in good faith, is normally expected to inquire into all these and related facts

and circumstances. For failing to conduct such an investigation, a party would be negligent in
protecting his interests and cannot be held as an innocent purchaser for value.
[28]

We are not impressed by the claim of respondent that he exercised due diligence in
ascertaining the identity of the alleged mortgagor when he made an ocular inspection of
the mortgaged property. Respondents testimony negated this assertion.
[29]

Q Now you told me also that you conducted an ocular inspection o[f] the premises. How many times
did you do it?
A Once, sir.
Q Who were with you when you went there?
A The same group of them, sir.
Q How long did you stay in the premises?
A I think 5 to 10 minutes, sir.
Q And did you see any people inside the premises where you visited?
A Yes, sir.
Q Did you ask these persons?
A They told me that. . .
Q Did you ask these persons whom you saw in the premises?
A No, sir.
Q And what x x x did you [just] do when you inspected the premises?

xxxxxxxxx
A When I arrived in the property, that house, the alleged owner told me that the one staying at
his house were just renting from him, sir.

xxxxxxxxx
Q Again, Mr. Pangilinan, my question to you is, what did you do when you arrived in the premises in
the course of your ocular inspection?
Atty. Garcia:
Already answered.

Court:
You may answer.
A When I arrived at that place, I just looked around and as an Architect, I [saw] that I [could]
appraise it just [by] one look at it, sir.
Atty. Amado:
Q And after that, where did you go? Where did you and this group go?
A Just inside the property, sir. We talked [about] how much [would] be given to them and I told them
this [was] only the amount I [could] give them, sir.[30] (Emphasis supplied)

Since he knew that the property was being leased, respondent should have made
inquiries about the rights of the actual possessors. He could have easily verified from the
lessees whether the claimed owner was, indeed, their lessor.
Petitioners act of entrusting and delivering his TCT and Residence Certificate
to Salvador was only for the purpose of helping him find a money lender. Not having
executed a power of attorney in her favor, he clearly did not authorize her to be his agent
in procuring the mortgage. He only asked her to look for possible money lenders. Article
1878 of the Civil Code provides:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxxxxxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation
of the things which are under administration;
xxxxxxxxx
(12) To create or convey real rights over immovable property;
x x x x x x x x x.
As between petitioner and respondent, we hold that the failure of the latter to verify
essential facts was the immediate cause of his predicament. If he were an ordinary
individual without any expertise or experience in mortgages and real estate dealings, we
would probably understand his failure to verify essential facts. However, he has been in
the mortgage business for seven years. Thus, assuming that both parties were negligent,
the Court opines that respondent should bear the loss. His superior knowledge of the
matter should have made him more cautious before releasing the loan and accepting the
identity of the mortgagor.
[31]

Given the particular circumstances of this case, we believe that the negligence of
petitioner is not enough to offset the fault of respondent himself in granting the loan. The
former should not be made to suffer for respondents failure to verify the identity of the
mortgagor and the actual status of the subject property before agreeing to the real estate
mortgage. While we commiserate with respondent -- who in the end appears to have been
the victim of scoundrels -- his own negligence was the primary, immediate and overriding
reason that put him in his present predicament.
To summarize, we hold that both law and equity favor petitioner. First, the relevant
legal provision, Article 2085 of the Civil Code, requires that the mortgagor be the absolute
owner of the thing x x x mortgaged. Here, the mortgagor was an impostor who executed
the contract without the knowledge and consent of the owner. Second, equity dictates that
a loss brought about by the concurrent negligence of two persons shall be borne by one
who was in the immediate, primary and overriding position to prevent it.Herein respondent
who, we repeat, is engaged in the business of lending money secured by real estate
mortgages could have easily avoided the loss by simply exercising due diligence in
ascertaining the identity of the impostor who claimed to be the owner of the property being
mortgaged. Finally, equity merely supplements, not supplants, the law. The former cannot
contravene or take the place of the latter.
In any event, respondent is not precluded from availing himself of proper remedies
against Angelina Salvador and her cohorts.
WHEREFORE, the Petition is GRANTED and the assailed Decision SET ASIDE. The
November 25, 1993 Decision of the RTC of San Mateo, Rizal (Branch 76) is
herebyREINSTATED. No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 94566 July 3, 1992

BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the respondent appellate court which reversed the ruling of the trial court dismissing the case against
petitioner.
The antecedent facts are as follows:
On December 17, 1980, Renato Gaytano, doing business under the name Gebbs International, applied for and was granted a loan with respondent Traders Royal
Bank in the amount of P60,000.00. As security for the payment of said loan, the Gaytano spouses executed a deed of suretyship whereby they agreed to pay
jointly and severally to respondent bank the amount of the loan including interests, penalty and other bank charges.
In a letter dated December 5, 1980 addressed to respondent bank, Philip Wong as credit administrator of BA Finance Corporation for and in behalf of the latter,
undertook to guarantee the loan of the Gaytano spouses. The letter reads:
This is in reference to the application of Gebbs International for a twenty-five (25) month term loan of 60,000.00 with your Bank.
In this connection, please be advised that we unconditionally guarantee full payment in peso value the said accommodation (sic) upon nonpayment by subject up to a maximum amount of P60,000.00.
Hoping this would meet your requirement and expedite the early processing of their application.
Thank you.
Very truly yours,
BA FINANCE CORPORATION
(signed)
PHILIP H.
WONG
Credit
Administra
tor
(p. 12, Rollo)
Partial payments were made on the loan leaving an unpaid balance in the amount of P85,807.25. Since the Gaytano spouses refused to pay their obligation,
respondent bank filed with the trial court complaint for sum of money against the Gaytano spouses and petitioner corporation as alternative defendant.
The Gaytano spouses did not present evidence for their defense. Petitioner corporation, on the other hand, raised the defense of lack of authority of its credit
administrator to bind the corporation.
On December 12, 1988, the trial court rendered a decision the dispositive portion of which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of plaintiff and against defendants/Gaytano spouses, ordering the
latter to jointly and severally pay the plaintiff the following:
1) EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND 25/100 (P85,807.25), representing the total unpaid balance with accumulated
interests, penalties and bank charges as of September 22, 1987, plus interests, penalties and bank charges thereafter until the whole
obligation shall have been fully paid.
2) Attorney's fees at the stipulated rate of ten (10%) percent computed from the total obligation; and
3) The costs of suit.
The dismissal of the case against defendant BA Finance Corporation is hereby ordered without pronouncement as to cost.
SO ORDERED. (p. 31, Rollo)
Not satisfied with the decision, respondent bank appealed with the Court of Appeals. On March 13, 1990, respondent appellate court rendered judgment modifying
the decision of the trial court as follows:
In view of the foregoing, the judgment is hereby rendered ordering the defendants Gaytano spouses and alternative defendant BA Finance
Corporation, jointly and severally, to pay the plaintiff the amount of P85,807.25 as of September 8, 1987, including interests, penalties and
other back (sic) charges thereon, until the full obligation shall have been fully paid. No pronouncement as to costs.

SO ORDERED. (p. 27 Rollo)

Hence this petition was filed with the petitioner assigning the following errors committed by respondent appellate court:
1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER IS JOINTLY AND SEVERALLY LIABLE
WITH GAYTANO SPOUSES DESPITE ITS FINDINGS THAT THE LETTER GUARANTY (EXH. "C") IS "INVALID AT ITS INCEPTION";
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PETITIONER WAS GUILTY OF ESTOPPEL
DESPITE THE FACT THAT IT NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY;
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT SUCH LETTER GUARANTY (EXHIBIT "C") BEING
PATENTLY ULTRA VIRES, IS UNENFORCEABLE;
4. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING RELIEF ON PETITIONER'S COUNTERCLAIM
(p. 10, Rollo).
Since the issues are interrelated, it would be well to discuss them jointly.
Petitioner contends that the letter guaranty is ultra vires, and therefore unenforceable; that said letter-guaranty was issued by an employee of petitioner
corporation beyond the scope of his authority since the petitioner itself is not even empowered by its articles of incorporation and by-laws to issue guaranties.
Petitioner also submits that it is not guilty of estoppel to make it liable under the letter-guaranty because petitioner had no knowledge or notice of such letterguaranty; that the allegation of Philip Wong, credit administrator, that there was an audit was not supported by evidence of any audit report or record of such
transaction in the office files.
We find the petitioner's contentions meritorious. It is a settled rule that 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 liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden is on respondent bank to
satisfactorily prove that the credit administrator with whom they transacted acted within the authority given to him by his principal, petitioner corporation. The only
evidence presented by respondent bank was the testimony of Philip Wong, credit administrator, who testified that he had authority to issue guarantees as can be
deduced from the wording of the memorandum given to him by petitioner corporation on his lending authority. The said memorandum which allegedly authorized
Wong not only to approve and grant loans but also to enter into contracts of guaranty in behalf of the corporation, partly reads:
To: Philip H. Wong, SAM
Credit Administrator
From: Hospicio B. Bayona, Jr., VP and
Head of Credit Administration
Re: Lending Authority
I am pleased to delegate to you in your capacity as Credit Administrator the following lending limits:
a) P650,000.00 Secured Loans
b) P550,000.00 Supported Loans
c) P350,000.00 Truck Loans/Contracts/Leases
d) P350,000.00 Auto Loan Contracts/Leases
e) P350,000.00 Appliance Loan Contracts
f) P350,000.00 Unsecured Loans
Total loans and/or credits [combination of (a) thru (f) extended to any one borrower including parents, affiliates and/or subsidiaries, should not
exceed P750,000.00. In exercising the limits aforementioned, both direct and contingent commitments to the borrower(s) should be
considered.
All loans must be within the Company's established lending guideline and policies.
xxx xxx xxx
LEVELS OF APPROVAL
All transactions in excess of any branch's limit must be recommended to you through the Official Credit Report for approval. If the transaction
exceeds your limit, you must concur in application before submitting it to the Vice President, Credit Administration for approval or
concurrence.
. . . (pp. 62-63, Rollo) (Emphasis ours)

Although Wong was clearly authorized to approve loans even up to P350,000.00 without any security requirement, which is far above the amount subject of the
guaranty in the amount of P60,000.00, nothing in the said memorandum expressly vests on the credit administrator power to issue guarantees. We cannot agree
with respondent's contention that the phrase "contingent commitment" set forth in the memorandum means guarantees. It has been held that a power of attorney
or authority of an agent should not be inferred from the use of vague or general words. Guaranty is not presumed, it must be expressed and cannot be extended
beyond its specified limits (Director v. Sing Juco, 53 Phil. 205). In one case, where it appears that a wife gave her husband power of attorney to loan money, this
Court ruled that such fact did not authorize him to make her liable as a surety for the payment of the debt of a third person (Bank of Philippine Islands v. Coster, 47
Phil. 594).
The sole allegation of the credit administrator in the absence of any other proof that he is authorized to bind petitioner in a contract of guaranty with third persons
should not be given weight. The representation of one who acts as agent cannot by itself serve as proof of his authority to act as agent or of the extent of his
authority as agent (Velasco v. La Urbana, 58 Phil. 681). Wong's testimony that he had entered into similar transactions of guaranty in the past for and in behalf of
the petitioner, lacks credence due to his failure to show documents or records of the alleged past transactions. The actuation of Wong in claiming and testifying
that he has the authority is understandable. He would naturally take steps to save himself from personal liability for damages to respondent bank considering that
he had exceeded his authority. The rule is clear that an agent who exceeds his authority is personally liable for damages (National Power Corporation v. National
Merchandising Corporation, Nos. L-33819 and
L-33897, October 23, 1982, 117 SCRA 789).
Anent the conclusion of respondent appellate court that petitioner is estopped from alleging lack of authority due to its failure to cancel or disallow the guaranty, We
find that the said conclusion has no basis in fact. Respondent bank had not shown any evidence aside from the testimony of the credit administrator that the
disputed transaction of guaranty was in fact entered into the official records or files of petitioner corporation, which will show notice or knowledge on the latter's
part and its consequent ratification of the said transaction. In the absence of clear proof, it would be unfair to hold petitioner corporation guilty of estoppel in
allowing its credit administrator to act as though the latter had power to guarantee.
ACCORDINGLY, the petition is GRANTED and the assailed decision of the respondent appellate court dated March 13, 1990 is hereby REVERSED and SET
ASIDE and another one is rendered dismissing the complaint for sum of money against BA Finance Corporation.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 85302 March 31, 1989

BICOL SAVINGS AND LOAN ASSOCIATION, petitioner,
vs.
HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE DE JESUS, AND PABLO DE JESUS, respondents.
Contreras & Associates for petitioner.
Reynaldo A. Feliciano for private respondents.

MELENCIO-HERRERA, J.:
This Petition for Review on certiorari was filed by Bicol Savings and Loan Association, seeking the reversal of the Decision ** of the respondent Court of Appeals in
CA-G.R. CV No. 02213, dated 11 August 1 988, which ruled adversely against it. The pleadings disclose the following factual milieu:
Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less, situated in Naga City. On 31 March 1976, he executed a
Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public entity preferably in the
Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)
By virtue thereof, Jose de Jesus obtained a loan of twenty thousand pesos (P20,000.00) from petitioner bank on 13 April 1976. To secure payment, Jose de Jesus
executed a deed of mortgage on the real property referred to in the Special Power of Attorney, which mortgage contract carried, inter alia, the following stipulation:
b) If at any time the Mortgagor shall refuse to pay the obligations herein secured, or any of the amortizations of such
indebtedness when due, or to comply with any of the conditions and stipulations herein agreed .... then all the
obligations of the Mortgagor secured by this Mortgage, all the amortizations thereof shall immediately become due,
payable and defaulted and the Mortgagee may immediately foreclose this mortgage in accordance with the Rules of
Court, or extrajudicially in accordance with Act No. 3135, as amended, or Act No. 1508. For the purpose of extrajudicial

foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged. . . . (CA
Decision, pp. 47-48, Rollo)
Juan de Jesus died in the meantime on a date that does not appear of record.
By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed on 16 November
1978. In the subsequent public auction, the mortgaged property was sold to the bank as the highest bidder to whom a Provisional Certificate of Sale was issued.
Private respondents herein, including Jose de Jesus, who are all the heirs of the late Juan de Jesus, failed to redeem the property within one year from the date of
the registration of the Provisional Certificate of Sale on 21 November 1980. Hence, a Definite Certificate of Sale was issued in favor of the bank on 7 September
1982.
Notwithstanding, private respondents still negotiated with the bank for the repurchase of the property. Offers and counter-offers were made, but no agreement was
reached, as a consequence of which, the bank sold the property instead to other parties in installments. Conditional deeds of sale were executed between the
bank and these parties. A Writ of Possession prayed for by the bank was granted by the Regional Trial Court.
On 31 January 1983 private respondents herein filed a Complaint with the then Court of First Instance of Naga City for the annulment of the foreclosure sale or for
the repurchase by them of the property. That Court, noting that the action was principally for the annulment of the Definite Deed of Sale issued to petitioner bank,
dismissed the case, ruling that the title of the bank over the mortgaged property had become absolute upon the issuance and registration of the said deed in its
favor in September 1982. The Trial Court also held that herein private respondents were guilty of laches by failing to act until 31 January 1983 when they filed the
instant Complaint.
On appeal, the Trial Court was reversed by respondent Court of Appeals. In so ruling, the Appellate Court applied Article 1879 of the Civil Code and stated that
since the special power to mortgage granted to Jose de Jesus did not include the power to sell, it was error for the lower Court not to have declared the
foreclosure proceedings -and auction sale held in 1978 null and void because the Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely
to mortgage his property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the said extrajudicial foreclosure. The Appellate Court
was also of the opinion that petitioner bank should have resorted to judicial foreclosure. A Decision was thus handed down annulling the extrajudicial foreclosure
sale, the Provisional and Definite Deeds of Sale, the registration thereof, and the Writ of Possession issued to petitioner bank.
From this ruling, the bank filed this petition to which the Court gave due course.
The pivotal issue is the validity of the extrajudicial foreclosure sale of the mortgaged property instituted by petitioner bank which, in turn hinges on whether or not
the agent-son exceeded the scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could extrajudicially foreclose the
mortgaged property.
Article 1879 of the Civil Code, relied on by the Appellate Court in ruling against the validity of the extrajudicial foreclosure sale, reads:
Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell.
We find the foregoing provision inapplicable herein.
The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and independent contract, and not an auction sale resulting from extrajudicial
foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The stipulation granting an authority to extrajudicially
foreclose a mortgage is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential or inseparable part of that
bilateral agreement (Perez v. Philippine National Bank, No. L-21813, July 30, 1966, 17 SCRA 833, 839).
The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the right of the
mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did
not depend on the authorization in the deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly recognized in
Section 7, Rule 86 of the Rules of Court, which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: (1) to
waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any
deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file
a claim for any deficiency. It is this right of extrajudicial foreclosure that petitioner bank had availed of, a right that was expressly upheld in the same case of Perez
v. Philippine National Bank (supra), which explicitly reversed the decision in Pasno v. Ravina (54 Phil. 382) requiring a judicial foreclosure in the same factual
situation. The Court in the aforesaid PNB case pointed out that the ruling in the Pasno case virtually wiped out the third alternative, which precisely includes
extrajudicial foreclosure, a result not warranted by the text of the Rule.
It matters not that the authority to extrajudicially foreclose was granted by an attorney-in-fact and not by the mortgagor personally. The stipulation in that regard,
although ancillary, forms an essential part of the mortgage contract and is inseparable therefrom. No creditor will agree to enter into a mortgage contract without
that stipulation intended for its protection.
Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property, merely availed of a right conferred by law. The auction sale that
followed in the wake of that foreclosure was but a consequence thereof.

WHEREFORE, the Decision of respondent Court of Appeals in CA-G.R. CV No. 02213 is SET ASIDE, and the extrajudicial foreclosure of the subject mortgaged
property, as well as the Deeds of Sale, the registration thereof, and the Writ of Possession in petitioner bank's favor, are hereby declared VALID and EFFECTIVE.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

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. S-79238 (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-infact.
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. 4041, 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 attorneyin-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.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32116 April 2l, 1981
RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners,
vs.
THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

DE CASTRO, * J.:

of the Court of Appeals in CA-G.R. No. 39760-R entitled "Maxima Castro,

plaintiff-appellee, versus Severino Valencia, et al., defendants; Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and
Arsenio Reyes, defendants-appellants," which affirmed in toto the decision of the Court of First Instance of Manila in favor
of plaintiff- appellee, the herein private respondent Maxima Castro.
This is a petition for review by way of certiorari of the decision

On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for an industrial loan. It was
Severino Valencia who arranged everything about the loan with the bank and who supplied to the latter the personal data required for Castro's loan application. On
December 11, 1959, after the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed a promissory note
corresponding to her loan in favor of the bank.
On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal amount of loan for P3,000.00. They signed a promissory note
(Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her signature as co-maker.
The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of 150 square meters, covered by Transfer Certificate of Title No.
7419 of the Office of the Register of Deeds of Manila.
On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol, sent a notice of sheriff's sale addressed to Castro, announcing
that her property covered by T.C.T. No. 7419 would be sold at public auction on March 10, 1961 to satisfy the obligation covering the two promissory notes plus
interest and attorney's fees.
Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that was scheduled for March 10, 1961 was postponed for April 10,
1961. But when April 10, 1961 was subsequently declared a special holiday, the sheriff of Manila sold the property covered by T.C.T. No. 7419 at a public auction
sale that was held on April 11, 1961, which was the next succeeding business day following the special holiday.
Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on February 13, 1961, when she learned for the first time that the
mortgage contract (Exhibit "6") which was an encumbrance on her property was for P6.000.00 and not for P3,000.00 and that she was made to sign as co-maker
of the promissory note (Exhibit "2") without her being informed of this.
On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank and Desiderio, the Spouses Valencia, Basilio Magsambol and
Arsenio Reyes as defendants in Civil Case No. 46698 before the Court of First Instance of Manila upon the charge, amongst others, that thru mistake on her part
or fraud on the part of Valencias she was induced to sign as co-maker of a promissory note (Exhibit "2") and to constitute a mortgage on her house and lot to
secure the questioned note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with the court a quo in full payment of her
personal loan plus interest.
In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit
"6") insofar as it exceeds P3,000.00; for the discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the court a quo upon the
filing of her complaint; for the annulment of the foreclosure sale of her property covered by T.C.T. No. 7419 in favor of Arsenio Reyes; and for the award in her
favor of attorney's fees, damages and cost.
In their answers, petitioners interposed counterclaims and prayed for the dismissal of said complaint, with damages, attorney's fees and costs.

The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by respondent Court of Appeals are as follows:
Spawning the present litigation are the facts contained in the following stipulation of facts submitted by the parties themselves:
1. That the capacity and addresses of all the parties in this case are admitted .
2. That the plaintiff was the registered owner of a residential house and lot located at Nos. 1268-1270 Carola Street, Sampaloc, Manila,
containing an area of one hundred fifty (150) square meters, more or less, covered by T.C.T. No. 7419 of the Office of the Register of Deeds
of Manila;
3. That the signatures of the plaintiff appearing on the following documents are genuine:
a) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 7, 1959 in the amount of P3,000.00 attached as Annex A
of this partial stipulation of facts;
b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the Rural Bank of Caloocan for the amount of P3,000.00 as
per Annex B of this partial stipulation of facts;
c) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 11, 1959, signed only by the defendants, Severino
Valencia and Catalina Valencia, attached as Annex C, of this partial stipulation of facts;

d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11, 1959 for the amount of P3000.00, signed by the spouses
Severino Valencia and Catalina Valencia as borrowers, and plaintiff Maxima Castro, as a co-maker, attached as Annex D of this partial
stipulation of facts;
e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima Castro, in favor of the Rural Bank of Caloocan, to secure
the obligation of P6,000.00 attached herein as Annex E of this partial stipulation of facts;
All the parties herein expressly reserved their right to present any evidence they may desire on the circumstances regarding the execution of
the above-mentioned documents.
4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio Magsambol, sent a notice of sheriff's sale, address to the plaintiff, dated
February 13, 1961, announcing that plaintiff's property covered by TCT No. 7419 of the Register of Deeds of the City of Manila, would be
sold at public auction on March 10, 1961 to satisfy the total obligation of P5,728.50, plus interest, attorney's fees, etc., as evidenced by the
Notice of Sheriff's Sale and Notice of Extrajudicial Auction Sale of the Mortgaged property, attached herewith as Annexes F and F-1,
respectively, of this stipulation of facts;
5. That upon the request of the plaintiff and defendants-spouses Severino Valencia and Catalina Valencia, and with the conformity of the
Rural Bank of Caloocan, the Sheriff of Manila postponed the auction sale scheduled for March 10, 1961 for thirty (30) days and the sheriff reset the auction sale for April 10, 1961;
6. That April 10, 1961 was declared a special public holiday; (Note: No. 7 is omitted upon agreement of the parties.)
8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiff's property covered by T.C.T. No. 7419 and defendant, Arsenio
Reyes, was the highest bidder and the corresponding certificate of sale was issued to him as per Annex G of this partial stipulation of facts;
9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of Consolidation of Ownership, a copy of which is hereto
attached as Annex H of this partial stipulation of facts;
10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the final deed of sale in favor of the defendant, Arsenio Reyes,
in the amount of P7,000.00, a copy of which is attached as Annex I of this partial stipulation of facts;
11. That the Register of Deeds of the City of Manila issued the Transfer Certificate of Title No. 67297 in favor of the defendant, Arsenio
Reyes, in lieu of Transfer Certificate of Title No. 7419 which was in the name of plaintiff, Maxima Castro, which was cancelled;
12. That after defendant, Arsenio Reyes, had consolidated his title to the property as per T.C.T. No. 67299, plaintiff filed a notice of lis
pendens with the Register of Deeds of Manila and the same was annotated in the back of T.C.T. No. 67299 as per Annex J of this partial
stipulation of facts; and
13. That the parties hereby reserved their rights to present additional evidence on matters not covered by this partial stipulation of facts.
WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of facts be approved and admitted by this Honorable Court.
As for the evidence presented during the trial, We quote from the decision of the Court of Appeals the statement thereof, as follows:
In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year old widow who cannot read and write the English language;
that she can speak the Pampango dialect only; that she has only finished second grade (t.s.n., p. 4, December 11, 1964); that in December
1959, she needed money in the amount of P3,000.00 to invest in the business of the defendant spouses Valencia, who accompanied her to
the defendant bank for the purpose of securing a loan of P3,000.00; that while at the defendant bank, an employee handed to her several
forms already prepared which she was asked to sign on the places indicated, with no one explaining to her the nature and contents of the
documents; that she did not even receive a copy thereof; that she was given a check in the amount of P2,882.85 which she delivered to
defendant spouses; that sometime in February 1961, she received a letter from the Acting Deputy Sheriff of Manila, regarding the
extrajudicial foreclosure sale of her property; that it was then when she learned for the first time that the mortgage indebtedness secured by
the mortgage on her property was P6,000.00 and not P3,000.00; that upon investigation of her lawyer, it was found that the papers she was
made to sign were:
(a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and Exh. 1);
(b) Promissory note dated December 11, 1959 for the said loan of P3,000.00 (Exh- B-2);
(c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants Valencia spouses as borrowers and appellee as co-maker
(Exh. B-4 or Exh. 2).
The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon the request of defendant spouses Valencia who needed more
time within which to pay their loan of P3,000.00 with the defendant bank; plaintiff claims that when she filed the complaint she deposited with

the Clerk of Court the sum of P3,383.00 in full payment of her loan of P3,000.00 with the defendant bank, plus interest at the rate of 12% per
annum up to April 3, 1961 (Exh. D).
As additional evidence for the defendant bank, its manager declared that sometime in December, 1959, plaintiff was brought to the Office of
the Bank by an employee- (t.s.n., p 4, January 27, 1966). She wept, there to inquire if she could get a loan from the bank. The claims he
asked the amount and the purpose of the loan and the security to he given and plaintiff said she would need P3.000.00 to be invested in a
drugstore in which she was a partner (t.s.n., p. 811. She offered as security for the loan her lot and house at Carola St., Sampaloc, Manila,
which was promptly investigated by the defendant bank's inspector. Then a few days later, plaintiff came back to the bank with the wife of
defendant Valencia A date was allegedly set for plaintiff and the defendant spouses for the processing of their application, but on the day
fixed, plaintiff came without the defendant spouses. She signed the application and the other papers pertinent to the loan after she was
interviewed by the manager of the defendant. After the application of plaintiff was made, defendant spouses had their application for a loan
also prepared and signed (see Exh. 13). In his interview of plaintiff and defendant spouses, the manager of the bank was able to gather that
plaintiff was in joint venture with the defendant spouses wherein she agreed to invest P3,000.00 as additional capital in the laboratory owned
by said spouses (t.s.n., pp. 16-17) 3
The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court of First Instance of Manila, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment and:
(1) Declares that the promissory note, Exhibit '2', is invalid as against plaintiff herein;
(2) Declares that the contract of mortgage, Exhibit '6', is null and void, in so far as the amount thereof exceeds the sum of P3,000.00
representing the principal obligation of plaintiff, plus the interest thereon at 12% per annum;
(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged property held on April 11, 1961, as well as all the process and
actuations made in pursuance of or in implementation thereto;
(4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of Caloocan, Inc., is only the amount of P3,000.00, plus the
interest thereon at 12% per annum, as of April 3, 1961, and orders that plaintiff's deposit of P3,383.00 in the Office of the Clerk of Court be
applied to the payment thereof;
(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio Reyes the purchase price the latter paid for the mortgaged
property at the public auction, as well as reimburse him of all the expenses he has incurred relative to the sale thereof;
(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay defendant Rural Bank of Caloocan, Inc. the amount of
P3,000.00 plus the corresponding 12% interest thereon per annum from December 11, 1960 until fully paid; and
Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses Severino D. Valencia and Catalina Valencia to pay plaintiff,
jointly and severally, the sum of P600.00 by way of attorney's fees, as well as costs.
In view of the conclusion that the court has thus reached, the counterclaims of defendant Rural Bank of Caloocan, Inc., Jose Desiderio, Jr.
and Arsenio Reyes are hereby dismissed, as a corollary
The Court further denies the motion of defendant Arsenio Reyes for an Order requiring Maxima Castro to deposit rentals filed on November
16, 1963, resolution of which was held in abeyance pending final determination of the case on the merits, also as a consequence of the
conclusion aforesaid. 4

of respondent court's decision. The motion having been denied, they

now come before this Court in the instant petition, with the following Assignment of Errors, to wit:
Petitioners Bank and Jose Desiderio moved for the reconsideration

I
THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT OF THE PROMISSORY NOTE, EXHIBIT 2, AND THE
MORTGAGE, EXHIBIT 6, INSOFAR AS THEY AFFECT RESPONDENT MAXIMA CASTRO VIS-A-VIS PETITIONER BANK DESPITE THE
TOTAL ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT PROOF IN THE EVIDENCE OF ANY FRAUD OR
OTHER UNLAWFUL CONDUCT COMMITTED OR PARTICIPATED IN BY PETITIONERS IN PROCURING THE EXECUTION OF SAID
CONTRACTS FROM RESPONDENT CASTRO.
II
THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR
THE PARTIAL ANNULMENT OF THE CONTRACTS AFORESAID ITS FINDING OF FRAUD PERPETRATED BY THE VALENCIA
SPOUSES UPON RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES INTER ALIOS ACTA RULE.

III
THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE FACTS FOUND BY IT, RESPONDENT CASTRO IS UNDER
ESTOPPEL TO IMPUGN THE REGULARITY AND VALIDITY OF HER QUESTIONED TRANSACTION WITH PETITIONER BANK.
IV
THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN PETITIONERS AND RESPONDENT CASTRO, THE LATTER
SHOULD SUFFER THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE VALENCIA SPOUSES, IN AS MUCH AS IT WAS
THRU RESPONDENT CASTRO'S NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL CONNIVANCE THAT THE PERPETRATION OF
SAID FRAUD WAS MADE POSSIBLE.
V
THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE DEPOSIT BY RESPONDENT CASTRO OF P3,383.00 WITH
THE COURT BELOW AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT TO DISCHARGE SAID RESPONDENT FROM
HER OBLIGATION WITH PETITIONER BANK.
VI
THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING UPON RESPONDENT CASTRO THE HOLDING OF
THE SALE ON FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY SCHEDULED DATE THEREFOR
WHICH WAS DECLARED A HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE THEREOF.
The issue raised in the first three (3) assignment of errors is whether or not respondent court correctly affirmed the lower court in declaring the promissory note
(Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00 only.
Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where she signed as co-maker with the Valencias as principal borrowers
and her acquiescence to the mortgage contract (Exhibit 6) where she encumbered her property to secure the amount of P6,000.00 was obtained by fraud
perpetrated on her by the Valencias who had abused her confidence, taking advantage of her old age and ignorance of her financial need. Respondent court
added that "the mandate of fair play decrees that she should be relieved of her obligation under the contract" pursuant to Articles 24

and 1332 of the Civil

8

Code.
The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6) was deemed valid up to the amount of
P3,000.00 only which was equivalent to her personal loan to the bank.
Petitioners argued that since the Valencias were solely declared in the decision to be responsible for the fraud against Castro, in the light of the res inter alios
acta rule, a finding of fraud perpetrated by the spouses against Castro cannot be taken to operate prejudicially against the bank. Petitioners concluded that
respondent court erred in not giving effect to the promissory note (Exhibit 2) insofar as they affect Castro and the bank and in declaring that the mortgage contract
(Exhibit 6) was valid only to the extent of Castro's personal loan of P3,000.00.
The records of the case reveal that respondent court's findings of fraud against the Valencias is well supported by evidence. Moreover, the findings of fact by

The decision declared the Valencias solely responsible for the defraudation of Castro.
Petitioners' contention that the decision was silent regarding the participation of the bank in the fraud is, therefore, correct.
respondent court in the matter is deemed final.

We cannot agree with the contention of petitioners that the bank was defrauded by the Valencias. For one, no claim was made on this in the lower court. For
another, petitioners did not submit proof to support its contention.
At any rate, We observe that while the Valencias defrauded Castro by making her sign the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6), they
also misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan. This must be the reason which prompted the bank to
contend that it was defrauded by the Valencias. But to reiterate, We cannot agree with the contention for reasons above-mentioned. However, if the contention
deserves any consideration at all, it is in indicating the admission of petitioners that the bank committed mistake in giving its consent to the contracts.
Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank committed mistake in giving
their consents to the contracts. In other words, substantial mistake vitiated their consents given. For if Castro had been aware of what she signed and the bank of
the true qualifications of the loan applicants, it is evident that they would not have given their consents to the contracts.
Pursuant to Article 1342 of the Civil Code which provides:
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and
the same is mutual.

We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the mortgage contract (Exhibit 6) binding on Castro beyond the amount
of P3,000.00, for while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not a
participant thereto, such may however be invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and
misrepresentation inflicted by the Valencias. Thus, in the case of Hill vs. Veloso, 10this

Court declared that a contract may be annulled on the

ground of vitiated consent if deceit by a third person, even without connivance or complicity with one of the contracting
parties, resulted in mutual error on the part of the parties to the contract.
Petitioners argued that the amended complaint fails to contain even a general averment of fraud or mistake, and its mention in the prayer is definitely not a
substantial compliance with the requirement of Section 5, Rule 8 of the Rules of Court. The records of the case, however, will show that the amended complaint
contained a particular averment of fraud against the Valencias in full compliance with the provision of the Rules of Court. Although, the amended complaint made
no mention of mistake being incurred in by the bank and Castro, such mention is not essential in order that the promissory note (Exhibit 2) may be declared of no
binding effect between them and the mortgage (Exhibit 6) valid up to the amount of P3,000.00 only. The reason is that the mistake they mutually suffered was a
mere consequence of the fraud perpetrated by the Valencias against them. Thus, the fraud particularly averred in the complaint, having been proven, is deemed
sufficient basis for the declaration of the promissory note (Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract (Exhibit 6)
valid only up to the amount of P3,000.00.
The second issue raised in the fourth assignment of errors is who between Castro and the bank should suffer the consequences of the fraud perpetrated by the
Valencias.
In attributing to Castro an consequences of the loss, petitioners argue that it was her negligence or acquiescence if not her actual connivance that made the fraud
possible.
Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein petitioners' negligence in the contracts has been aptly demonstrated,
to wit:
A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the plaintiff-appellee to several interviews. If this were true why
is it that her age was placed at 61 instead of 70; why was she described in the application (Exh. B-1-9) as drug manufacturer when in fact
she was not; why was it placed in the application that she has income of P20,000.00 when according to plaintiff-appellee, she his not even
given such kind of information -the true fact being that she was being paid P1.20 per picul of the sugarcane production in her hacienda and
500 cavans on the palay production. 11
From the foregoing, it is evident that the bank was as much , guilty as Castro was, of negligence in giving its consent to the contracts. It apparently relied on
representations made by the Valencia spouses when it should have directly obtained the needed data from Castro who was the acknowledged owner of the
property offered as collateral. Moreover, considering Castro's personal circumstances her lack of education, ignorance and old age she cannot be considered
utterly neglectful for having been defrauded. On the contrary, it is demanded of petitioners to exercise the highest order of care and prudence in its business
dealings with the Valencias considering that it is engaged in a banking business a business affected with public interest. It should have ascertained Castro's
awareness of what she was signing or made her understand what obligations she was assuming, considering that she was giving accommodation to, without any
consideration from the Valencia spouses.
Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to believe that they were authorized to speak and bind her. She
cannot now be permitted to deny the authority of the Valencias to act as her agent for one who clothes another with apparent authority as her agent is not
permitted to deny such authority.
The authority of the Valencias was only to follow-up Castro's loan application with the bank. They were not authorized to borrow for her. This is apparent from the
fact that Castro went to the Bank to sign the promissory note for her loan of P3,000.00. If her act had been understood by the Bank to be a grant of an authority to
the Valencia to borrow in her behalf, it should have required a special power of attorney executed by Castro in their favor. Since the bank did not, We can rightly
assume that it did not entertain the notion, that the Valencia spouses were in any manner acting as an agent of Castro.
When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castro's property
to secure said loan, the Valencias acted for their own behalf. Considering however that for the loan in which the Valencias appeared as principal borrowers, it was
the property of Castro that was being mortgaged to secure said loan, the Bank should have exercised due care and prudence by making proper inquiry if Castro's
consent to the mortgage was without any taint or defect. The possibility of her not knowing that she signed the promissory note (Exhibit 2) as co-maker with the
Valencias and that her property was mortgaged to secure the two loans instead of her own personal loan only, in view of her personal circumstances ignorance,
lack of education and old age should have placed the Bank on prudent inquiry to protect its interest and that of the public it serves. With the recent occurrence of
events that have supposedly affected adversely our banking system, attributable to laxity in the conduct of bank business by its officials, the need of extreme
caution and prudence by said officials and employees in the discharge of their functions cannot be over-emphasized.
Question is, likewise, raised as to the propriety of respondent court's decision which declared that Castro's consignation in court of the amount of P3,383.00 was
validly made. It is contended that the consignation was made without prior offer or tender of payment to the Bank, and it therefore, not valid. In holding that there is
a substantial compliance with the provision of Article 1256 of the Civil Code, respondent court considered the fact that the Bank was holding Castro liable for the
sum of P6,000.00 plus 12% interest per annum, while the amount consigned was only P3,000.00 plus 12% interest; that at the time of consignation, the Bank had
long foreclosed the mortgage extrajudicially and the sale of the mortgage property had already been scheduled for April 10, 1961 for non-payment of the
obligation, and that despite the fact that the Bank already knew of the deposit made by Castro because the receipt of the deposit was attached to the record of the
case, said Bank had not made any claim of such deposit, and that therefore, Castro was right in thinking that it was futile and useless for her to make previous
offer and tender of payment directly to the Bank only in the aforesaid amount of P3,000.00 plus 12% interest. Under the foregoing circumstances, the consignation
made by Castro was valid. if not under the strict provision of the law, under the more liberal considerations of equity.

The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public auction of the mortgaged property that was held on April 11, 1961.
Petitioners contended that the public auction sale that was held on April 11, 1961 which was the next business day after the scheduled date of the sale on April 10,
1961, a special public holiday, was permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative Code which ordains:
Pretermission of holiday. Where the day, or the last day, for doing any act required or permitted by law falls on a holiday, the act may be
done on the next succeeding business day.
Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in accordance with Section 9 of Act No. 3135, which provides:
Section 9. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.
We agree with respondent court. The pretermission of a holiday applies only "where the day, or the last day for doing any act required or permitted by law falls on a
holiday," or when the last day of a given period for doing an act falls on a holiday. It does not apply to a day fixed by an office or officer of the government for an act
to be done, as distinguished from a period of time within which an act should be done, which may be on any day within that specified period. For example, if a
party is required by law to file his answer to a complaint within fifteen (15) days from receipt of the summons and the last day falls on a holiday, the last day is
deemed moved to the next succeeding business day. But, if the court fixes the trial of a case on a certain day but the said date is subsequently declared a public
holiday, the trial thereof is not automatically transferred to the next succeeding business day. Since April 10, 1961 was not the day or the last day set by law for the
extrajudicial foreclosure sale, nor the last day of a given period but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next
succeeding business day without the notices of the sale on that day being posted as prescribed in Section 9, Act No. 3135.
WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in toto. No pronouncement as to cost.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 40628 February 24, 1989
TROPICAL HOMES INC., petitioner,
vs.
HON. ONOFRE VILLALUZ, Acting Presiding Judge, Branch XVII, Seventh Judicial District, Quezon City, and PEOPLE'S HOMESITE AND HOUSING
CORPORATION, respondents.
Gonzalo R. Novales for petitioner.
The Government Corporate Counsel for respondent PHHC.

PADILLA, J.:
This is a petition for certiorari and prohibition, with a prayer for the issuance of a writ of preliminary injunction, to annul and set aside the order issued by the
respondent judge on 8 May 1975 in Civil Case No. Q-19633 of the Court of First Instance of Rizal, Quezon City Branch, entitled: "People's Homesite and Housing
Corporation, plaintiff, versus Tropical Homes, Inc., defendant," which declared the defendant, Tropical Homes, Inc., in default for failure to appear at the pre-trial of
the case.
Records show that a complaint for the collection of certain sums of money was filed by the People's Homesite and Housing Corporation, PHHC, for short, a
government-owned and controlled corporation, against the petitioner, Tropical Homes, Inc., before the Court of First Instance of Rizal, Quezon City Branch, which

The defendant, in due time, filed its answer with counter-claim. The PHHC filed an
answer to the counterclaim. The last pleading having been filed, the court set the case for pre-trial on 8 May 1975, at
11:30 o'clock in the morning.
was docketed therein as Civil Case No. Q-19633.

The necessary notice were served upon the parties, and on the scheduled day for the pre-trial conference, Atty. Rene Diokno, counsel for the petitioner, arrived at
the courtroom at about 11:00 o'clock in the morning. The respondent judge was then hearing a criminal case so that he (Diokno) waited for his turn. When the
hearing of the criminal case was terminated at about 11:50 o'clock in the morning, the pre-trial calendar was read. The case of the petitioner, namely, PHHC vs.
Tropical Homes, Inc., was fourth on said calendar. 5

At about 12:25 o'clock in the afternoon, while the respondent judge was conducting the pre-trial in the case of Patriarca vs. PHHC-which was the second case on
the pre-trial calendar counsel for the petitioner, feeling the pangs of hunger and believing that the pre-trial conference then being conducted would take about thirty
(30) minutes more, and that there was still another case to be heard before that of the petitioner, asked the court if he could approach the Bench. When it was
granted, said counsel asked the respondent judge for the postponement of the pre-trial conference in his case. Here is what transpired in the court below.
ATTY. DIOKNO:
Your Honor, may I approach the bench?
COURT:
Yes, what is it?
ATTY. DIOKNO:
Your Honor, I am one of those whose case is scheduled for pre-trial at 11:30 a.m. this morning, but since it is now past
12:00 o'clock and there is still another case being heard, and since I am just an ordinary mortal who gets hungry at
twelve o' clock -I am sorry to say I have not taken any survival course 1 don't think 1 Up to what time will the court be
hearing cases, your honor?
COURT:
Until we finish the calendar. We always finish the calendar for the day.
ATTY. DIOKNO:
In that case, your honor, I don't think I can wait that long, not having taken my lunch yet, may I request that our case be
postponed?
COURT.
Just a minute, where are the parties here?
ATTY. ALDANA.
I am appearing as counsel for the plaintiff, your honor. The assistant general manager, Jose Alinea, is here as
representative of the plaintiff.
COURT:
How about the defendant, Tropical Homes, Inc.?
ATTY. DIOKNO:
I am representing the defendant, your honor, as counsel and representative. I have here a special power of attorney
COURT:
Let me see that special power of attorney.
xxx xxx xxx 6

was given to the respondent judge who, after reading the same, then and there dictated in
open court the questioned order of 8 May 1975, declaring the herein petitioner in default for failure to appear at the pretrial since the power of attorney the petitioner had executed in favor of its counsel did not satisfy the requirements of Sec.
1, Rule 20 of the Rules of Court in that no mention is made therein of the attorney's authority to bind his client during the
pre-trial, and ordering the plaintiff therein to present its evidence ex parte on 19 May 1975 at 8:00 o'clock in the morning.
A copy of the special power of attorney 7

Counsel for the petitioner then asked for a period of five (5) days within which to raise the legality of the order in question, but the respondent judge gave him three
(3) days only. The respondent judge, however, subsequently relented and gave counsel for the petitioner a period of five (5) days, as prayed for. 8

Within the five-day period, or on 13 May 1975, the instant petition for certiorari and prohibition was filed before this Court, to annul and set aside said order of 8
May 1975. On 6 May 1975, the Court issued a temporary restraining order, prohibiting the respondents from enforcing the questioned order of 8 May 1975. Until
further orders from the Court. 9
The petitioner's submission is that the respondent judge acted with grave abuse of discretion in declaring the petitioner in default for non-appearance at the pretrial conference of the case set on 8 May 1975, despite the special power of attorney authorizing its counsel to appear on its behalf in all Circumstances where its
appearance is required and to bind petitioner in all said instances.
The private respondent, PHHC, upon the other hand, contends that the power of attorney executed by the petitioner is not sufficient since said power of attorney
does not include the authority of the attorney to bind his client at the pre-trial conference.
The petition is impressed with merit. We find that the respondent judge gravely abused his discretion in declaring the herein petitioner in default for its alleged
failure to appear at the pre-trial of the case. If would appear that the petitioner had authorized its counsel to appear for and on its behalf where the petitioner's
appearance is required and to bind the petitioner in all said instances. The pertinent portion of the special power of attorney executed by the petitioner expressly
authorized its counselTo appear for and in its behalf in the above-entitled civil case in all circumstances where its appearance is required and to bind it in all said
instances.
Although the power of attorney in question does not specifically mention the authority of petitioner's counsel to appear and bind the petitioner at the pre-trial
conference, the terms of said power of attorney are comprehensive enough as to include the authority to appear for the petitioner at the pre-trial conference.
Once more, the Court admonishes trial judges against issuing precipitate orders of default as these have the effect of denying a litigant the chance to be heard,
and in order to prevent needless litigations in the appellate courts where time is needed for more important or complicated cases. While there are instances when
a party may be properly defaulted, these should be the exception rather than the rule, and should be allowed only in clear cases of obstinate refusal or inordinate
neglect to comply with the orders of the court. Absent such a showing, a party must be given every reasonable opportunity to present his side and to refute the
evidence of the adverse party in deference to due process of law. 10
However, we find no merit in the claim of the petitioner that the respondent judge gravely abused his discretion in denying petitioner's motion for the postponement
of the pre- trial conference. It may be true that the pre-trial conference was to be held, in effect at about 12:25 o'clock in the afternoon, whereas, Section 58 of
Republic Act No. 296, otherwise known as the Judiciary Act of 1948, provides that the hours for the daily sessions of the Court of First Instance are from 9:00
o'clock to 12:00 o'clock in the morning and from 3:00 o'clock to 5:00 o'clock in the afternoon. But said Section also provides that the trial judge may extend the
hours of session whenever in his judgment it is proper to do so. A period of 25 minutes past the regulation time cannot be considered abusive, since the
respondent judge merely wanted to dispose of controversies as soon as possible. In Cortes vs. Co Bun Kim, 11

the Court said:

Thecontention that the trial was illegal and void because it was held at 8:00 a.m. need not detain us long.
Although Section 58 of Republic Act No. 296 provides that 'the hours for the daily session of Courts of First Instance shall be from nine to
twelve in the morning, and from three to five in the afternoon,' the same section, in the following sentence, also provides that 'the judge
holding any court may also, in his discretion, order that but one session per day shall be held instead of two, at such hours as he may deem
expedient for the convenience both of the Court and the public. The first clause is directory. It has for its sole object the fixing of the minimum
number of hours which judges should devote to the transaction of business. This is implied from the last clause of the same section, which
enjoins that the court shall be in session not less than five hours a day. The good of the service demands more toil and less i

dleness, and the limitations imposed by the above enactment are aimed at indolence and not the other way around.
Besides, it would appear that when counsel for the petitioner complained of hunger and moved for the postponement of the pre-trial conference, the respondent
judge suspended the pretrial conference then being conducted to give way to the case of the petitioner.
WHEREFORE, the petition is GRANTED. The order issued on 8 May 1975 in Civil Case No. Q-19633 of the Court of First Instance of Rizal, Quezon City Branch,
is hereby ANNULLED and SET ASIDE. Another pre-trial conference should be conducted in the case after due notice to the parties and their attorneys. The
temporary restraining order heretofore issued is made permanent. Without costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-32473 July 31, 1973

IGNACIO VICENTE and MOISES ANGELES, petitioners,
vs.
HON. AMBROSIO M. GERALDEZ, as Judge of the Court of First Instance of Bulacan, Branch V (Sta. Maria), and HI CEMENT
CORPORATION, respondents
G.R. No. L-32483 July 31, 1973
JUAN BERNABE, petitioner,
vs.
HI CEMENT CORPORATION and THE HON. AMBROSIO M. GERALDEZ, Presiding Judge, Branch V, Court of First Instance of Bulacan, respondents.
Librado S. Correa for petitioners Ignacio Vicente and Moises Angeles.
Francisco R. Capistrano and Andreciano F. Caballero for petitioner Juan Bernabe.
Renato L. Cayetano and Jesus G. Diaz for respondent HI Cement Corporation.

ANTONIO, J.:
There are two original actions of certiorari with prayer for preliminary injunction wherein petitioners seek to annul the orders dated April 24, May 18, and July 18,
1970 of respondent Judge of the Court of First Instance of Bulacan in Civil Case No. SM-201 (Hi Cement Corporation vs. Juan Bernabe, Ignacio Vicente and
Moises Angeles). The two cases are herein decided jointly because they proceed from the same case and involve in substance the same question of law.
On September 9, 1967 herein private respondent Hi Cement Corporation filed with the Court of First Instance of Bulacan a complaint for injunction and damages
against herein petitioners Juan Bernabe, Ignacio Vicente and Moises Angeles. In said complaint the plaintiff alleged that it had acquired on October 27, 1965,
Placer Lease Contract No. V-90, from the Banahaw Shale Mining Association, under a deed of sale and transfer which was duly registered with the Office of the
Mining Recorder of Bulacan on November 4, 1965 and duly approved by the Secretary of Agriculture and Natural Resources on December 15, 1965; that the said
Placer Lease Contract No. V-90 was for a period of twenty-five years commencing from August 1, 1960 and covered two mining claims (Red Star VIII & IX) with a
combined area of about fifty-one hectares; that within the limits of Placer Mining Claim Red Star VIII are three parcels of land claimed by the defendants Juan
Bernabe (about two hectares), Ignacio Vicente (about two hectares) and Moises Angeles (about one-fourth hectare); that the plaintiff had, on several occasions,
informed the defendants, thru its representatives, of the plaintiff's acquisition of the aforesaid placer mining claims which included the areas occupied by them; that
the plaintiff had requested the defendants to allow its workers to enter the area in question for exploration and development purposes as well as for the extraction
of minerals therefrom, promising to pay the defendants reasonable amounts as damages, but the defendants refused to allow entry of the plaintiff's
representatives; that the defendants were threatening the plaintiff's workers with bodily harm if they entered the premises, for which reason the plaintiff had
suffered irreparable damages due to its failure to work on and develop its claims and to extract minerals therefrom, resulting in its inability to comply with its
contractual commitments, for all of which reasons the plaintiff prayed the court to issue preliminary writs of mandatory injunction perpetually restraining the
defendants and those cooperating with them from the commission or continuance of the acts complained of, ordering defendants to allow plaintiff, or its agents and
workers, to enter, develop and extract minerals from the areas claimed by defendants, to declare the injunction permanent after hearing, and to order the
defendants to pay damages to the plaintiff in the amount of P200,000.00, attorney's fees, expenses of litigation and costs.
On September 12, 1967 the trial court issued a restraining order and required the defendants to file their answers. The defendants filed their respective answers,
which contained the usual admissions and denials and interposed special and affirmative defenses, namely, among others, that they are rightful owners of certain
portions of the land covered by the supposed mining claims of the plaintiff; that it was the plaintiff and its workers who had committed acts of force and violence
when they entered into and intruded upon the defendants' lands; and that the complaint failed to state a cause of action. The defendants set up counter-claims
against the plaintiff for actual and moral damages, as well as for attorney's fees.
In another pleading filed on the same date, defendant Juan Bernabe opposed the issuance of a writ of preliminary mandatory or prohibitory injunction. In its Order
dated September 30, 1967, the trial court, however, directed the issuance of a writ of preliminary mandatory injunction upon the plaintiff's posting of a bond in the
amount of P100,000.00. In its order, the court suggested the relocation of the boundaries of the plaintiff's claims in relation to the properties of the defendants, and
to this end named as Commissioner, a Surveyor from the Office of the District Engineer of Bulacan to relocate the boundaries of the plaintiff's mining claims, to
show in a survey plan the location of the areas thereof in conflict with the portions whose ownership is claimed by the defendants and to submit his report thereof
to the court on or before October 31, 1967. The court also directed the parties to send their representatives to the place of the survey on the date thereof and to
furnish the surveyor with copies of their titles. The Commissioner submitted his report to the Court on November 24, 1967 containing the following findings:
1. In the attached survey plan, the area covered and embraced full and heavy lines is the Placer Mining Claims of the Plaintiff containing an
area of 107 hectares while the area bounded by fine-broken lines are the properties of the Defendants.
2. The property of the Defendant MOISES ANGELES, consisting of two (2) parcels known as Lot 1-B and Lot 2 of Psu-103374, both
described in O.C.T. No. O-1769 with a total area of 34,984 square meters were totally covered by the Claims of the Plaintiff.

3. The property of the Defendant IGNACIO VICENTE, containing an area of 32,619 square meters, is also inside the Claims of the Plaintiff.
4. The property of the defendant JUAN BERNABE known as Psu-178969, described in O.C.T. No. 0-2050 is partially covered by the Claims
of the Plaintiff and the area affected is 57,539 square meters.
In an Order issued on December 14, 1967, the court approved the report "with the conformity of all the parties in this case."
Thereafter, on April 2, 1968 plaintiff HI Cement Corporation filed a motion to amend the complaint "so as to conform to the facts brought out and/or impliedly
admitted in the pre-trial. This motion was granted by the court on April 6, 1968. Accordingly, on October 21, 1968, the plaintiff filed its amended complaint. The
amendments consisted in the statement of the correct areas of the land belonging to defendants Bernabe (57,539 square meters), Vicente (32,619 square meters)
and Angles (34,984 square meters), as well as the addition of allegations to the effect, among others, that at the pre-trial the defendants Angeles and Vicente
declared their willingness to sell to the plaintiff their properties covered by the plaintiff's mining claims for P10.00 per square meter, and that when the plaintiff
offered to pay only P0.90 per square meter, the said defendants stated that they were willing to go to trial on the issue of what would be the reasonable price for
the properties of defendants sought to be taken by plaintiff. With particular reference to defendant Bernabe, the amended complaint alleged that the said
defendant neither protested against nor prohibited the predecessor-in-interest of the plaintiff from prospecting, discovering, locating and contracting minerals from
the aforementioned claims, or from conducting the survey thereon, or filed any opposition against the application for lease by the Red Star Mining Association, and
that as a result of the failure of said defendant to object to the acts of possession or occupation over the said property by plaintiff, defendant is now estopped from
claiming that plaintiff committed acts of usurpation on said property. The plaintiff prayed the court, among other things, to fix the reasonable value of the
defendants' properties as reasonable compensation for any resulting damage.
Defendant Bernabe filed an amended answer substantially reproducing his original answer and denying the averments concerning him in the amended complaint.
The respective counsels of the parties then conferred among themselves on the possibility of terminating the case by compromise, the defendants having
previously signified their willingness to sell to the plaintiff their respective properties at reasonable prices.
On January 30, 1969 the counsels of the parties executed and submitted to the court for its approval the following Compromise Agreement:
COMPROMISE AGREEMENT
COME NOW the plaintiff and the defendants, represented by their respective counsel, and respectfully submit the following agreement:
1. That the plaintiff is willing to buy the properties subject of litigation, and the defendants are willing to sell their respective properties;
2. That this Honorable Court authorizes the plaintiff and the defendants to appoint their respective commissioners, that is, one for the plaintiff
and one for each defendant;
3. That the parties hereby agree to abide by the decision of the Court based on the findings of the Commissioners;
4. That the fees of the Commissioners shall be paid as follows:
For those appointed by the parties shall be paid by them respectively; and for the one appointed by the Court, his fees
shall be paid pro-rata by the parties;
5. That the names of the Commissioners to be appointed by the parties shall be submitted to the Court on or before February 8, 1969.
WHEREFORE, the undersigned respectfully pray that the foregoing agreement be approved.
Sta. Maria, Bulacan, January 30, 1969.
For the Plaintiff:
(Sgd. ) FRANCISCO VENTURA
t/ FRANCISCO VENTURA.
(Sgd.) FLORENTINO V.
CARDENAS
t/ FLORENTINO V. CARDENAS
(Sgd.) ENRIQUETO I.
MAGPANTAY
t/ ENRIQUETO I. MAGPANTAY
For Juan Bernabe:

(Sgd.) ANDRECIANO F.
CABALLERO
t/ ANDRECIANO F.
CABALLERO
For Ignacio Vicente and
Moises Angeles:
(Sgd.) CONRADO MANZANO
t/ CONRADO MANZANO
The Clerk of Court
CFI, Sta. Maria, Bulacan
GREETINGS:
Please submit the foregoing Compromise Agreement to the Honorable Court for the consideration and approval immediately upon receipt
hereof.
VENTURA, CARDENAS & MAGPANTAY
By:
(Sgd.) FRANCISCO VENTURA
t/ FRANCISCO VENTURA
On the same date, the foregoing Compromise Agreement was approved by the trial court, which enjoined the parties to comply with the terms and conditions
thereof.
Pursuant to the terms of the said compromise agreement the counsels of both parties submitted the names of the persons designated by them as their respective
commissioners, and in conformity therewith, the trial court, in its Order dated February 26, 1969, appointed the following as Commissioners: Mr. Larry G. Marquez,
to represent the plaintiff; Mr. Demetrio M. Aquino, to represent defendant Bernabe; Mr. Moises Correa, to represent defendant Angeles; Mr. Santiago Cabungcal, to
represent defendant Vicente; and Mr. Liberato Barrameda, to represent the court, and directed that said Commissioners should appear before the court on March
17, 1969, to take their oath and qualify as such Commissioners, and then meet on March 31, 1969 in the court for their first session and to submit their report not
later than April 30, 1969.
On September 15, 1969, Commissioner Liberato Barrameda submitted to the court for its approval a Consolidated Report, containing the three reports of the
Commissioners of the plaintiff and the three defendants, together with an analysis of the said reports and a summary of the important facts and conclusions. The
following unit prices for the three defendants' properties were recommended in the Consolidated Report:
A JUAN BERNABE at P12.00 per square meter, wherefrom plaintiff has been extracting its first output, and would still continue to extract
therefrom as the property consists of a mountain of limestone and shale;
B IGNACIO VICENTE:
a) 60% or 19,571.4 sq. m. (mineral land) at P12.00 per sq. m.
b) 40% or 13,047.6 sq. m. (riceland) at P8.00 per sq. m.
C MOISES ANGELES (riceland) at P8.00 per sq. m.
It is worthy of note that in the individual report of the Commissioner nominated by plaintiff HI Cement Corporation, the price recommended for defendant Juan
Bernabe's property was P0.60 per square meter, while in the individual report of the Commissioner nominated by the said defendant, the price recommended was
P50.00 per square meter. The Commissioners named by defendants Vicente and Angeles recommended was P15.00 per square meter for the lands owned by the
said two defendants, while the Commissioners named by the said two defendants, while the Commissioner named by the plaintiff recommended P0.65 per square
meter for Vicente's land, and P0.55 per square meter for Angeles' land.
On October 21, 1969, Atty. Francisco Ventura, one of the three lawyers for plaintiff HI Cement Corporation, filed with the trial court a manifestation stating that on
September 1, 1969 he sent a copy of the Compromise Agreement to Mr. Antonio Diokno, President of the corporation, requesting the latter to intercede with the
Board of Directors for the confirmation or approval of the commitment made by the plaintiff's lawyers to abide by the decision of the Court based on the reports of
the Commissioners; and that on October 15, 1969 he received a letter from Mr. Diokno, a copy of which was attached to the manifestation. In that letter Mr. Diokno
said:

While I realize your interest in cooperating with the Court in its desire to expedite the disposition of the case, this commitment would deprive
us of the right to appeal if we do not agree with the valuation set by the Court. Our Board, therefore, cannot waive its rights; only when it
knows the value set by the Court on the properties can it decide whether to abide by it or appeal therefrom. I would like to stress that, under
the law, the compromise agreement requires the express approval of our Board of Directors to be binding on our corporation. Such an
approval, I regret to say, cannot be obtained at this time.
On November 5, 1969, defendant Bernabe filed an answer to Atty. Ventura's manifestation, praying the court to ignore, disregard and, if possible, order striken
from the record, the plaintiff's manifestation on the following grounds: that its filing after the Consolidated Report of the Commissioners had been submitted and
approved, and long after the signing of the Compromise Agreement on January 30, 1969, cast suspicion on the sincerity of the plaintiff's motive; that when the
Compromise Agreement was being considered, the court inquired from the parties and their respective lawyers if all the attorneys appearing in the case had been
duly authorized and/or empowered to enter into a compromise agreement, and the three lawyers for the plaintiff answered in the affirmative; that in fact it was Atty.
Ventura himself who prepared the draft of the Compromise Agreement in his own handwriting and was the first to sign the agreement; that one of the three lawyers
for the plaintiff, Atty. Florentino V. Cardenas, who also signed the Compromise Agreement, was the official representative, indeed was an executive official, of
plaintiff corporation; that the Compromise Agreement, having been executed pursuant to a pre-trial conference, partakes the nature of a stipulation of facts
mutually agreed upon by the parties and approved by the court, hence, was binding and conclusive upon the parties; and that the nomination by the plaintiff of Mr.
Larry G. Marquez as its Commissioner pursuant to the Compromise Agreement, was a clear indication of the plaintiff's tacit approval of the terms and conditions of
the Compromise Agreement, if not an implied ratification of Atty. Ventura's acts.
On March 13, 1970 the court rendered a decision in which the terms and conditions of the Compromise Agreement are reproduced, and the Consolidated Report
of the Commissioners is extensively quoted. The rationale and dispositive portion of the decision read:
What is fair and just compensation?
"Just compensation includes all elements of value that inheres in the property, but it does not exceed market value fairly determined. The
sum required to be paid the owner does not depend upon the usage to which he has devoted his land but is to be arrived at upon just
consideration of all the uses for which it is suitable. The highest and most profitable use for which the property is adoptable and needed or
likely to be needed in the reasonably near future is to be considered, not necessarily as the measure of value, but to the full extent that the
prospect of demand for such use affects the market value while the property is privately held."
The term fair and just compensation as applied in expropriation or eminent domain proceedings need not necessarily be applied in the
present case. In expropriation proceedings the government is the party involved and its use is for public purpose. In the instant case,
however, private parties are involved and the use of the land is a private venture and for profit.
It appears that defendants' properties are practically adjacent to plaintiff's plant site. It also appears that practically all the surrounding areas
were acquired by the plaintiff by purchase.
In the report submitted by the commissioner representing the plaintiff, it is claimed that the surrounding areas were acquired thru purchase
by the plaintiff in the amount of less than P1.00 per square meter. On the other hand, it appears from the reports submitted by the
commissioners representing the defendants that there were some recorded sales around the area from P20.00 to P25.00 per square meter
and there were subdivision lots which command even higher prices.
The properties are reported to consist of mineral land which are rocky and barren containing limestone and shale. From viewpoint of the
owners their property which is described as rocky and barren mineral land must necessarily command a higher price, and this Court believes
that the plaintiff will adopt the same attitude from the viewpoint of its business.
While it may be true that the plaintiff acquired properties within the area in question at a low price, we cannot overlook the fact that this was
so at the time when plaintiff corporation was not yet in operation and that the land owners were not as yet aware of the potential value of their
landholdings.
Irrespective of the different classifications of the properties owned by the defendants, and considering the benefits that will enure to the
plaintiff and bearing in mind the property rights and privileges to which the property owners are entitled both under the constitution and the
mining law, coupled with the fact that the plaintiff had already taken advantage of the properties even long before the rightful acquisition of
the same, this Court believes that the just and fair market value of the land should be in the amount P15.00 per square meter.
In view of the above findings, the plaintiff pursuant to the compromise agreement, is hereby ordered to pay the defendants the amount of
P15.00 per square meter for the subject properties, and upon full payment, the restraining order earlier issued by this Court shall be deemed
lifted.
On March 23, 1970 defendant Juan Bernabe filed an urgent motion for execution of judgment anchored on the proposition that the judgment, being based on a
compromise agreement, is not appealable and is, on the other hand, immediately executory. The other two defendants, Moises Angeles and Ignacio Vicente,
likewise filed their respective motions for execution. These motions were granted by the court in its Order of April 14, 1970.
On April 17, 1970 the plaintiff filed a motion for reconsideration of the April 14, 1970 Order, alleging that it had an opposition to the defendants' motions for
execution, and that the Compromise Agreement had been repudiated by the plaintiff corporation through its Vice President, as earlier manifested by the plaintiff.
The plaintiff prayed for ten days from the date of the hearing of the motion within which to file its written opposition to the motions for execution. Defendant Juan
Bernabe filed an opposition to the plaintiff's motion on April 21, 1970.

On April 22, 1970 the plaintiff filed with the court a motion for new trial on the ground that the decision of the court dated March 13, 1970 is null and void because it
was based on the Compromise Agreement of January 30, 1969 which was itself null and void for want of a special authority by the plaintiff's lawyers to enter into
the said agreement. The plaintiff also prayed that the decision dated March 13, 1970 and the Order dated April 14, 1970 granting the defendants' motions for
execution, be set aside. Defendant Juan Bernabe filed on April 27, 1970 an opposition to the plaintiff's motion on the grounds that the decision of the court is in
accordance with law, for three lawyers for the plaintiff signed the Compromise Agreement, and one of them, Atty. Cardenas, was an official representative of
plaintiff corporation, hence, when he signed the Compromise Agreement, he did so in the dual capacity of lawyer and representative of the management of the
corporation; that the plaintiff itself pursued, enforced and implemented the agreement by appointing Mr. Larry Marquez as its duly accredited Commissioner; and
that the plaintiff is conclusively bound by the acts of its lawyers in entering into the Compromise Agreement.
In the meantime, or on April 24, 1970, the court issued an Order setting aside its Order of April 14, 1970 under which the defendants' motions for execution of
judgment had been granted, and gave the plaintiff ten days within which to file an opposition to the defendants' motions for execution.
On May 9, 1970 the plaintiff filed an opposition to the motions for execution of judgment, on the grounds that the decision dated March 13, 1970 is contrary to law
for it is based on a compromise agreement executed by the plaintiff's lawyers who had no special power of attorney as required by Article 1878 of the Civil Code,
or any special authority as required by Section 23, Rule 138 of the Rules of Court; and that the judgment is void for lack of jurisdiction of the court because the
same is based on a void compromise agreement.
On May 18, 1970 the court issued an Order setting aside its decision dated March 13, 1970, denying the defendants' motions for execution of judgment, and
setting for June 23, 1970 a pre-trial conference in the case. The three defendants moved for reconsideration, but their motions were denied in an Order dated July
18, 1970.
It is in these factual premises that the defendants in Civil Case No. SM-201 came to this Court by means of the present petitions. In G.R. No. L-32473, petitioners
Vicente and Angeles pray this Court to issue a writ of preliminary injunction, and, after hearing, to annul and set aside the Order dated May 18,1970 issued by
respondent Judge setting aside the decision dated March 13, 1970; to declare the said decision legal, effective and immediately executory; to dissolve the writ of
preliminary mandatory injunction issued by respondent Judge on September 30, 1967 commanding petitioners to allow private respondent to enter their respective
properties and excavate thereon; to make the preliminary injunction permanent; and to award treble costs in favor of petitioners and against private respondent. In
G.R. No. L-32483, petitioner Juan Bernabe prays this Court to issue a writ of preliminary injunction or, at least a temporary restraining order, and, after hearing, to
annul and set aside the Order dated April 24, 1970 issued by respondent Judge setting aside his Order of April 14, 1970 and allowing private respondent to file an
opposition to petitioners' motion for execution, the Order dated May 18, 1970, and the Order dated July 18, 1970. Petitioner Bernabe also seeks the reinstatement
of the trial court's decision dated May 13, 1970 and its Order dated April 14, 1970 granting his motion for execution of judgment, and an award in his favor of
attorney's fees and of actual, moral and exemplary damages.
At issue is whether the respondent court, in setting aside its decision of March 13, 1970 and denying the motions for execution of said decision, had acted without
or in excess of its jurisdiction or with grave abuse of discretion. We hold that said court did not, in view of the following considerations:
1. Special powers of attorney are necessary, among other cases, in the following: to compromise and to renounce the right to appeal from a

Attorneys have authority to bind their clients in any case by any agreement in relation thereto made in writing,
and in taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without special authority,
compromise their clients' litigation, or receive anything in discharge of their clients' claims but the full amount in cash.
judgment. 1

The Compromise Agreement dated January 30, 1969 was signed only by the lawyers for petitioners and by the lawyers for private respondent corporation. It is not
disputed that the lawyers of respondent corporation had not submitted to the Court any written authority from their client to enter into a compromise.

"require, for attorneys to compromise the litigation of their clients, a special authority. And while
the same does not state that the special authority be in writing the court has every reason to expect that, if not in writing,
the same be duly established by evidence other than the self-serving assertion of counsel himself that such authority was
verbally given him."
This Court has said that the Rules 3

2. The law specifically requires that "juridical persons may compromise only in the form and with the requisites which may be necessary to alienate their

Under the corporation law the power to compromise or settle claims in favor of or against the corporation is
ordinarily and primarily committed to the Board of Directors. The right of the Directors "to compromise a disputed claim
against the corporation rests upon their right to manage the affairs of the corporation according to their honest and
informed judgment and discretion as to what is for the best interests of the corporation." This power may however be
delegated either expressly or impliedly to other corporate officials or agents. Thus it has been stated, that as a general
rule an officer or agent of the corporation has no power to compromise or settle a claim by or against the corporation,
except to the extent that such power is given to him either expressly or by reasonable implication from the
circumstances. It is therefore necessary to ascertain whether from the relevant facts it could be reasonably concluded
that the Board of Directors of the HI Cement Corporation had authorized its lawyers to enter into the said compromise
agreement.
property." 5

Petitioners claim that private respondent's attorneys admitted twice in open court on January 30, 1969, that they were authorized to compromise their client's case,
which according to them, was never denied by the said lawyers in any of the pleadings filed by them in the case. The claim is unsupported by evidence. On the

contrary, in private respondent's "Reply to Defendant Bernabe's Answer Dated November 8, 1969," said counsels categorically denied that they ever represented
to the court that they were authorized to enter into a compromise. Indeed, the complete transcript of stenographic notes taken at the proceedings on January 30,
1969 are before Us, and nowhere does it appear therein that respondent corporation's lawyers ever made such a representation. In any event,
assuming arguendo that they did, such a self-serving assertion cannot properly be the basis for the conclusion that the respondent corporation had in fact
authorized its lawyers to compromise the litigation.
3. Petitioners however insist that there was tacit ratification on the part of the corporation, because it nominated Mr. Larry Marquez as its commissioner pursuant to
the agreement, paid his services therefor, and Atty. Florentino V. Cardenas, respondent corporation's administrative manager, not only did not object but even
affixed his signature to the agreement. It is also argued that respondent corporation having represented, through its lawyers, to the court and to petitioners that
said lawyers had authority to bind the corporation and having induced by such representations the petitioners to sign the compromise agreement, said respondent
is now estopped from questioning the same.
The infirmity of these arguments is in their assumption that Atty. Cerdenas as administrative manager had authority to bind the corporation or to compromise the
case. Whatever authority the officers or agents of a corporation may have is derived from the board of directors, or other governing body, unless conferred by the
charter of the corporation. A corporation officer's power as an agent of the corporation must therefore be sought from the statute, the charter, the by-laws, or in a

In the case
at bar no provision of the charter and by-laws of the corporation or any resolution or any other act of the board of directors
of HI Cement Corporation has been cited, from which We could reasonably infer that the administrative manager had
been granted expressly or impliedly the power to bind the corporation or the authority to compromise the case. Absent
such authority to enter into the compromise, the signature of Atty. Cardenas on the agreement would be legally ineffectual.
delegation of authority to such officer, from the acts of board of directors, formally expressed or implied from a habit or custom of doing business. 8

4. As regards the nomination of Mr. Marquez as commissioner, counsel for respondent corporation has explained and this has not been disproven that Atty.
Cardenas, apparently on his own, submitted the same to the court. There is no iota of proof that at the time of the submission to the Court, on February 26, 1969,
of the name of Mr. Marquez, respondent corporation knew of the contents of the compromise agreement. As matter of fact, according to the manifestation of Atty.
Ventura to the court, it was only on September 1, 1969 that he sent to Mr. Antonio Diokno, Vice-President of the corporation, a copy of the compromise agreement
for the approval by the board of directors and on October 22, 1969, Mr. Diokno informed him that the approval of the Board cannot be obtained, as under the
agreement the corporation is deprived of its right to appeal from the judgement.
In the absence of any proof that the governing body of respondent corporation had knowledge, either actual or constructive, or the contents of the compromise
agreement before September 1, 1969, why should the nomination of Mr. Marquez as commissioner, by Attys. Ventura, Cardenas and Magpantay, on February 26,
1969, be considered as a form of tacit ratification of the compromise agreement by the corporation? In order to ratify the unauthorized act of an agent and make it
binding on the corporation, it must be shown that the governing body or officer authorized to ratify had full and complete knowledge of all the material facts

It cannot be assumed also that Atty. Cardenas, as administrative manager of the

corporation, had authority to ratify. For ratification can never be made "on the part of the corporation by the same persons
who wrongfully assume the power to make the contract, but the ratification must be by the officer or governing body
having authority to make such contract and, as we have seen, must be with full knowledge."
connected with the transaction to which it relates. 9

10

5. Equally inapposite is petitioners' invocation of the principle of estoppel. In the case at bar, except those made by Attys. Ventura, Cardenas and Magpantay,
petitioners have not demonstrated any act or declaration of the corporation amounting to false representation or concealment of material facts calculated to
mislead said petitioners. The acts or conduct for which the corporation may be liable under the doctrine of estoppel must be those of the corporation, its governing
body or authorized officers, and not those of the purported agent who is himself responsible for the misrepresentation. 11
It having been found by the trial court that "the counsel for the plaintiff entered into the compromise agreement without the written authority of his client and the

We therefore declare that the orders of the court a quo subject

of these two petitions, have not been issued in excess of its jurisdictional authority or in grave abuse of its discretion.
latter did not ratify, on the contrary it repudiated and disowned the same ...",

12

WHEREFORE, the petitions in these two cases are hereby dismissed. Costs against the petitioners.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 70909 January 5, 1994

CONCHITA T. VDA. DE CHUA, THELMA CHUA, assisted by her husband, CHARLIE DY, CHARLITO CHUA, REYNALDO CHUA, SUSAN CHUA, ALEX
CHUA, EDDIE CHUA, SIMON CHUA, AND ERNESTO CHUA,petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT, VICENTE GO, VICTORIA T. GO, AND HERMINIGILDA HERRERA,respondents.

Alberto R. de Joya for petitioners.

Zosa & Quijano Law Offices and Expedito P. Bugarin for private respondents.

QUIASON, J.:
This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of the Court of Appeals in AC-G.R. CV No. 67692 entitled "Conchita
Vda. de Chua, et al. v. Herminigilda Herrera, et al.," affirming with modification the decision of the Court of First Instance of Cebu in Civil Case No. R-16589.
The facts as found by the Court of Appeals, are summarized as follows:
Sometime in 1950, defendant Herminigilda Herrera executed a Contract of Lease (Exh. "A") in favor of Tian On (sic) (or Sy Tian On) whereby
the former leased to the latter Lots. Nos. 620 and 7549 containing an area of 151 square meters, located at Manalili Street (now V. Gullas
Street) Cebu City, for a term of ten (10) years, renewable for another five (5) years. The contract of lease (Exh. "A") contains a stipulation
giving the lessee an option to buy the leased property (Exh. A-2) and that the lessor guarantees to leave the possession of said property to
the lessee for a period of ten (10) years or as long as the lessee faithfully fulfills the terms and conditions of their contract (Exh. A-5).
In accordance with the said contract of lease, the lessee, Tian On, erected a residential house on the leased premises.
On February 2, 1954, or within four (4) years from the execution of the said contract of lease (Exh. "A"), the lessee, Sy Tian On, executed a
Deed of Absolute Sale of Building (Exh. "B") in favor of Chua Bok, the predecessor-in-interest of the plaintiffs herein, whereby the former sold
to the latter the aforesaid residential house for and in consideration of the sum of P8,000.00. Pertinent provisions of this deed of sale (Exh.
"B") read as follows:
. . . That with the sale of the said house and as a legal consequence, I hereby assign all my rights and privileges as a
lessee of the lot on which the said building is constructed together with its corresponding obligations as contained and
expressly stipulated in the Contract of Lease executed in 1950 between myself and the lot owner, Herminigilda Herrera,
to the said vendee, Chua Bok who hereby accepts the said assignment of the said lease and hereby promises and bind
himself to abide by all the terms and conditions thereof, a copy of the Lease Contract is hereby attached as
Appendix "A" and made a part hereof.
That the present sale is made with the knowledge and express consent of the lot-owner and lessor, Herminigilda
Herrera who is represented herein by her attorney-in-fact, Vicenta R. de Reynes who hereby also honors the
annulment of the lease made by Sy Tian On in favor of Chua Bok, and hereby promises and binds herself to respect
and abide by all the terms and conditions of the lease contract which is now assigned to the said Chua Bok.
IN WITNESS WHEREOF, the parties have hereunto affixed their signatures on this 2nd day of February 1954, in the
City of Cebu, Philippines.
(Sgd.) CHUA BOK
Vendee-Lessee-Assignee
(Sgd.) SY TIAN ON
Vendor-Lessor-Assignor
HERMINIGILDA HERRERA
By:
(Sgd.) VICENTA R. DE REYNES
Attorney-in-fact
Lot-owner-Lessor
SIGNED IN THE PRESENCE OF:
(Sgd.) ILLEGIBLE
AND
(Sgd.)
ILLEGIBL
E

After the said sale transaction, Chua Bok and his family
(plaintiffs herein) resided in the said residential building and they faithfully and religiously paid the rentals thereof.
When the Original Contract of Lease expired in 1960, Chua Bok and defendant Herminigilda Herrera, through her alleged attorney-in-fact
executed the following
CONTRACT OF LEASE.
THIS CONTRACT OF LEASE made and entered into
this ___ day of August, 1960, in the City of Cebu, Philippines, by and between:
HERMINIGILDA HERRERA, of legal age, single, Filipino and a resident of Cebu City, Philippines,
hereinafter known as Party of the First Part;
and
CHUA BOK of legal age, married and a resident of Cebu City, Philippines, hereinafter known as
the Party of the Second Part.
WITNESSETH:
That the Party of the First Part who is the owner of a parcel of land located at Manalili Street, Cebu City containing of
an area of about 151 (One Hundred Fifty-One) square meters, more or less, known as Lot. No. ________ of the
Cadastral Survey of Cebu, hereby lets and leases unto the Party of the Second Part who hereby accepts in lease the
abovementioned lot under the following terms and conditions:
1. That the term of this contract shall be for a period of FIVE (5) years from August 1, 1960 to August 1, 1965, at a
monthly rental of SIXTY PESOS (P60.00) Philippine Currency;
2. That the rental of P60.00 will be paid within the first 10 days of every month, to the Party of the First Part without
express demand and in advance;
xxx xxx xxx
4. That the Party of the Second Part is given an option to buy the said leased premises if he is qualified and when the
Party of the First Part decides to sell the same and that the Party of the second Part is also given the option to renew
the Contract of Lease upon terms and conditions to be agreed by both parties;
xxx xxx xxx
6. That it is hereby expressly reserved that should the property leased be sold by the Party of the First part to any other
party, the terms and conditions of this Contract shall be valid and will continue for the duration of this contract. The
Third party shall be expressed (sic) bound to respect the terms of this Contract of Lease;
xxx xxx xxx
That the parties herein, do hereby mutually and reciprocally stipulate that they will comply with the terms and conditions
herein before set forth. That the Party of the First Part hereby (sic) these presents guarantees that she will leave the
property in the possession of the Party of the Second Part for five (5) years or as long as the Party of the second Part
faithfully fulfills with the terms and conditions herein set forth.
IN WITNESS WHEREOF, we have hereunto affixed our signatures on this 9th day of September, 1960, in the City of
Cebu, Philippines.
(Sgd.) CHUA BOK
Party of the Second Part
HERMINIGILDA HERRERA
By: Party of the First Part
(Sgd.) VICENTA R. DE REYNES
Attorney-in-Fact
SIGNED IN THE PRESENCE OF:

(Sgd.) ILLEGIBLE
(Sgd.) B.E. SUN
After the expiration of the contract of lease in question (Exh. "C") the plaintiffs herein, who are the successors-in-interest of Chua Bok (who
had meanwhile died) continued possession of the premises up to
April 1978, with adjusted rental rate of P1,000.00 (Exh. "D"); later readjusted to P2,000.00.
On July 26, 1977, defendant Herrera through her attorney-in-fact, Mrs. Luz Tormis, who was authorized with a special power of attorney, sold
the lots in question to defendants-spouses, Vicente and Victoria Go. The defendants-spouses were able to have aforesaid sale registered
with the Register of Deeds of the City of Cebu and the titles of the two parcels of land were transferred in their names (Exhs. "5-Herrera", or
"5-Go" and
"6-Herrera" or "6-Go").
Thereafter, or on November 18, 1977, plaintiffs filed the instant case seeking the annulment of the said sale between Herminigilda Herrera
and spouses Vicente and Victoria Go, alleging that the conveyance was in violation of the plaintiffs' right of option to buy the leased premises
as provided in the Contract of Lease (Exh. "C") and that the defendants-spouses acted in bad faith in purchasing the said lots knowing fully
well that the said plaintiffs have the option to buy those lots.
After due trial, the lower court rendered judgment, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, this Court ORDERS:
1) The DISMISSAL of plaintiffs' complaint, as against defendant spouses GO;
2) The plaintiffs to VACATE Lot No. 620 and
Lot No. 7549, ownership over by which defendants Vicente and Victoria Go being found valid and legitimate, and to
peacefully turn over the same to said spouses, and to REMOVE the building thereon at plaintiffs' own expense, or such
removal may be done by the declared land-owners, likewise at plaintiffs' expense.
3) Defendant Herrera to pay the spouses Go, the sum of P15,000.00 as reimbursement to them for what they already
paid to their lawyer;
4) Defendant Herrera to pay plaintiffs the sum of P50,000.00 (later reduced to P20,000.00, on motion of defendant
Herrera, which the court a quo granted) in concept of moral damages suffered by the latter; and
5) Defendant Herrera to pay the costs of the proceedings (Record on Appeal, pp. 229-230) (Rollo, pp. 63-68).
Plaintiffs and defendant Herrera appealed from the decision of the trial court to the Court of Appeals.
In said court, plaintiffs-appellants claimed that the trial court erred: (a) in dismissing their complaint as against defendants-spouses Go, (b) in ordering them to
vacate the lots in question and to remove the improvements they had introduced in the premises, and (c) in ordering the execution of the judgment pending
appeal. Defendant-appellant Herrera, on her part, claimed that the trial court erred in ordering her to pay P15,000.00 as attorney's fees to defendants-spouses Go
and P50,000.00 as moral damages to plaintiffs-appellants.
The Court of Appeals affirmed with modification the decision of the trial court, thus:
WHEREFORE, premises considered the appealed decision is hereby MODIFIED by eliminating the award of P20,000.00 moral damages in
favor of the plaintiffs-appellants, the award of P15,000.00 attorney's fees in favor of defendants-appellees (Go spouses) and the costs of the
proceedings. In all other respects the appealed decision is hereby AFFIRMED (Rollo, p. 78).
In their petition filed with us, petitioners (plaintiffs-appellants in AC-G.R. No. 67692) gave up their demand for the nullification of the sale of the lots in question to
respondent-spouses Go and limited their appeal to questioning the affirmance by the Court of Appeals of the decision of the trial court, ordering their ejectment
from the premises in question and the demolition of the improvements introduced thereon.
In support of their right to possess the premises in question, petitioners rely on the contract of lease (Exh. "C") entered into by and between Chua Bok and Vicenta
R. de Reynes, as attorney-in-fact of respondent Herrera, as well as on the tacit renewal thereof by respondent Herrera (Rollo, pp. 35-48).
In declaring the contract of lease (Exh. "C") void, the Court of Appeals noted that Vicenta R. de Reynes was not armed with a special power of attorney to enter
into a lease contract for a period of more than one year.
We agree with the Court of Appeals.

The lease contract (Exh. "C"), the linchpin of petitioners' cause of action, involves the lease of real property for a period of more than one year. The contract was
entered into by the agent of the lessor and not the lessor herself. In such a case, the law requires that the agent be armed with a special power of attorney to lease
the premises.
Article 1878 of the New Civil Code, in pertinent part, provides:
Special Power of Attorney are necessary in the following cases:
xxx xxx xxx
(8) To lease any real property to another person for more than one year.
It is true that respondent Herrera allowed petitioners to occupy the leased premises after the expiration of the lease contract (Exh. "C") and under
Article 1670 of the Civil Code of the Philippines, a tacit renewal of the lease (tacita reconduccion) is deemed to have taken place. However, as held in Bernardo
M. Dizon v. Ambrosio Magsaysay, 57 SCRA 250 (1974), a tacit renewal is limited only to the terms of the contract which are germane to the lessee's right of
continued enjoyment of the property and does not extend to alien matters, like the option to buy the leased premises.
In said case, Magsaysay leased to Dizon a parcel of land for a term of two years, expiring on April 1, 1951. Under the lease contract, Dizon was given the
preferential right to purchase the land under the same conditions as those offered to other buyers. After the lease contract expired, Dizon continued to occupy the
leased premises and to pay the monthly rentals, which Magsaysay accepted. On March 24, 1954, Dizon learned that Magsaysay had sold the property to a third
party without giving him the opportunity to exercise the preferential right to purchase given him under the lease contract. Dizon then filed an action against
Magsaysay and the buyer to annul the sale of the property or in the alternative, to recover damages from Magsaysay. The trial court dismissed the action and the
Court of Appeals affirmed the dismissal. In the Supreme Court, Dizon claimed that a new lease contract was impliedly created when Magsaysay allowed him to
continue to occupy the premises after the expiration of the original lease contract and that the other terms of the said contract, including the lessee's preferential
right to purchase, were deemed revived. Dizon invoked Article 1670 of the Civil Code of the Philippines, which provides:
Art. 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the
lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not
for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be
revived (Emphasis supplied).
We dismissed Dizon's appeal and sustained the interpretation of the Court of Appeals that "the other terms of the original contract" mentioned in Article 1670, are
only those terms which are germane to the lessee's right of continued enjoyment of the property leased. We held:
This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue
enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire
period corresponding to the rent which is customarily paid in this case up to the end of the month because the rent was paid monthly.
Necessarily, if the presumed will of the parties refers to the enjoyment of possession, the presumption covers the other terms of the contract
related to such possession, such as the amount of the rental, the date when it must be paid, the care of the property, the responsibility of
repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of
occupancy or enjoyment inherent in a contract of lease.
Petitioners also question the jurisdiction of the trial court in Civil Case No. R-16589 in ordering their ejectment from the leased premises and the removal of the
improvements introduced thereon by them. They claim that the action in Civil Case No. R-16589 was for the annulment of the sale of the property by defendant
Herrera to defendants-spouses Go, and not an appropriate case for an ejectment. The right of possession of petitioners of the leased premises was squarely put in
issue by defendants-spouse Go in their counterclaim to petitioner's complaint, where they asked that ". . . the plaintiff should vacate their premises as soon as
feasible or as the Honorable Court may direct" (Record on Appeal, CA-G.R. No. 67692-R; p. 45).
The said counterclaim in effect was an accion publiciana for the recovery of the possession of the leased premises.
Clearly the Court of First Instance had jurisdiction over actions which involve the possession of real property or any interest therein, except forcible entry and
detainer actions (Section 44[b], Judiciary Act of 1948; Concepcion v. Presiding Judge, Br. V, CFI Bulacan, 119 SCRA 222 [1982]).
A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff (Valisno v. Plan, 143 SCRA 502 [1986]). It stands on
the same footing and is to be tested by the same rules as if it were an independent action. Hence, the same rules on jurisdiction in an independent action apply to
a counterclaim (Vivar v. Vivar, 8 SCRA 847 [1963]; Calo v. Ajax International, Inc. v. 22 SCRA 996 [1968]; Javier v. Intermediate Appellate Court, 171 SCRA 605
[1989]; Quiason, Philippine Courts and Their Jurisdictions, 1993 ed., p. 203).
Finally, petitioners claim that the Court of Appeals erred in eliminating the award of moral damages in the amount of P20,000.00 given to them by the trial court
(Rollo, pp. 48-52). The elimination of said award is a logical consequence of the finding that petitioners had no right of option to purchase the leased premises that
can be enforced against respondent Herrera.
WHEREFORE, the petition is DENIED.
SO ORDERED.

E. Creation of Relation
1. By mutual assent of the Parties
2. By estoppel
3. By ratification
F. Authority Conferred
1. Agent to act within the scope of his authority
[G.R. Nos. L-33819 and L-33897. October 23, 1982.]
NATIONAL POWER CORPORATION, Plaintiff-Appellant, v. NATIONAL MERCHANDISING CORPORATION and DOMESTIC INSURANCE COMPANY OF THE
PHILIPPINES, Defendants-Appellants.
The Solicitor General, for Plaintiff-Appellant.
Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.
SYNOPSIS
Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National Merchandising Corporation (NAMERCO), the Philippine representative of New York-based
International Commodities Corporation, executed a contract of sale of sulfur with a stipulation for liquidated damages in case of breach. Defendant-appellant Domestic Insurance
Company executed a performance bond in favor of NPC to guarantee the sellers obligation. In entering into the contract, Namerco, however, did not disclose to NPC that
Namercos principal, in a cabled instruction, stated that the sale was subject to availability of a steamer, and contrary to its principals instruction, Namerco agreed that nonavailability of a steamer was not a justification for non-payment of liquidated damages. The New York supplier was not able to deliver the sulfur due to its inability to secure
shipping space. Consequently, the Government Corporate Counsel rescinded the contract of sale due to the suppliers non-performance of its obligations, and demanded payment
of liquidated damages from both Namerco and the surety. Thereafter, NPC sued for recovery of the stipulated liquidated damages. After trial, the Court of First Instance rendered
judgment ordering defendants-appellants to pay solidarity to the NPC reduced liquidated damages with interest.
The Supreme Court held that Namerco is liable fur damages because under Article 1897 of the Civil Code the agent who exceeds the limits of his authority without giving the
party with whom he contracts sufficient notice of his powers is personally liable to such party. The Court, however, further reduced the solidary liability of defendants-appellants
for liquidated damages.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS PERSONALLY LIABLE. Under Article 1897 of the Civil
Code the agent who exceeds the limits of his authority without giving the party with whom he contracts sufficient notice of his powers is personally liable to such party.
2. ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, Namerco, the agent of a New York-based principal, entered into a contract of sale with the National Power Corporation
without disclosing to the NPC the limits of its powers and, contrary to its principals prior cabled instructions that the sale should be subject to availability of a steamer, it agreed
that non-availability of a steamer was not a justification for nonpayment of the liquidated damages. Namerco. therefore, is liable for damages.
3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT IS PUT UPON AN INQUIRY AND MUST DISCOVER UPON HIS PERIL THE AUTHORITY OF THE AGENT IS
NOT APPLICABLE WHERE THE AGENT, NOT THE PRINCIPAL, IS SOUGHT TO BE HELD LIABLE ON THE CONTRACT. The rule that every person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent would apply only in cases where the principal is sought to be held liable on the contract entered into by the
agent. The said rule is not applicable in the instant case since it is the agent, not the principal, that is sought to be held liable on the contract of sale which was expressly
repudiated by the principal because the agent took chances, it exceeded its authority and, in effect. it acted in its own name.
4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED BEYOND HIS POWERS IS UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL BUT NOT AGAINST
THE AGENT AND ITS SURETY. Article 1403 of the Civil Code which provides that a contract entered into in the name of another person by one who has acted beyond his
powers is unenforceable, refers to the unenforceability of the contract against the principal. In the instant case, the contract containing the stipulation for liquidated damages is
not being enforced against its principal but against the agent and its surety. It being enforced against the agent because Article 1897 implies that the agent who acts in excess of
his authority is personally liable to the party with whom he contracted. And that rule is complimented by Article 1898 of the Civil Code which provides that "if the agent contracts,
in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is
aware of the limits of the powers granted by the principal." Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and because
Namerco exceeded the limits of its authority, it virtually acted in its own name and not as agent and it is, therefore, bound by the contract of sale which, however, it not
enforceable against its principal. If, as contemplated in Articles 1897 and 1898, Namerco is bound under the contract of sale, then it follows that it is bound by the stipulation for
liquidated damages in that contract.
5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS BASED ON CONTRACT AND NOT ON TORT OR QUASI-DELICT; CASE AT BAR.
Defendants contention that Namercos liability should be based on tort or quasi-delict, as held in some American cases, like Mendelson v. Holton, 149 N.E. 38,42 ACR 1307, is
not well-taken. As correctly argued by the NPC, it would be unjust and inequitable for Namerco to escape liability of the contract after it had deceived the NPC by not disclosing
the limits of its powers and entering into the contract with stipulations contrary to its principals instructions.
6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION CONTRACTED BY AN AGENT WHO EXCEEDED HIS AUTHORITY IS NOT AFFECTED THEREBY. The contention of
the defendants that the Domestic Insurance Company is not liable to the NPC because its bond was posted, not to Namerco, the agent, but for the New York firm which is not
liable on the contract of sale, cannot be sustained because it was Namerco that actually solicited the bond from the Domestic Insurance Company and, Namerco is being held
liable under the contract of sale because it virtually acted in its own name. In the last analysis, the Domestic Insurance Company acted as surety for Namerco. The rule is that
"want of authority of the person who executes an obligation as the agent or representative of the principal will not, as a general rule, affect the surety thereon, especially in the
absence of fraud, even though the obligation is not binding on the principal." (72 C.J.S. 525).
7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT WARRANTED WHERE THE DISPOSITION OF THE CASE HAS BEEN DELAYED DUE TO NO FAULT OF
DEFENDANTS. With respect to the imposition of the legal rate of interest on the damages from the filing of the complaint in 1957, or a quarter of a century ago, defendants
contention that interest should not be collected on the amount of damages is meritorious. It should be manifestly iniquitous to collect interest on the damages especially
considering that the disposition of this case has been considerably delayed due to no fault of the defendants
8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS IS REQUIRED FOR RECOVERY THEREOF. No proof of pecuniary lost is required for the recovery of liquited
damages. The stipulatian for liquidated damages is intended to obviate controversy on the amount of damages. There can be no question that the NPC suffered damages
because its production of fertilizer was disrupted or diminished by reason of the non-delivery of the sulfur. The parties foresaw that it might be difficult to ascertain the exact
amount of damages for non-delivey of the sulfur. So, they fixed the liquidated damages to be paid as indemnity to the NPC.
9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. Nominal damages are damages in name only or are in fact the same as no damages (25 C.J.S. 466). It would not be correct

to hold in this case that the NPC suffered damages in name only or that the breach of contract "as merely technical in character since the NPC suffered damages because its
production of fertilizer "as disrupted or diminished by reason of the non-delivery of the sulfur.

DECISION

AQUINO, J.:

This case is about the recovery of liquidated damages from a sellers agent that allegedly exceeded its authority in negotiating the sale.
Plaintiff National Power Corporation appealed on questions of law from the decision of the Court of First Instance of Manila dated October 10, 1966, ordering defendants National
Merchandising Corporation and Domestic Insurance Company of the Philippines to pay solidarily to the National Power Corporation reduced liquidated damages in the sum of
P72,114.66 plus legal, rate of interest from the filing of the complaint and the costs (Civil Case No. 33114).
The two defendants appealed from the same decision allegedly because it is contrary to law and the evidence. As the amount originally involved is P360,572.80 and defendants
appeal is tied up with plaintiffs appeal on questions of law, defendants appeal can be entertained under Republic Act No. 2613 which amended section 17 of the Judiciary Law.
On October 17, 1956, the National Power Corporation and National Merchandising Corporation (Namerco) of 3111 Nagtahan Street, Manila, as the representative of the
International Commodities Corporation of 11 Mercer Street, New York City (Exh. C), executed in Manila a contract for the purchase by the NPC from the New York firm of four
thousand long tons of crude sulfur for its Maria Cristina Fertilizer Plant in Iligan City at a total price of (450,716 (Exh. E).
On that same date, a performance bond in the sum of P90,143.20 was executed by the Domestic Insurance Company in favor of the NPC to guarantee the sellers obligations
(Exh. F).
It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City within sixty days from notice of the establishment in its favor of a letter of credit for
$212,120 and that failure to effect delivery would subject the seller and its surety to the payment of liquidated damages at the rate of two-fifth of one percent of the full contract
price for the first thirty days of default and four-fifth of one percent for every day thereafter until complete delivery is made (Art. 8, p. 111, Defendants Record on Appeal).
In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the president of Namerco, of the opening on November 8 of a letter of credit for $212,120 in favor of
International Commodities Corporation which would expire on January 31, 1957 (Exh. I). Notice of that letter of credit was, received by cable by the New York firm on November
15, 1956 (Exh. 80-Wallick). Thus, the deadline for the delivery of the sulfur was January 15, 1957.
The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. During the period from January 20 to 26, 1957 there was a shutdown of the
NPCs fertilizer plant because there was no sulfur. No fertilizer was produced (Exh. K).
In a letter dated February 27, 1957, the general manager of the NPC advised Namerco and the Domestic Insurance Company that under Article 9 of the contract of sale "nonavailability of bottom or vessel" was not a fortuitous event that would excuse non-performance and that the NPC would resort to legal remedies to enforce its rights (Exh. L and
M).
The Government Corporate Counsel in his letter to Sycip dated May 8, 1957 rescinded the contract of sale due to the New York suppliers non-performance of its obligations (Exh.
G). The same counsel in his letter of June 8, 1957 demanded from Namerco the payment of P360,572.80 as liquidated damages. He explained that time was of the essence of
the contract. A similar demand was made upon the surety (Exh. H and H-1).
The liquidated damages were computed on the basis of the 115-day period between January 15, 1957, the deadline for the delivery of the sulfur at Iligan City, and May 9, 1957
when Namerco was notified of the rescission of the contract, or P54,085.92 for the first thirty days and P306,486.88 for the remaining eighty-five days. Total: P360,572.80.
On November 5, 1957, the NPC sued the New York firm, Namerco and the Domestic Insurance Company for the recovery of the stipulated liquidated damages (Civil Case No.
33114).
The trial court in its order of January 17, 1958 dismissed the case as to the New York firm for lack of jurisdiction because it was not doing business in the Philippines (p. 60,
Defendants Record on Appeal).
On the other hand, Melvin Wallick, as the assignee of the New York corporation and after the latter was dropped as a defendant in Civil Case No. 33114, sued Namerco for
damages in connection with the same sulfur transaction (Civil Case No. 37019). The two cases, both filed in the Court of First Instance of Manila, were consolidated. A joint trial
was held. The lower court rendered separate decisions in the two cases on the same date.
In Civil Case No. 37019, the trial court dismissed Wallicks action for damages against Namerco because the assignment in favor of Wallick was champertous in character. Wallick
appealed to this Court. The appeal was dismissed because the record on appeal did not disclose that the appeal was perfected on time (Res. of July 11, 1972 in L-33893).In this
Civil Case No. 33114, although the records on appeal were approved in 1967, inexplicably, they were elevated to this Court in 1971. That anomaly initially contributed to the
delay in the adjudication of this case.
Defendants appeal L-33819. They contend that the delivery of the sulfur was conditioned on the availability of a vessel to carry the shipment and that Namerco acted within
the scope of its authority as agent in signing the contract of sale.
The documentary evidence belies these contentions. The invitation to bid issued by the NPC provides that non-availability of a steamer to transport the sulfur is not a ground for
non-payment of the liquidated damages in case of non-performance by the seller.
"4. Responsibility for availability of vessel. The availability of vessel to transport the quantity of sulfur within the time specified in item 14 of this specification shall be the
responsibility of the bidder. In case of award of contract, failure to ship on time allegedly due to non-availability of vessels shall not exempt the Contractor from payment of
liquidated damages provided in item 15 of this specification."
cralaw virtua1aw library

"15. Liquidated damages. . . .

"Availability of vessel being a responsibility of the Contractor as specified in item 4 of this specification, the terms unforeseeable causes beyond the control and without the fault
or negligence of the Contractor and force majeure as used herein shall not be deemed to embrace or include lack or nonavailability of bottom or vessel. It is agreed that prior to
making his bid, a bidder shall have made previous arrangements regarding shipments within the required time. It is clearly understood that in no event shall the Contractor be
exempt from the payment of liquidated damages herein specified for reason of lack of bottom or vessel. Lack of bottom or nonavailability of vessel shall, in no case, be
considered as a ground for extension of time. . . . ."
cralaw virtua1aw library

Namercos bid or offer is even more explicit. It provides that it was "responsible for the availability of bottom or vessel" and that it "guarantees the availability of bottom or vessel
to ship the quantity of sulfur within the time specified in this bid" (Exh. B, p. 22, Defendants Record on Appeal).
In the contract of sale itself item 15 of the invitation to bid is reproduced in Article 9 which provides that "it is clearly understood that in no event shall the seller be entitled to an
extension of time or be exempt from the payment of liquidated damages herein specified for reason of lack of bottom or vessel" (Exh. E, p. 36, Record on Appeal).
It is true that the New York corporation in its cable to Namerco dated August 9, 1956 stated that the sale was subject to availability of a steamer (Exh. N). However, Namerco did
not disclose that cable to the NPC and, contrary to its principals instruction, it agreed that nonavailability of a steamer was not a justification for nonpayment of the liquidated
damages.
The trial court rightly concluded that Namerco acted beyond the bounds of its authority because it violated its principals cabled instructions (1) that the delivery of the sulfur
should be "C & F Manila", not "C & F Iligan City" ; (2) that the sale be subject to the availability of a steamer and (3) that the seller should be allowed to withdraw right away the
full amount of the letter of credit and not merely eighty percent thereof (pp- 123-124, Record on Appeal).
The defendants argue that it was incumbent upon the NPC to inquire into the extent of the agents authority and, for its failure to do so, it could not claim any liquidated

damages which, according to the defendants, were provided for merely to make the seller more diligent in looking for a steamer to transport the sulfur.
The NPC counter-argues that Namerco should have advised the NPC of the limitations on its authority to negotiate the sale.
We agree with the trial court that Namerco is liable for damages because under article 1897 of the Civil Code the agent who exceeds the limits of his authority without giving the
party with whom he contracts sufficient notice of his powers is personally liable to such party.
The truth is that even before the contract of sale was signed Namerco was already aware that its principal was having difficulties in booking shipping space. In a cable dated
October 16, 1956, or one day before the contract of sale was signed, the New York supplier advised Namerco that the latter should not sign the contract unless it (Namerco)
wished to assume sole responsibility for the shipment (Exh. T).
Sycip, Namercos president, replied in his letter to the seller dated also October 16, 1956, that he had no choice but to finalize the contract of sale because the NPC would forfeit
Namercos bidders bond in the sum of P45,100 posted by the Domestic Insurance Company if the contract was not formalized (Exh. 14, 14-A and Exh. V).
Three days later, or on October 19, the New York firm cabled Namerco that the firm did not consider itself bound by the contract of sale and that Namerco signed the contract on
its own responsibility (Exh. W).
In its letters dated November 8 and 19, 1956, the New York corporation informed Namerco that since the latter acted contrary to the formers cabled instructions, the former
disclaimed responsibility for the contract and that the responsibility for the sale rested on Namerco (Exh. Y and Y-1).
The letters of the New York firm dated November 26 and December 11, 1956 were even more revealing. It bluntly told Namerco that the latter was never authorized to enter into
the contract and that it acted contrary to the repeated instructions of the former (Exh. U and Z). Said the vice-president of the New York firm to Namerco:
chanrobles virtual lawlibrary

"As we have pointed out to you before, you have acted strictly contrary to our repeated instructions and, however regretfully, you have no one but yourselves to blame."

cralaw virtua1aw library

The rule relied upon by the defendants-appellants that every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent would
apply in this case if the principal is sought to be held liable on the contract entered into by the agent.
That is not so in this case. Here, it is the agent that it sought to be held liable on a contract of sale which was expressly repudiated by the principal because the agent took
chances, it exceeded its authority, and, in effect, it acted in its own name.
As observed by Castan Tobeas, an agent "que haya traspasado los limites dew mandato, lo que equivale a obrar sin mandato" (4 Derecho Civil Espaol, 8th Ed., 1956, p. 520).
As opined by Olivieri, "si el mandante contesta o impugna el negocio juridico concluido por el mandatario con el tercero, aduciendo el exceso de los limites impuestos, es justo
que el mandatario, que ha tratado con engao al tercero, sea responsable personalmente respecto de el des las consecuencias de tal falta de aceptacion por parte del mandate.
Tal responsabilidad del mandatario se informa en el principio de la falta de garantia de la existencia del mandato y de la cualidad de mandatario, garantia impuesta
coactivamente por la ley, que quire que aquel que contrata como mandatario este obligado a garantizar al tercero la efectiva existencia de los poderes que afirma se halla
investido, siempre que el tercero mismo sea de buena fe. Efecto de tal garantia es el resarcimiento de los daos causados al tercero como consecuencia de la negativa del
mandante a reconocer lo actuado por el mandatario." (26, part II, Scaveola, Codigo Civil, 1951, pp. 358-9).
Manresa says that the agent who exceeds the limits of his authority is personally liable "porque realmente obra sin poderes" and the third person who contracts with the agent in
such a case would be defrauded if he would not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p. 725).
The defendants also contend that the trial court erred in holding as enforceable the stipulation for liquidated damages despite its finding that the contract was executed by the
agent in excess of its authority and is, therefore, allegedly unenforceable.
In support of that contention, the defendants cite article 1403 of the Civil Code which provides that a contract entered into in the name of another person by one who has acted
beyond his powers is unenforceable.
We hold that defendants contention is untenable because article 1403 refers to the unenforceability of the contract against the principal. In the instant case, the contract
containing the stipulation for liquidated damages is not being enforced against it principal but against the agent and its surety.
It is being enforced against the agent because article 1807 implies that the agent who acts in excess of his authority is personally liable to the party with whom he contracted.
And that rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts in the name of the principal, exceeding the scope of his authority, and
the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal."
It is being enforced against the agent because article 1897 implies that the agent who acts in excess of his authority is personally liable to the party with whom he contracted.
And the rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts in the name of the principal, exceeding the scope of his authority, and
the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal."
As priorly discussed, namerco, as agent, exceeded the limits of its authority in contracting with the NPC in the name of its principal. The NPC was unaware of the limitations on
the powers granted by the New York firm to Namerco.
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The New York corporation in its letter of April 26, 1956 said:

jgc:chanrobles.com .ph

"We hereby certify that National Merchandising Corporation . . . are our exclusive representatives in the Philippines for the sale of our products.
"Furthermore, we certify that they are empowered to present our offers in our behalf in accordance with our cabled or written instructions." (Exh. C).
Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and because Namerco exceeded the limits of its authority, it virtually acted
in its own name and not as agent and it is, therefore, bound by the contract of sale which, however, is not enforceable against its principal.
If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of sale, then it follows that it is bound by the stipulation for liquidated damages in that
contract.
Defendants contention that Namercos liability should be based on tort or quasi-delict, as held in some American cases, like Mendelsohn v. Holton, 149 N.E. 38, 42 ALR 1307, is
not well-taken. As correctly argued by the NPC, it would be unjust and inequitable for Namerco to escape liability after it had deceived the NPC.
Another contention of the defendants is that the Domestic Insurance Company is not liable to the NPC because its bond was posted, not for Namerco, the agent, but for the New
York firm which is not liable on the contract of sale.
That contention cannot be sustained because it was Namerco that actually solicited the bond from the Domestic Insurance Company and, as explained already, Namerco is being
held liable under the contract of sale because it virtually acted in its own name. It became the principal in the performance bond. In the last analysis, the Domestic Insurance
Company acted as surety for Namerco.
The rule is that "want of authority of the person who executes an obligation as the agent or representative of the principal will not, as a general rule, affect the suretys liability
thereon, especially in the absence of fraud, even though the obligation is not binding on the principal" (72 C.J.S. 525).
Defendants other contentions are that they should be held liable only for nominal damages, that interest should not be collected on the amount of damages and that the
damages should be computed on the basis of a forty-five day period and not for a period of one hundred fifteen days.
With respect to the imposition of the legal rate of interest on the damages from the filing of the complaint in 1957, or a quarter of a century ago, defendants contention is
meritorious. It would be manifestly inequitable to collect interest on the damages especially considering that the disposition of this case has been considerably delayed due to no
fault of the defendants.
The contention that only nominal damages should be adjudged is contrary to the intention of the parties (NPC, Namerco and its surety) because it is clearly provided that

liquidated damages are recoverable for delay in the delivery of the sulfur and, with more reason, for nondelivery.
No proof of pecuniary loss is required for the recovery of liquidated damages. the stipulation for liquidated damages is intended to obviate controversy on the amount of
damages. There can be no question that the NPC suffered damages because its production of fertilizer was disrupted or diminished by reason of the nondelivery of the sulfur.

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The parties foresaw that it might be difficult to ascertain the exact amount of damages for nondelivery of the sulfur. So, they fixed the liquidated damages to be paid as
indemnity to the NPC.
On the other hand, nominal damages are damages in name only or are in fact the same as no damages (25 C.J.S. 466). It would not be correct to hold in this case that the NPC
suffered damages in name only or that the breach of contract was merely technical in character.
As to the contention that the damages should be computed on the basis of forty-five days, the period required by a vessel leaving Galveston, Texas to reach Iligan City, that point
need not be resolved in view of our conclusion that the liquidated damages should be equivalent to the amount of the bidders bond posted by Namerco.
NPCs appeal, L-33897. The trial court reduced the liquidated damages to twenty percent of the stipulated amount. the NPC contends the it is entitled to the full amount of
liquidated damages in the sum of P360,572.80.
In reducing the liquidated damages, the trial court relied on article 2227 of the Civil Code which provides that "liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or unconscionable."
Apparently, the trial court regarded as an equitable consideration the persistent efforts of Namerco and its principal to charter a steamer and that the failure of the New York firm
to secure shipping space was not attributable to its fault or negligence.
The trial court also took into account the fact that the selling price of the sulfur was P450,716 and that to award as liquidated damages more than eighty percent of the price
would not be altogether reasonable.
The NPC contends that Namerco was an obligor in bad faith and, therefore, it should be responsible for all damages which could be reasonably attributed to its nonperformance
of the obligation as provided in article 2201 of the Civil Code.
On the other hand, the defendants argue that Namerco having acted as a mere agent, was not liable for the liquidated damages stipulated in the alleged unenforceable contract
of sale; that, as already noted, Namercos liability should be based on tort or quasi-delict and not on the contract of sale; that if Namerco is not liable, then the insurance
company, its surety, is likewise not liable; that the NPC is entitled only to nominal damages because it was able to secure the sulfur from another source (58-59 tsn November
10, 1960) and that the reduced award of stipulated damages is highly iniquitous, considering that Namerco acted in good faith and that the NPC did not suffer any actual
damages.
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These contentions have already been resolved in the preceding discussion. We find no sanction or justification for NPCs claim that it is entitled to the full payment of the
liquidated damages computed by its official.
Ruling on the amount of damages. A painstaking evaluation of the equities of the case in the light of the arguments of the parties as expounded in their five briefs leads to the
conclusion that the damages due from the defendants should be further reduced to P45,100 which is equivalent to their bidders bond or to about ten percent of the selling price
of the sulfur.
WHEREFORE, the lower courts judgment is modified and defendants National Merchandising Corporation and Domestic Insurance Company of the Philippines are ordered to pay
solidarily to the National Power Corporation the sum of P45,100.00 as liquidated damages. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-38384

November 3, 1933

CORAZON CH. VELOSO Y RICABLANCA and ROBUSTIANO M. ROSALES, plaintiff-appellee,

vs.
LA URBANA, Mutual Building and Loan Association, and JOSE MARIA DEL MAR, defendants.
LA URBANA, Mutual Building and Loan Association, appellant.
Ramirez and Ortigas for appellant.
Gullas, Lopez and Tuao and Jose N. Leuterio for appellees.
Office of the Solicitor-General Hilado for the Insular Treasurer as amicus curiae.

IMPERIAL, J.:
The plaintiffs herein brought this action to annul certain mortgages constituted by Jose Maria del Mar in the name of the plaintiff, Corazon Ch. Veloso in favor of
the defendant corporation, and recover damages amounting to P2,000 from the defendants.
La Urbana, one of the defendants herein, appealed from the judgment rendered in this case, the dispositive part of which reads as follows:
For the reasons above stated, the deeds of mortgage executed by Jose del Mar in the name of Corazon Ch. Veloso in favor of La Urbana are declared
null and void in so far as they purport to bind the plaintiffs or their property; the sale of the said property to La Urbana by virtue of these mortgages is
also hereby declared null and void; and it is further ordered and adjudged that the registration of the said deeds in the office of the register of deeds of
Manila be cancelled, and that La Urbana and Jose del Mar pay the costs of this suit.
This decision is without prejudice to any right of action which La Urbana may have against Jose Maria del Mar or the Insular Treasurer, or both, under
the provisions of sections 99 to 107 of Act No. 496. So ordered.
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The plaintiff Corazon Ch. Veloso was the owner of certain undivided portions of the five parcels of land in question together with the improvements thereon,
situated in the City of Manila, and described in certificates of title Nos. 5767 and 33360. In the month of May, 1929, the defendant herein Jose Maria del Mar,
plaintiff's brother-in-law, forged two powers of attorney purporting to have been executed by the plaintiffs, as husband and wife, conferring upon him ample
authority to mortgage the plaintiff's participation in the aforementioned properties described in said certificates of title. These powers of attorney were duly
registered in the office of the register of deeds. Acting under these powers of attorney, Del Mar succeeded in mortgaging the plaintiff's participations to La
Previsora Filipina. On February 6, 1929, he cancelled said mortgage and transferred it to the defendant La Urbana which granted him a loan of P10,600. Upon
mortgaging the said participations of the plaintiff to the aforesaid defendant, Del Mar delivered to the mortgage creditor the owner's duplicates of the certificates of
title whereon the mortgage in question was noted. On November 14 of the same year. Del Mar obtained from the same defendant an additional loan, of P2,875
and executing another mortgage deed which was likewise noted or, the aforesaid duplicates of the certificates of title. Del Mar later violated the conditions of the
mortgages whereupon La Urbana foreclosed them and purchased the said properties at public auction for the sum of P10,051.82 which was the total amount of
Del Mar's indebtedness at that time. The plaintiffs herein learned of del Mar's fraudulent transactions from the advertisement of the sale thereof, and in addition to
this civil action, they instituted criminal proceedings against him resulting in his conviction of the crime of falsification and the imposition upon him of a sentence of
two (2) years, four (4) months and one (1) day of prision correccional.
In view of the foregoing facts, the court held that pursuant to article 1714 of the Civil Code and under the Torrens Act in force in this jurisdiction, the forged powers
of attorney prepared by Del Mar were without force and effects and that the registration of the mortgages constituted by virtue thereof were likewise null and void
and without force and effect, and that they could not in any way prejudice the rights of the plaintiff as the registered owners of her participations in the properties in
question.
The defendant-appellant herein assign various alleged errors in its brief consideration thereof. Inasmuch as Del Mar is not the registered owner of the mortgaged
properties and inasmuch as the appellant was fully aware of the fact that it was dealing with him on the strength of the alleged powers of attorney purporting to
have been conferred upon him by the plaintiff, it was its duty to ascertain the genuineness of said instruments and not the said powers of attorney appeared to
have been registered. In view of its failure to proceed in this manner, it acted negligently and should suffer the consequences and damages resulting from such
transactions.
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Every person dealing with an agent is put upon inquiry, and must discover upon his peril the authority of the agent, and this is specially true where the
act of the agent is of an unusual nature.
If a person makes no inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse.
(Deen vs. Pacific Commercial Co., 42 Phil., 738.)
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 the nature and extent of the authority, and in case either is controverted, the burden of proof is
upon them to establish it. (Harry E. Keeler Electric Co. vs. Rodriguez, 44 Phil., 19.)
As has been noted at the beginning, the court reserved to the appellant any right of action it might have against Del Mar and the Insular Treasurer under the
provisions of sections 99 to 107 of Act 496. We deem it unnecessary to repeat such reservation in this decision. At all events, the appellant may exercise such
right of action without the necessity of such reservation if the facts of the case so warrant.
Wherefore, the judgment appealed from is hereby affirmed, with the costs against the appellant. So ordered.

2. Agent acting in his own name

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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 of the Intermediate Appellate Court affirming the decision of the trial court, the decretal portion of which reads:
1

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.

Republic of the Philippines

SUPREME COURT
Manila
G.R. Nos. L-25836-37 January 31, 1981
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066

and from the order of said court in the same case denying his motion to
set aside the judgment rendered after he was declared in default. These two appeals of the defendant were docketed as
CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
denying his motion to set aside the order declaring him in default,

he was allowed by the Court of Appeals to file one consolidated record on appeal of
CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R.
Upon motion of the defendant on July 25, 1960,

In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal to the Supreme Court on the ground that only
questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of about
P35,000.00 with daily interest thereon from November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days or fraction thereof plus

The complaint filed by the Philippine Bank of Commerce contains

twenty-two (22) causes of action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on
different dates covering the period from August 28, 1950 to March 14, 1951. The sum sought to be recovered represents
the cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate the payment of the
printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of the "World Current
Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft against the plaintiff,
said draft being sent later to the defendant for acceptance. As an added security for the payment of the amounts
advanced to Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt
in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with
the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all
obligations arising from the draft.
attorney's fees equivalent to 10% of the total amount due and costs.

On December 14, 1959 defendant filed an urgent

motion for extension of time to plead, and set the hearing on December 16, 1959. At the hearing, the court denied
defendant's motion for extension. Whereupon, the defendant filed a motion to dismiss the complaint on December 17,
1959 on the ground that the complaint states no cause of action because:
Aruego received a copy of the complaint together with the summons on December 2, 1959.

10

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts thereof had already been paid by the plaintiff to the
drawer (Encal Press and Photo Engraving), without knowledge or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating party only for the drawer (Encal Press and
Photo-Engraving) and win be liable in the event that the accommodating party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on December 24, 1959.

12

On March 7, 1960, acting upon the motion for reconsideration filed by

the plaintiff, the trial court set aside its order dismissing the complaint and set the case for hearing on March 15, 1960 at
8:00 in the morning. A copy of the order setting aside the order of dismissal was received by the defendant on March 11,
1960 at 5:00 o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on the ground that there
having been no answer as yet, the issues had not yet been joined. On the same date, the defendant filed his answer to
On January 13, 1960, the plaintiff filed a motion for reconsideration.

13

14

15

the complaint interposing the following defenses: That he signed the document upon which the plaintiff sues in his
capacity as President of the Philippine Education Foundation; that his liability is only secondary; and that he believed that
he was signing only as an accommodation party.
16

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the defendant should have filed his answer on

On March 19, 1960 the trial court declared

the defendant in default. The defendant learned of the order declaring him in default on March 21, 1960. On March 22,
1960 the defendant filed a motion to set aside the order of default alleging that although the order of the court dated
March 7, 1960 was received on March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of
the defendant to file his answer on the last day of the reglementary period, March 11, 1960, within office hours, especially
because the order of the court dated March 7, 1960 was brought to the attention of counsel only in the early hours of
March 12, 1960. The defendant also alleged that he has a good and substantial defense. Attached to the motion are the
affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on March 11,
1960, at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that he has a good and substantial
defense. The trial court denied the defendant's motion on March 25, 1960. On May 6, 1960, the trial court rendered
judgment sentencing the defendant to pay to the plaintiff the sum of P35,444.35 representing the total amount of his
obligation to the said plaintiff under the twenty-two (22) causes of action alleged in the complaint as of November 15, 1957
and the sum of P10,000.00 as attorney's fees.
March 11, 1960. He contends that by filing his answer on March 12, 1960, defendant was one day late.

17

18

19

20

21

On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his motion to set aside the order declaring him in default, an
appeal bond in the amount of P60.00, and his record on appeal. The plaintiff filed his opposition to the approval of defendant's record on appeal on May 13, 1960.
The following day, May 14, 1960, the lower court dismissed defendant's appeal from the order dated March 25, 1960 denying his motion to set aside the order of

On May 19, 1960, the defendant filed a motion for reconsideration of the trial court's order dismissing his
appeal. The plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of the order dismissing
appeal. On May 21, 1960, the trial court reconsidered its previous order dismissing the appeal and approved the
defendant's record on appeal. On May 30, 1960, the defendant received a copy of a notice from the Clerk of Court dated
May 26, 1960, informing the defendant that the record on appeal filed ed by the defendant was forwarded to the Clerk of
Court of Appeals.
default. 22

23
24

25

26

On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in default reiterating the same ground previously advanced by

Upon opposition of the plaintiff filed on June 3, 1960, the trial court denied the
defendant's motion to set aside the judgment by default in an order of June 11, 1960. On June 20, 1960, the defendant
filed his notice of appeal from the order of the court denying his motion to set aside the judgment by default, his appeal
bond, and his record on appeal. The defendant's record on appeal was approved by the trial court on June 25,
1960. Thus, the defendant had two appeals with the Court of Appeals: (1) Appeal from the order of the lower court
denying his motion to set aside the order of default docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying
his motion to set aside the judgment by default docketed as CA-G.R. NO. 27940-R.
him in his motion for relief from the order of default.

27

28

29

30

In his brief, the defendant-appellant assigned the following errors:

I
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME
THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT
BY DEFAULT AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against him through his mistake, inadvertence, surprise or excusable neglect, he must show
to the court that he has a meritorious defense.

32

In other words, in order to set aside the order of default, the defendant must not only

show that his failure to answer was due to fraud, accident, mistake or excusable negligence but also that he has a
meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the summons on December 2, 1960; that on December 17, 1960, the last day for
filing his answer, Aruego filed a motion to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on January 23, 1960, the plaintiff filed
a motion for reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the trial court issued an order setting aside the order of dismissal;
that a copy of the order was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as shown in the affidavit of the deputy sheriff; and that
on the following day, March 12, 1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is excusable. The order setting aside the dismissal of the complaint was received at
5:00 o'clock in the afternoon. It was therefore impossible for him to have filed his answer on that same day because the courts then held office only up to 5:00
o'clock in the afternoon. Moreover, the defendant immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer was due to excusable negligence, he has failed to show that he has a meritorious
defense. The defendant does not have a good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a representative capacity, as the then President of the Philippine Education
Foundation Company, publisher of "World Current Events and Decision Law Journal," printed by Encal Press and Photo-Engraving, drawer of the said bills of
exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party obligor, to add to the security of said plaintiff
bank. The reason for this statement is that unlike real bills of exchange, where payment of the face value is advanced to the drawer only upon acceptance of the
same by the drawee, in the case in question, payment for the supposed bills of exchange were made before acceptance; so that in effect, although these
documents are labelled bills of exchange, legally they are not bills of exchange but mere instruments evidencing indebtedness of the drawee who received the
face value thereof, with the defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is
president. Section 20 of the Negotiable Instruments Law provides that "Where the instrument contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent or as filing a representative character, without disclosing his principal, does not exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative of the Philippine Education

He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to
disclose his principal, Aruego is personally liable for the drafts he accepted.
Foundation Company. 34

The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made liable only after a showing that the drawer is
incapable of paying. This contention is also without merit.
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his
name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument

In lending his name to the accommodated party, the accommodation party is in effect
a surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants
to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.
knew him to be only an accommodation party. 35

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of indebtedness because payments were
made before acceptance. This is also without merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writting addressed by
one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a

As long as a commercial paper conforms with the definition of a bill of exchange, that
paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of
liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.
sum certain in money to order or to bearer. 36

It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will result in a new trial which will serve no purpose and will just
waste the time of the courts as well as of the parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the petition for relief from the judgment rendered
in said case is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

Obligations of the Agent

Articles 1884- 1909
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,
vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

promulgated on September 7,
1995, which affirmed the award of damages and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial
Region, Branch 17, in favor of private respondent GOP Mahtani as well as the dismissal of its third-party complaint
against Philippine Airlines (PAL).
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of respondent Court of Appeals 1

The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his
travel plans. The latter, in turn, purchased a ticket from BA where the following itinerary was indicated: 3

CARRIER

FLIGHT

DATE

TIME

STATUS

MANILA

MNL

PR 310 Y

16 APR.

1730

OK

HONGKONG

HKG

BA 20 M

16 APR.

2100

OK

BOMBAY

BOM

BA 19 M

23 APR.

0840

OK

HONGKONG

HKG

PR 311 Y

MANILA

MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting
flight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing his clothings and personal effects, confident that upon
reaching Hongkong, the same would be transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that upon inquiry from the BA representatives, he was told that
the same might have been diverted to London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim by accomplishing the
"Property Irregularity Report." 4
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and attorney's fees 5

against BA and Mr. Gumar before

the trial court, docketed as Civil Case No. CEB-9076.

to the complaint raising, as special and affirmative defenses, that Mahtani
did not have a cause of action against it. Likewise, on November 9, 1990, BA filed a third-party complaint against PAL
alleging that the reason for the non-transfer of the luggage was due to the latter's late arrival in Hongkong, thus leaving
hardly any time for the proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay.
On September 4, 1990, BA filed its answer with counter claim 6

On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any liability, arguing that there was, in fact, adequate time to transfer
the luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should be considered as transfer to BA. 8
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor of Mahtani, 9

the dispositive portion of which

reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendant for which defendant is ordered to pay plaintiff the
sum of Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars representing the value of the
contents of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty percent (20%) of the total amount imposed
against the defendant for attorney's fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in accordance with law and evidence, the same is
hereby AFFIRMED in toto, with costs against defendant-appellant.
SO ORDERED. 10
BA is now before us seeking the reversal of the Court of Appeals' decision.
In essence, BA assails the award of compensatory damages and attorney's fees, as well as the dismissal of its third-party complaint against PAL. 11
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the separate sum of P7,000.00 for the loss of Mahtani's two pieces of
luggage was without basis since Mahtani in his complaint 12stated the following as the value of his personal belongings:
8. On the said travel, plaintiff took with him the following items and its corresponding value, to wit:
1. personal belonging P10,000.00
2. gifts for his parents and relatives $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for in the ticket, which reads: 13

Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in advance and
additional charges are paid:
1. For most international travel (including domestic corporations of international journeys) the liability limit is approximately U.S. $9.07 per pound (U.S.
$20.000) per kilo for checked baggage and U.S. $400 per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's contract of carriage partakes of two types, namely: a contract to
deliver a cargo or merchandise to its destination and a contract to transport passengers to their destination. A business intended to serve the traveling public
primarily, it is imbued with public interest, hence, the law governing common carriers imposes an exacting standard. 14 Neglect or malfeasance by the

carrier's employees could predictably furnish bases for an action for damages.

15

In the instant case, it is apparent that the contract of carriage was between Mahtani and BA. Moreover, it is indubitable that his luggage never arrived in Bombay
on time. Therefore, as in a number of cases 16 we have assessed the airlines' culpability in the form of damages for breach of contract

involving misplaced luggage.

In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant satisfactorily prove during the trial the existence of the factual
basis of the damages and its causal connection to defendant's acts. 17
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed to show receipts of the alleged gifts for the members of his family
in Bombay, the most that can be expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined
value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand (P7,000.00) Pesos representing the
purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no separate award for the luggage and the contents thereof since Mahtani failed to
declare a separate higher valuation for the luggage, 18 and therefore, its liability is limited, at most, only to the amount stated in the

ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to recover a greater amount. Article 22(1) of the Warsaw
Convention, 19 provides as follows:
xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the
consignor has made, at time the package was handed over to the carrier, a special declaration of the value at delivery and has paid a supplementary
sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that the sum is greater
than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in excess of the limits specified in the tariff which was filed
with the proper authorities, such tariff being binding, on the passenger regardless of the passenger's lack of knowledge thereof or assent thereto. 20 This

doctrine is recognized in this jurisdiction.

21

Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion contracts where the facts and circumstances justify that they
should be disregarded. 22
In addition, we have held that benefits of limited liability are subject to waiver such as when the air carrier failed to raise timely objections during the trial when
questions and answers regarding the actual claims and damages sustained by the passenger were asked. 23
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited liability when it allowed Mahtani to testify as to the actual
damages he incurred due to the misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript of stenographic notes of
Mahtani's direct testimony: 24
Q How much are you going to ask from this court?
A P100,000.00.
Q What else?
A Exemplary damages.
Q How much?
A P100,000.00.
Q What else?
A The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00.
Q What about the filing of this case?
A The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the adverse party to be inadmissible for any reason, the latter
has the right to object. However, such right is a mere privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity, lest
silence when there is opportunity to speak may operate as a waiver of objections. 25 BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even conducted his own cross-examination as well. 26

In the early

case of Abrenica v. Gonda, we ruled that:

27

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the admission of any evidence must be made at the
proper time, and that if not so made it will be understood to have been waived. The proper time to make a protest or objection is when, from the
question addressed to the witness, or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is, or may be inferred.

Since the actual value of the

luggage involved appreciation of evidence, a task within the competence of the Court of Appeals, its ruling regarding the
amount is assuredly a question of fact, thus, a finding not reviewable by this Court.
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to great respect. 28
29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals justified its ruling in this wise, and we quote: 30

Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint against PAL.
The contract of air transportation in this case pursuant to the ticket issued by appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani
and defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a subcontractor or agent of BA.
This is shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically provided on the "Conditions of Contract," paragraph 4
thereof that:
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive carriers is regarded as a single operation and that the carrier issuing the passenger's ticket is
considered the principal party and the other carrier merely subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31

we expounded on the nature of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "third party" who is neither a party nor privy to the act or deed complained of by
the plaintiff, may be brought into the case with leave of court, by the defendant, who acts, as third-party plaintiff to enforce against such third-party
defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a thirdparty defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-party in the original and principal case
with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject
matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their contract of carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was exclusively between Mahtani and BA, the latter merely endorsing the Manila
to Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of Contracts" of the ticket 32 issued

by BA to Mahtani confirms that the contract was one of continuous air transportation from Manila to Bombay.
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent is also responsible for any negligence in the performance of
its function. 33 and is liable for damages which the principal may suffer by reason of its negligent act. 34 Hence, the Court of

Appeals erred when it opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air Transport Association (IATA), wherein member airlines are regarded as
agents of each other in the issuance of the tickets and other matters pertaining to their relationship. 35 Therefore, in the instant case, the contractual

relationship between BA and PAL is one of agency, the former being the principal, since it was the one which issued the
confirmed ticket, and the latter the agent.
In that case, Lufthansa
issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of
the airlines which was to carry Antiporda to a specific destination "bumped" him off.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines v. Court of Appeals. 36

An action for damages was filed against Lufthansa which, however, denied any liability, contending that its responsibility towards its passenger is limited to the
occurrence of a mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of carriage ceased; from
there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansa's argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so, regardless of those
instances when actual carriage was to be performed by various carriers. The issuance of confirmed Lufthansa ticket in favor of Antiporda covering his
entire five-leg trip abroad successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone, and not PAL, since the latter was not a party to the contract.
However, this is not to say that PAL is relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals, 37 while not

exactly in point, the case, however, illustrates the principle which governs this particular situation. In that case, we
recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent acts or omission in
the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of ultimately determining who was primarily at fault as
between them, is without legal basis. After all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving the same or
similar evidence for both cases and enforcing separate judgments therefor. It must be borne in mind that the purpose of a third-party complaint is precisely to avoid
delay and circuitry of action and to enable the controversy to be disposed of in one suit. 38 It is but logical, fair and equitable to allow BA to sue

PAL for indemnification, if it is proven that the latter's negligence was the proximate cause of Mahtani's unfortunate
experience, instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating
the third-party complaint filed by British Airways dated November 9, 1990 against Philippine Airlines. No costs.
SO ORDERED.

G.R. No. 125138. March 2, 1999]

NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THE
PHILIPPINE AIR LINES, INC., respondent.
DECISION
PURISIMA, J.:

This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals [1] in CA GR
CV No. 41407, entitled Nicholas Y. Cervantes vs. Philippine Air Lines Inc., affirming in toto the judgment of
the trial court dismissing petitioners complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein petitioner,
Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila,
which ticket expressly provided an expiry of date of one year from issuance, i.e., until March 27, 1990. The
issuance of the said plane ticket was in compliance with a Compromise Agreement entered into between the
contending parties in two previous suits, docketed as Civil Case Nos. 3392 and 3451 before the Regional Trial
Court in Surigao City.[2]
On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his
arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket with the
PAL office, and it was confirmed for the April 2, 1990 flight.

Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he
would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight in San
Francisco instead of boarding in Los Angeles.
On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not allowed
to board. The PAL personnel concerned marked the following notation on his ticket: TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY.
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage docketed
as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao City. But
the said complaint was dismissed for lack of merit.[3]
On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a
Decision, on July 25, 1995, upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject
ticket extended the period of validity of petitioners ticket; (2) Whether or not the defense of lack of authority
was correctly ruled upon; and (3) Whether or not the denial of the award for damages was proper.
To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings of
fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed unless for
strong and cogent reasons.[4]
The facts of the case as found by the lower court[5] are, as follows:

The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not valid
after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the Conditions of
Contract (Exhibit 1, page 2) as follows:
"8. This ticket is good for carriage for one year from date of issue, except as otherwise provided in this
ticket, in carriers tariffs, conditions of carriage, or related regulations. The fare for carriage hereunder is subject
to change prior to commencement of carriage. Carrier may refuse transportation if the applicable fare has not
been paid.[6]
The question on the validity of subject ticket can be resolved in light of the ruling in the case of Lufthansa
vs. Court of Appeals[7]. In the said case, the Tolentinos were issued first class tickets on April 3, 1982, which will
be valid until April 10,1983. On June 10, 1982, they changed their accommodations to economy class but the
replacement tickets still contained the same restriction. On May 7, 1983, Tolentino requested that subject tickets
be extended, which request was refused by the petitioner on the ground that the said tickets had already
expired. The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of contract
of carriage against the petitioner. In ruling against the award of damages, the Court held that the ticket constitute
the contract between the parties. It is axiomatic that when the terms are clear and leave no doubt as to the
intention of the contracting parties, contracts are to be interpreted according to their literal meaning.

In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PALs
agents in Los Angeles and San Francisco changed the compromise agreement between the parties.
As aptly ruled by the appellate court:

xxx on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he
returned to the Philippines. (pp. 320-321, Original Records)[8]
The question is: Did these two (2) employees, in effect , extend the validity or lifetime of the ticket in
question? The answer is in the negative. Both had no authority to do so. Appellant knew this from the very start
when he called up the Legal Department of appellee in the Philippines before he left for the United States of
America. He had first hand knowledge that the ticket in question would expire on March 27,1990 and that to
secure an extension, he would have to file a written request for extension at the PALs office in the Philippines
(TSN, Testimony of Nicholas Cervantes, August 2, 1991, pp 20-23). Despite this knowledge, appellant persisted
to use the ticket in question.[9]
From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to
send a letter to the legal counsel of PAL for the extension of the period of validity of his ticket.
Since the PAL agents are not privy to the said Agreement and petitioner knew that a written request to the
legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage. The said agents,
according to the Court of Appeals,[10] acted without authority when they confirmed the flights of the petitioner.
Under Article 1898[11] of the New Civil Code, the acts of an agent beyond the scope of his authority do not
bind the principal, unless the latter ratifies the same expressly or impliedly.Furthermore, when the third
person (herein petitioner) knows that the agent was acting beyond his power or authority, the principal cannot
be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principals
ratification.[12]
Anent the second issue, petitioners stance that the defense of lack of authority on the part of the PAL
employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is
unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss is a
waiver thereof.
Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the answer
nor in the motion to dismiss. But records show that the question of whether there was authority on the part of
the PAL employees was acted upon by the trial court when Nicholas Cervantes was presented as a witness and
the depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented.
The admission by Cervantes that he was told by PALs legal counsel that he had to submit a letter requesting
for an extension of the validity of subject tickets was tantamount to knowledge on his part that the PAL
employees had no authority to extend the validity of subject tickets and only PALs legal counsel was authorized
to do so.

However, notwithstanding PALs failure to raise the defense of lack of authority of the said PAL agents in its
answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as shown by
the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure
provides:

Sec. 5. Amendment to conform or authorize presentation of evidence. - When issues not raised by
the pleadings are tried with express or implied consent of the parties, as if they had been raised in
the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the trial of these issues. xxx
Thus, when evidence is presented by one party, with the express or implied consent of the adverse party, as
to issues not alleged in the pleadings, judgment may be rendered validly as regards the said issue, which shall
be treated as if they have been raised in the pleadings. There is implied consent to the evidence thus presented
when the adverse party fails to object thereto.[13]
Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted in
bad faith in refusing to allow him to board its plane in San Francisco.
In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately
injurious or the one responsible acted fraudulently or with malice or bad faith. [14]Petitioner knew there was a
strong possibility that he could not use the subject ticket, so much so that he bought a back-up ticket to ensure
his departure. Should there be a finding of bad faith, we are of the opinion that it should be on the
petitioner. What the employees of PAL did was one of simple negligence. No injury resulted on the part of
petitioner because he had a back-up ticket should PAL refuse to accommodate him with the use of subject ticket.
Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of
example or correction for the public good, and the existence of bad faith is established.The wrongful act must
be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a
wanton, fraudulent, reckless or malevolent manner.[15] Here, there is no showing that PAL acted in such a
manner. An award for attorneys fees is also improper.
WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995
AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

A. With respect to principal

[G.R. No. 130423. November 18, 2002]

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE PEOPLE OF
THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:

During the period from July 1992 to September 1992, Leonida Quilatan delivered
pieces of jewelry to petitioner Virgie Serona to be sold on commission basis. By oral
agreement of the parties, petitioner shall remit payment or return the pieces of jewelry if
not sold to Quilatan, both within 30 days from receipt of the items.
Upon petitioners failure to pay on September 24, 1992, Quilatan required her to
execute an acknowledgment receipt (Exhibit B) indicating their agreement and the total
amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay
Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas
kung hindi mabibili sa loob ng 30 araw.
Las Pinas, September 24, 1992.

[1]

The receipt was signed by petitioner and a witness, Rufina G. Navarette.

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu
Labrador for the latter to sell on commission basis. Petitioner was not able to collect
payment from Labrador, which caused her to likewise fail to pay her obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a formal letter of demand to petitioner
for failure to settle her obligation. Quilatan executed a complaint affidavit against
petitioner before the Office of the Assistant Provincial Prosecutor. Thereafter, an
information for estafa under Article 315, paragraph 1(b) of the Revised Penal Code was
filed against petitioner, which was raffled to Branch 255 of the Regional Trial Court of Las
Pinas. The information alleged:
[2]

[3]

[4]

That on or about and sometime during the period from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable
Court, the said accused received in trust from the complainant Leonida E. Quilatan various pieces
of jewelry in the total value of P567,750.00 to be sold on commission basis under the express duty
and obligation of remitting the proceeds thereof to the said complainant if sold or returning the
same to the latter if unsold but the said accused once in possession of said various pieces of

jewelry, with unfaithfulness and abuse of confidence and with intent to defraud, did then and there
willfully, unlawfully and feloniously misappropriate and convert the same for her own personal use
and benefit and despite oral and written demands, she failed and refused to account for said jewelry
or the proceeds of sale thereof, to the damage and prejudice of complainant Leonida E. Quilatan in
the aforestated total amount of P567,750.00.
CONTRARY TO LAW.

[5]

Petitioner pleaded not guilty to the charge upon arraignment. Trial on the merits
thereafter ensued.
[6]

Quilatan testified that petitioner was able to remit P100,000.00 and returned
P43,000.00 worth of jewelriy; that at the start, petitioner was prompt in settling her
obligation; however, subsequently the payments were remitted late; that petitioner still
owed her in the amount of P424,750.00.
[7]

[8]

[9]

On the other hand, petitioner admitted that she received several pieces of jewelry from
Quilatan and that she indeed failed to pay for the same. She claimed that she entrusted
the pieces of jewelry to Marichu Labrador who failed to pay for the same, thereby causing
her to default in paying Quilatan. She presented handwritten receipts (Exhibits 1 & 2)
evidencing payments made to Quilatan prior to the filing of the criminal case.
[10]

[11]

Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth
P441,035.00. She identified an acknowledgment receipt (Exhibit 3) signed by her dated
July 5, 1992 and testified that she sold the jewelry to a person who absconded without
paying her. Labrador also explained that in the past, she too had directly transacted with
Quilatan for the sale of jewelry on commission basis; however, due to her outstanding
account with the latter, she got jewelry from petitioner instead.
[12]

[13]

On November 17, 1994, the trial court rendered a decision finding petitioner guilty
of estafa, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty
beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided
under the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be
in the maximum period plus one (1) year for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the
penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision
correccionalas minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum;
to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties
provided by law; and to pay the costs.

SO ORDERED.

[14]

Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction
but modified the penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable
doubt of the crime of estafa is hereby AFFIRMED with the following MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be imposed in its
maximum period adding one (1) year for each additional P10,000.00 albeit the total penalty should
not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to
suffer the penalty of imprisonment ranging from Four (4) Years and One (1) Day of Prision
Correccional as minimum to Twenty (20) Years of Reclusion Temporal.
SO ORDERED.

[15]

Upon denial of her motion for reconsideration, petitioner filed the instant petition
under Rule 45, alleging that:
[16]

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE

WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE
SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO
PROSPECTIVE BUYERS.
II

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE

WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE
FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.
[17]

Petitioner argues that the prosecution failed to establish the elements of estafa as
penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular, she
submits that she neither abused the confidence reposed upon her by Quilatan nor
converted or misappropriated the subject jewelry; that her giving the pieces of jewelry to a
sub-agent for sale on commission basis did not violate her undertaking with
Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms
upon which it was originally entrusted to her. It was established that petitioner had not
derived any personal benefit from the loss of the jewelry. Consequently, it cannot be said
that she misappropriated or converted the same.
We find merit in the petition.

The elements of estafa through misappropriation or conversion as defined in Article

315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or other personal
property is received by the offender in trust, or on commission, or for administration, or
under any other obligation involving the duty to make delivery of, or to return, the same;
(2) that there be misappropriation or conversion of such money or property by the offender
or denial on his part of such receipt; (3) that such misappropriation or conversion or denial
is to the prejudice of another; and (4) that there is a demand made by the offended party
on the offender. While the first, third and fourth elements are concededly present, we find
the second element of misappropriation or conversion to be lacking in the case at bar.
[18]

Petitioner did not ipso facto commit the crime of estafa through conversion or
misappropriation by delivering the jewelry to a sub-agent for sale on commission basis.
We are unable to agree with the lower courts conclusion that this fact alone is sufficient
ground for holding that petitioner disposed of the jewelry as if it were hers, thereby
committing conversion and a clear breach of trust.
[19]

It must be pointed out that the law on agency in our jurisdiction allows the appointment
by an agent of a substitute or sub-agent in the absence of an express agreement to the
contrary between the agent and the principal. In the case at bar, the appointment of
Labrador as petitioners sub-agent was not expressly prohibited by Quilatan, as the
acknowledgment receipt, Exhibit B, does not contain any such limitation. Neither does it
appear that petitioner was verbally forbidden by Quilatan from passing on the jewelry to
another person before the acknowledgment receipt was executed or at any other time.
Thus, it cannot be said that petitioners act of entrusting the jewelry to Labrador is
characterized by abuse of confidence because such an act was not proscribed and is, in
fact, legally sanctioned.
[20]

The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of
money or property received to the prejudice of the owner. The words convert and
misappropriated connote an act of using or disposing of anothers property as if it were
ones own, or of devoting it to a purpose or use different from that agreed upon. To
misappropriate for ones own use includes not only conversion to ones personal
advantage, but also every attempt to dispose of the property of another without right.
[21]

In the case at bar, it was established that the inability of petitioner as agent to comply
with her duty to return either the pieces of jewelry or the proceeds of its sale to her
principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement
with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in
behalf of petitioner also on commission basis or to return the same if not sold. In other
words, the pieces of jewelry were given by petitioner to Labrador to achieve the very same
end for which they were delivered to her in the first place. Consequently, there is no

conversion since the pieces of jewelry were not devoted to a purpose or use different from
that agreed upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them
to Labrador without right. Aside from the fact that no condition or limitation was imposed
on the mode or manner by which petitioner was to effect the sale, it is also consistent with
usual practice for the seller to necessarily part with the valuables in order to find a buyer
and allow inspection of the items for sale.
In People v. Nepomuceno, the accused-appellant was acquitted of estafa on facts
similar to the instant case. Accused-appellant therein undertook to sell two diamond rings
in behalf of the complainant on commission basis, with the obligation to return the same in
a few days if not sold. However, by reason of the fact that the rings were delivered also for
sale on commission to sub-agents who failed to account for the rings or the proceeds of its
sale, accused-appellant likewise failed to make good his obligation to the complainant
thereby giving rise to the charge of estafa. In absolving the accused-appellant of the crime
charged, we held:
[22]

Where, as in the present case, the agents to whom personal property was entrusted for sale,
conclusively proves the inability to return the same is solely due to malfeasance of a subagent to
whom the first agent had actually entrusted the property in good faith, and for the same purpose for
which it was received; there being no prohibition to do so and the chattel being delivered to the
subagent before the owner demands its return or before such return becomes due, we hold that the
first agent can not be held guilty of estafa by either misappropriation or conversion. The abuse of
confidence that is characteristic of this offense is missing under the circumstances.
[23]

Accordingly, petitioner herein must be acquitted. The lower courts reliance on People
v. Flores and U.S. v. Panes to justify petitioners conviction is misplaced,considering that
the factual background of the cited cases differ from those which obtain in the case at bar.
In Flores, the accused received a ring to sell under the condition that she would return
it the following day if not sold and without authority to retain the ring or to give it to a
sub-agent. The accused in Panes, meanwhile, was obliged to return the jewelry he
received upon demand, but passed on the same to a sub-agent even after demand for
its return had already been made. In the foregoing cases, it was held that there was
conversion or misappropriation.
[24]

[25]

Furthermore, in Lim v. Court of Appeals, the Court, citing Nepomuceno and the case
of People v. Trinidad, held that:
[26]

[27]

In cases of estafa the profit or gain must be obtained by the accused personally, through his own
acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted

chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless
of course the evidence should disclose that the agent acted in conspiracy or connivance with the
one who carried out the actual misappropriation, then the accused would be answerable for the acts
of his co-conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear
that the accused herself was the innocent victim of her sub-agents faithlessness, her acquittal is in
order. (Italics copied)
[28]

Labrador admitted that she received the jewelry from petitioner and sold the same to a
third person. She further acknowledged that she owed petitioner P441,035.00, thereby
negating any criminal intent on the part of petitioner. There is no showing that petitioner
derived personal benefit from or conspired with Labrador to deprive Quilatan of the jewelry
or its value. Consequently, there is no estafa within contemplation of the law.
Notwithstanding the above, however, petitioner is not entirely free from any liability
towards Quilatan. The rule is that an accused acquitted of estafa may nevertheless be
held civilly liable where the facts established by the evidence so warrant. Then too, an
agent who is not prohibited from appointing a sub-agent but does so without express
authority is responsible for the acts of the sub-agent. Considering that the civil action for
the recovery of civil liability arising from the offense is deemed instituted with the criminal
action, petitioner is liable to pay complainant Quilatan the value of the unpaid pieces of
jewelry.
[29]

[30]

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CAG.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28, 1997
areREVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime
charged, but is held civilly liable in the amount of P424,750.00 as actual damages, plus
legal interest, without subsidiary imprisonment in case of insolvency.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-29640 June 10, 1971

GUILLERMO AUSTRIA, petitioner,
vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.

REYES, J.B.L., J.:

Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of whether in a contract of
agency (consignment of goods for sale) it is necessary that there be prior conviction for robbery before the loss of the article shall exempt the consignee from
liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo Austria one (1) pendant with diamonds valued at P4,500.00, to
be sold on commission basis or to be returned on demand. On 1 February 1961, however, while walking home to her residence in Mandaluyong, Rizal, Abad was
said to have been accosted by two men, one of whom hit her on the face, while the other snatched her purse containing jewelry and cash, and ran away. Among
the pieces of jewelry allegedly taken by the robbers was the consigned pendant. The incident became the subject of a criminal case filed in the Court of First
Instance of Rizal against certain persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought in the Court of First Instance of Manila an action against her and
her husband for recovery of the pendant or of its value, and damages. Answering the allegations of the complaint, defendants spouses set up the defense that the
alleged robbery had extinguished their obligation.
After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants spouses, jointly and severally, to pay to the former the sum of
P4,500.00, with legal interest thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held that defendants failed to prove the fact
of robbery, or, if indeed it was committed, that defendant Maria Abad was guilty of negligence when she went home without any companion, although it was
already getting dark and she was carrying a large amount of cash and valuables on the day in question, and such negligence did not free her from liability for
damages for the loss of the jewelry.
Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a reversal of the judgment. The appellate court overruling the
finding of the trial court on the lack of credibility of the two defense witnesses who testified on the occurrence of the robbery, and holding that the facts of robbery
and defendant Maria Abad's possesion of the pendant on that unfortunate day have been duly published, declared respondents not responsible for the loss of the
jewelry on account of a fortuitous event, and relieved them from liability for damages to the owner. Plaintiff thereupon instituted the present proceeding.
It is now contended by herein petitioner that the Court of Appeals erred in finding that there was robbery in the case, although nobody has been found guilty of the
supposed crime. It is petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve the obligor from his obligation under a contract,
pursuant to Article 1174 of the new Civil Code, there ought to be prior finding on the guilt of the persons responsible therefor. In short, that the occurrence of the
robbery should be proved by a final judgment of conviction in the criminal case. To adopt a different view, petitioner argues, would be to encourage persons
accountable for goods or properties received in trust or consignment to connive with others, who would be willing to be accused in court for the robbery, in order to
be absolved from civil liability for the loss or disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be
independent of the human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal

A fortuitous event, therefore, can be

produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by bandits,
robbery, etc., provided that the event has all the characteristics enumerated above.
manner; and that (3) the obligor must be free of participation in or aggravation of the injury to the creditor. 1

It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were really true that the pendant, which she was obliged either to
sell on commission or to return to petitioner, were taken during the robbery, then the occurrence of that fortuitous event would have extinguished her liability. The
point at issue in this proceeding is how the fact of robbery is to be established in order that a person may avail of the exempting provision of Article 1174 of the
new Civil Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen,
were inevitable.
It may be noted the reform that the emphasis of the provision is on the events, not on the agents or factors responsible for them. To avail of the exemption granted
in the law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to established that the
enforceable event, the robbery in this case did take place without any concurrent fault on the debtor's part, and this can be done by preponderant evidence. To
require in the present action for recovery the prior conviction of the culprits in the criminal case, in order to establish the robbery as a fact, would be to demand
proof beyond reasonable doubt to prove a fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event, such debtor must, in addition to the cams itself, be free of any
concurrent or contributory fault or negligence. 3

This is apparent from Article 1170 of the Civil Code of the Philippines, providing that:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.

It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs, with their high incidence of crimes against persons and property
that renders travel after nightfall a matter to be sedulously avoided without suitable precaution and protection, the conduct of respondent Maria G. Abad, in
returning alone to her house in the evening, carrying jewelry of considerable value would be negligent per se and would not exempt her from responsibility in the
case of a robbery. We are not persuaded, however, that the same rule should obtain ten years previously, in 1961, when the robbery in question did take place, for
at that time criminality had not by far reached the levels attained in the present day.
There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized in the civil case before conviction is secured in the criminal
action, would prejudice the latter case, or would result in inconsistency should the accused obtain an acquittal or should the criminal case be dismissed. It must be
realized that a court finding that a robbery has happened would not necessarily mean that those accused in the criminal action should be found guilty of the crime;
nor would a ruling that those actually accused did not commit the robbery be inconsistent with a finding that a robbery did take place. The evidence to establish
these facts would not necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in this case is hereby dismissed with costs against the petitioner.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial Court of Manila, Branch 43, MANUEL CUADY and LILIA CUADY, respondents.
Valera, Urmeneta & Associates for petitioner.
Pompeyo L. Bautista for private respondents.

PARAS, J.:p
This is a petition for review on certiorari which seeks to reverse and set aside (1) the decision of the Court of Appeals dated July 21, 1987 in CA-G.R. No. CV06522 entitled "B.A. Finance Corporation, Plaintiff-Appellant, vs. Manuel Cuady and Lilia Cuady, Defendants-Appellees," affirming the decision of the Regional
Trial Court of Manila, Branch 43, which dismissed the complaint in Civil Case No. 82-10478, and (2) the resolution dated February 9, 1988 denying petitioner's
motion for reconsideration.
As gathered from the records, the facts are as follows:
On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained from Supercars, Inc. a credit of P39,574.80, which amount covered the cost of one
unit of Ford Escort 1300, four-door sedan. Said obligation was evidenced by a promissory note executed by private respondents in favor of Supercars, Inc.,
obligating themselves to pay the latter or order the sum of P39,574.80, inclusive of interest at 14% per annum, payable on monthly installments of P1,098.00
starting August 16, 1977, and on the 16th day of the next 35 months from September 16, 1977 until full payment thereof. There was also stipulated a penalty of
P10.00 for every month of late installment payment. To secure the faithful and prompt compliance of the obligation under the said promissory note, the Cuady
spouses constituted a chattel mortage on the aforementioned motor vehicle. On July 25, 1977, Supercars, Inc. assigned the promissory note, together with the
chattel mortgage, to B.A. Finance Corporation. The Cuadys paid a total of P36,730.15 to the B.A. Finance Corporation, thus leaving an unpaid balance of
P2,344.65 as of July 18, 1980. In addition thereto, the Cuadys owe B.A. Finance Corporation P460.00 representing penalties or surcharges for tardy monthly
installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien obtained the renewal of the insurance coverage over the aforementioned motor
vehicle for the year 1980 with Zenith Insurance Corporation, when the Cuadys failed to renew said insurance coverage themselves. Under the terms and
conditions of the said insurance coverage, any loss under the policy shall be payable to the B.A. Finance Corporation (Memorandum for Private Respondents, pp.
3-4).
On April 18, 1980, the aforementioned motor vehicle figured in an accident and was badly damaged. The unfortunate happening was reported to the B.A. Finance
Corporation and to the insurer, Zenith Insurance Corporation. The Cuadys asked the B.A. Finance Corporation to consider the same as a total loss, and to claim
from the insurer the face value of the car insurance policy and apply the same to the payment of their remaining account and give them the surplus thereof, if any.
But instead of heeding the request of the Cuadys, B.A. Finance Corporation prevailed upon the former to just have the car repaired. Not long thereafter, however,
the car bogged down. The Cuadys wrote B.A. Finance Corporation requesting the latter to pursue their prior instruction of enforcing the total loss provision in the
insurance coverage. When B.A. Finance Corporation did not respond favorably to their request, the Cuadys stopped paying their monthly installments on the
promissory note (Ibid., pp. 45).
On June 29, 1982, in view of the failure of the Cuadys to pay the remaining installments on the note, B.A. Finance Corporation sued them in the Regional Trial
Court of Manila, Branch 43, for the recovery of the said remaining installments (Memorandum for the Petitioner, p. 1).

After the termination of the pre-trial conference, the case was set for trial on the merits on April 25, 1984. B.A. Finance Corporation's evidence was presented on
even date and the presentation of Cuady's evidence was set on August 15, 1984. On August 7,1984, Atty. Noel Ebarle, counsel for the petitioner, filed a motion for
postponement, the reason being that the "handling" counsel, Atty. Ferdinand Macibay was temporarily assigned in Cebu City and would not be back until after
August 15, 1984. Said motion was, however, denied by the trial court on August 10, 1984. On August 15, 1984, the date of hearing, the trial court allowed private
respondents to adduce evidence ex-parte in the form of an affidavit to be sworn to before any authorized officer. B.A. Finance Corporation filed a motion for
reconsideration of the order of the trial court denying its motion for postponement. Said motion was granted in an order dated September 26, 1984, thus:
The Court grants plaintiff's motion for reconsideration dated August 22, 1984, in the sense that plaintiff is allowed to adduce evidence in the
form of counter-affidavits of its witnesses, to be sworn to before any person authorized to administer oaths, within ten days from notice
hereof. (Ibid., pp. 1-2).
B.A. Finance Corporation, however, never complied with the above-mentioned order, paving the way for the trial court to render its decision on January 18, 1985,
the dispositive portion of which reads as follows:
IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court * affirmed the decision of the trial court. The decretal portion of the said decision reads as follows:
WHEREFORE, after consultation among the undersigned members of this Division, in compliance with the provision of Section 13, Article
VIII of the Constitution; and finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, without any
pronouncement as to costs. (Ibid., p. 33)
B.A. Finance Corporation moved for the reconsideration of the above decision, but the motion was denied by the respondent appellate court in a resolution dated
February 9, 1988 (Ibid., p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the petition and required the parties to submit their respective memoranda. The parties having complied with the
submission of their memoranda, the case was submitted for decision.
The real issue to be resolved in the case at bar is whether or not B.A. Finance Corporation has waived its right to collect the unpaid balance of the Cuady spouses
on the promissory note for failure of the former to enforce the total loss provision in the insurance coverage of the motor vehicle subject of the chattel mortgage.
It is the contention of B.A. Finance Corporation that even if it failed to enforce the total loss provision in the insurance policy of the motor vehicle subject of the
chattel mortgage, said failure does not operate to extinguish the unpaid balance on the promissory note, considering that the circumstances obtaining in the case
at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment of obligations (Memorandum for the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to its failure to enforce the total loss provision in the insurance policy, B.A. Finance Corporation lost not only its
opportunity to collect the insurance proceeds on the mortgaged motor vehicle in its capacity as the assignee of the said insurance proceeds pursuant to the
memorandum in the insurance policy which states that the "LOSS: IF ANY, under this policy shall be payable to BA FINANCE CORP., as their respective rights and
interest may appear" (Rollo, p. 91) but also the remaining balance on the promissory note (Memorandum for the Respondents, pp. 16-17).
The petition is devoid of merit.
B.A. Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. when the latter assigned the promissory note, together with the
chattel mortgage constituted on the motor vehicle in question in favor of the former. Consequently, B.A. Finance Corporation is bound by the terms and conditions
of the chattel mortgage executed between the Cuadys and Supercars, Inc. Under the deed of chattel mortgage, B.A. Finance Corporation was constituted
attorney-in-fact with full power and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign execute and deliver the corresponding
papers, receipts and documents to the Insurance Company as may be necessary to prove the claim, and to collect from the latter the proceeds of insurance to the
extent of its interests, in the event that the mortgaged car suffers any loss or damage (Rollo, p. 89). In granting B.A. Finance Corporation the aforementioned
powers and prerogatives, the Cuady spouses created in the former's favor an agency. Thus, under Article 1884 of the Civil Code of the Philippines, B.A. Finance
Corporation is bound by its acceptance to carry out the agency, and is liable for damages which, through its non-performance, the Cuadys, the principal in the
case at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle in question, not to mention the amount equivalent to the
unpaid balance on the promissory note, when B.A. Finance Corporation steadfastly refused and refrained from proceeding against the insurer for the payment of a
clearly valid insurance claim, and continued to ignore the yearning of the Cuadys to enforce the total loss provision in the insurance policy, despite the undeniable
fact that Rea Auto Center, the auto repair shop chosen by the insurer itself to repair the aforementioned motor vehicle, misrepaired and rendered it completely
useless and unserviceable (Ibid., p. 31).
Accordingly, there is no reason to depart from the ruling set down by the respondent appellate court. In this connection, the Court of Appeals said:

... Under the established facts and circumstances, it is unjust, unfair and inequitable to require the chattel mortgagors, appellees herein, to
still pay the unpaid balance of their mortgage debt on the said car, the non-payment of which account was due to the stubborn refusal and
failure of appellant mortgagee to avail of the insurance money which became due and demandable after the insured motor vehicle was badly
damaged in a vehicular accident covered by the insurance risk. ... (Ibid.)
On the allegation that the respondent court's findings that B.A. Finance Corporation failed to claim for the damage to the car was not supported by evidence, the
records show that instead of acting on the instruction of the Cuadys to enforce the total loss provision in the insurance policy, the petitioner insisted on just having
the motor vehicle repaired, to which private respondents reluctantly acceded. As heretofore mentioned, the repair shop chosen was not able to restore the
aforementioned motor vehicle to its condition prior to the accident. Thus, the said vehicle bogged down shortly thereafter. The subsequent request of the Cuadys
for the B.A. Finance Corporation to file a claim for total loss with the insurer fell on deaf ears, prompting the Cuadys to stop paying the remaining balance on the
promissory note (Memorandum for the Respondents, pp. 4-5).
Moreover, B.A. Finance Corporation would have this Court review and reverse the factual findings of the respondent appellate court. This, of course, the Court
cannot and will not generally do. It is axiomatic that the judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the
Supreme Court. The doctrine is, to be sure, subject to certain specific exceptions none of which, however, obtains in the instant case (Luzon Brokerage
Corporation v. Court of Appeals, 176 SCRA 483 [1989]).
Finally, B.A. Finance Corporation contends that respondent trial court committed grave abuses of discretion in two instances: First, when it denied the petitioner's
motion for reconsideration praying that the counsel be allowed to cross-examine the affiant, and; second, when it seriously considered the evidence adduced exparte by the Cuadys, and heavily relied thereon, when in truth and in fact, the same was not formally admitted as part of the evidence for the private respondents
(Memorandum for the Petitioner, p. 10). This Court does not have to unduly dwell on this issue which was only raised by B.A. Finance Corporation for the first time
on appeal. A review of the records of the case shows that B.A. Finance Corporation failed to directly raise or ventilate in the trial court nor in the respondent
appellate court the validity of the evidence adduced ex-parte by private respondents. It was only when the petitioner filed the instant petition with this Court that it
later raised the aforementioned issue. As ruled by this Court in a long line of cases, issues not raised and/or ventilated in the trial court, let alone in the Court of
Appeals, cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Galicia v. Polo, 179 SCRA 375
[1989]; Ramos v. Intermediate Appellate Court, 175 SCRA 70 [1989]; Dulos Realty & Development Corporation v. Court of Appeals, 157 SCRA 425 [1988];
Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987]; De la Santa v. Court of Appeals, et al., 140 SCRA 44 [1985]).
PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed from is AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-109937 March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION
INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G.R CV
No. 26434 and its resolution denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the
Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI)
with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).

A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11, 1987. From the proceeds of the loan, DBP
deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance"
and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings account of the DBP MRI Pool.
Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On September 23, 1987, the DBP MRI
Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00
which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the
loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP
and the insurance pool for "Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP,
with full knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the insurance premium thereon. Respondent Estate
therefore prayed: (1) that the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared
fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. As a result of these admissions, the trial
court narrowed down the issues and, without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered the
parties to submit their respective position papers and documentary evidence, which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability,
after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and
actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the Court finds judgment for the plaintiff
and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by
virtue of the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Cross-claim of Defendant DBP is likewise dismissed
(Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmedin toto the decision of the trial court. The DBP's
motion for reconsideration was denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge
and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and
until this application is approved and the full premium is paid during my continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full
premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also
no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a
result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist.

The liability of DBP is another matter.

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance
carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August
11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as
his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila.
As service fee, DBP deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already
fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never
going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption
Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "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."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was
ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no
showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by
the non-disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is founded upon the
supposition that there has been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes
to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the
implication that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his duties, act with justice give everyone his due and observe
honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority,
Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly speculative.
Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be noted that
Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199).
Damages, to be recoverable, must not only be capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be
included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is required in the assessment of said kind of
damages (Civil Code of Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the Philippines, Art. 2216).
Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its
authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV

No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest
from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the
amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-30573 October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR,
IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.

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

read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three
months after the expiration of the 30-day period of the exclusive agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser
brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting
to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of
Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house
and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad
Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he demanded in writting payment of his commission on
the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente went to him and
asked him to eliminate Gregorio in the transaction and that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply
to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer, Oscar de
Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar
de Leon the sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have common or identical interests; that Gregorio and
intervenor Teofilo Purisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon
paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given to the plaintiff, because Exhibit
"66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and
therefore there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to
Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by
the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of
the 5% commission.
The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to Vicente the payment to him by Oscar de Leon of the amount of
One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per square meter, so
constitutes fraud as to cause a forfeiture of his commission on the sale price; (2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo
Purisima for the latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the award of legal interest, moral and exemplary
damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were
extensively discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that it does not
constitute breach of trust or fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of
the seller and the purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio if he could effect better terms for him from
the seller, independent of his legitimate commission, is not fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes
that such terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such
an act on the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.
The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. 1
Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil Code.
Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by
virtue of the agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with more less rigor by the courts,
according to whether the agency was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that:
Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue of
the agency, even though what he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more comprehensive than
the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an agent condemning as void any stipulation exempting
the agent from the duty and liability imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more or less severity by the courts,
according to whether the agency was gratuitous or for a price or reward.

The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent, the real estate broker in this case, to his
principal, the vendor. The law imposes upon the agent the absolute obligation to make a full disclosure or complete account to his principal of all his transactions
and other material facts relevant to the agency, so much so that the law as amended does not countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a rule founded
on the highest and truest principle of morality as well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the
vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any
injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the

By taking such profit or bonus or gift or propina from

the vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent for hisprincipal, who has
a right to treat him, insofar as his commission is concerned, as if no agency had existed. The fact that the principal may
have been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to
blame for such a result by reason of his treachery or perfidy.
rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage. 3

This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as

An administrator of an
estate was likewise under the same Article 1720 for failure to render an account of his administration to the heirs unless
the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered.
an insurance agent for the account of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4

Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for failure to deliver to his principal the total amount collected
by him in behalf of his principal and cannot retain the commission pertaining to him by subtracting the same from his collections. 6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and property received by him for his client despite his attorney's

The duty of a commission agent to render a full account his operations to his principal was reiterated in Duhart, etc.
vs. Macias.
lien. 7

The American jurisprudence on this score is well-nigh unanimous.

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

As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency
exists, so to deal with the subject matter thereof, or with information acquired during the course of the
agency, as to make a profit out of it for himself in excess of his lawful compensation; and if he does so he
may be held as a trustee and may be compelled to account to his principal for all profits, advantages,
rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties,
and be required to transfer them to his principal upon being reimbursed for his expenditures for the same,
unless the principal has consented to or ratified the transaction knowing that benefit or profit would
accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to
change his condition that he cannot be put in status quo. The application of this rule is not affected by the
fact that the principal did not suffer any injury by reason of the agent's dealings or that he in fact obtained

better results; nor is it affected by the fact that there is a usage or custom to the contrary or that the
agency is a gratuitous one. (Emphasis applied.)
10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the
prospective buyer Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His acceptance of said
substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of
Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his prospective buyer to purchase the property on
the most advantageous terms desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept
the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round
figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand Nine Hundred
Fifty-Four Pesos (P176,954.00) for said lot originally offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together
the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if the agent or broker

Herein defendant-appellee
Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the
gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he
consent to his agent's accepting such a gift.
had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto.

11

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to
be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No.
40 Denver Street, Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot
No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the
commission he received from his principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo
received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even aware of such
sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One
Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos (P650.00),
should be paid by Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitionerappellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the reasonable
amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to
the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay
Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

SEE Green Valley v. IAC, G.R. No. L-49395, December 26, 1984
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG and LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY, LIMITED, respondents.
Mariano V. Ampil, Jr. for petitioners.
Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

and its Resolution

denying the petitioners' motion for reconsideration. The challenged decision modified the decision of the Insurance
Commission in IC Case
No. RD-058.
This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of Appeals in CA-G.R. SP No. 22950 1
2

The petitioners were the complainants in IC Case No. RD-058, an administrative complaint against private respondent Insular Life Assurance Company, Ltd.

They prayed therein that after due proceedings,

Insular Life "be ordered to pay the claimants their insurance claims" and that "proper sanctions/penalties be imposed on" it
"for its deliberate, feckless violation of its contractual obligations to the complainants, and of the Insurance Code." Insular
Life's motion to dismiss the complaint on the ground that "the claims of complainants are all respectively beyond the
jurisdiction of the Insurance Commission as provided in Section 416 of the Insurance Code," having been denied in the
Order of 14 November 1989, it filed its answer on 5 December 1989. Thereafter, hearings were conducted on various
dates.
(hereinafter Insular Life), which was filed with the Insurance Commission on 20 September 1989.

On 20 June 1990, the Commission rendered its decision 9

in favor of the complainants, the dispositive portion of which reads as follows:

WHEREFORE, this Commission merely orders the respondent company to:

a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a copy of this Decision until actual payment thereof;
b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00 and P40,000.00, respectively;
c) Notify henceforth it should notify individual beneficiaries designated under any Group Policy, in the event of the death of insured(s), where
the corresponding claims are filed by the Policyholder;
d) Show cause within ten days why its other responsible officers who have handled this case should not be subjected to disciplinary and
other administrative sanctions for deliberately releasing to Capt. Nuval the check intended for spouses ALARCON, in the absence of any
Special Power of Attorney for that matter, and for negligence with respect to the release of the other five checks.
SO ORDERED. 10
In holding for the petitioners, the Insurance Commission made the following findings and conclusions:
After taking into consideration the evidences [sic], testimonial and documentary for the complainants and the respondent, the Commission
finds that; First: The respondent erred in appreciating that the powers of attorney executed by five (5) of the several beneficiaries convey
absolute authority to Capt. Nuval, to demand, receive, receipt and take delivery of insurance proceeds from respondent Insular Life. A
cursory reading of the questioned powers of authority would disclosed [sic] that they do not contain in unequivocal and clear terms authority
to Capt. Nuval to obtain, receive, receipt from respondent company insurance proceeds arising from the death of the seaman-insured. On
the contrary, the said powers of attorney are couched in terms which could easily arouse suspicion of an ordinary
man. . . .
Second: The testimony of the complainants' rebuttal witness,
Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her husband, executed a special power of attorney in favor of
Captain Rosendo Nuval, authorizing him to claim, receive, receipt and take delivery of any insurance proceeds from Insular Life arising out of
the death of their insured/seaman son, is not convincingly refuted.
Third: Respondent Insular Life did not observe Section 180 of the Insurance Code, when it issued or released two checks in the amount of
P150,000.00 for the three minor children (P50,000.00 each) of complainant, Dina Ayo and another check of P40,000.00 for minor beneficiary
Marissa Lontok, daughter of another complainant Lucia Lontok, there being no showing of any court authorization presented or the requisite
bond posted.
Section 180 is quotes [sic] partly as follows:
. . . In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother of any minor,
who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said
minor, any right, under the policy, without necessity of court authority or the giving of a bond where the interest of the
minor in the particular act involved does not exceed twenty thousand pesos . . . . 11
Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP No. 22950. The appeal urged the appellate court to reverse
the decision because the Insurance Commission (a) had no jurisdiction over the case considering that the claims exceeded P100,000.00,

(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to convey absolute authority to Capt. Nuval to demand, receive and take
delivery of the insurance proceeds pertaining to the petitioners, (c) erred in not giving credit to the version of Insular Life that the power of attorney supposed to
have been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code for having released to the surviving mothers the insurance proceeds
pertaining to the beneficiaries who were still minors despite the failure of the former to obtain a court authorization or to post a bond.
On 10 October 1991, the public respondent rendered a decision,

12

the decretal portion of which reads:

WHEREFORE, the decision appealed from is modified by eliminating therefrom the award to Dina Ayo and Lucia Lontok in the amounts of
P50,000.00 and P40,000.00, respectively. 13
It found the following facts to have been duly established:
It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for brevity), a crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide life insurance coverage to its sea-based employees
enrolled under the plan. On 17 February 1986, during the effectivity of the policy, six covered employees of the PMSI perished at sea when
their vessel, M/V Nemos, a Greek cargo vessel, sunk somewhere in El Jadida, Morocco. They were survived by complainants-appellees, the
beneficiaries under the policy.
Following the tragic demise of their loved ones, complainants-appellees sought to claim death benefits due them and, for this purpose, they
approached the President and General Manager of PMSI, Capt. Roberto Nuval. The latter evinced willingness to assist complainantsappellees to recover Overseas Workers Welfare Administration (OWWA) benefits from the POEA and to work for the increase of their
PANDIMAN and other benefits arising from the deaths of their husbands/sons. They were thus made to execute, with the exception of the
spouses Alarcon, special powers of attorney authorizing Capt. Nuval to, among others, "follow up, ask, demand, collect and receive" for their
benefit indemnities of sums of money due them relative to the sinking of M/V Nemos. By virtue of these written powers of attorney,
complainants-appellees were able to receive their respective death benefits. Unknown to them, however, the PMSI, in its capacity as
employer and policyholder of the life insurance of its deceased workers, filed with respondent-appellant formal claims for and in behalf of the
beneficiaries, through its President, Capt. Nuval. Among the documents submitted by the latter for the processing of the claims were five
special powers of attorney executed by complainants-appellees. On the basis of these and other documents duly submitted, respondentappellant drew against its account with the Bank of the Philippine Islands on 27 May 1986 six (6) checks, four for P200,00.00 each, one for
P50,000.00 and another for P40,00.00, payable to the order of complainants-appellees. These checks were released to the treasurer of
PMSI upon instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager for Group Administration Department of respondentappellant. Capt. Nuval, upon receipt of these checks from the treasurer, who happened to be his son-in-law, endorsed and deposited them in
his account with the Commercial Bank of Manila, now Boston Bank.
On 3 July 1989, after complainants-appellees learned that they were entitled, as beneficiaries, to life insurance benefits under a group policy
with respondent-appellant, they sought to recover these benefits from Insular Life but the latter denied their claim on the ground that the
liability to complainants-appellees was already extinguished upon delivery to and receipt by PMSI of the six (6) checks issued in their
names. 14
On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over the case on the ground that although some of the claims
exceed P100,000.00, the petitioners had asked for administrative sanctions against Insular Life which are within the Commission's jurisdiction to grant; hence,
"there was merely a misjoinder of causes of action . . . and, like misjoinder of parties, it is not a ground for the dismissal of the action as it does not affect the other

It also rejected Insular Life's claim that the Alarcons had submitted a special power of attorney which they
(Insular Life) later misplaced.
reliefs prayed for." 15

On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied upon by Insular Life were sufficient to authorize Capt. Nuval to
receive the proceeds of the insurance pertaining to the beneficiaries. It stated:
When the officers of respondent-appellant read these written powers, they must have assumed Capt. Nuval indeed had authority to collect
the insurance proceeds in behalf of the beneficiaries who duly affixed their signatures therein. The written power is specific enough to define
the authority of the agent to collect any sum of money pertaining to the sinking of the fatal vessel. Respondent-appellant interpreted this
power to include the collection of insurance proceeds in behalf of the beneficiaries concerned. We believe this is a reasonable interpretation
even by an officer of respondent-appellant unschooled in the law. Had respondent appellant, consulted its legal department it would not have
received a contrary view. There is nothing in the law which mandates a specific or special power of attorney to be executed to collect
insurance proceeds. Such authority is not included in the enumeration of Art. 1878 of the New Civil Code. Neither do we perceive collection
of insurance claims as an act of strict dominion as to require a special power of attorney. Moreover, respondent-appellant had no reason to
doubt Capt. Nuval. Not only was he armed with a seemingly genuine authorization, he also appeared to be the proper person to deal with
respondent-appellant being the President and General Manager of the PMSI, the policyholder with whom respondent-appellant always dealt.
The fact that there was a verbal agreement between complainants-appellees and Capt. Nuval limiting the authority of the latter to claiming
specified death benefits cannot prejudice the insurance company which relied on the terms of the powers of attorney which on their face do
not disclose such limitation. Under the circumstances, it appearing that complainants-appellees have failed to point to a positive provision of
law or stipulation in the policy requiring a specific power of attorney to be presented, respondents-appellant's reliance on the written powers
was in order and it cannot be penalized for such an act. 16

Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the requirement in Section 180 of the Insurance Code which provides in
part that:
In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, of any minor, who is an insured or a
beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without
necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed twenty
thousand pesos. Such a right, may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds
of the policy, and giving the minor's consent to any transaction on the policy.

which grants the father and mother joint legal guardianship over the property of
their unemancipated common child without the necessity of a court appointment; however, when the market value
of the property or the annual income of the child exceeds P50,000.00, the parent concerned shall be required to
put up a bond in such amount as the court may determine.
has been amended by the Family Code

17

Hence, this petition for review on certiorari which we gave due course after the private respondent had filed the required comment thereon and the petitioners their
reply to the comment.
We rule for the petitioners.
We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were executed by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia
Calumag, and Marilyn Montenegro, respectively, on 14 May 1986 18

and uniformly granted to Capt. Rosendo Nuval the following powers:

To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of money due me relative to the sinking of M.V. NEMOS in
the vicinity of El Jadida, Casablanca, Morocco on the evening of February 17, 1986; and
To sign receipts, documents, pertinent waivers of indemnities or other writings of whatsoever nature with any and all third persons, concerns
and entities, upon terms and conditions acceptable to my said attorney.
We agree with the Insurance Commission that the special powers of attorney "do not contain in unequivocal and clear terms authority to Capt. Nuval to obtain,
receive, receipt from respondent company insurance proceeds arising from the death of the seaman-insured. On the contrary, the said powers of attorney are
couched in terms which could easily arouse suspicion of an ordinary man."

19

The holding of the public respondent to the contrary is

principally premised on its opinion that:

[t]here is nothing in the law which mandates a specific or special power of attorney to be executed to collect insurance proceeds. Such
authority is not included in the enumeration of art. 1878 of the New Civil Code. Neither do we perceive collection of insurance claims as an
act of strict dominion as to require a special power of attorney.
If this be so, then they could not have been meant to be a general power of attorney since Exhibits "1" to "5" are special powers of attorney. The
execution by the principals of special powers of attorney, which clearly appeared to be in prepared forms and only had to be filled up with their names,
residences, dates of execution, dates of acknowledgment and others, excludes any intent to grant a general power of attorney or to constitute a
universal agency. Being special powers of attorney, they must be strictly construed.
Certainly, it would be highly imprudent to read into the special powers of attorney in question the power to collect and receive the insurance proceeds due the
petitioners from Group Policy No. G-004694. Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was
a deviation from its practice with respect to group policies. Such practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group
Administrative Department, thus:
ATTY. CAGUIOA:
Can you explain to us why in this case, the claim was filed by a certain Capt. Noval [sic]?
WITNESS:
a The practice of our company in claim pertaining to group insurance, the policyholder is the one who files the claim for
the beneficiaries of the deceased. At that time, Capt. Noval [sic] is the President and General Manager of Prime
Marine.
q What is the reason why policyholders are the ones who file the claim and not the designated beneficiaries of the
employees of the policyholders?
a Yes because group insurance is normally taken by the employer as an employee-benefit program and as such, the
benefit should be awarded by the policyholder to make it appear that the benefit really is given by the employer. 20

On cross-examination, Urbano further elaborated that even payments, among other things, are coursed through the policyholder:
q What is the corporate concept of group insurance insofar as Insular Life is concerned?
WITNESS:
a Group insurance is a contract where a group of individuals are covered under one master contract. The individual
underwriting characteristics of each individual is not considered in the determination of whether the individual is
insurable or not. The contract is between the policyholder and the insurance company. In our case, it is Prime Marine
and Insular Life. We do not have contractual obligations with the individual employees; it is between Prime Marine and
Insular Life.
q And so it is part of that concept that all inquiries, follow-up, payment of claims, premium billings, etc. should always
be coursed thru the policyholder?
a Yes that is our practice.
q And when you say claim payments should always be coursed thru the policyholder, do you require a power of
attorney to be presented by the policyholder or not?
a Not necessarily.
q In other words, under a group insurance policy like the one in this case, Insular Life could pay the claims to the
policyholder himself even without the presentation of any power of attorney from the designated beneficiaries?
xxx xxx xxx
WITNESS:
a No. Sir.
ATTY. AMPIL:
q Why? Is this case, the present case different from the cases which you answered that no power of attorney is
necessary in claims payments?
WITNESS:
a We did not pay Prime Marine; we paid the beneficiaries.
q Will you now tell the Honorable Commission why you did not pay Prime Marine and instead paid the beneficiaries,
the designated beneficiaries?
xxx xxx xxx
ATTY. AMPIL:
I will rephrase the question.
q Will you tell the Commission what circumstances led you to pay the designated beneficiaries, the complainants in this
case, instead of the policyholder when as you answered a while ago, it is your practice in group insurance that claims
payments, etc., are coursed thru the policyholder?
WITNESS:
a It is coursed but, it is not paid to the policyholder.
q And so in this case, you gave the checks to the policyholder only coursing them thru said policyholder?
a That is right, Sir.
q Not directly to the designated beneficiaries?

a Yes, Sir. 21
This practice is usual in the group insurance business and is consistent with the jurisprudence thereon in the State of California from whose laws our Insurance
Code has been mainly patterned which holds that the employer-policyholder is the agent of the insurer.
Group insurance is a comparatively new form of insurance. In the United States, the first modern group insurance policies appear to have been issued in 1911 by

Group insurance is essentially a single insurance contract that provides coverage for many
individuals. In its original and most common form, group insurance provides life or health insurance coverage for the
employees of one employer.
the Equitable Life Assurance Society. 22

The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to a representative of the group or to an
administrator of the insurance program, such as an employer. 23The

employer acts as a functionary in the collection and payment of

premiums and in performing related duties. Likewise falling within the ambit of administration of a group policy is the
disbursement of insurance payments by the employer to the employees. Most policies, such as the one in this case,
require an employee to pay a portion of the premium, which the employer deducts from wages while the remainder is paid
by the employer. This is known as a contributory plan as compared to a non-contributory plan where the premiums are
solely paid by the employer.
24

Although the employer may be the titular or named insured, the insurance is actually related to the life and health of the employee. Indeed, the employee is in the
position of a real party to the master policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a part of the total

Put differently, the labor of the employees is the true source of the benefits,
which are a form of additional compensation to them.
compensation paid for the services of the employee.

25

It has been stated that every problem concerning group insurance presented to a court should be approached with the purpose of giving to it every legitimate
opportunity of becoming a social agency of real consequence considering that the primary aim is to provide the employer with a means of procuring insurance
protection for his employees and their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees, enables the
employees to carry a larger amount of insurance than they could otherwise, and helps to attract and hold a permanent class of employees. 26

the California Supreme Court explicitly ruled that in group insurance policies, the
employer is the agent of the insurer. Thus:
In Elfstrom vs. New York Life Insurance Company, 27

We are convinced that the employer is the agent of the insurer in performing the duties of administering group insurance policies. It cannot
be said that the employer acts entirely for its own benefit or for the benefit of its employees in undertaking administrative functions. While a
reduced premium may result if the employer relieves the insurer of these tasks, and this, of course, is advantageous to both the employer
and the employees, the insurer also enjoys significant advantages from the arrangement. The reduction in the premium which results from
employer-administration permits the insurer to realize a larger volume of sales, and at the same time the insurer's own administrative costs
are markedly reduced.
xxx xxx xxx
The most persuasive rationale for adopting the view that the employer acts as the agent of the insurer, however, is that the employee has no
knowledge of or control over the employer's actions in handling the policy or its administration. An agency relationship is based upon consent
by one person that another shall act in his behalf and be subject to his control. It is clear from the evidence regarding procedural techniques
here that the insurer-employer relationship meets this agency test with regard to the administration of the policy, whereas that between the
employer and its employees fails to reflect true agency. The insurer directs the performance of the employer's administrative acts, and if
these duties are not undertaken properly the insurer is in a position to exercise more constricted control over the employer's conduct.
In Neider vs. Continental Assurance Company, 28

which was cited in Elfstrom, it was held that:

[t]he employer owes to the employee the duty of good faith and due care in attending to the policy, and that the employer should make clear
to the employee anything required of him to keep the policy in effect, and the time that the obligations are due. In its position as administrator
of the policy, we feel also that the employer should be considered as the agent of the insurer, and any omission of duty to the employee in its
administration should be attributable to the insurer.
The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual Life Insurance Co. 29

Co. vs. State Board of Equalization.

and Metropolitan Life Insurance

30

In the light of the above disquisitions and after an examination of the facts of this case, we hold that PMSI, through its President and General Manager, Capt.
Nuval, acted as the agent of Insular Life. The latter is thus bound by the misconduct of its agent.

Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners. Unfortunately, through its official, Mr. Urbano, it acted imprudently

this Court ruled that it is among

the established principles in the civil law of Europe as well as the common law of American that third persons deal with
agents at their peril and are bound to inquire as to the extent of the power of the agent with whom they contract. And
in Harry E. Keller Electric Co. vs. Rodriguez, this Court, quoting Mechem on Agency, stated that:
and negligently in the premises by relying without question on the special power of attorney. In Strong vs. Repide, 31

32

33

The person dealing with an agent must also act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason
to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear
and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he
seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party
dealing with him may not shut his eyes to the real state of the case, but should either refuse to deal with the agent at all, or should ascertain
from the principal the true condition of affairs. (emphasis supplied)
Even granting for the sake of argument that the special powers of attorney were in due form, Insular Life was grossly negligent in delivering the checks, drawn in
favor of the petitioners, to a party who is not the agent mentioned in the special power of attorney.
Nor can we agree with the opinion of the public respondent that since the shares of the minors in the insurance proceeds are less than P50,000.00, then under
Article 225 of the Family Code their mothers could receive such shares without need of either court appointments as guardian or the posting of a bond. It is of the
view that said Article had repealed the third paragraph of Section 180 of the Insurance Code.

34

The pertinent portion of Article 225 of the Family

Code reads as follows:

Art. 225. The father and the mother shall jointly exercise legal guardianship over the property of their unemancipated common child without
the necessity of a court appointment. In case of disagreement, the father's decision shall prevail, unless there is judicial order to the contrary.
Where the market value of the property or the annual income of the child exceeds P50,000, the parent concerned shall be required to furnish
a bond in such amount as the court may determine, but not less than ten per centum (10%) of the value of the property or annual income, to
guarantee the performance of the obligations prescribed for general guardians.
It is clear from the said Article that regardless of the value of the unemancipated common child's property, the father and mother ipso jure become the legal
guardian of the child's property. However, if the market value of the property or the annual income of the child exceeds P50,000.00, a bond has to be posted by the
parents concerned to guarantee the performance of the obligations of a general guardian.
It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of the "market value of the property or the annual income of the
child," which means, therefore, the aggregate of the child's property or annual income; if this exceeds P50,000.00, a bond is required. There is no evidence that
the share of each of the minors in the proceeds of the group policy in question is the minor's only property. Without such evidence, it would not be safe to conclude
that, indeed, that is his only property.
WHEREFORE, the instant petition is GRANTED. The Decision of
10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No. 22950 are SET ASIDE and the Decision of the Insurance
Commission in IC Case No. RD-058 is REINSTATED.
Costs against the private respondent.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.:

+.wph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila, finding defendants carrier and agent, liable for
the value of goods never delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the defendants, now appellants, under
the bill of lading covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through
the M/S SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO.,
INC.), which shipment is covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the
port of Manila, the aforementioned importation was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. 1 The goods were
however never delivered to, nor received by, the consignee at the port of destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed a formal claim for P1,691.93, the equivalent
of $424.00 at the prevailing rate of exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendantsappellants brought in AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus attorney's fees and costs. However, the Court
stated that defendants may recoup whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL which had earlier been
declared in default. Only the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which should be examined in the light of pertinent
legal provisions and settled jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the bill of lading which operates both

Being a contract, it is the law

between the parties thereto who are bound by its terms and conditions provided that these are not contrary to law,
morals, good customs, public order and public policy.
as a receipt for the goods; and more importantly, as a contract to transport and deliver the same as stipulated therein.
3

that one (1) crate of Optima welded wedge wire sieves was received by the carrier
NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the freight had been prepaid up to
the port of destination or the "port of discharge of goods in this case, Davao, the carrier undertook to transport the goods
in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods were to be
transshipped by the carrier to the port of destination or "port of discharge of goods The stipulation is plainly indicated on
the face of the bill which contains the following phrase printed below the space provided for the port of discharge from
ship", thus:
Bill of Lading No. 18 sets forth in page 2 thereof

t.hqw

if goods are to be transshipped at port of discharge, show destination under the column for "description of contents"
As instructed above, the following words appeared typewritten under the column for "description of contents":

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PORT OF DISCHARGE OF GOODS: DAVAO

FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the custody of AMCYL, the bonded warehouse,
appellants were acting in full accord with the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants'
duty to transship the goods from Manila to their port of destination-Davao. The word "transship" means:
t.hqw

to transfer for further transportation from one ship or conveyance to another

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are spelled out and delineated under Section 1,
paragraph 3 of Bill of Lading No. 18, to wit:
t.hqw

The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the goods enter ship's tackle to be
loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis supplied)
and in Section 11 of the same Bill, which provides:

t.hqw

Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's disposal at or consigned to a
point where the ship does not expect to load or discharge, the carrier or master may, without notice, forward the whole or any part of the
goods before or after loading at the original port of shipment, ... This carrier, in making arrangements for any transshipping or forwarding
vessels or means of transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and without any
other responsibility whatsoever even though the freight for the whole transport has been collected by him. ... Pending or during forwarding or
transshipping the carrier may store the goods ashore or afloat solely as agent of the shipper and at risk and expense of the goods and the
carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted
or delivered for storage, handling or any service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good condition unto the
custody of AMCYL at the port of discharge from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their
responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the goods when the same
are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches
the present controversy not only as to the material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their
awesome likeness, the goods in question in both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills
of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before Us, provides:

t.hqw

The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not in its actual custody.
(Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection with all transshipping or forwarding of the goods or the
use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely the agent of the
shipper and consignee and without any other responsibility whatsoever or for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying said stipulations as
the law between the parties in the aforecited case, the Court concluded that:
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... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila, but that the same was to be
transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill of Lading ( ), appellee's responsibility as
a common carrier ceased the moment the goods were unloaded in Manila and in the matter of transshipment, appellee acted merely as an
agent of the shipper and consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity with the pertinent provisions of the New Civil
Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier
from liability for loss or damage to the goods while the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines is governed primarily by
the New Civil Code. 15 In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and
by special laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736
thereof, which reads:
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Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus:

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Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a
warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable
opportunity thereafter to remove them or otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goods had already reached their
place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination, and were stored
in the warehouse of a third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be
relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who
has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of
corporeal possession by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody or disposal. 17 By
the same token, there is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized
agent and a reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed between appellant and appellee in the course of the transactions that
gave birth to the present suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF
GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of

At the hiatus between these two undertakings of appellant which is the moment when the subject goods are
discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the character of
appellant's possession also changes, from possession in its own name as carrier, into possession in the name of
consignee as the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as
the consignee. 20

carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to
be responsible for any loss or damage that may befall the goods from that point onwards. This is the full import of Article
1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is true that the transshipment of the goods,
which was the object of the agency, was not fully performed. However, appellant had commenced said performance, the completion of which was aborted by
circumstances beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be
held responsible for the failure of the principal to accomplish the object of the agency, 21

New Civil Code on the obligations of the agent:

This can be gleaned from the following provisions of the

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Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which, through his nonperformance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer
his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts
of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the person appointed was notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the Philippines. Neither is there any showing of
notorious incompetence or insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill of Lading No. 18 and in conformity
with the provisions of the New Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED.
No costs.
SO ORDERED.

1wph1.t

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-116650 May 23, 1995

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

DAVIDE, JR., J.:

for the private respondent, which was signed by a sales

representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:
At the heart of the present controversy is the document marked Exhibit "A"

4 June 198
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.," with the initial cash outlay of P100,000.00 broken down as follows:
3

a)

downpayment

P 53,148.00

b)

insurance

P 13,970.00

c)

BLT registration fee

P 1,067.00

CHMO fee

P 2,715.00

service fee

P 500.00

accessories

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. Toyota's counsel answered through a letter dated 27 November 1989 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. He alleges, inter alia, that:
7

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 BrandNew 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.

the trial court rendered on 18 February 1992 a decision in favor of

Sosa. 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.
After trial on the issues agreed upon during the pre-trial session,

11

12

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." Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound
the defendants."
14

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.

B. With respect to third persons

SEE Siredy Enterprises vs. Court of Appeals, et al., G.R. No. 129039, September 17, 2002
SEE Austria v. CA, G.R. No. L-29640, June 10, 1971
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

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.:

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 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.
Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1

under and by virtue

of an Authorization (Exhibit "C" and Exhibit "1"), dated 1 March 1988, the pertinent portions of which read as follows:
The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A")

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."

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").
As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5

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 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.
the complaint in Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7

Savellon did not file his Answer and was declared in default on 17 July 1990.

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 "B1") 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 summarizes the rule in dealing with an agent as follows:

14

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

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. 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
sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract."

17

16

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

in a specified contract area. Section 9 of the decree prescribes the

19

20

obligation of the contractor, thus:

Sec. 9. Obligations of Operator in Coal Operating Contract. The operator under a coal operating contract shall undertake, manage and
execute the coal operations which shall include:

(a) The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test
pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof;
(b) Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and
(c) The extraction and utilization of coal deposits.
The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall
require the operator to:
(a) Provide all the necessary service and technology;
(b) Provide the requisite financing;
(c) Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this
Decree;
(d) Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the
geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property, avoiding
pollution of air, lands and waters, and pursuant to an efficient and economic program of operation;
(e) Furnish the Energy Development Board promptly with all information, data and reports which it may require;.
(f) Maintain detailed technical records and account of its expenditures;
(g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interference
with the rights of the other petroleum, mineral and natural resources operators;
(h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production
sites and operations to inspectors authorized by the Energy Development Board;
(i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other
fiscal purposes.
Section 11 thereof provides for the minimum terms and conditions of a coal operating contract.
From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which
are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same.
SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that
the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such
attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the
Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination as follows:
A In October, a certain Rene Savellon called our office offering us shipping services. So I told him to give us a formal
proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer.
Q Did Mr. Rene Savellon go to your office?
A Few days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo.
Q Did he mention the owner of that vessel?
A Yes, sir. That it is Bacaltos.
Q Did he present a document to you?
A Yes, sir. He presented to us the authorization.
Q When Mr. Rene Savellon presented to you the authorization what did you do?.

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

thereby implying

that they do not even own one.

The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip
charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy.
We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that

This paper is only a photocopy and, despite its

reservation to present the original for purposes of comparison at the next
hearing, 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. 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.
they maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A-1").

24

25

26

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. 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.
There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it.

27

28

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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-30098 February 18, 1970

THE COMMISSIONER OF PUBLIC HIGHWAYS and the AUDITOR GENERAL, petitioners,
vs.
HON. LOURDES P. SAN DIEGO as Presiding Judge of the Court of First Instance of Rizal, Branch IX, sitting in Quezon City, TESTATE ESTATE OF N. T.
HASHIM (Special Proceedings No. 71131 of the Court of First Instance of Manila) represented by its Judicial Administrator, Tomas N. Hashim, TOMAS
N. HASHIM, personally, and as Judicial Administrator of the Estate of Hashim, Special Proceedings No. 71131 of the Court of ]First instance of Manila,
ALL THE LEGAL OR TESTAMENTARY HEIRS of the Estate of Hashim, MANUELA C. FLORENDO, personally as Deputy Clerk, Court of First Instance of
Rizal, Quezon City, Branch IX, BENJAMIN GARCIA as "Special Sheriff" appointed by respondent Judge Lourdes P. San Diego, BENJAMIN V. CORUA,
personally and as Chief Documentation Staff, Legal Department, Philippine National Bank, and the PHILIPPINE NATIONAL BANK, respondents.
Office of the Solicitor General for petitioners.
Paredes, Poblador, Nazareno, Abada and Tomacruz for respondent Judge Lourdes P. San Diego.
Jesus B. Santos for respondent Testate estate of N. T. Hashim.
Jose A. Buendia for respondent Manuela C. Florendo.
Emata, Magkawas and Associates for respondent legal heir Jose H. Hashim.
Alberto O. Villaraza for respondents Estate of N.T. Hashim and Tomas N. Hashim.
Conrado E. Medina for respondent Philippine National Bank.
Benjamin V. Corua for and in his own behalf.

TEEHANKEE, J.:

In this special civil action for certiorari and prohibition, the Court declares null and void the two questioned orders of respondent Court levying upon funds of
petitioner Bureau of Public Highways on deposit with the Philippine National Bank, by virtue of the fundamental precept that government funds are not subject to
execution or garnishment.
The background facts follow:

for the
expropriation of a parcel of land belonging to N. T. Hashim, with an area of 14,934 square meters, needed to construct a
public road, now known as Epifanio de los Santos Avenue. On November 25, 1940, the Government took possession of
the property upon deposit with the City Treasurer of the sum of P23,413.64 fixed by the Court therein as the provisional
value of all the lots needed to construct the road, including Hashim's property. The records of the expropriation case were
destroyed and lost during the second world war, and neither party took any step thereafter to reconstitute the proceedings.
On or about November 20, 1940, the Government of the Philippines filed a complaint for eminent domain in the Court of First Instance of Rizal 1

In 1958, however, the estate of N.T. Hashim, deceased, through its Judicial Administrator, Tomas N. Hashim, filed a money claim with the Quezon City Engineer's
Office in the sum of P522,620.00, alleging said amount to be the fair market value of the property in question, now already converted and used as a public
highway. Nothing having come out of its claim, respondent estate filed on August 6, 1963, with the Court of First Instance of Rizal, Quezon City Branch, assigned

a complaint for the recovery of the fair market price of the said property in the sum of
P672,030.00 against the Bureau of Public Highways, which complaint was amended on August 26, 1963, to include as
additional defendants, the Auditor General and the City Engineer of Quezon City.
to Branch IX, presided by respondent judge, 2

The issues were joined in the case with the filing by then Solicitor General Arturo A. Alafriz of the State's answer, stating that the Hashim estate was entitled only to
the sum of P3,203.00 as the fair market value of the property at the time that the State took possession thereof on November 25, 1940, with legal interest thereon
at 6% per annum, and that said amount had been available and tendered by petitioner Bureau since 1958. The parties thereafter worked out a compromise
agreement, respondent estate having proposed on April 28, 1966, a payment of P14.00 per sq. m. for its 14,934 sq.m.-parcel of land or the total amount of

which was confirmed, ratified and approved in November, 1966 by the

Commissioner of Public Highways and the Secretary of Public Works and Communications. On November 7, 1966, the
Compromise Agreement subscribed by counsel for respondent estate and by then Solicitor General Antonio P. Barredo,
now a member of this Court, was submitted to the lower Court and under date of November 8, 1966, respondent judge, as
prayed for, rendered judgment approving the Compromise Agreement and ordering petitioners, as defendants therein, to
pay respondent estate as plaintiff therein, the total sum of P209,076.00 for the expropriated lot.
P209,076.00, equivalent to the land's total assessed value, 4

On October 10, 1968, respondent estate filed with the lower Court a motion for the issuance of a writ of execution, alleging that petitioners had failed to satisfy the
judgment in its favor. It further filed on October 12, 1968, an ex-parte motion for the appointment of respondent Benjamin Garcia as special sheriff to serve the writ
of execution. No opposition having been filed by the Solicitor General's office to the motion for execution at the hearing thereof on October 12, 1968, respondent
judge, in an order dated October 14, 1968, granted both motions.
On the same date, October 14, 1968, respondent Garcia, as special sheriff, forthwith served a Notice of Garnishment, together with the writ of execution dated
October 14, 1968, issued by respondent Manuela C. Florendo as Deputy Clerk of Court, on respondent Philippine National Bank, notifying said bank that levy was
thereby made upon funds of petitioners Bureau of Public Highways and the Auditor General on deposit, with the bank to cover the judgment of P209,076.00 in
favor of respondent estate, and requesting the bank to reply to the garnishment within five days. On October 16, 1968, three days before the expiration of the fiveday deadline, respondent Benjamin V. Corua in his capacity as Chief, Documentation Staff, of respondent bank's Legal Department, allegedly acting in excess of
his authority and without the knowledge and consent of the Board of Directors and other ranking officials of respondent bank, replied to the notice of garnishment
that in compliance therewith, the bank was holding the amount of P209,076.00 from the account of petitioner Bureau of Public Highways. Respondent bank
alleged that when it was served with Notice to Deliver Money signed by respondent Garcia, as special sheriff, on October 17, 1968, it sent a letter to the officials of
the Bureau of Public Highways notifying them of the notice of garnishment.
Under date of October 16, 1968, respondent estate further filed with the lower Court an ex-parte motion for the issuance of an order ordering respondent bank to
release and deliver to the special sheriff, respondent Garcia, the garnished amount of P209,076.00 deposited under the account of petitioner Bureau, which
motion was granted by respondent judge in an order of October 18, 1968. On the same day, October 18, 1968, respondent Corua allegedly taking advantage of
his position, authorized the issuance of a cashier's check of the bank in the amount of P209,076.00, taken out of the funds of petitioner Bureau deposited in
current account with the bank and paid the same to respondent estate, without notice to said petitioner.
Later on December 20, 1968, petitioners, through then Solicitor General Felix V. Makasiar, wrote respondent bank complaining that the bank acted precipitately in
having delivered such a substantial amount to the special sheriff without affording petitioner Bureau a reasonable time to contest the validity of the garnishment,
notwithstanding the bank's being charged with legal knowledge that government funds are exempt from execution or garnishment, and demanding that the bank
credit the said petitioner's account in the amount of P209,076.00, which the bank had allowed to be illegally garnished. Respondent bank replied on January 6,
1969 that it was not liable for the said garnishment of government funds, alleging that it was not for the bank to decide the question of legality of the garnishment
order and that much as it wanted to wait until it heard from the Bureau of Public Highways, it was "helpless to refuse delivery under the teeth" of the special order
of October 18, 1968, directing immediate delivery of the garnished amount.
Petitioners therefore filed on January 28, 1969 the present action against respondents, in their capacities as above stated in the title of this case, praying for
judgment declaring void the question orders of respondent Court. Petitioners also sought the issuance of a writ of preliminary mandatory injunction for the
immediate reimbursement of the garnished sum of P209,076.00, constituting funds of petitioner Bureau on deposit with the Philippine National Bank as official
depository of Philippine Government funds, to the said petitioner's account with the bank, so as to forestall the dissipation of said funds, which the government had

allocated to its public highways and infrastructure projects. The Court ordered on January 31, 1969 the issuance of the writ against the principal respondents
solidarily, including respondent judge therein so that she would take forthwith all the necessary measures and processes to compel the immediate return of the
said government funds to petitioner Bureau's account with respondent bank. 5

The primary responsibility

for the reimbursement of said amount to petitioner Bureau's account with the respondent bank, however, rested solely on
respondent estate, since it is the judgment creditor that received the amount upon the questioned execution.
In compliance with the writ, respondent bank restored the garnished sum of P209,076.00 to petitioner Bureau's account with it. 6

what respondent bank did, acting through

respondent Corua as its counsel, was not to ask respondent estate to reimburse it in turn in the same amount, but to file
with the probate court with jurisdiction over respondent estate, a motion for the estate to deposit the said amount with it,
purportedly in compliance with the writ. Respondent estate thereupon deposited with respondent bank as a savings
account the sum of P125,446.00, on which the bank presumably would pay the usual interest, besides. As to the balance
of P83,630.00, this sum had been in the interval paid as attorney's fees to Atty. Jesus B. Santos, counsel for the estate, by
the administrator, allegedly without authority of the probate court. Accordingly, respondent estate has not reimbursed the
respondent bank either as to this last amount, and the bank has complacently not taken any steps in the lower court to
require such reimbursement.
Strangely enough, as appears now from respondent bank's memorandum in lieu of oral argument, 7

The ancillary questions now belatedly raised by the State may readily be disposed of. Petitioners may not invoke the State's immunity from suit, since the case
below was but a continuation in effect of the pre-war expropriation proceedings instituted by the State itself. The expropriation of the property, which now forms
part of Epifanio, de los Santos Avenue, is a fait accompli and is not questioned by the respondent state. The only question at issue was the amount of the just

It is
elementary that in expropriation proceedings, the State precisely submits to the Court's jurisdiction and asks the Court to
affirm its lawful right to take the property sought to be expropriated for the public use or purpose described in its complaint
and to determine the amount of just compensation to be paid therefor.
compensation due to respondent estate in payment of the expropriated property, which properly pertained to the jurisdiction of the lower court.

10

Neither may the State impugn the validity of the compromise agreement executed by the Solicitor General on behalf of the State with the approval of the proper
government officials, on the ground that it was executed only by the lawyer of respondent estate, without any showing of having been specially authorized to bind
the estate thereby, because such alleged lack of authority may be questioned only by the principal or client, and respondent estate as such principal has on the

As a matter of fact, the Solicitor General, in representation of the State,

makes in the petition no prayer for the annulment of the compromise agreement or of the respondent court's decision
approving the same.
contrary confirmed and ratified the compromise agreement.

11

On the principal issue, the Court holds that respondent Court's two questioned orders (1) for execution of the judgment, in pursuance whereof respondent deputy
clerk issued the corresponding writ of execution and respondent special sheriff issued the notice of garnishment, and (2) for delivery of the garnished amount of
P209,076.00 to respondent estate as judgment creditor through respondent special sheriff, are null and void on the fundamental ground that government funds are
not subject to execution or garnishment.
1. As early as 1919, the Court has pointed out that although the Government, as plaintiff in expropriation proceedings, submits itself to the jurisdiction of the Court
and thereby waives its immunity from suit, the judgment that is thus rendered requiring its payment of the award determined as just compensation for the

The Court there added

that it is incumbent upon the legislature to appropriate any additional amount, over and above the provisional deposit, that
may be necessary to pay the award determined in the judgment, since the Government cannot keep the land and
dishonor the judgment.
condemned property as a condition precedent to the transfer to the title thereto in its favor, cannot be realized upon execution. 12

In another early case, where the government by an act of the Philippine Legislature, expressly consented to be sued by the plaintiff in an action for damages and
waived its immunity from suit, the Court adjudged the Government as not being legally liable on the complaint, since the State under our laws would be liable only
for torts caused by its special agents, specially commissioned to carry out the acts complained of outside of such agents' regular duties. We held that the plaintiff
would have to look to the legislature for another legislative enactment and appropriation of sufficient funds, if the Government intended itself to be legally liable
only for the damages sustained by plaintiff as a result of the negligent act of one of its employees. 13
The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it may limit claimant's action "only up to the
completion of proceedings anterior to the stage of execution" and that the power of the Courts ends when the judgment is rendered, since government funds and
properties may not be seized under writs of execution or garnishment to satisfy such judgments, is based on obvious considerations of public policy.
Disbursements of Public funds must be covered by the corresponding appropriation as required by law. The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by law.

while the State has given its consent to be sued in compensation cases, the
pauper-claimant therein must look specifically to the Compensation Guarantee Fund provided by the Workmen's
Compensation Act for the corresponding disbursement in satisfaction of his claim, since the State in Act 3083, the general
Thus, as pointed out by the Court in Belleng vs. Republic, 14

law waiving its immunity from suit "upon any money claim involving liability arising from contract express or implied,"
imposed the limitation in Sec. 7 thereof that "no execution shall issue upon any judgment rendered by any Court against
the Government of the (Philippines) under the provisions of this Act;" and that otherwise, the claimant would have to
prosecute his money claim against the State under Commonwealth Act 327.
setting aside as null and void the order of garnishment issued by
the sheriff pursuant to the lower Court's writ of execution on funds of the Pump Irrigation Trust Fund in the account of the
Government's Irrigation Service Unit with the Philippine National Bank. The Court emphasized then and re-emphasizes
now that judgments against the State or its agencies and instrumentalities in cases where the State has consented to be
sued, operate merely to liquidate and establish the plaintiff's claim; such judgments may not be enforced by writs of
execution or garnishment and it is for the legislature to provide for their payment through the corresponding appropriation,
as indicated in Act 3083.
This doctrine was again stressed by. the Court in Republic vs. Palacio, 15

2. Respondent bank and its Chief, Documentation Staff, respondent Corua have advanced two specious arguments to justify their wrongful delivery of the
garnished public funds to respondent estate. Their first contention that the said government funds by reason of their being deposited by petitioner Bureau under a

is
untenable. As the official depositary of the Philippine Government, respondent bank and its officials should be the first
ones to know that all government funds deposited with it by any agency or instrumentality of the government, whether by
way of general or special deposit, remain government funds, since such government agencies or instrumentalities do not
have any non-public or private funds of their own.
current account subject to withdrawal by check, instead of being deposited as special trust funds, "lost their kind and character as government funds,"

16

since the
relation between a depositor and a depository bank is that of creditor and debtor, is just as untenable, absolutely. Said
respondents shockingly ignore the fact that said government funds were deposited with respondent bank as the official
depositary of the Philippine Government. Assuming for the nonce the creation of such relationship of creditor and debtor,
petitioner Bureau thereby held a credit against respondent bank whose obligation as debtor was to pay upon demand of
said petitioner-creditor the public funds thus deposited with it; even though title to the deposited funds passes to the bank
under this theory since the funds become mingled with other funds which the bank may employ in its ordinary business,
what was garnished was not the bank's own funds but the credit of petitioner bureau against the bank to receive payment
of its funds, as a consequence of which respondent bank delivered to respondent estate the garnished amount of
P209,076.00 belonging to said petitioner. Petitioner bureau's credit against respondent bank thereby never lost its
character as a credit representing government funds thus deposited. The moment the payment is made by respondent
bank on such deposit, what it pays out represents the public funds thus deposited which are not garnishable and may be
expended only for their legitimate objects as authorized by the corresponding legislative appropriation. Neither respondent
bank nor respondent Corua are the duly authorized disbursing officers and auditors of the Government to authorize and
cause payment of the public funds of petitioner Bureau for the benefit or private persons, as they wrongfully did in this
case.
Their second contention that said government funds lost their character as such "the moment they were deposited with the respondent bank",

17

3. Respondents bank and Corua next pretend that refusal on their part to obey respondent judge's order to deliver the garnished amount, "which is valid and

They make no excuse for not having asked the lower court for
time and opportunity to consult petitioner Bureau or the Solicitor General with regard to the garnishment and execution of
said deposited public funds which were allocated to specific government projects, or for not having simply replied to the
sheriff that what they held on deposit for petitioner Bureau were non-garnishable government funds. They have not given
any cogent reason or explanation, charged as they were with knowledge of the nullity of the writ of execution and
notice of garnishment against government funds, for in the earlier case of Republic vs. Palacio, supra, they had then
prudently and timely notified the proper government officials of the attempted levy on the funds of the Irrigation Service
Unit deposited with it, thus enabling the Solicitor General to take the corresponding action to annul the garnishment for
their failure to follow the same prudent course in this case. Indeed, the Court is appalled at the improper haste and lack of
circumspection with which respondent Corua and other responsible officials of respondent bank precipitately allowed the
garnishment and delivery of the large amount involved, all within the period of just four days, even before the expiration of
the five-day reglementary period to reply to the sheriff's notice of garnishment. Failure on the State's part to oppose the
issuance of the writ of execution, which was patently null and void as an execution against government funds, could not
relieve them of their own responsibility.
binding unless annulled, would have exposed them for contempt of court."

18

4. Respondents bank and Corua further made common cause with respondent estate beyond the legal issues that should solely concern them, by reason of their
having wrongfully allowed the garnishment and delivery of government funds, instead assailing petitioners for not having come to court with "clean hands" and
asserting that in fairness, justice and equity, petitioners should not impede, obstruct or in any way delay the payment of just compensation to the land owners for
their property that was occupied way back in 1940. This matter of payment of respondent estate's judgment credit is of no concern to them as custodian and
depositary of the public funds deposited with them, whereby they are charged with the obligation of assuring that the funds are not illegally or wrongfully paid out.
Since they have gone into the records of the expropriation case, then it should be noted that they should have considered the vital fact that at the time that the
compromise agreement therein was executed in November, 1966, respondent estate was well aware of the fact that the funds for the payment of the property in
the amount of P209,076.00 still had to be released by the Budget Commissioner and that at the time of the garnishment, respondent estate was still making the
necessary representations for the corresponding release of such amount, pursuant to the Budget Commissioner's favorable

And with regard to the merits of the case, they should have likewise considered that respondent estate
could have no complaint against the fair attitude of the authorities in not having insisted on their original stand in their
answer that respondent estate was entitled only to the sum of P3,203.00 as the fair market value of the property at the
time the State took possession thereof on November 25, 1940, with legal interests thereon, but rather agreed to pay
therefor the greatly revised and increased amount of P209,076.00 at P14.00 per square meter, not to mention the
consequential benefits derived by said respondent from the construction of the public highway with the resultant enhanced
value of its remaining properties in the area.
recommendation.19

5. The manner in which respondent bank's counsel and officials proceeded to comply with the writ of preliminary mandatory injunction issued by the Court
commanding respondent estate, its judicial administrator and respondents bank and Corua, in solidum, to reimburse forthwith the account of petitioner Bureau in
the garnished amount of P209,076.00, does not speak well of their fidelity to the bank's interests. For while respondent bank had restored with its own funds the
said amount of P209,076.00 to petitioner Bureau's account, it has not required respondent estate as the party primarily liable therefor as the recipient of the
garnished amount to reimburse it in turn in this same amount. Rather, said bank officials have allowed respondent estate to keep all this time the whole amount of
P209,076.00 wrongfully garnished by it. For as stated above, respondent bank allowed respondent estate merely to deposit with it as a savings account, of
respondent estate, the lesser sum of P125,446.00 on which the bank presumably has paid and continues paying respondent estate, besides the usual interest
rates on such savings accounts, and neither has it taken any steps to require reimbursement to it from respondent estate of the remainder of P83,630.00 which
respondent estate of its own doing and responsibility paid by way of attorney's fees.
It thus appears that all this time, respondent bank has not been reimbursed by respondent estate as the party primarily liable for the whole amount of P209,076.00
wrongfully and illegally garnished and received by respondent estate. This grave breach of trust and dereliction of duty on the part of respondent bank's officials
should be brought to the attention of respondent bank's Board of Directors and management for the appropriate administrative action and other remedial action for
the bank to recover the damages it has been made to incur thereby.
6. The Solicitor General has likewise questioned the legality of respondent Court's Order of October 14, 1968, appointing respondent Garcia as "special sheriff" for
the purpose of effecting service of the writ of execution, simply on respondent estate's representation that it was desirable "for a speedy enforcement of the writ."
The Court finds this general practice of the lower courts of appointing "special sheriffs" for the service of writs of execution to be unauthorized by law. The duty of
executing all processes" of the courts in civil cases, particularly, writs of execution, devolves upon the sheriff or his deputies, under Section 183 of the Revised
Administrative Code and Rule 39, section 8 of the Rules of Court. Unlike the service of summons which may be made, aside from the sheriff or other proper court
officers, "for special reasons by any person especially authorized by the judge of the court issuing the summons" under Rule 14, section 5 of the Rules of Court,
the law requires that the responsibility of serving writs of execution, which involve the taking delivery of money or property in trust for the judgment creditor, should
be carried out by regularly bonded sheriffs or other proper court officers. (Sections 183 and 330, Revised Administrative Code). The bond required by law of the
sheriff is conditioned inter alia, "for the delivery or payment to the Government, or the persons entitled thereto, of all the property or sums of money that shall
officially come into his or their (his deputies') hands" (Section 330, idem), and thus avoids the risk of embezzlement of such properties and moneys.
Section 185 of the Revised Administrative Code restrictively authorizes the judge of the Court issuing the process or writ to deputize some suitable person only
"when the sheriff is party to any action or proceeding or is otherwise incompetent to serve process therein." The only other contingency provided by law is when
the office of sheriff is vacant, and the judge is then authorized, "in case of emergency, (to) make a temporary appointment to the office of sheriff ... pending the
appointment and qualification of the sheriff in due course; and he may appoint the deputy clerk of the court or other officer in the government service to act in said
capacity." (Section 189, idem).
None of the above contingencies having been shown to be present, respondent Court's order appointing respondent Garcia as "special sheriff" to serve the writ of
execution was devoid of authority.
7. No civil liability attaches, however, to respondents special sheriff and deputy clerk, since they acted strictly pursuant to orders issued by respondent judge in the
discharge of her judicial functions as presiding judge of the lower court, and respondent judge's immunity from civil responsibility covers them, although the said
orders are herein declared null and void. 20
ACCORDINGLY, the writs of certiorari and prohibition are granted. The respondent court's questioned Orders of October 14, and 18, 1968, are declared null and
void, and all further proceedings in Civil Case No. Q-7441 of the Court of First Instance of Rizal, Quezon City, Branch IX are abated. The writ of preliminary
mandatory injunction heretofore issued is made permanent, except as to respondent judge who is excluded therefrom, without prejudice to any cause of action
that private respondents may have, inter se. Respondent estate and respondent Tomas N. Hashim as prayed for by respondent Philippine National Bank in its
Answer, are ordered jointly and severally to reimburse said respondent bank in the amount of P209,076.00 with legal interest until the date of actual
reimbursement. Respondents Estate of N. T. Hashim, Philippine National Bank and Benjamin Corua are ordered jointly to pay treble costs.

SEE Domingo v. Domingo, G.R. No. L-30573, October 29, 1971

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

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

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.
P5,631.00, 3

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

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
fees. 4

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

On appeal therefrom, the Court of Appeals affirmed the judgment of the trial court in a decision
promulgated on September 27, 1991. A motion for the reconsideration of said judgment of respondent court was
subsequently denied in a resolution dated January 23, 1992.
of the amount adjudged. 6

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

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:
company, inefficiency, and loss of trust and confidence." 9

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)

Quezon City Plant
Abigail Minimart
Regular Account P20,437.40 (as of 1980)

11

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

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. Thereafter,
Eugenio and Isip signed the reconciliation sheets reflecting these items:
P21,686.00 after a reevaluation of the value of the loaned empties. 13

14

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. 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.
20

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

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," there was no further explanation on this unusual doctrinal departure.
disputed TPRs, as well as his affidavit dated February 5, 1982 21

22

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

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.
are derived from his own perception, except as otherwise provided in the Rules. 23

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 cross-examine Estrada. Even in a formal prior trial itself, if the opportunity for
cross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-examine the witness when the testimony was offered, evidence
relating to the testimony given therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the accused amounting to a waiver of his
right to 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

The supposed stenographic notes on which respondent corporation relies is

unauthenticated and necessarily inadmissible for the purpose intended.
qua non for its competency and admissibility in evidence.

27

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.

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. 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.
Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the hearsay evidence rule.

28

29

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

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. 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.
genuine by the party against whom the evidence is offered or proved to be genuine to the satisfaction of the judge.

30

31

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

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," and not for the purpose of presenting any alleged signature of Estrada on the document as
a basis for comparison.
genuine signature." 33

34

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 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.
the ordinary course of business has been followed. 37

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

Otherwise, it would unreasonably cast the burden of supervision

over its employees from respondent corporation to its customers.
the latter's official receipt, said payment extinguishes their obligations." 38

The substantive law is that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest or any person

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. In fact, Atty. Rosario,
private respondent's own witness, admitted that "it is the responsibility of the collector to turn over the collection."
authorized to receive it. 39

40

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

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. 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.
afterthought." 44

45

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

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.
upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola , Muntinlupa Plant.

46

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.

SEE Green Valley Poultry & Allied Products, Inc. v. IAC, G.R. No. L-49395, December 26, 1984
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 88866

February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was,
at the time these events happened, operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total
value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its
Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second
indorser.
1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal
office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing.
2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to
wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants.
3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the third on July
16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00.
4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the
proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded
the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. After trial, judgment was rendered in favor of Golden
Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its
decision thus:
5

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc. and defendant Spouses Magno
Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the
debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of litigation in the amount of
P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court, the decision was affirmed, prompting Metrobank to file this petition for review on the following grounds:
6

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on the deposit slips allowing
Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held liable for its failure to
collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants already dishonored, thereby
perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance,
Golden Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might

even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor, who could therefore withdraw it any time and for
any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing
facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from
Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. It was only when Metrobank gave the go-signal that Gomez was
finally allowed by Golden Savings to withdraw them from his own account.
7

The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances of Gomez before accepting his deposit
does not hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were
subject to clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his signature
as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as
payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed
Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling more than one and a half million pesos (and this was 1979).
There was no reason why it should not have waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite
the lack of such clearance and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly
stresses it allowed Golden Savings to withdraw not once, not twice, but thrice from the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to "accommodate" a valued client. It
"presumed" that the warrants had been cleared simply because of "the lapse of one week." For a bank with its long experience, this explanation is unbelievably
naive.
8

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips through which the treasury warrants
were deposited by Golden Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming no responsibility beyond care
in selecting correspondents, and until such time as actual payment shall have come into possession of this bank, the right is reserved to charge back to
the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and
bankers and their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason.
(Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and give it the right to "charge back to the
depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding
on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by the bank unilaterally, without the
consent of the depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions
set forth in the given permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip
were considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a mere agent it cannot be liable to the
principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according
to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that assured Golden Savings it was
already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no
express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden
Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in excess of its original balance before the treasury
warrants were deposited, which only added to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Any reason does not mean no reason
at all. Otherwise, there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need
for it to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is
not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants
was not communicated to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the treasury warrants and allowing
payments therefrom to Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general
manager and the auditor of the drawer corporation, has not been established. This was the finding of the lower courts which we see no reason to disturb. And as
we said in MWSS v. Court of Appeals:
9

10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and convincing evidence. This was
not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the
word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:

Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
xxx

xxx

xxx

Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the
warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at
bar. This conclusion conforms to Abubakar vs. Auditor General where the Court held:
11

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights and privileges of a holder in
due course, free from defenses. But this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing
on its face the words "payable from the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not
unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to
be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants.
The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, but we feel this case is inapplicable to the present controversy. That
case involved checks whereas this case involves treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only for
the purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc.
and it did not appear that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.
12

1wphi1

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the petitioner to credit Golden Savings with the full
amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings
was notified of the dishonor. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its
own negligence. But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount
from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden Savings would unduly enrich it at
the expense of Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of the judgment of the lower court shall be
reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden Savings & Loan Association, Inc. to
withdraw the amount outstanding thereon, if any, after the debit.
SO ORDERED.

SEE Toyota Shaw, Inc. v. CA, G.R. No. 116650, May 23, 1995
Obligations of the Principal
Articles 1910-1918

A. With respect to Agent

WOODCHILD HOLDINGS, INC., G.R. No. 140667

Petitioner,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
ROXAS ELECTRIC AND Promulgated:
CONSTRUCTION COMPANY, INC.,
Respondent. August 12, 2004
x--------------------------------------------------x
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision [1] of the Court of Appeals in CA-G.R.
CV No. 56125 reversing the Decision[2] of the Regional Trial Court of Makati, Branch 57,
which ruled in favor of the petitioner.
The Antecedents

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas
Electric and Construction Company, was the owner of two parcels of land, identified as Lot No.
491-A-3-B-1 covered by Transfer Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B2 covered by TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A3-B-2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondents Board of Directors approved a
resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square meters, at a price and
under such terms and conditions which he deemed most reasonable and advantageous to the
corporation; and to execute, sign and deliver the pertinent sales documents and receive the
proceeds of the sale for and on behalf of the company.[3]
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered
by TCT No. 78086 on which it planned to construct its warehouse building, and a portion of the
adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be able to readily
enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI President Jonathan Y.
Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and conditions for P1,000 per square
meter or at the price of P7,213,000.[4] One of the terms incorporated in Dys offer was the
following provision:

5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER,
that he holds a good and registrable title to the property, which shall be conveyed CLEAR
and FREE of all liens and encumbrances, and that the area of 7,213 square meters of the
subject property already includes the area on which the right of way traverses from the main
lot (area) towards the exit to the Sumulong Highway as shown in the location plan furnished
by the Owner/Seller to the buyer. Furthermore, in the event that the right of way is
insufficient for the buyers purposes (example: entry of a 45-foot container), the seller agrees
to sell additional square meter from his current adjacent property to allow the buyer to full
access and full use of the property.[5]

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month later or on
July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of WHI, as vendee,
executed a contract to sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491A-3-B-2 covered by TCT No. 78086 forP7,213,000.[6] On September 5, 1991, a Deed of
Absolute Sale[7] in favor of WHI was issued, under which Lot No. 491-A-3-B-2 covered by
TCT No. 78086 was sold for P5,000,000, receipt of which was acknowledged by Roxas under
the following terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of
and a right of way from Sumulong Highway to the property herein conveyed consists of 25
square meters wide to be used as the latters egress from and ingress to and an additional 25
square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for
Vendees vehicles.
The Vendor agrees that in the event that the right of way is insufficient for the Vendees use (ex
entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current
adjacent property to allow the Vendee full access and full use of the property.
The Vendor hereby undertakes and agrees, at its account, to defend the title of the Vendee to the
parcel of land and improvements herein conveyed, against all claims of any and all persons or
entities, and that the Vendor hereby warrants the right of the Vendee to possess and own the said
parcel of land and improvements thereon and will defend the Vendee against all present and
future claims and/or action in relation thereto, judicial and/or administrative. In particular, the
Vendor shall eject all existing squatters and occupants of the premises within two (2) weeks from
the signing hereof. In case of failure on the part of the Vendor to eject all occupants and squatters
within the two-week period or breach of any of the stipulations, covenants and terms and
conditions herein provided and that of contract to sell dated 1 July 1991, the Vendee shall have
the right to cancel the sale and demand reimbursement for all payments made to the Vendor with
interest thereon at 36% per annum.[8]

On September 10, 1991, the Wimbeco Builders, Inc. (WBI) submitted its quotation
for P8,649,000 to WHI for the construction of the warehouse building on a portion of the
property with an area of 5,088 square meters.[9] WBI proposed to start the project on October 1,
1991 and to turn over the building to WHI on February 29, 1992.[10]
In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc.
confirmed its lease agreement with WHI of a 5,000-square-meter portion of the warehouse yet
to be constructed at the rental rate of P65 per square meter. Ponderosa emphasized the need for

the warehouse to be ready for occupancy before April 1, 1992. [11] WHI accepted the
offer. However, WBI failed to commence the construction of the warehouse in October 1, 1991
as planned because of the presence of squatters in the property and suggested a renegotiation of
the contract after the squatters shall have been evicted. [12] Subsequently, the squatters were
evicted from the property.
On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the
warehouse building for P11,804,160.[13] The contractor started construction in April 1992 even
before the building officials of Antipolo City issued a building permit on May 28, 1992. After
the warehouse was finished, WHI issued on March 21, 1993 a certificate of occupancy by the
building official. Earlier, or on March 18, 1993, WHI, as lessor, and Ponderosa, as lessee,
executed a contract of lease over a portion of the property for a monthly rental of P300,000 for
a period of three years from March 1, 1993 up to February 28, 1996.[14]
In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been granted a right of way. Roxas
promised to look into the matter. Dy and Roxas discussed the need of the WHI to buy a 500square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 as provided for in the
deed of absolute sale. However, Roxas died soon thereafter. On April 15, 1992, the WHI wrote
the RECCI, reiterating its verbal requests to purchase a portion of the said lot as provided for in
the deed of absolute sale, and complained about the latters failure to eject the squatters within
the three-month period agreed upon in the said deed.
The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by
TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise the
appropriate action would be filed against it. RECCI rejected the demand of WHI. WHI
reiterated its demand in a Letter dated May 29, 1992.There was no response from RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial
Court of Makati, for specific performance and damages, and alleged,inter alia, the following in
its complaint:
5. The current adjacent property referred to in the aforequoted paragraph of the Deed of Absolute
Sale pertains to the property covered by Transfer Certificate of Title No. N-78085 of the Registry
of Deeds of Antipolo, Rizal, registered in the name of herein defendant Roxas Electric.
6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed of
Absolute Sale unjustifiably refused to deliver to Woodchild Holdings the stipulated beneficial
use and right of way consisting of 25 square meters and 55 square meters to the prejudice of the
plaintiff.
7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild
Holdings for its beneficial use is inadequate as turning and/or maneuvering area of its 45-foot
container van, Woodchild Holdings manifested its intention pursuant to para. 5 of the Deed of
Sale to purchase additional square meters from Roxas Electric to allow it full access and use of
the purchased property, however, Roxas Electric refused and failed to merit Woodchild Holdings
request contrary to defendant Roxas Electrics obligation under the Deed of Absolute Sale (Annex
A).
8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of the
premises within the stipulated time frame and as a consequence thereof, plaintiffs planned
construction has been considerably delayed for seven (7) months due to the squatters who
continue to trespass and obstruct the subject property, thereby Woodchild Holdings incurred
substantial losses amounting to P3,560,000.00 occasioned by the increased cost of construction
materials and labor.
9. Owing further to Roxas Electrics deliberate refusal to comply with its obligation under Annex
A, Woodchild Holdings suffered unrealized income of P300,000.00 a month orP2,100,000.00
supposed income from rentals of the subject property for seven (7) months.
10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply
with its obligations and warranties under the Deed of Absolute Sale but notwithstanding such
demand, defendant Roxas Electric refused and failed and continue to refuse and fail to heed
plaintiffs demand for compliance.
Copy of the demand letter dated April 15, 1992 is hereto attached as Annex B and made an
integral part hereof.
11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas
Electric to particularly annotate on Transfer Certificate of Title No. N-78085 the agreement
under Annex A with respect to the beneficial use and right of way, however, Roxas Electric
unjustifiably ignored and disregarded the same.
Copy of the letter request dated 29 May 1992 is hereto attached as Annex C and made an integral
part hereof.
12. By reason of Roxas Electrics continuous refusal and failure to comply with Woodchild
Holdings valid demand for compliance under Annex A, the latter was constrained to litigate,

thereby incurring damages as and by way of attorneys fees in the amount of P100,000.00 plus
costs of suit and expenses of litigation.[15]

The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild
Holdings and ordering Roxas Electric the following:
a) to deliver to Woodchild Holdings the beneficial use of the stipulated 25 square
meters and 55 square meters;
b) to sell to Woodchild Holdings additional 25 and 100 square meters to allow it
full access and use of the purchased property pursuant to para. 5 of the Deed
of Absolute Sale;
c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial
use and right of way granted to Woodchild Holdings under the Deed of
Absolute Sale;
d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual
damages and unrealized income;
e) to pay attorneys fees in the amount of P100,000.00; and
f) to pay the costs of suit.
Other reliefs just and equitable are prayed for.[16]

In its answer to the complaint, the RECCI alleged that it never authorized its former
president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1,
nor agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under
the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No. 491-A-3B-2 covered by TCT No. 78086. As such, the grant of a right of way and the agreement to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said deed are ultra vires. The
RECCI further alleged that the provision therein that it would sell a portion of Lot No. 491-A-3B-1 to the WHI lacked the essential elements of a binding contract.[17]
In its amended answer to the complaint, the RECCI alleged that the delay in the
construction of its warehouse building was due to the failure of the WHIs contractor to secure a
building permit thereon.[18]
During the trial, Dy testified that he told Roxas that the petitioner was buying a portion of
Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the price of P1,000 per
square meter.
On November 11, 1996, the trial court rendered judgment in favor of the WHI, the
decretal portion of which reads:

WHEREFORE, judgment is hereby rendered directing defendant:

(1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m.
and 55 sq. m.;
(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow said
plaintiff full access and use of the purchased property pursuant to Par. 5 of their Deed of
Absolute Sale;
(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted by their
Deed of Absolute Sale;
(4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiffs
unrealized income;
(5) To pay plaintiff P100,000 representing attorneys fees; and
To pay the costs of suit.
SO ORDERED.[19]

The trial court ruled that the RECCI was estopped from disowning the apparent authority
of Roxas under the May 17, 1991 Resolution of its Board of Directors.The court reasoned that
to do so would prejudice the WHI which transacted with Roxas in good faith, believing that he
had the authority to bind the WHI relating to the easement of right of way, as well as the right to
purchase a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085.
The RECCI appealed the decision to the CA, which rendered a decision on November 9,
1999 reversing that of the trial court, and ordering the dismissal of the complaint. The CA ruled
that, under the resolution of the Board of Directors of the RECCI, Roxas was merely authorized
to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not to grant right of way in favor
of the WHI over a portion of Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy
a portion thereof. The appellate court also ruled that the grant of a right of way and an option to
the respondent were so lopsided in favor of the respondent because the latter was authorized to
fix the location as well as the price of the portion of its property to be sold to the
respondent. Hence, such provisions contained in the deed of absolute sale were not binding on
the RECCI. The appellate court ruled that the delay in the construction of WHIs warehouse was
due to its fault.
The Present Petition

The petitioner now comes to this Court asserting that:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE
(EXH. C) IS ULTRA VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE
COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE
EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55
SQUARE METERS BECAUSE THESE ARE VALID STIPULATIONS AGREED BY BOTH
PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. C).
III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO
RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. C) WERE
DISADVANTAGEOUS TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS
PROPERTY WITHOUT DUE PROCESS.
IV.
IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE
PROCESS BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE
APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE DEED
OF ABSOLUTE SALE (EXH. C).
VI.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE
COURT A QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT
OF P5,568,000.00
REPRESENTING
ACTUAL DAMAGES
AND
PLAINTIFFS
UNREALIZED INCOME AS WELL AS ATTORNEYS FEES.[20]

The threshold issues for resolution are the following: (a) whether the respondent is bound by the
provisions in the deed of absolute sale granting to the petitioner beneficial use and a right of
way over a portion of Lot No. 491-A-3-B-1 accessing to the Sumulong Highway and granting
the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is
enforceable against the respondent; (b) whether the respondent failed to eject the squatters on its
property within two weeks from the execution of the deed of absolute sale; and, (c) whether the
respondent is liable to the petitioner for damages.
On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the respondent
authorized Roxas, then its president, to grant a right of way over a portion of Lot No. 491-A-3B-1 in favor of the petitioner, and an option for the respondent to buy a portion of the said
property. The petitioner contends that when the respondent sold Lot No. 491-A-3-B-2 covered
by TCT No. 78086, it (respondent) was well aware of its obligation to provide the petitioner
with a means of ingress to or egress from the property to the Sumulong Highway, since the
latter had no adequate outlet to the public highway. The petitioner asserts that it agreed to buy
the property covered by TCT No. 78085 because of the grant by the respondent of a right of
way and an option in its favor to buy a portion of the property covered by TCT No. 78085. It
contends that the respondent never objected to Roxas acceptance of its offer to purchase the
property and the terms and conditions therein; the respondent even allowed Roxas to execute
the deed of absolute sale in its behalf. The petitioner asserts that the respondent even received
the purchase price of the property without any objection to the terms and conditions of the said
deed of sale. The petitioner claims that it acted in good faith, and contends that after having
been benefited by the said sale, the respondent is estopped from assailing its terms and
conditions. The petitioner notes that the respondents Board of Directors never approved any
resolution rejecting the deed of absolute sale executed by Roxas for and in its behalf. As such,
the respondent is obliged to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085
with an area of 500 square meters at the price of P1,000 per square meter, based on its evidence
and Articles 649 and 651 of the New Civil Code.
For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991
Resolution of its Board of Directors to impose a burden or to grant a right of way in favor of the
petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence,
the respondent was not bound by such provisions contained in the deed of absolute
sale. Besides, the respondent contends, the petitioner cannot enforce its right to buy a portion of
the said property since there was no agreement in the deed of absolute sale on the price thereof
as well as the specific portion and area to be purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,[21] we held that:
A corporation is a juridical person separate and distinct from its stockholders or
members. Accordingly, the property of the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or members without express authorization

from the corporations board of directors. Section 23 of BP 68, otherwise known as the
Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are
elected and qualified.
Indubitably, a corporation may act only through its board of directors or, when authorized
either by its by-laws or by its board resolution, through its officers or agents in the normal course
of business. The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of
law. [22]

Generally, the acts of the corporate officers within the scope of their authority are binding on
the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers
beyond the scope of their authority cannot bind the corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying them:
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.

Thus, contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.[23]
In BA Finance Corporation v. Court of Appeals,[24] we also ruled that 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 liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to establish it.
In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden
thereon. The petitioner was thus burdened to prove that the respondent so authorized Roxas to
sell the same and to create a lien thereon.
Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the
respondent, which is worded as follows:
RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any
interested buyer, its 7,213-sq.-meter property at the Sumulong Highway, Antipolo, Rizal, covered
by Transfer Certificate of Title No. N-78086, at a price and on terms and conditions which he
deems most reasonable and advantageous to the corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation, be, as he
is hereby authorized to execute, sign and deliver the pertinent sales documents and receive the
proceeds of sale for and on behalf of the company.[25]

Evidently, Roxas was not specifically authorized under the said resolution to grant a right of
way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the
petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent
lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority
be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner on
such terms and conditions which he deems most reasonable and advantageous. Under paragraph
12, Article 1878 of the New Civil Code, a special power of attorney is required to convey real
rights over immovable property.[26] Article 1358 of the New Civil Code requires that contracts
which have for their object the creation of real rights over immovable property must appear in a
public document.[27] The petitioner cannot feign ignorance of the need for Roxas to have been
specifically authorized in writing by the Board of Directors to be able to validly grant a right of
way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is
one which requires authority in writing, those dealing with him are charged with notice of that
fact.[28]

Powers of attorney are generally construed strictly and courts will not infer or presume
broad powers from deeds which do not sufficiently include property or subject under which the
agent is to deal.[29] The general rule is that the power of attorney must be pursued within legal
strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally
identical with that authorized to be done. [30] In sum, then, the consent of the respondent to the
assailed provisions in the deed of absolute sale was not obtained; hence, the assailed provisions
are not binding on it.
We reject the petitioners submission that, in allowing Roxas to execute the contract to sell
and the deed of absolute sale and failing to reject or disapprove the same, the respondent
thereby gave him apparent authority to grant a right of way over Lot No. 491-A-3-B-1 and to
grant an option for the respondent to sell a portion thereof to the petitioner. Absent estoppel or
ratification, apparent authority cannot remedy the lack of the written power required under the
statement of frauds.[31] In addition, the petitioners fallacy is its wrong assumption of the
unproved premise that the respondent had full knowledge of all the terms and conditions
contained in the deed of absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on estoppel and can arise from two
instances: first, the principal may knowingly permit the agent to so hold himself out as having
such authority, and in this way, the principal becomes estopped to claim that the agent does not
have such authority; second, the principal may so clothe the agent with the indicia of authority
as to lead a reasonably prudent person to believe that he actually has such authority.[32] There
can be no apparent authority of an agent without acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied upon in good faith and as
a result of the exercise of reasonable prudence by a third person as claimant and such must have
produced a change of position to its detriment. The apparent power of an agent is to be
determined by the acts of the principal and not by the acts of the agent.[33]
For the principle of apparent authority to apply, the petitioner was burdened to prove the
following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b)
knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon by the
petitioner consistent with ordinary care and prudence. [34] In this case, there is no evidence on
record of specific acts made by the respondent [35] showing or indicating that it had full
knowledge of any representations made by Roxas to the petitioner that the respondent had
authorized him to grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085, or to create a burden or lien thereon, or that the respondent allowed
him to do so.
The petitioners contention that by receiving and retaining the P5,000,000 purchase price
of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the grant of a right of
way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an option to sell a
portion thereof, is barren of merit. It bears stressing that the respondent sold Lot No. 491-A-3B-2 to the petitioner, and the latter had taken possession of the property. As such, the
respondent had the right to retain the P5,000,000, the purchase price of the property it had sold

to the petitioner. For an act of the principal to be considered as an implied ratification of an

unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that
he approved and intended to adopt what had been done in his name. [36]Ratification is based on
waiver the intentional relinquishment of a known right. Ratification cannot be inferred from
acts that a principal has a right to do independently of the unauthorized act of the
agent. Moreover, if a writing is required to grant an authority to do a particular act, ratification
of that act must also be in writing. [37] Since the respondent had not ratified the unauthorized acts
of Roxas, the same are unenforceable.[38] Hence, by the respondents retention of the amount, it
cannot thereby be implied that it had ratified the unauthorized acts of its agent, Roberto Roxas.
On the last issue, the petitioner contends that the CA erred in dismissing its complaint for
damages against the respondent on its finding that the delay in the construction of its warehouse
was due to its (petitioners) fault. The petitioner asserts that the CA should have affirmed the
ruling of the trial court that the respondent failed to cause the eviction of the squatters from the
property on or before September 29, 1991; hence, was liable for P5,660,000. The respondent,
for its part, asserts that the delay in the construction of the petitioners warehouse was due to its
late filing of an application for a building permit, only on May 28, 1992.
The petitioners contention is meritorious. The respondent does not deny that it failed to
cause the eviction of the squatters on or before September 29, 1991.Indeed, the respondent does
not deny the fact that when the petitioner wrote the respondent demanding that the latter cause
the eviction of the squatters on April 15, 1992, the latter were still in the premises. It was only
after receiving the said letter in April 1992 that the respondent caused the eviction of the
squatters, which thus cleared the way for the petitioners contractor to commence the
construction of its warehouse and secure the appropriate building permit therefor.
The petitioner could not be expected to file its application for a building permit before
April 1992 because the squatters were still occupying the property.Because of the respondents
failure to cause their eviction as agreed upon, the petitioners contractor failed to commence the
construction of the warehouse in October 1991 for the agreed price of P8,649,000. In the
meantime, costs of construction materials spiraled. Under the construction contract entered into
between the petitioner and the contractor, the petitioner was obliged to pay P11,804,160,
[39]
including the additional work costing P1,441,500, or a net increase of P1,712,980.[40] The
respondent is liable for the difference between the original cost of construction and the increase
thereon, conformably to Article 1170 of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof, are liable for
damages.

The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income from
the lease of the property to the Ponderosa Leather Goods Company.The respondent is, thus,
liable to the petitioner for the said amount, under Articles 2200 and 2201 of the New Civil
Code:
Art. 2200. Indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted
in good faith is liable shall be those that are the natural and probable consequences of the breach
of the obligation, and which the parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for
all damages which may be reasonably attributed to the non-performance of the obligation.

In sum, we affirm the trial courts award of damages and attorneys fees to the petitioner.
IN
LIGHT
OF
ALL
THE
FOREGOING,
judgment
is
hereby
rendered AFFIRMING the assailed Decision of the Court of Appeals WITH
MODIFICATION. The respondent is ordered to pay to the petitioner the amount
of P5,612,980 by way of actual damages and P100,000 by way of attorneys fees. No costs.
SO ORDERED.
SEE Manila Memorial Park Cemetery, Inc. vs. Pedro L. Linsangan, G.R. No. 151319, November 22, 2004
[G.R. No. 129919. February 6, 2002.]
DOMINION INSURANCE CORPORATION, Petitioner, v. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, Respondents.
DECISION

PARDO, J.:

The Case
This is an appeal via certiorari 1 from the decision of the Court of Appeals 2 affirming the decision 3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which
ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by
Guevarra in the payment of the claims of Dominions clients.
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The Facts
The facts, as found by the Court of Appeals, are as follows:

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"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendants clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area.
"In due time, third-party defendant Austria filed his answer.

"Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29,
1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and counsel did not appear, although
a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendants counsel which instructed him to request for postponement. Plaintiffs
counsel objected to the desired postponement and moved to have defendant declared as in default. This was granted by the trial court in the following order:
jgc:chanroble s.com.ph

"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a
certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any post-ponement on the ground that the note is but a mere scrap of paper and
moved that the defendant corporation be declared as in default for its failure to appear in court despite due notice.
"Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pre-trial conference has been repeatedly postponed on motion of the defendant
Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 oclock in
the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July
13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992.
"On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It alleged therein that the failure of counsel to attend the pre-trial conference was due
to an unavoidable circumstance and that counsel had sent his representative on that date to inform the trial court of his inability to appear. The Motion was vehemently opposed
by plaintiff.
"On August 25, 1992 the trial court denied defendants motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further
failed to allege or specify the facts constituting his meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the reason for his nonappearance
at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said
Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:

jgc:chanroble s.com.ph

"WHEREFORE, premises considered, judgment is hereby rendered ordering:

jgc:chanrobles.com .ph

"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of
defendants clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;
"3. The dismissal of the counter-claim of the defendant and the third-party complaint;
"4. The defendant to pay the costs of suit." 4
On December 14, 1992, Dominion appealed the decision to the Court of Appeals. 5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court. 6 On September 3, 1996, Dominion filed with the Court of Appeals a motion for
reconsideration. 7 On July 16, 1997, the Court of Appeals denied the motion. 8
Hence, this appeal. 9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of
amounts he paid out of his personal money in settling the claims of several insured.
The Courts Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.
10 The basis for agency is representation. 11 On the part of the principal, there must be an actual intention to appoint 12 or an intention naturally inferrable from his words or
actions; 13 and on the part of the agent, there must be an intention to accept the appointment and act on it, 14 and in the absence of such intent, there is generally no agency.
15
A perusal of the Special Power of Attorney 16 would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra intended to enter into a
principal-agent relationship. Despite the word "special" in the title of the document, the contents reveal that what was constituted was actually a general agency. The terms of
the agreement read:
jgc:chanroble s.com.ph

"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., 17 a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, . . .
represented by the undersigned as Regional Manager, . . . do hereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra . . . to be our Agency
Manager in San Fdo., for our place and instead, to do and perform the following acts and things:
jgc:chanroble s.com.ph

"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., 18 may hereafter become due, owing payable or transferable to said Corporation by reason of or in connection with the abovementioned appointment.
"4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation." 19 [Emphasis supplied]
The agency comprises all the business of the principal, 20 but, couched in general terms, it is limited only to acts of administration. 21
A general power permits the agent to do all acts for which the law does not require a special power. 22 Thus, the acts enumerated in or similar to those enumerated in the

Special Power of Attorney do not require a special power of attorney.

Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case provides that:
"Article 1878. Special powers of attorney are necessary in the following cases:

jgc:chanrobles.com .ph

jgc:chanroble s.com.ph

"(1) To make such payments as are not usually considered as acts of administration;
x
"(15) Any other act of strict dominion."

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The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of Attorney, neither is it of a
character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the Memorandum of Management Agreement 23 dated February 18, 1987 which enumerates the scope of
respondent Guevarras duties and responsibilities as agency manager for San Fernando, Pampanga, as follows:
jgc:chanroble s.com.ph

"x

"1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"x

x" 24

In settling the claims mentioned above, respondent Guevarras authority is further limited by the written standard authority to pay, 25 which states that the payment shall come
from respondent Guevarras revolving fund or collection. The authority to pay is worded as follows:
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"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________(P _______) representing the payment on the
_______________ claim of assured ________________ under Policy No. ________ in that accident of __________ at __________________________.
"It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after effecting payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager" 26
[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the
revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from
petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that:
jgc:chanroble s.com.ph

"The principal is not liable for the expenses incurred by the agent in the following cases:

jgc:chanroble s.com.ph

"(1) If the agent acted in contravention of the principals instructions, unless the latter should wish to avail himself of the benefits derived from the contract;
"x

x"

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations
and contracts.
Article 1236, second paragraph, Civil Code, provides:

jgc:chanroble s.com.ph

"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor."
cralaw virtua1aw library

In this case, when the risk insured against occurred, petitioners liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and
obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would
result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of Claim Loss and Subrogation Receipts 27 which
were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would
be deducted from the above amount.
The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is
the amount that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the petition.
However, we MODIFY the decision of the Court of Appeals 28 and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga, 29 in that petitioner is ordered to pay
respondent Guevarra the amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims of petitioners clients.
chanrob1es virtua1 1aw 1ibrary

No costs in this instance.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 115838

July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners,

vs.
COURT OF APPEALS and FRANCISCO ARTIGO, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari 1 seeking to annul the Decision of the Court of Appeals 2 dated May 4, 1994 in CA-G.R. CV No. 37996, which
affirmed in toto the decision3 of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows:
"WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De
Castro ("Corazon" for brevity) to collect the unpaid balance of his broker's commission from the De Castros. 4 The Court of Appeals summarized the facts in this
wise:
"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated
January 24, 1984 (Exhibit "A-1, p. 144, Records), appellee 6 was authorized by appellants to act as real estate broker in the sale of these properties for
the amount ofP23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit
Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and 15.
Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission.
It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total
commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for
the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the
consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance.
1wphi1.nt

On the other hand, appellants completely traverse appellee's claims and essentially argue that appellee is selfishly asking for more than what he truly
deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily
concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent
but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellee's, considering that the first
negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second
negotiation. But despite this and out of appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless was given the largest cut in the
commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been
heard to complain of getting only a pittance when he actually got the lion's share of the commission and worse, he should not have been allowed to get
the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as
alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million,
or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization
letter signed by Constante clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit
Corporation ("Times Transit" for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided
that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency.
Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as indispensable parties the other co-owners of the two lots. The
Court of Appeals explained that it is not necessary to implead the other co-owners since the action is exclusively based on a contract of agency between Artigo
and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De
Castros for the two lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the actual purchase price was P7.05 million and not
P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between

the De Castros and Times Transit. The Court of Appeals explained that, "the rule that oral evidence is inadmissible to vary the terms of written instruments is
generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it." Besides, Artigo was not suing under the deed of
sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial court's finding that the purchase price was P7.05 million and not P3.6
million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL
PAYMENT, WAIVER, OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable parties
The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigo
always knew that the two lots were co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De
Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with
funds co-owned by the four co-owners.
The De Castros' contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be
had.7 The joinder of indispensable parties is mandatory and courts cannot proceed without their presence. 8 Whenever it appears to the court in the course of a
proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and order the inclusion of such party. 9
However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5
percent commission. The authority was on a first come, first serve basis. The authority reads in full:

"24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New
York & Denver, Cubao, Quezon City.
Asking price P 23,000,000.00 with 5% commission as agent's fee.

C.C. de Castro
owner & representing
co-owners

This authority is on a first-come

First serve basis CAC"

Constante signed the note as owner and as representative of the other co-owners. Under this note, a contract of agency was clearly constituted between
Constante and Artigo. Whether Constante appointed Artigo as agent, in Constante's individual or representative capacity, or both, the De Castros cannot seek the
dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable
under the contract of agency,10 citing Article 1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De Castros' theory that the other co-owners should be impleaded as indispensable
parties. A noted commentator explained Article 1915 thus
"The rule in this article applies even when the appointments were made by the principals in separate acts, provided that they are for the same
transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this
solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others.The parties, however,
may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the mere partition effected by the principals after
the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the
effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which are common and others
are not, only those interested in each transaction shall be liable for it." 11
When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the
entire obligation.12 The agent may recover the whole compensation from any one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads:
Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc. 13 that
"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the
creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously'." (Emphasis supplied)
Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his proportionate share and no longer entitled to any balance."
According to them, Artigo was just one of the agents involved in the sale and entitled to a "proportionate share" in the commission. They assert that Artigo did
absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an
active real estate broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and constitutes the law between the
parties.14 The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good
faith.
The mere fact that "other agents" intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of
agency granting Artigo a 5 percent commission based on the selling price. These "other agents" turned out to be employees of Times Transit, the buyer Artigo
introduced to the De Castros. This prompted the trial court to observe:
"The alleged `second group' of agents came into the picture only during the so-called `second negotiation' and it is amusing to note that these (sic)
second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the
properties. And their efforts were limited to convincing Constante to 'part away' with the properties because the redemption period of the foreclosed
properties is around the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constante's version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for
sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the instant case
easily presents itself if one has to consider that the alleged `second group' are the employees of the buyer, Times Transit and they have not
bettered the offer secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was too particular about the unrenewed real estate broker's license of Mr. Artigo, he did not bother at all to
inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40)." 15 (Emphasis supplied)
In any event, we find that the 5 percent real estate broker's commission is reasonable and within the standard practice in the real estate industry for transactions of
this nature.

The De Castros also contend that Artigo's inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros
cite Article 1235 of the Civil Code which reads:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the
obligation is deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial payment of his commission neither amounts to a waiver of
the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise:
"The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular
performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish
the whole obligation."16 (Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the
balance. Thus, there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence,
Artigo's claim for the balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been
done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in June 1985. As
found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the selling price of P7.05 million but
there was no response from Constante.18 After it became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues. 19 The right of action
accrues from the moment the breach of right or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive period begins
to run.20
The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigo's cause of action is
barred by laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July 1985 and filed
the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not constitute an unreasonable delay in asserting one's right. The Court
has ruled, "a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief." 21 In explaining that laches
applies only in the absence of a statutory prescriptive period, the Court has stated "Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as
a rule, be used to abate a collection suit filed within the prescriptive period mandated by the Civil Code." 22
Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence
The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine whether the actual selling price of the two
lots was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million as
ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due
execution and authenticity of which was admitted during the trial.
The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and disregarding the best evidence and
parole evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial court's reliance on the various correspondences between
Constante and Times Transit which were mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations
between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where
he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court.
Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in
giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the
outset that he was a licensed real estate broker when he was not.
Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros,
is a question of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence again. 23 This Court is not the proper venue
to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of
law. Our pronouncement in the case of Cormero vs. Court of Appeals24 bears reiteration:
"At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent
court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set
forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented
by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil.
531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess

and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and
eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA
349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly
erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the
oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18
SCRA 973 [1966])."
We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate properly the evidence. Hence, we find no
other recourse but to affirm their finding on the actual purchase price.
1wphi1.nt

Fourth Issue: whether award of moral damages and attorney's fees is proper
The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorney's fees. The De Castros, however, cite no concrete reason except
to say that they are the ones entitled to damages since the case was filed to harass and extort money from them.
Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo. The award of damages and attorney's fees is left to the sound
discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal. 25 Moral damages may be awarded when in a
breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation.26 On the other hand, attorney's fees are awarded in
instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim." 27 There is no
reason to disturb the trial court's finding that "the defendants' lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve
censure." This warrants the award of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The amounts are, in our view, fair and reasonable. Having
found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness
and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent broker's commission based on the actual purchase
price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 94050 November 21, 1991
SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED PRODUCERS PHILS. YIELDS, INC., petitioners,
vs.
EMILY A. WHITE and HOLMAN T. WHITE, respondents.
Ramon A. Gonzales for petitioner of the Court.
Renato S. Corpuz for private respondents.

CRUZ, J.:p
The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered into the subject contract with private respondent Emily A. White. Both the trial
court and the respondent court held she was acting in her own personal behalf. She faults this finding as reversible error and insists that she was merely acting as
an agent.
The case arose when Bedia and White entered into a Participation Contract 1 reading in full as follows:
THE STATE FAIR OF TEXAS '80
PARTICIPATION CONTRACT
PARTICIPANT (COMPANY NAME) EMILY WHITE
ENTERPRISES
I/We, the abovementioned company hereby agrees to participate in the 1980 Dallas State Fair to be held in Dallas, Texas on October 3, to
October 19,1980. I/We request for a 15 square meter booth space worth $2,250.00 U.S. Dollars.
I/We further understand that this participation contract shall be deemed non-cancellable after payment of the said down payment, and that
any intention on our part to cancel the same shall render whatever amount we have paid forfeited in favor of HONTIVEROS & ASSOCIATED
PRODUCERS PHILIPPINE YIELDS, INC.

FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS & ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall:
Reserve said booth for our exclusive perusal; We also understand that the above cost includes overall exterior booth decoration and
materials but does not include interior designs which will be per our specifications and expenses.
PARTICIPANT'S PARTICIPATION
AUTHORIZED SIGNATURE: ACCEPTED BY:
(SGD.) EMILY WHITE (SGD.) SYLVIA H. BEDIA
DATE: 8/13/80 DATE: Aug. 1, 1980
On August 10, 1986, White and her husband filed a complaint in the Regional Trial Court of Pasay City for damages against Bedia and Hontiveros & Associated
Producers Phil. Yields, Inc. for damages caused by their fraudulent violation of their agreement. She averred that Bedia had approached her and persuaded her to
participate in the State of Texas Fair, and that she made a down payment of $500.00 to Bedia on the agreed display space. In due time, she enplaned for Dallas
with her merchandise but was dismayed to learn later that the defendants had not paid for or registered any display space in her name, nor were they authorized
by the state fair director to recruit participants. She said she incurred losses as a result for which the defendants should be held solidarily liable. 2
In their joint answer, the defendants denied the plaintiff's allegation that they had deceived her and explained that no display space was registered in her name as
she was only supposed to share the space leased by Hontiveros in its name. She was not allowed to display her goods in that space because she had not paid
her balance of $1,750.00, in violation of their contract. Bedia also made the particular averment that she did not sign the Participation Contract on her own behalf
but as an agent of Hontiveros and that she had later returned the advance payment of $500.00 to the plaintiff. The defendants filed their own counterclaim and
complained of malice on the part of the plaintiffs. 3
In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4
In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus attorney's fees
and the costs. The court said:
In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently attempted to
escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in the name of said
corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the name of another without being
authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code)
Sustaining the trail court on this point, the respondent court 5 declared in its decision dated March 30, 1990:
The evidence, on the whole, shows that she definitely acted on her own. She represented herself asauthorized by the State of Texas to solicit
and assign booths at the Texas fair; she assured the appellee that she could give her booth. Under Article 1883 of the New Civil Code, if the
agent acts in his own name, the principal has no right of action against the persons with whom the agent had contracted.
We do not share these views.
It is noteworthy that in her letter to the Minister of Trade dated December 23,1984, Emily White began:
I am a local exporter who was recruited by Hontiveros & Associated Producers Phil. Yields, Inc. to participate in the State Fair of Dallas,
Texas which was held last Oct. 3 to 19, 1980. Hontiveros & Associated charged me US$150.00 per square meter for display booth of said
fair. I have paid an advance of US$500.00 as partial payment for the total space of 15 square meter of which is $2,250.00 (Two Thousand
Two Hundred Fifty Dollars). 6
As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros when it
recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to Hontiveros in case of
cancellation by her of the agreement. The fact that the contract was typewritten on the letterhead stationery of Hontiveros bolsters this conclusion in the absence
of any showing that said stationery had been illegally used by Bedia.
Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with Bedia, it did not
deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In fact, by filing the answer jointly
with Bedia through their common counsel, Hontiveros affirmed this allegation.
If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros. They did not.
Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article 1910 of the Civil Code, "the
principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Hence, the private respondents cannot now
hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal.
The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against Hontiveros, 7 leaving Bedia as
the sole defendant. Hontiveros had admitted as early as when it filed its answer that Bedia was acting as its agent. The effect of the motion was to leave the
plaintiffs without a cause of action against Bedia for the obligation, if any, of Hontiveros.

Our conclusion is that since it has not been found that Bedia was acting beyond the scope of her authority when she entered into the Participation Contract on
behalf of Hontiveros, it is the latter that should be held answerable for any obligation arising from that agreement. By moving to dismiss the complaint against
Hontiveros, the plaintiffs virtually disarmed themselves and forfeited whatever claims they might have proved against the latter under the contract signed for it by
Bedia. It should be obvious that having waived these claims against the principal, they cannot now assert them against the agent.
WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court is REVERSED and a new judgment is rendered dismissing Civil Case No.
9246-P in the Regional Trial Court of Pasay City.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 88539 October 26, 1993

KUE CUISON, doing business under the firm name and style"KUE CUISON PAPER SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES, respondents.
Leighton R. Siazon for petitioner.
Melanio L. Zoreta for private respondent.

BIDIN, J.:
This petition for review assails the decision of the respondent Court of Appeals ordering petitioner to pay private respondent, among others, the sum of
P297,482.30 with interest. Said decision reversed the appealed decision of the trial court rendered in favor of petitioner.
The case involves an action for a sum of money filed by respondent against petitioner anchored on the following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint, bond paper and scrap, with places of business at Baesa, Quezon
City, and Sto. Cristo, Binondo, Manila. Private respondent Valiant Investment Associates, on the other hand, is a partnership duly organized and existing under the
laws of the Philippines with business address at Kalookan City.
From December 4, 1979 to February 15, 1980, private respondent delivered various kinds of paper products amounting to P297,487.30 to a certain Lilian Tan of LT
Trading. The deliveries were made by respondent pursuant to orders allegedly placed by Tiu Huy Tiac who was then employed in the Binondo office of petitioner. It
was likewise pursuant to Tiac's instructions that the merchandise was delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several
checks payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated checks to private respondent as payment for the paper
products. Unfortunately, sad checks were later dishonored by the drawee bank.
Thereafter, private respondent made several demands upon petitioner to pay for the merchandise in question, claiming that Tiu Huy Tiac was duly authorized by
petitioner as the manager of his Binondo office, to enter into the questioned transactions with private respondent and Lilian Tan. Petitioner denied any involvement
in the transaction entered into by Tiu Huy Tiac and refused to pay private respondent the amount corresponding to the selling price of the subject merchandise.
Left with no recourse, private respondent filed an action against petitioner for the collection of P297,487.30 representing the price of the merchandise. After due
hearing, the trial court dismissed the complaint against petitioner for lack of merit. On appeal, however, the decision of the trial court was modified, but was in
effect reversed by the Court of Appeals, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is MODIFIED in that defendant-appellant Kue Cuison is hereby ordered to pay plaintiff-appellant
Valiant Investment Associates the sum of P297,487.30 with 12% interest from the filing of the complaint until the amount is fully paid, plus the
sum of 7% of the total amount due as attorney's fees, and to pay the costs. In all other respects, the decision appealed from is affirmed.
(Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF DEFENDANT-APPELLANT CONTRARY TO THE
UNDISPUTED/ESTABLISHED FACTS AND CIRCUMSTANCES.

THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT LIABLE FOR AN OBLIGATION UNDISPUTEDLY BELONGING
TO TIU HUY TIAC.
THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION OF THE TRIAL COURT, (Rollo, p, 19)
The issue here is really quite simple whether or not Tiu Huy Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the
disputed transaction.
This petition ought to have been denied outright, forin the final analysis, it raises a factual issue. It is elementary that in petitions for review under Rule 45, this
Court only passes upon questions of law. An exception thereto occurs where the findings of fact of the Court of Appeals are at variance with the trial court, in which
case the Court reviews the evidence in order to arrive at the correct findings based on the records.
As to the merits of the case, it is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the public as such
cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in
the honest belief that he is what he appears to be (Macke, et al, v. Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357 [1979]).
From the facts and the evidence on record, there is no doubt that this rule obtains. The petition must therefore fail.
It is evident from the records that by his own acts and admission, petitioner held out Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo,
Manila. More particularly, petitioner explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his (petitioner's) branch manager as
testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has been doing business with petitioner for quite a while, also testified that she knew Tiu Huy Tiac
to be the manager of petitioner's Sto. Cristo, Binondo branch. This general perception of Tiu Huy Tiac as the manager of petitioner's Sto. Cristo store is even made
manifest by the fact that Tiu Huy Tiac is known in the community to be the "kinakapatid" (godbrother) of petitioner. In fact, even petitioner admitted his close
relationship with Tiu Huy Tiac when he said that they are "like brothers" (Rollo, p. 54). There was thus no reason for anybody especially those transacting business
with petitioner to even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo branch.
In a futile attempt to discredit Villanueva, petitioner alleges that the former's testimony is clearly self-serving inasmuch as Villanueva worked for private respondent
as its manager.
We disagree, The argument that Villanueva's testimony is self-serving and therefore inadmissible on the lame excuse of his employment with private respondent
utterly misconstrues the nature of "'self-serving evidence" and the specific ground for its exclusion. As pointed out by this Court in Co v. Court of Appeals et,
al., (99 SCRA 321 [1980]):
Self-serving evidence is evidence made by a party out of court at one time; it does not include a party's testimony as a witness in court. It is
excluded on the same ground as any hearsay evidence, that is the lack of opportunity for cross-examination by the adverse party, and on the
consideration that its admission would open the door to fraud and to fabrication of testimony. On theother hand, a party's testimony in court is
sworn and affords the other party the opportunity for cross-examination (emphasis supplied)
Petitioner cites Villanueva's failure, despite his commitment to do so on cross-examination, to produce the very first invoice of the transaction between petitioner
and private respondent as another ground to discredit Villanueva's testimony. Such failure, proves that Villanueva was not only bluffing when he pretended that he
can produce the invoice, but that Villanueva was likewise prevaricating when he insisted that such prior transactions actually took place. Petitioner is mistaken. In
fact, it was petitioner's counsel himself who withdrew the reservation to have Villanueva produce the document in court. As aptly observed by the Court of Appeals
in its decision:
. . . However, during the hearing on March 3, 1981, Villanueva failed to present the document adverted to because defendant-appellant's
counsel withdrew his reservation to have the former (Villanueva) produce the document or invoice, thus prompting plaintiff-appellant to rest
its case that same day (t.s.n., pp. 39-40, Sess. of March 3, 1981). Now, defendant-appellant assails the credibility of Villanueva for having
allegedly failed to produce even one single document to show that plaintiff-appellant have had transactions before, when in fact said failure of
Villanueva to produce said document is a direct off-shoot of the action of defendant-appellant's counsel who withdrew his reservation for the
production of the document or invoice and which led plaintiff-appellant to rest its case that very day. (Rollo, p.52)
In the same manner, petitioner assails the credibility of Lilian Tan by alleging that Tan was part of an intricate plot to defraud him. However, petitioner failed to
substantiate or prove that the subject transaction was designed to defraud him. Ironically, it was even the testimony of petitioner's daughter and assistant manager
Imelda Kue Cuison which confirmed the credibility of Tan as a witness. On the witness stand, Imelda testified that she knew for a fact that prior to the transaction in
question, Tan regularly transacted business with her father (petitioner herein), thereby corroborating Tan's testimony to the same effect. As correctly found by the
respondent court, there was no logical explanation for Tan to impute liability upon petitioner. Rather, the testimony of Imelda Kue Cuison only served to add
credence to Tan's testimony as regards the transaction, the liability for which petitioner wishes to be absolved.
But of even greater weight than any of these testimonies, is petitioner's categorical admission on the witness stand that Tiu Huy Tiac was the manager of his store
in Sto. Cristo, Binondo, to wit:
Court:
xxx xxx xxx
Q And who was managing the store in Sto. Cristo?

A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot remember the exact year.
Q So, Mr. Tiu Huy Tiac took over the management,.
A Not that was because every afternoon, I was there, sir.
Q But in the morning, who takes charge?
A Tiu Huy Tiac takes charge of management and if there (sic) orders for newsprint or bond papers they are always
referred to the compound in Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981, CA decision, Rollo, p. 50, emphasis
supplied).
Such admission, spontaneous no doubt, and standing alone, is sufficient to negate all the denials made by petitioner regarding the capacity of Tiu Huy Tiac to
enter into the transaction in question. Furthermore, consistent with and as an obvious indication of the fact that Tiu Huy Tiac was the manager of the Sto. Cristo
branch, three (3) months after Tiu Huy Tiac left petitioner's employ, petitioner even sent, communications to its customers notifying them that Tiu Huy Tiac is no
longer connected with petitioner's business. Such undertaking spoke unmistakenly of Tiu Huy Tiac's valuable position as petitioner's manager than any uttered
disclaimer. More than anything else, this act taken together with the declaration of petitioner in open court amount to admissions under Rule 130 Section 22 of the
Rules of Court, to wit : "The act, declaration or omission of a party as to a relevant fact may be given in evidence against him." For well-settled is the rule that "a
man's acts, conduct, and declaration, wherever made, if voluntary, are admissible against him, for the reason that it is fair to presume that they correspond with the
truth, and it is his fault if they do not. If a man's extrajudicial admissions are admissible against him, there seems to be no reason why his admissions made in
open court, under oath, should not be accepted against him." (U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];).
Moreover, petitioner's unexplained delay in disowning the transactions entered into by Tiu Huy Tiac despite several attempts made by respondent to collect the
amount from him, proved all the more that petitioner was aware of the questioned commission was tantamount to an admission by silence under Rule 130 Section
23 of the Rules of Court, thus: "Any act or declaration made in the presence of and within the observation of a party who does or says nothing when the act or
declaration is such as naturally to call for action or comment if not true, may be given in evidence against him."
All of these point to the fact that at the time of the transaction Tiu Huy Tiac was admittedly the manager of petitioner's store in Sto. Cristo, Binondo. Consequently,
the transaction in question as well as the concomitant obligation is valid and binding upon petitioner.
By his representations, petitioner is now estopped from disclaiming liability for the transaction entered by Tiu Huy Tiac on his behalf. It matters not whether the
representations are intentional or merely negligent so long as innocent, third persons relied upon such representations in good faith and for value As held in the
case of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622 [1990]):
More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though it had plenary
powers. Article 1911 of the Civil Code provides:
"Even when the agent has exceeded his authority, the principal issolidarily liable with the agent if the former allowed the
latter to act as though he had full powers." (Emphasis supplied).
The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation, both the principal and the agent
may be considered as joint tortfeasors whose liability is joint and solidary.
Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila Remnant, has permitted its agent, A.U.
Valencia and Co., to exercise powers not granted to it. That the principal might not have had actual knowledge of theagent's misdeed is of no
moment.
Tiu Huy Tiac, therefore, by petitioner's own representations and manifestations, became an agent of petitioner by estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon (Article 1431, Civil Code of the
Philippines). A party cannot be allowed to go back on his own acts and representations to the prejudice of the other party who, in good faith, relied upon them
(Philippine National Bank v. Intermediate Appellate Court, et al., 189 SCRA 680 [1990]).
Taken in this light,. petitioner is liable for the transaction entered into by Tiu Huy Tiac on his behalf. Thus, even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in the case at bar.
Finally, although it may appear that Tiu Huy Tiac defrauded his principal (petitioner) in not turning over the proceeds of the transaction to the latter, such fact
cannot in any way relieve nor exonerate petitioner of his liability to private respondent. For it is an equitable maxim that as 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 (Francisco vs. Government Service Insurance System, 7 SCRA 577
[1963]).
Inasmuch as the fundamental issue of the capacity or incapacity of the purported agent Tiu Huy Tiac, has already been resolved, the Court deems it unnecessary
to resolve the other peripheral issues raised by petitioner.
WHEREFORE, the instant petition in hereby DENIED for lack of merit. Costs against petitioner.

SO ORDERED.
[G.R. No. 82978. November 22, 1990.]
THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE COURT OF APPEALS and OSCAR VENTANILLA, JR. and CARMEN GLORIA DIAZ, Respondents.
Bede S. Talingcos, for Petitioners.
Augusto Gatmaytan for Private Respondent.

SYLLABUS

1. CIVIL LAW; AGENCY; FAILURE OF THE PRINCIPAL TO CORRECT AN IRREGULARITY DESPITE KOWLEDGE THEREOF, DEEMED A RATIFICATION OF THE ACT OF THE AGENT. In
the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent and for that matter, even the law when it undertook the double sale of
the disputed lots. Such being the case, the principal, Manila Remnant, would have been in the clear pursuant to Article 1897 of the Civil Code which states that" (t)he agent who
acts as such is not personally liable to that party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers." However, the unique relationship existing between the principal and the agent at the time of the dual sale must be underscored. Bear in mind that
the president then of both firms was Artemio U. Valencia, the individual directly responsible for the sale scam. Hence, despite the fact that the double sale was beyond the power
of the agent, Manila Remnant as principal was chargeable with the knowledge or constructive notice of that fact and not having done anything to correct such an irregularity was
deemed to have ratified the same. (See Art. 1910, Civil Code.)
2. ID.; ID.; PRINCIPLE OF ESTOPPEL; REASON AND EFFECT THEREOF; CASE AT BAR. More in point, we find that by the principle of estoppel, Manila Remnant is deemed to
have allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code provides: "Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers." The above-quoted article is new. It is intended to protect the rights of innocent persons.
In such a situation, both the principal and the agent may be considered as joint feasors whose liability is joint and solidary (Verzosa v. Lim, 45 Phil. 416). Authority by estoppel
has arisen in the instant case because by its negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That
the principal might not have had actual knowledge of the agents misdeed is of no moment.

DECISION

FERNAN, J.:

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

chanrob1es virtual 1aw library

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

cralawnad

On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two "contracts to sell" covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen
Gloria Diaz for the combined contract price of P66,571.00 payable monthly for ten years. 2 As thus agreed in the contracts to sell, the Ventanillas paid the down payments on the
two lots even before the formal contract was signed on March 3, 1970.
Ten (10) days after the signing of the contracts with the Ventanillas or on March 13, 1970, Artemio U. Valencia, as President of Manila Remnant, and without the knowledge of
the Ventanilla couple, sold Lots 1 and 2 of Block 17 again, this time in favor of Carlos Crisostomo, one of his sales agents without any consideration. 3 Artemio Valencia then
transmitted the fictitious Crisostomo contracts to Manila Remnant while he kept in his files the contracts to sell in favor of the Ventanillas. All the amounts paid by the Ventanillas
were deposited in Valencias bank account.
Beginning March 13, 1970, upon orders of Artemio Valencia, the monthly payments of the Ventanillas were remitted to Manila Remnant as payments of Crisostomo for which the
former issued receipts in favor of Crisostomo. Since Valencia kept the receipts in his files and never transmitted the same to Crisostomo, the latter and the Ventanillas remained
ignorant of Valencias scheme. Thus, the Ventanillas continued paying their monthly installments.
chanrobles virtual lawlibrary

Subsequently, the harmonious business relationship between Artemio Valencia and Manila Remnant ended. On May 30, 1973, Manila Remnant, through its General Manager Karl
Landahl, wrote Artemio Valencia informing him that Manila Remnant was terminating its existing collection agreement with his firm on account of the considerable amount of
discrepancies and irregularities discovered in its collections and remittances by virtue of confirmations received from lot buyers. 4 As a consequence, on June 6, 1973, Artemio
Valencia was removed as President by the Board of Directors of Manila Remnant. Therefore, from May of 1973, Valencia stopped transmitting Ventanillas monthly installments
which at that time had already amounted to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which appeared in Manila Remnants record as credited in the name of Crisostomo).
5
On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the then Court of First Instance of Manila 6 to impugn the abrogation of their agency
agreement. On June 10 and July 10, 1973, said court ordered all lot buyers to deposit their monthly amortizations with the court. 7 But on July 17, 1973, A.U. Valencia and Co.
wrote the Ventanillas that it was still authorized by the court to collect the monthly amortizations and requested them to continue remitting their amortizations with the
assurance that said payments would be deposited later in court. 8 On May 22, 1974, the trial court issued an order prohibiting A.U. Valencia and Co. from collecting the monthly
installments. 9 On July 22, 1974 and February 6, 1976 the same court ordered the Valencia firm to furnish the court with a complete list of all lot buyers who had already made
down payments to Manila Remnant before December 1972. 10 Valencia complied with the courts order on August 6, 1974 by submitting a list which excluded the name of the
Ventanillas. 11
Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila Remnant caused on August 20, 1976 the publication in the Times Journal of a notice cancelling
the contracts to sell of some lot buyers including that of Carlos Crisostomo in whose name the payments of the Ventanillas had been credited. 12
To prevent the effective cancellation of their contracts, Artemio Valencia instigated on September 22, 1976 the filing by Carlos Crisostomo and seventeen (17) other lot vendees
of a complaint for specific performance with damages against Manila Remnant before the Court of First Instance of Quezon City. The complaint alleged that Crisostomo had
already paid a total of P17,922.40 and P18,136.85 on Lots 1 and 2, respectively. 13
It was not until March 1978 when the Ventanillas, after learning of the termination of the agency agreement between Manila Remnant and A.U. Valencia & Co., decided to stop
paying their amortizations to the latter. The Ventanillas, believing that they had already remitted P37,007.00 for Lot 1 and P36,911.00 for Lot 2 or a grand total, inclusive of
interest, of P73,122.35 for the two lots, thereby leaving a balance of P13,531.58 for Lot 1 and P13,540.22 for Lot 2, went directly to Manila Remnant and offered to pay the
entire outstanding balance of the purchase price. 14 To their shock and utter consternation, they discovered from Gloria Caballes, an accountant of Manila Remnant, that their
names did not appear in the records of A.U. Valencia and Co. as lot buyers. Caballes showed the Ventanillas copies of the contracts to sell in favor of Carlos Crisostomo, duly
signed by Artemio U. Valencia as President of Manila Remnant. 15 Whereupon, Manila Remnant refused the offer of the Ventanillas to pay for the remainder of the contract price
because they did not have the personality to do so. Furthermore, they were shown the published Notice of Cancellation in the January 29, 1978 issue of the Times Journal

rescinding the contracts of delinquent buyers including Crisostomo.

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

On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to sell issued in favor of the Ventanillas valid and subsisting and annulling the contracts to
sell in Crisostomos favor; 2) ordering Manila Remnant to execute in favor of the Ventanillas an Absolute Deed of Sale free from all liens and encumbrances; and 3) condemning
defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos Crisostomo jointly and severally to pay the Ventanillas the amount of P100,000.00 as moral damages,
P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees. The lower court also added that if, for any legal reason, the transfer of the lots could no longer be
effected, the defendants should reimburse jointly and severally to the Ventanillas the total amount of P73,122.35 representing the total amount paid for the two lots plus legal
interest thereon from March 1970 plus damages as aforestated. With regard to the cross claim of Manila Remnant against Valencia, the court found that Manila Remnant could
have not been dragged into this suit without the fraudulent manipulations of Valencia. Hence, it adjudged A.U. Valencia and Co. to pay the Manila Remnant P5,000.00 as moral
damages and exemplary damages and P5,000.00 as attorneys fees. 17
Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower courts decision to the Court of Appeals through separate appeals. On October 13, 1987, the
Appellate Court affirmed in toto the decision of the lower court. Reconsideration sought by petitioner Manila Remnant was denied, hence the instant petition.
There is no question that the contracts to sell in favor of the Ventanilla spouses are valid and subsisting. The only issue remaining is whether or not petitioner Manila Remnant
should be held solidarily liable together with A.U. Valencia and Co. and Carlos Crisostomo for the payment of moral, exemplary damages and attorneys fees in favor of the
Ventanillas. 18
While petitioner Manila Remnant has not refuted the legality of the award of damages per se, it believes that it cannot be made jointly and severally liable with its agent A.U.
Valencia and Co. since it was not aware of the illegal acts perpetrated nor did it consent or ratify said acts of its agent.
The argument is devoid of merit.
In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent and for that matter, even the law when it undertook the double sale
of the disputed lots. Such being the case, the principal, Manila Remnant, would have been in the clear pursuant to Article 1897 of the Civil Code which states that" (t)he agent
who acts as such is not personally liable to that party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers."
chanroble s.com.ph : virtual law library

However, the unique relationship existing between the principal and the agent at the time of the dual sale must be underscored. Bear in mind that the president then of both
firms was Artemio U. Valencia, the individual directly responsible for the sale scam. Hence, despite the fact that the double sale was beyond the power of the agent, Manila
Remnant as principal was chargeable with the knowledge or constructive notice of that fact and not having done anything to correct such an irregularity was deemed to have
ratified the same. 19
More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code
provides:
jgc:chanrobles.com .ph

"Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers." (Emphasis
supplied)
The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation, both the principal and the agent may be considered as joint feasors
whose liability is joint and solidary. 20
Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers
not granted to it. That the principal might not have had actual knowledge of the agents misdeed is of no moment. Consider the following circumstances:
chanrob1es virtual 1aw library

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

"7. That all payments whether deposits, down payment and monthly installment agreed to be made by the vendee shall be payable to A.U. Valencia and Co., Inc. It is hereby
expressly understood that unauthorized payments made to real estate brokers or agents shall be the sole and exclusive responsibility and at the risk of the vendee and any and
all such payments shall not be recognized by the vendors unless the official receipts therefor shall have been duly signed by the vendors duly authorized agent, A.U. Valencia
and Co., Inc." (Emphasis supplied)
Indeed, once Manila Remnant had been furnished with the usual copies of the contracts to sell, its only participation then was to accept the collections and pay the commissions
to the agent. The latter had complete control of the business arrangement. 21
Secondly, it is evident from the records that Manila Remnant was less than prudent in the conduct of its business as a subdivision owner. For instance, Manila Remnant failed to
take immediate steps to avert any damage that might be incurred by the lot buyers as a result of its unilateral abrogation of the agency contract. The publication of the cancelled
contracts to sell in the Times Journal came three years after Manila Remnant had revoked its agreement with A.U. Valencia and Co.
chanroble s virtual lawlibrary

Moreover, Manila Remnant also failed to check the records of its agent immediately after the revocation of the agency contract despite the fact that such revocation was due to
reported anomalies in Valencias collections. Altogether, as pointed out by the counsel for the Ventanillas, Manila Remnant could and should have devised a system whereby it
could monitor and require a regular accounting from A.U. Valencia and Co., its agent. Not having done so, Manila Remnant has made itself liable to those who have relied on its
agent and the representation that such agent was clothed with sufficient powers to act on behalf of the principal.
Even assuming that Manila Remnant was as much a victim as the other innocent lot buyers, it cannot be gainsaid that it was precisely its negligence and laxity in the day to day
operations of the real estate business which made it possible for the agent to deceive unsuspecting vendees like the Ventanillas.
In essence, therefore, the basis for Manila Remnants solidary liability is estoppel which, in turn, is rooted in the principals neglectfulness in failing to properly supervise and
control the affairs of its agent and to adopt the needed measures to prevent further misrepresentation. As a consequence, Manila Remnant is considered estopped from pleading
the truth that it had no direct hand in the deception employed by its agent. 22
A final word. The Court cannot help but be alarmed over the reported practice of supposedly reputable real estate brokers of manipulating prices by allowing their own agents to
"buy" lots in their names in the hope of reselling the same at a higher price to the prejudice of bona fide lot buyers, as precisely what the agent had intended to happen in the
present case. This is a serious matter that must be looked into by the appropriate government housing authority.
chanroble s.com.ph : virtual law library

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

B. With respect to Third Persons

SEE Air France v. CA, G.R. No. L-57339, December 29, 1983
SEE Caram v. Laureta, G.R. No. L-28740, February 24, 1981

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-33079 December 11, 1978
PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, as Judge of the Court of First Instance of Rizal, Branch IV, Quezon City, and EASTERN VIGAN VTPA, INC, SAN
NICOLAS FACOMA, INC., ILOCOS SUR TOBACCO INDUSTRIES CORP., TAGUDIN FACOMA, INC., SAN JUAN TOBACCO PLANTERS, INC., STA. MONICA
TOBACCO PLANTERS ASSN., NORFEX-VILLAVICIOSA, BOUNDARY VTPA, BADOC TOBACCO PLANTERS, INC., LUZON PRODUCERS CORP.
BALAOAN FACOMA, INC., BANGUED NORFEX BANGUED TOBACCO PROD. ASSN., ARINGAY FACOMA, INC., SOUTHWESTERN SAN QUINTIN
TOBACCO PLANTERS, INC., BANGUED FACOMA, INC., CENTRAL RELIANCE TOBACCO FARMERS CORP., LIDLIDDA VTPA, INC., FILIPINO
AGRICULTURAL PRODUCERS, INC., LA UNION AGRICULTURAL DEVELOPMENT CORP., UNITED SAN ILDEFONSO VTG ASSOCIATION, INC., ASINGAN
FACOMA, INC., and ALLIED TOBACCO PLANTERS, INC.,respondents.

FERNANDO, J:
The controversy that gave rise to this petition for review by certiorari from a decision of the then respondent Judge Walfrido de los Angeles of the Court of First
Instance of Rizal Branch IV, Quezon City, arose from a fire that destroyed the redrying plant of petitioner Philippine Virginia Tobacco Administration, hereinafter

suffered losses arising from the sale and delivery of

tobacco to Central Cooperative Exchange, Inc., to be subsequently referred to as the CCE, the authorized agent of
petitioner. It was named defendant in the lower court but is not a party to this appeal. The decisive point at issue is thus
the liability of petitioner for the damage incurred by private respondents. The lower court, according to the facts as found
by respondent Judge, entitled to respect by this Tribunal only a question of law being properly before it, decided the case
in favor of private respondents. The affirmance of the decision, as will be explained more in detail, is indicated.
referred to as the PVTA, at Agoo, La Union, as a result of which private respondents

The decision now sought to be reviewed stated the nature of the case thus: "In their second amended complaint the plaintiffs allege that they are private
corporations; that they were recognized by the defendants as trading entities of the defendant Philippine Virginia Tobacco Administration (PVTA) in connection with
the trading and buying of locally grown Virginia tobacco in 1963; that pursuant to Section 4 of Republic Act No. 2265, under which the defendant PVTA has the
power and duty to direct, supervise and control all functions and operations with respect, among other things, to the trading of Virginia tobacco and to buy locally
grown Virginia tobacco, the PVTA entered into a management contract with its co-defendant Central Cooperative Exchange, Inc. (CCE); that under this contract,
the CCE obligated itself to procure, redry and service Virginia tobacco for the PVTA and to advance the payment of tobacco to the trading entities at the
government price support plus transportation, overhead and other specified expenses; that on various dates in 1963, the plaintiffs delivered to the PVTA through
the CCE in the latter's redrying plant at Agoo, La Union, certain quantities of tobacco under particular BIR Guias; that the shipments are those enumerated in
Annex 'B' of the second amended complaint (some of which however were later dropped upon proper motion); that the payment of these tobacco shipments was
refused by defendants without reason; hence this suit. The plaintiffs pray for the value of their respective shipment plus legal interests computed 48 hours from

After noting that the defendants, now petitioners, filed their

answer containing specific denials and special defenses, it went on thus: "In its answer the defendant PVTA alleged that
the shipments were not accepted by it and the CCE; that if they were accepted, they were not properly accounted for by
the CCE and 'were in fact reported burned in the fire that razed down the plant on or about July 24, 1963, brought about
by the carelessness and negligence of the said defendant CCE.' It alleged a counterclaim against plaintiffs Allied Tobacco
Planters, Inc. and San Juan Planters, Inc. for the balances in the respective amounts of P14,162.47 and P 2,683.38 of
their merchandizing loans from the PVTA. It also filed a cross-claim against the CCE to the effect that the latter should be
held liable to pay whatever amount the PVTA may pay to the plaintiffs. On its part, defendant CCE alleged the special
defense that it only acted as agent of the PVTA in the transactions subject matter of the case."
date of acceptance thereof, and damages, attorney's fees, and the costs."

The matter in issue was further clarified in the decision in this manner: "The juridical personality of the plaintiffs are admitted in the answers of the defendants, and
in their answers to plaintiffs' request for admission, they admitted that the plaintiffs were recognized in 1963 as trading entities of the PVTA. They also admitted
their management contract in 1963 for procuring, redrying and servicing, they also admitted that the 1963 tobacco trading started in April 1963, and that on July
24, 1963, a fire occurred in the redrying plant of the CCE, destroying tobacco shipments therein of various trading entities and that this fact was reported to the
PVTA. Under the aforesaid management contract, the CCE was given by the PVTA an allocation of a million kilos of Virginia tobacco to procure, redry, store and
service for the PVTA. The CCE was supposed to advance payment of the shipments 48 hours from acceptance, but from the evidence in this case it appears that
actually the payments were made by the PVTA itself evidently in order to control disbursements more effectively. The PVTA had rules and regulations, among them
Circulars 2 and 4, to govern the tobacco trading operations. It assigned men to the provinces to supervise these operations and enforce observance of these rules
and regulations." 5Plaintiffs

in the lower court, now respondents, through their officers, "testified that after the fire and even in
the next following years, they made demands for the payment of their shipments but these demands were ignored.
Mention should be made of the testimony of Constante Somera who in 1963, besides being the manager of plaintiff
Tagudin Facoma, was President of the National Federation of Facoma's, Vice-President of the Ilocos Sur Federation of

Facoma's, and a member of the Board of Directors of defendant CCE. He testified that in about five occasions, officers of
all the plaintiffs went to him for assistance in the collection of their claims, and he headed delegations to the defendants
and notably to PVTA Chairman Balmaceda and PVTA General Manager Bananal but that the latter gave all sorts of
excuses such as the need of further study of the matter and the lack of money. So after many attempts proved futile,
Somera advised his colleagues that they go to court. As already stated, the PVTA had men in the field to implement its
rules and regulations, who were headed by the PVTA provincial tobacco agents. During the trading in 1963, these agents
were Jose Singson, Antonio Florendo, Angel Torrijos, Jorge Peneras, Manuel Festejo and Alfredo Cajigal. The plaintiffs
presented Bernardo Navarrette, the head of the Field Services Department of the PVTA, and he Identified the signatures
and initials of the said PVTA provincial tobacco agents in the shipping documents exhibited in this case."
6

As for the facts found by the lower court, the following was set forth in such decision: "This Court is convinced that there is satisfactory proof that the plaintiffs
delivered the tobacco shipments in question to the defendants at the CCE redrying plant in 1963, and that the same were unloaded and awaiting inspection and
grading when they were burned on July 24, 1963. As a matter of fact, these facts were testified to by no less than the CCE Trading Officer at the plant, Benjamin
Bello, whose duty it was to exercise general supervision over the receiving and storage of Virginia tobacco in the CCE redrying plant in accordance with the PVTA
regulations and procedures. Among other things, he declared that he prepared periodic lists of shipments scheduled or unloaded for inspection in order for the
CCE plant to know the expected volume of tobacco to be redried and serviced, and he Identified the last lists, those dated July, 17 and 22, 1963, which indeed
include the shipments in question Romeo Ballesil, PVTA Tobacco Plant Manager in the CCE who testified for the PVTA, in effect confirmed this when he said that
there were several inventories made after he assumed the position on July 12, 1963. He also confirmed the fact, as testified to by Bello, that there were many
shipments in the CCE receiving ramps and bays which were authorized to be unloaded and awaiting inspection when the plant was destroyed by fire on July 24,

There
were "separate certifications [from Bello] to the effect that according to the records of the redrying plant, the plaintiffs had
specified quantities of tobacco under specified Guias ready for inspection and grading at the receiving ramps before July
24, 1963. These certifications are exhibits in this case."
1963; there were in fact piles of tobacco up almost to the ceiling in some places, and there were piles even in the corridors of the receiving ramps."

Then came a detailed appraisal of the evidence by the lower court: "From the evidence, it appears that, pursuant to its powers and duties under Republic Act No.
2265, the PVTA issued rules and regulations,in respect to its tobacco trading operations, and assigned men to its recognized trading entities among them the
plaintiffs, to see that these rules and regulations were observed. The entities even had to apply with the PVTA and were screened before PVTA accepted them as
its trading entities. As admitted by the witnesses of the PVTA, notably Ballesil and Millan these PVTA men supervised the grading, weighing, baling of tobacco, and
other activities in the buying station of the trading entities to which they were assigned. These PVTA men, Identified by Ballesil as PVTA Field Inspectors, signed
the documents covering tobacco, such as the pre-sales invoices showing names of the farmer sellers, the quantity and grade of tobacco received from these
farmers; the abstracts of tobacco purchased; the progressive stock and shipment control form showing the status of stocks after each shipment to the PVTA; the
commercial waybill and other documents pertaining to shipments. They saw to it that the tobacco was properly graded and in fact, the PVTA tobacco inspector saw
to it that the tobacco was classified according to the standards provided by the PVTA. They also saw to it that the tobacco was properly weighed and baled, and
loaded on trucks for transhipment duly sealed. They saw to it also that the shipping documents were complete and in order. These obviously are not the usual acts
of an ordinary buyer of a commodity. Among the shipping documents may be mentioned PVTA Form 30, entitled Request for Tobacco Clearance, addressed to the
PVTA Provincial Tobacco Agent. According to the defendant's answers to plaintiffs' request for admission, it was the function of this PVTA agent to process the said
request and the supporting documents before giving him clearances to the shipment and recommending its acceptance. It was he alone who could decide to what
redrying plant the shipment should be sent. An this indicates the extensive intervention of the PVTA in the buying and shipping activities at the level of the trading
entities. Once made, the clearance given by the PVTA provincial tobacco agent was an indication that the required shipping documents were complete and in
order and that the shipment; was strictly in accordance with the PVTA regulations. Upon arrival of the shipment at the redrying plant designated by the PVTA, the
shipping documents were delivered to the PVTA traffic officer thereat and were processed. The shipment was then given by the PVTA a gate pass, ' an unloading
permit, and a priority slip stating the time it would be unloaded and graded in the plant. The presence of the shipment is actually verified by the PVTA Plant
Manager. A shipment could not be brought inside the plant and unloaded at the receiving ramps without prior authority of the PVTA, and once inside the plant, it
could no longer be withdrawn without proper application by the entity concerned addressed to the PVTA general manager. It is thus clear that the PVTA had virtual
control over the shipments after they had left the hands of the trading entities. It is also clear that the PVTA, in the implementation of its contract with the CCE, did
not delegate to the latter any of its powers and duties under the law to buy Virginia tobacco. In fact Bello testified that PVTA controlled, directed and supervised the

Further on this point: "As above stated, the

plaintiffs' shipments had long been in the CCE ramps waiting to be inspected when they were burned. According to
Ballesil, PVTA Tobacco Plant Manager assigned to the CCE, there was only redrying of tobacco from July 13 until the fire
occurred; there was no inspection or acceptance of tobacco shipments. Inspection of shipments was suspended; and he
claimed as the reason the alleged lack of space in the transit area where inspected tobacco would be stored to await
redrying. Obviously, as a result of delays and suspensions of operations, there arose a backlog of shipments waiting to be
inspected at the CCE ramps. But there is no explanation why, considering these suspensions, the PVTA kept on
authorizing the unloading of shipments which were not being inspected fast enough. It is also significant that the PVTA
states in its answer that the CCE redrying plant and facilities 'caught fire and burned down due and owing to its (CCE)
carelessness or negligence or its officials and employees;' and the PVTA accuses these officials and employees with
being 'grossly and inexcusably careless and negligent in not preventing and arresting the spread of the fire.'"
CCE in the performance by the latter of all activities in the tobacco trading operations in 1963."

10

From the above recital, it is easy to understand why, as decided by the lower court, plaintiffs, now private respondents, should prevail: "In the light of the foregoing,
the denial of liability on the part of the defendant PVTA cannot be sustained. It has virtual control of the shipments even at the plaintiffs' stations and specially after
they had been cleared and sent to the CCE plant and unloaded for inspection at the CCE ramps. It is reasonable to say that these shipments, pursuant to the
scheduling and priorities established by the defendants themselves, should have been inspected before July 24, 1963 since they were shipped to the CCE as
early as May and June 23, 1963, as shown in the shipping documents. But they were not inspected early enough, and this evidently because of delays and

suspension of operations in the CCE plant. This Court wonders whether the causes of the delays and suspensions could have been avoided Or ed by the
defendants considering that the trading operations started as early as April 1963, indicating that they had had enough experience and know- how to enable them
to cope with the situation. Moreover, there is the allegation of the PVTA, which may be considered as an admission against interest vis-a-vis the claims of the
plaintiffs, to the effect that its own agent and contractor, the CCE, was careless and negligent in causing the fire and in not Preventing and arresting the spread of
the fire. When an the fault clearly lies with the defendants, it would be the height of injustice to deny the plaintiffs' claims. Their shipments which had long been in
the ramps for inspection were not inspected in due time and the delay is traceable to the fault of the defendants, whereas the plaintiffs themselves had done
everything that was required of them by the PVTA regulations in order to have their tobacco inspected and paid for. The value of the tobacco is, incidentally, stated
in the shipping documents. This Court believes that the PVTA already had the legal control and custody of said shipments and that it should be considered as
having accepted them as of the fire and therefore should bear the loss." 11
Judgment was, therefore, rendered by the lower court ordering PVTA to pay to the plaintiffs the amount of their respective claims, as follows: ... Eastern Vigan
VTPA Inc., Guia No. 38-P26,936.68; San Nicolas Facoma, Inc., Guia No. 76-P21,622.73; Ilocos Sur Tobacco Industries Corp., Guia No. 109-P15,922.08; Tagudin
Facoma, Inc., Guia No. 445-P27,743.56; Tagudin Facoma, Inc., Guia No. 450-P27,284.84; Tagudin Facoma, Inc., Guia No. 439-P23.669.44; Tagudin Facoma,
Inc., Guia No. 438- P43,725.64; San Juan Tobacco Planters. Inc., Guia No. 30-P28,351.19; Sta. Monica Tobacco Planters Assn., Inc., Guia No. 17-P29,677.59;
Sta. Monica Tobacco Planters Assn. Inc., Guia No. 18-P30,980.31; Norfex- Villaviciosa, Guia No. 653-P22,174.22; Norfex-Villaviciosa, Guia No. 661-P19,074.79;
Boundary VTPA Guia No. 20-P28,494.10; Boundary VTPA Guia No. 24-P28,494. 10; Boundary VTPA Guia No. 25-P33,998.74; Luzon Producers Corporation,
Guia No. 2-P18,978.51; Central Reliance Tobacco Farmers Corp., Guia No. 12-P12,150.00; Lidlidda VTPA Inc., Guia No. 42-P21,444.17; Lidlidda VTPA Inc., Guia
No. 18-P22,590.00; Filipino Agricultural Producers Inc., Guia No. 21-P23,851.00; Allied Tobacco Planters, Inc., Guia No. 36-P30,300.00; Allied Tobacco Planters,
Inc., Guia No. 38-P30,165.00; Allied Tobacco Planters, Inc., Guia No. 40-P33,966.00; La Union Agri. Development Corp., Guia No. 13- P27,475.00; Asingan
Facoma, Inc., Guia No. 183-P36.000.00 United San Ildefonso VTG Assn., Inc., Guia No. 8-P31,750.00 with legal interest thereon from August 1, 1963 until fully
paid; plus the sum equivalent to 10% of the total amount based on the principal obligation as and by way of attorneys fees, and the costs of suit. The cross-claim
of the PVTA against the CCE is hereby dismissed. The plaintiff Allied Tobacco Planters, Inc. is ordered to pay to the PVTA the sum of P14,162.47 with legal interest
thereon from August 1, 1963." 12
As noted at the outset, the appealed decision is entitled to affirmance.
1. It bears repeating that the trial court was satisfied as to the fact of delivery of the tobacco in question at the redrying plant of petitioner agent, the CCE. It was
also found by it that the PVTA directed supervised and controlled the CCE in receiving shipments of tobacco and in the performance of its activities, and that the
tobacco, once received from the trading entities, were under its control, not subject to withdrawal without its authority. The procedure was so carefully designed
that the supervision by it could be rendered most effective. Thus any attempt to exculpate itself thereafter on alleged deficiencies could succeed only if the
evidence offered by petitioner were of such a nature as to justify evasion of what is required by law no less than by morality. Clearly Proof of such character was
lacking in this case. Hence the way the decision turned. It had to be- adverse to its pretension. As a matter of fact, in the brief of petitioner, the Solicitor General
made the following admission: "It may be conceded, for purposes of this appeal, that plaintiffs brought the tobacco shipments in question to the CCE redrying plant
at Agoo, La Union, in 1963, to be sold to the PVTA, thru CCE, and that the same were unloaded and awaiting inspection, grading and weighing, when they were
burned on July 24, 1963." 13
2. It is likewise worth mentioning That for sometime after the conflagration there was no question raised as to its liability. At the most, as with some debtors, the
delay in payment was sought to be justified for the need for further study or the lack of money. As put by the trial court, "the aforesaid officers also testified that
after the fire and even in the next following years, they made demands for the payment of their shipments but these demands were ignored. Mention should be
made of the testimony of Constants Somera who in 1963, besides being the manager of plantiff Tagudin Facoma, was President of the National Federation of
Facoma's, Vice-President of the Ilocos Federation of Facoma's, and a member of the Board of Directors of defendant CCE. He testified that in about five
occasions, officers of all the plaintiffs went to him for assistance in the collection of their claims, and he headed delegations to the defendants and notably to PVTA
Chairman Balmaceda and PVTA General Manager Bananal, but that the latter gave all sorts of excuses such as the need of further study of the matter and the
lack of money. So after many attempts proved futile, Somera advised his colleagues that they go to court." 14
3. It would thus appear that the merit of the case for private respondents is impressed with merit. So the lower court decided. In this petition for review, the PVTA
would assail the judgment reached on the allegation that the contract of sale was not perfected. Such an assertion, on the face of the facts as found, would appear
to be clearly untenable. Nonetheless, it was sought to lend it plausibility in the eight-page brief of petitioner by the argument that the shipments of the tobacco in

Such a contention certainly cannot suffice to overturn the decision. For one
thing, it raised an issue of fact, the ruling on which, as could be expected, was adverse to petitioners. For its own fieldmen
had the responsibility of such tobacco being graded, weighed, baled and loaded on trucks duly sealed for transportation to
its redrying plant. That responsibility was fulfilled as found by the trial court. The grading was done according to the
standards on samples provided by petitioner. The shipping documents were in order. The weight and grades of such
tobacco were certified by such fieldmen and thereafter processed by its provincial tobacco agent. It was only then that
clearance was given, the PVTA requirements having been met. The futility of the effort to deny the perfection of the
contract of sale is thus rather apparent. So it has been from Irureta v. Tambunting, a 1902 decision. All that was required
was that there be an agreement on the thing which is the subject of the contract and upon the price. So it was provided by
Article 1450 of the Civil Code of Spain of 1889 then in force. There is difference in phraseology but not in meaning under
the present-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." It remains to be noted that the Tambunting doctrine was followed in
subsequent cases.
question "were still to be inspected, graded and weighed."

15

16

17

18

4. It suffices to recall the relevant facts as found by the trial court to render unmistakable how lacking in persuasiveness is the contention that the contract was not

decided in 1963, comes to mind. In that case, there

was a delivery by petitioner of a typewriter upon requisition of the Municipality of Paniqui, Tarlac, but ten days thereafter,
perfected because of an alleged technical defect.Smith Bell and Company v. Jimenez,

19

the municipal building was totally razed by a fire. Notwithstanding the fact that the Municipal Treasurer, as well as the
Provincial Treasurer of Tarlac recommended payment, respondent Auditor disapproved the claim on the ground that the
article in question was never presented for inspection and verification, Justice Barrera, speaking for the Court, after noting
that there was indeed such delivery, stated that even on the assumption then that not all the terms of the contract as to
inspection were fully complied with, "yet upon the facts obtaining in this case, we believe that injustice would be done the
petitioner if we apply said principle to the present claim ." 20 He stressed both "the law and equity of the case [in holding that] the municipality of
Paniqui is legally bound to pay for the price of the typewriter involved herein and, therefore, the decision of the Auditor General is hereby reversed ." In La
Fuerza, Inc. v. Court of Appeals, this Court, through the then Chief Justice Concepcion, stressed the doctrine that the
decisive factor is the delivery of the thing sold. So that it is placed in the control and possession of the vendee. This was
what happened in this case. The liberality with which this Court views the stage of perfection in a contract of sale is
likewise manifest inRepublic v. Lichauco, where this Court, with Justice Zaldivar as ponente, held that there could be a
valid and binding agreement providing for sale of property yet to be adjudicated by the court. Only thus may the law be
infused with the highest concept of equity and fair dealing. As it was in those cases, so it should be now.
21

22

23

5. It is understandable for petitioner as custodian of public lands to see to it that only valid and legitimate claims should be honored. In that light, the appeal from
the lower court decision cannot be viewed unfavorably. Nonetheless, when it is remembered that the adverse effects of the failure to pay for the tobacco would be
a number of small planters, there is warrant for the view that no failure in the performance of public duty could be imputed to any official if on the tacts as found,
there being the required delivery and there being no question yet as to the fire having been the cause of loss, the payments could have been made after its
investigation. Only thus, to follow the Smith Bell decision, would there be an avoidance of injustice and conformity with "the law and equity of the case."
WHEREFORE, the decision of the lower court of December 28, 1970 is affirmed. No costs.

SEE - Rallos v. Felix Go Chan, G.R. No. L-24332, January 31, 1978
Modes of Extinguishment of Agency
Articles 1919-1932
A. Revocation

GENEVIEVE LIM, G.R. No. 163720

Petitioner,
Present:

PUNO, J.,
- versus - Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
FLORENCIO SABAN, CHICO-NAZARIO, JJ.
Respondent.

Promulgated:
December 16, 2004

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

DECISION
TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing

the Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh
Division, in CA-G.R. V No. 60392.[2]

The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu
City (the lot), entered into an Agreement and Authority to Negotiate and
Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February
8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a
buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark
up the selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as Sabans
commission for the sale.[3]

Through Sabans efforts, Ybaez and his wife were able to sell the lot to the
petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim
(the Spouses Lim) on March 10, 1994. The price of the lot as indicated in
the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).[4] It
appears, however, that the vendees agreed to purchase the lot at the price of
Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other

incidental expenses of the sale. After the sale, Lim remitted to Saban the
amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos
(P113,257.00) for payment of taxes due on the transaction as well as Fifty
Thousand Pesos (P50,000.00) as brokers commission. [5] Lim also issued in the
name of Saban four postdated checks in the aggregate amount of Two
Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos
(P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check
No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647
dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26,
1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June
20, 1994 for P168,000.00.

Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In
the letter Ybaez asked Lim to cancel all the checks issued by her in Sabans
favor and to extend another partial payment for the lot in his (Ybaezs) favor. [6]

After the four checks in his favor were dishonored upon presentment, Saban
filed a Complaint for collection of sum of money and damages against Ybaez
and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994.
[7]
The case was assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to
purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred
Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total
purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00
allegedly went to Lims agent, and P113,257.00 was given to Saban to cover
taxes and other expenses incidental to the sale. Lim also issued four (4)
postdated checks[8] in favor of Saban for the remaining P236,743.00.[9]
Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any
commission for the sale since he concealed the actual selling price of the lot
from Ybaez and because he was not a licensed real estate broker. Ybaez was
able to convince Lim to cancel all four checks.

Saban further averred that Ybaez and Lim connived to deprive him of his sales
commission by withholding payment of the first three checks. He also claimed
that Lim failed to make good the fourth check which was dishonored because
the account against which it was drawn was closed.

In his Answer, Ybaez claimed that Saban was not entitled to any commission
because he concealed the actual selling price from him and because he was
not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement between
Ybaez and Saban, and that she issued stop payment orders for the three
checks because Ybaez requested her to pay the purchase price directly to him,
instead of coursing it through Saban. She also alleged that she agreed with
Ybaez that the purchase price of the lot was only P200,000.00.

Ybaez died during the pendency of the case before the RTC. Upon motion of
his counsel, the trial court dismissed the case only against him without any
objection from the other parties.[10]

On May 14, 1997, the RTC rendered its Decision[11] dismissing Sabans
complaint, declaring the four (4) checks issued by Lim as stale and nonnegotiable, and absolving Lim from any liability towards Saban.

Saban appealed the trial courts Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision[12] reversing
the trial courts ruling. It held that Saban was entitled to his commission
amounting to P236,743.00.[13]
The Court of Appeals ruled that Ybaezs revocation of his contract of agency
with Saban was invalid because the agency was coupled with an interest and

Ybaez effected the revocation in bad faith in order to deprive Saban of his
commission and to keep the profits for himself. [14]

The appellate court found that Ybaez and Lim connived to deprive Saban of
his commission. It declared that Lim is liable to pay Saban the amount of the
purchase price of the lot corresponding to his commission because she issued
the four checks knowing that the total amount thereof corresponded to
Sabans commission for the sale, as the agent of Ybaez. The appellate court
further ruled that, in issuing the checks in payment of Sabans commission,
Lim acted as an accommodation party. She signed the checks as drawer,
without receiving value therefor, for the purpose of lending her name to a third
person. As such, she is liable to pay Saban as the holder for value of the
checks.[15]

Lim filed a Motion for Reconsideration of the appellate courts Decision, but
her Motion was denied by the Court of Appeals in a Resolutiondated May 6,
2004.[16]

Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.

Lim argues that the appellate court ignored the fact that after paying her
agent and remitting to Saban the amounts due for taxes and transfer of title,
she paid the balance of the purchase price directly to Ybaez. [17]

She further contends that she is not liable for Ybaezs debt to Saban
under the Agency Agreement as she is not privy thereto, and that Saban has
no one but himself to blame for consenting to the dismissal of the case against
Ybaez and not moving for his substitution by his heirs. [18]

Lim also assails the findings of the appellate court that she issued the
checks as an accommodation party for Ybaez and that she connived with the
latter to deprive Saban of his commission.[19]

Lim prays that should she be found liable to pay Saban the amount of
his commission, she should only be held liable to the extent of one-third (1/3)
of the amount, since she had two co-vendees (the Spouses Lim) who should
share such liability.[20]

In his Comment, Saban maintains that Lim agreed to purchase the lot
for P600,000.00, which consisted of the P200,000.00 which would be paid to
Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes
and other expenses incidental to the sale and Sabans commission as broker
for Ybaez. According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybaez connived to unjustly deprive him
of his commission from the negotiation of the sale.[21]

The issues for the Courts resolution are whether Saban is entitled to receive
his commission from the sale; and, assuming that Saban is entitled thereto,
whether it is Lim who is liable to pay Saban his sales commission.

The Court gives due course to the petition, but agrees with the result reached
by the Court of Appeals.

The Court affirms the appellate courts finding that the agency was not
revoked since Ybaez requested that Lim make stop payment orders for the
checks payable to Saban only after the consummation of the sale on March
10, 1994. At that time, Saban had already performed his obligation as Ybaezs
agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute
Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which was

consummated through his efforts would be a breach of his contract of agency
with Ybaez which expressly states that Saban would be entitled to any excess
in the purchase price after deducting the P200,000.00 due to Ybaez and the
transfer taxes and other incidental expenses of the sale. [22]
In Macondray & Co. v. Sellner,[23] the Court recognized the right of a broker to
his commission for finding a suitable buyer for the sellers property even
though the seller himself consummated the sale with the buyer. [24] The Court
held that it would be in the height of injustice to permit the principal to
terminate the contract of agency to the prejudice of the broker when he had
already reaped the benefits of the brokers efforts.

In Infante v. Cunanan, et al.,[25] the Court upheld the right of the brokers to
their commissions although the seller revoked their authority to act in his
behalf after they had found a buyer for his properties and negotiated the sale
directly with the buyer whom he met through the brokers efforts. The Court
ruled that the sellers withdrawal in bad faith of the brokers authority cannot
unjustly deprive the brokers of their commissions as the sellers duly
constituted agents.

The pronouncements of the Court in the aforecited cases are applicable to the
present case, especially considering that Saban had completely performed his
obligations under his contract of agency with Ybaez by finding a suitable
buyer to preparing the Deed of Absolute Sale between Ybaez and Lim and her
co-vendees. Moreover, the contract of agency very clearly states that Saban is
entitled to the excess of the mark-up of the price of the lot after deducting
Ybaezs share of P200,000.00 and the taxes and other incidental expenses of
the sale.
However, the Court does not agree with the appellate courts pronouncement
that Sabans agency was one coupled with an interest. Under Article 1927 of
the Civil Code, an agency cannot be revoked if a bilateral contract depends
upon it, or if it is the means of fulfilling an obligation already contracted, or if
a partner is appointed manager of a partnership in the contract of partnership

and his removal from the management is unjustifiable. Stated differently, an

agency is deemed as one coupled with an interest where it is established for
the mutual benefit of the principal and of the agent, or for the interest of the
principal and of third persons, and it cannot be revoked by the principal so
long as the interest of the agent or of a third person subsists. In an agency
coupled with an interest, the agents interest must be in the subject matter of
the power conferred and not merely an interest in the exercise of the power
because it entitles him to compensation. When an agents interest is confined
to earning his agreed compensation, the agency is not one coupled with an
interest, since an agents interest in obtaining his compensation as such agent
is an ordinary incident of the agency relationship. [26]

Sabans entitlement to his commission having been settled, the Court

must now determine whether Lim is the proper party against whom Saban
should address his claim.

Sabans right to receive compensation for negotiating as broker for Ybaez arises
from the Agency Agreement between them. Lim is not a party to the contract.
However, the record reveals that she had knowledge of the fact that Ybaez set
the price of the lot at P200,000.00 and that the P600,000.00the price agreed
upon by her and Sabanwas more than the amount set by Ybaez because it
included the amount for payment of taxes and for Sabans commission as
broker for Ybaez.

According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker, andP400.000.00 directly
to Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty
Seven Pesos (P563,257.00).[27] Lim, on the other hand, claims that on March
10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly
to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and
gave to Saban P113,257.00 for payment of taxes and P50,000.00 as his
commission,[28] and One Hundred Thirty Thousand Pesos (P130,000.00) on
June 28, 1994,[29] or a total of Three Hundred Ninety Three Thousand Two
Hundred Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged

that Lim and her co-vendees paid himP400,000.00 which he said was the full
amount for the sale of the lot. [30] It thus appears that he received P100,000.00
on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00
earmarked for taxes and P50,000.00 for commission, and received the balance
of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly
to Ybaez. Apparently, although the amount actually paid by Lim
was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived
the difference.

Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor
belies her claim that she and her co-vendees did not agree to purchase the lot
at P600,000.00. If she did not agree thereto, there would be no reason for her
to issue those checks which is the balance of P600,000.00 less the amounts
of P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00
(taxes). The only logical conclusion is that Lim changed her mind about
agreeing to purchase the lot at P600,000.00 after talking to Ybaez and
ultimately realizing that Sabans commission is even more than what Ybaez
received as his share of the purchase price as vendor. Obviously, this change
of mind resulted to the prejudice of Saban whose efforts led to the completion
of the sale between the latter, and Lim and her co-vendees. This the Court
cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is

enlightening for the facts therein are similar to the circumstances of the
present case. In that case, Consejo Infante asked Jose Cunanan and Juan
Mijares to find a buyer for her two lots and the house built thereon for Thirty
Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of
the purchase price plus whatever overprice they may obtain for the property.
Cunanan and Mijares offered the properties to Pio Noche who in turn
expressed willingness to purchase the properties. Cunanan and Mijares
thereafter introduced Noche to Infante. However, the latter told Cunanan and
Mijares that she was no longer interested in selling the property and asked
them to sign a document stating that their written authority to act as her
agents for the sale of the properties was already cancelled. Subsequently,
Infante sold the properties directly to Noche for Thirty One Thousand Pesos

(P31,000.00). The Court upheld the right of Cunanan and Mijares to their
commission, explaining that

[Infante] had changed her mind even if respondent had found a buyer
who was willing to close the deal, is a matter that would not give rise
to a legal consequence if [Cunanan and Mijares] agreed to call off the
transaction in deference to the request of [Infante]. But the situation
varies if one of the parties takes advantage of the benevolence of the
other and acts in a manner that would promote his own selfish
interest. This act is unfair as would amount to bad faith. This act
cannot be sanctioned without according the party prejudiced the
reward which is due him. This is the situation in which [Cunanan and
Mijares] were placed by [Infante]. [Infante] took advantage of the
services rendered by [Cunanan and Mijares], but believing that she
could evade payment of their commission, she made use of a ruse by
inducing them to sign the deed of cancellation.This act of subversion
cannot be sanctioned and cannot serve as basis for [Infante] to escape
payment of the commission agreed upon.[31]

The appellate court therefore had sufficient basis for concluding that Ybaez
and Lim connived to deprive Saban of his commission by dealing with each
other directly and reducing the purchase price of the lot and leaving nothing
to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the undisputed fact
that Lim had not yet paid the balance of P200,000.00 of the purchase price
of P600,000.00, it is just and proper for her to pay Saban the balance
of P200,000.00.

Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an

excess of P30,000.00 from his asking price of P200,000.00, Saban may claim
such excess from Ybaezs estate, if that remedy is still available, [32] in view of

the trial courts dismissal of Sabans complaint as against Ybaez, with Sabans
express consent, due to the latters demise on November 11, 1994. [33]

The appellate court however erred in ruling that Lim is liable on the checks
because she issued them as an accommodation party. Section 29 of the
Negotiable Instruments Law defines an accommodation party as a person who
has signed the negotiable instrument as maker, drawer, acceptor or indorser,
without receiving value therefor, for the purpose of lending his name to some
other person. The accommodation party is liable on the instrument to a holder
for value even though the holder at the time of taking the instrument knew
him or her to be merely an accommodation party. The accommodation party
may of course seek reimbursement from the party accommodated. [34]

As gleaned from the text of Section 29 of the Negotiable Instruments Law,

the accommodation party is one who meets all these three requisites, viz: (1)
he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did
not receive value for the signature; and (3) he signed for the purpose of lending
his name to some other person. In the case at bar, while Lim signed as drawer
of the checks she did not satisfy the two other remaining requisites.

The absence of the second requisite becomes pellucid when it is noted at

the outset that Lim issued the checks in question on account of her
transaction, along with the other purchasers, with Ybaez which was a sale
and, therefore, a reciprocal contract. Specifically, she drew the checks in
payment of the balance of the purchase price of the lot subject of the
transaction. And she had to pay the agreed purchase price in consideration for
the sale of the lot to her and her co-vendees. In other words, the amounts
covered by the checks form part of the cause or consideration from Ybaezs
end, as vendor, while the lot represented the cause or consideration on the
side of Lim, as vendee.[35] Ergo, Lim received value for her signature on the
checks.

Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybaez, or any other person for that matter, to obtain
credit or to raise money, thereby totally debunking the presence of the third
requisite of an accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 148404-05

April 11, 2002

NELITA M. BACALING, represented by her attorney-in-fact JOSE JUAN TONG, and JOSE JUAN TONG, in his personal capacity, petitioners,
vs.
FELOMINO MUYA, CRISPIN AMOR, WILFREDO JEREZA, RODOLFO LAZARTE and NEMESIO TONOCANTE,respondents.
DE LEON, JR., J.:
Before us is a Petition for Review of the consolidated Decision 1 dated January 31, 2001 of the Court of Appeals 2in CA-G.R. SP No. 54413,3 and in CA-G.R. SP No.
54414,4 and of its Resolution5 dated June 5, 2001 reversing the Decision6 dated May 22, 1998 and Resolution July 22, 1999 of the Office of the President.
The facts of the case are as follows:
Petitioner Nelita M. Bacaling and her spouse Ramon Bacaling were the owners of three (3) parcels of land, with a total area of 9.9631 hectares, located in
Barangay Cubay, Jaro, Iloilo City, and designated as Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd 26685) and Lot No. 2295. These lots were duly covered
by Transfer Certificates of Title Nos. T-5801, T-5833 and T-5834, respectively. In 1955 the landholding was subdivided into one hundred ten (110) sub-lots covered
by TCT Nos. T-10664 to T-10773, inclusive of the Registry of Deeds of the City of Iloilo. On May 16, 1955, the landholding was processed and approved as
"residential" or "subdivision" by the National Urban Planning Commission (NUPC). 7 On May 24, 1955 the Bureau of Lands approved the corresponding subdivision
plan for purposes of developing the said property into a low-cost residential community which the spouses referred to as the Bacaling-Moreno Subdivision.8
In 1957, a real estate loan of Six Hundred Thousand Pesos (P600,000.00) was granted to the spouses Nelita and Ramon Bacaling by the Government Service
Insurance System (GSIS) for the development of the subdivision. 9To secure the repayment of the loan, the Bacalings executed in favor of the GSIS a real estate
mortgage over their parcels of land including the one hundred ten (110) sub-lots. 10 Out of the approved loan of Six Hundred Thousand Pesos (P600,000.00), only
Two Hundred Forty Thousand Pesos (P240,000.00) was released to them.11 The Bacalings failed to pay the amortizations on the loan and consequently the
mortgage constituted on the one hundred ten (110) sub-lots was foreclosed by the GSIS. 12 After a court case that reached all the way to this Court, 13 Nelita
Bacaling (by then a widow) in 1989 was eventually able to restore to herself ownership of the one hundred ten (110) sub-lots. 14
According to the findings of the Office of the President, in 1972 and thereafter, respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and
Nemesio Tonocante clandestinely entered and occupied the entire one hundred ten (110) sub-lots (formerly known as Lot No. 2103-A, Lot No. 2103-B-12 and Lot
No. 2295) and grabbed exclusively for themselves the said 9.9631 hectare landholding. 15 Apparently, respondents took advantage of the problematic peace and
order situation at the onset of martial law and the foreclosure of the lots by GSIS. 16 They sowed the lots as if the same were their own, and altered the roads,
drainage, boundaries and monuments established thereon. 17
Respondents, on the other hand, claim that in 1964 they were legally instituted by Bacaling's administrator/overseer as tenant-tillers of the subject parcels of land
on sharing basis with two and a half (2) hectares each for respondents Muya, Amor, Tonocante and Lazarte, and one and a half (1) hectares for respondent
Jereza. In 1974, their relationship with the landowner was changed to one of leasehold. They religiously delivered their rental payments to Bacaling as agricultural
lessor. In 1980, they secured certificates of land transfer in their names for the one hundred ten (110) sub-lots. They have made various payments to the Land
Bank of the Philippines as amortizing owners-cultivators of their respective tillage.
In 1977, however, the City Council of Iloilo enacted Zoning Ordinance No. 212 declaring the one hundred ten (110) sub-lots as "residential" and "non-agricultural,"
which was consistent with the conversion effected in 1955 by the NUPC and the Bureau of Lands. In 1978, Nelita Bacaling was able to register the subject

property as the Bacaling-Moreno Subdivision with the National Housing Authority and to obtain therefrom a license to sell the subject one hundred ten (110) sublots comprising the said subdivision to consummate the original and abiding design to develop a low-cost residential community.
In August 21, 1990, petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady, bought from Nelita Bacaling the subject one hundred ten (110) sublots for One Million Seven Hundred Thousand Pesos (P1,700,000.00). 18 The said sale was effected after Bacaling has repurchased the subject property from the
Government Service Insurance System. To secure performance of the contract of absolute sale and facilitate the transfer of title of the lots to Jose Juan Tong,
Bacaling appointed him in 1992 as her attorney-in-fact, under an irrevocable special power of attorney with the following mandate1. To file, defend and prosecute any case/cases involving lots nos. 1 to 110 covered by TCT Nos. T-10664 to T-10773 of the Register of Deeds of the
City of Iloilo;
2. To assume full control, prosecute, terminate and enter into an amicable settlement and compromise agreement of all cases now pending before the
DARAB, Region VI, Iloilo City, which involved portion of Lots 1 to 110, covered by TCT Nos. T-10664 to T-10773 of the Register of Deeds of Iloilo City,
which were purchased by Jose Juan Tong, Vicente Juan Tong and Victoria Siady;
3. To hire a lawyer/counsel which he may deem fit and necessary to effect and attain the foregoing acts and deeds; handle and prosecute the aforesaid
cases;
4. To negotiate, cause and effect a settlement of occupation and tenants on the aforesaid lots;
5. To cause and effect the transfer of the aforesaid lots in the name of the VENDEES;
6. To execute and deliver document/s or instrument of whatever nature necessary to accomplish the foregoing acts and deeds. 19
It is significant to note that ten (10) years after the perfection and execution of the sale, or on April 26, 2000, Bacaling filed a complaint to nullify the contract of
sale. The suit was, however, dismissed with prejudice and the dismissal has long become final and executory. 20
Following the sale of the one hundred ten (110) sub-lots and using the irrevocable special power of attorney executed in his favor, petitioner Tong (together with
Bacaling) filed a petition for cancellation of the certificates of land transfer against respondents and a certain Jaime Ruel with the Department of Agrarian Reform
(DAR) Region VI Office in Iloilo City.21 The DAR, however, dismissed the petition on the ground that there had been no legitimate conversion of the classification of
the 110 sub-lots from agricultural to residential prior to October 21, 1972 when Operation Land Transfer under P.D. No. 72 took effect. 22 Bacaling and Tong
appealed to the DAR Central Office but their appeal was similarly rejected. 23 The motion for reconsideration failed to overturn the ruling of the Central Office
Order.24
On September 19, 1997, Bacaling and Tong appealed the adverse DAR Orders to the Office of the President which reversed them in toto in a Decision 25 dated
May 22, 1998 (OP Decision, for brevity), the dispositive portion of which reads:
WHEREFORE, premises [considered], the assailed order of the Regional Director, DAR Region VI, dated April 3, 1996, as well as the orders of the
DAR Secretary dated December 12, 1996 and September 4, 1997, are hereby REVERSED AND SET ASIDE and subject landholdings declared exempt
from coverage of the CARL. The Certificates of Land Transfer (CLTs) issued to the appellees are hereby cancelled and the Department of Agrarian
Reform directed to implement the voluntary offer made by appellant with respect to the payment of disturbance compensation and relocation of the
affected parties.
1wphi1.nt

SO ORDERED.26
The OP Decision found that the one hundred ten (110) parcels of land had been completely converted from agricultural to residential lots as a result of the
declarations of the NUPC and the Bureau of Lands and the factual circumstances, i.e., the GSIS loan with real estate mortgage, the division of the original three
(3) parcels of land into one hundred ten (110) sub-lots under individual certificates of title, and the establishment of residential communities adjacent to the subject
property, which indubitably proved the intention of Nelita and Ramon Bacaling to develop a residential subdivision thereon. The OP Decision also categorically
acknowledged the competence of the NUPC and the Bureau of Lands to classify the one hundred ten (110) sub-lots into residential areas. On July 22, 1999,
separate motions for reconsideration thereof were denied. 27
Respondents elevated the OP Decision to the Court of Appeals on a petition for review under Rule 43 of the Rules of Civil Procedure. 28 Before the petition was
resolved, or on December 2, 1999, Nelita Bacaling manifested to the appellate court that she was revoking the irrevocable power of attorney in favor of Jose Juan
Tong and that she was admitting the status of respondents as her tenants of the one hundred ten (110) sub-lots which allegedly were agricultural in character. The
manifestation was however characterized by an obvious streak of ambivalence when her prayer therein urged the Court of Appeals to decide the case, curiously,
"on the basis of the clear intent of Private Respondent" and "in accordance with the perception of this Honorable Court." 29
On January 31, 2001 the Court of Appeals reversed the OP Decision and validated the certificates of land transfers in favor of respondents without however
promulgating a ruling on petitioner Tong's supposedly ensuing lack of material interest in the controversy as a result of the manifestation. 30 The dispositive portion
of the decision reads:
WHEREFORE, premises considered, petition is GRANTED; and the May 22, 1998 Decision of the Office of the President is hereby REVERSED and
SET ASIDE. The April 3, 1996 Order of the Regional Director, DARAB, Region VI, is REINSTATED. 31

The appellate court refused to recognize the 1955 NUPC and Bureau of Lands classification of the subject lots as residential subdivision. Tong moved for
reconsideration of the CA Decision which Bacaling did not oppose despite her manifestation. On June 5, 2001, again without a single reference to Bacaling's
alleged repudiation of Tong's actions, the Court of Appeals denied reconsideration of its decision, 32 Hence, this petition for review on certiorari based on the
following assignment of errors:
I
SUBJECT LANDHOLDINGS ARE EXEMPT FROM THE COVERAGE OF P.D. 27 AND OPERATION LAND TRANSFER (1972, AS WELL (sic) THE
COMPREHENSIVE AGRARIAN REFORM LAW (1988) AS THEY WERE CLASSIFIED AS RESIDENTIAL WAY BACK IN 1955 BY THE THEN
NATIONAL PLANNING COMMISSION AND THE SUBDIVSION PLAN WAS APPROVED BY THE BUREAU OF LANDS. AS A CONSEQUENCE, THE
CLTs ISSUED TO PRIVATE RESPONENTS IN OCTOBER, 1980 ARE INVALID AS HAVING BEEN ISSUED WITHOUT JURISDICTION.
II
PRIVATE RESPONDENTS ARE NOT BONA FIDE TENANTS OF THE LANDS INVOLVED. PUBLIC REPSONDENT'S RULING THAT THE LATTER
ARE SUCH IS CONTRARY TO LAW AS IT IGNORED THE FACT THAT THE LANDHOLDINGS ARE RESIDENTIAL AND NO COMPETENT PROOF
OF CONSENT OF THE OWNER WAS EVER PRESENTED BY PRIVATE RESPONDENTS.
III
APPROVAL OF THE SECRETARY OF AGRARIAN REFORM IS NOT NECESSARY FOR THE VALID CLASSIFICATION OF THE LANDS INVOLVED
INTO RESIDENTIAL BECAUSE THE CARL, AS ALSO THE RELATED AGRARIAN LAWS, HAVE NO RETROACTIVE APPLICATION. 33
Long after issues were joined in the instant proceedings, or on October 8, 2001, petitioner Nelita Bacaling resurrected her manifestation with the Court of Appeals
and moved to withdraw/dismiss the present petition on the ground that the irrevocable power of attorney in favor of petitioner Jose Juan Tong had been nullified by
her and that Tong consequently lacked the authority to appear before this Court. 34 She also manifested that, contrary to the arguments of petitioner Tong,
respondents were bona fide tenants of the one hundred ten (110) sub-lots which were allegedly agricultural and not residential pieces of realty. 35 Accordingly,
petitioner Tong was left all alone to pursue the instant case.
The issues in this case can be summarized as follows: (1) Does petitioner Tong have the requisite interest to litigate this petition for review on certiorari?; (2) Are
the respondents agricultural lessees?; and (3) Are the one hundred ten (110) sub-lots admittedly classified for residential use by the National Urban Planning
Commission and the Bureau of Lands prior to October 21, 1972 36 covered by the Operation Land Transfer under P.D. No. 72?
We hold that petitioner Jose Juan Tong possesses adequate and legitimate interest to file the instant petition. Under our rules of procedure, interest means
material interest, that is, an interest in issue and to be affected by the judgment, 37 while a real party in interest is the party who would be benefited or injured by the
judgment or the party entitled to the avails of the suit. 38 There should be no doubt that as transferee of the one hundred ten (110) sub-lots through a contract of
sale and as the attorney-in-fact of Nelita Bacaling, former owner of the subject lots, under an irrevocable special power of attorney, petitioner Tong stands to be
benefited or injured by the judgment in the instant case as well as the orders and decisions in the proceedings a quo. The deed of sale categorically states that
petitioner Tong and his co-sellers have fully paid for the subject parcels of land. The said payment has been duly received by Bacaling. Hence, it stands to reason
that he has adequate and material interest to pursue the present petition to finality.
Respondents put too much weight on the motion to dismiss/withdraw filed by Nelita Bacaling. Under the facts obtaining in this case, the motion should be treated
cautiously, and more properly, even skeptically. It is a matter of law that when a party adopts a certain theory in the court below, he will not be permitted to change
his theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also be offensive to the basic rules of fair play, justice and
due process.39 Bacaling's motion to dismiss the instant petition comes at the heels of her admission that she had immensely benefited from selling the said one
hundred ten (110) sub-lots to petitioner Tong and of the dismissal with prejudice of the civil case which she had earlier filed to nullify the sale. 40 It appears that the
motion to dismiss is a crude and belated attempt long after the dismissal of the civil case to divest Tong of his indubitable right of ownership over the one hundred
ten (110) sub-lots through the pretext of revoking the irrevocable special power of attorney which Bacaling had executed in his favor hoping that in the process that
her act would cause the assailed orders of the DAR to become final and executory.
The records also bear out the fact that Bacaling's design to dispossess petitioner Tong of material interest in the subject matter of the instant petition appears to be
subtly coordinated with respondents' legal maneuvers when it began as a side pleading (a mere Manifestation) in the proceedings before the Court of Appeals
(CA-G.R. SP No. 54413 and CA-G.R. SP No. 54414) but which was never pursued to its ultimate conclusion until it again surfaced before this Court long after
respondents' voluminous comment to the instant petition had been filed. Under these circumstances, we certainly cannot place our trust upon such an unsolicited
motion having dubious roots, character and purpose.
Substantively, we rule that Bacaling cannot revoke at her whim and pleasure the irrevocable special power of attorney which she had duly executed in favor of
petitioner Jose Juan Tong and duly acknowledged before a notary public. The agency, to stress, is one coupled with interest which is explicitly irrevocable since
the deed of agency was prepared and signed and/or accepted by petitioner Tong and Bacaling with a view to completing the performance of the contract of sale of
the one hundred ten (110) sub-lots. It is for this reason that the mandate of the agency constituted Tong as the real party in interest to remove all clouds on the title
of Bacaling and that, after all these cases are resolved, to use the irrevocable special power of attorney to ultimately "cause and effect the transfer of the aforesaid
lots in the name of the vendees [Tong with two (2) other buyers] and execute and deliver document/s or instrument of whatever nature necessary to accomplish
the foregoing acts and deeds."41The fiduciary relationship inherent in ordinary contracts of agency is replaced by material consideration which in the type of agency
herein established bars the removal or dismissal of petitioner Tong as Bacaling's attorney-in-fact on the ground of alleged loss of trust and confidence.
While Bacaling alleges fraud in the performance of the contract of agency to justify its revocation, it is significant to note that allegations are not proof, and that
proof requires the intervention of the courts where both petitioners Tong and Bacaling are heard. Stated otherwise, Bacaling cannot vest in herself just like in

ordinary contracts the unilateral authority of determining the existence and gravity of grounds to justify the rescission of the irrevocable special power of attorney.
In Sevilla v. Court of Appeals42 we thus heldBut unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at
will. The reason is that it is one coupled with an interest, the agency having been created for the mutual interest of the agent and the principal xxx
[Petitioner's] interest, obviously, is not limited to the commissions she earned as a result of her business transactions, but one that extends to the very
subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal.
Accordingly, the revocation complained of should entitle the petitioner x x x to damages.
The requirement of a judicial process all the more assumes significance in light of the dismissal with prejudice, hence, res judicata, of Bacaling's complaint to annul
the contract of sale which in turn gave rise to the irrevocable special power of attorney. It is clear that prima facie there are more than sufficient reasons to deny the
revocation of the said special power of attorney which is coupled with interest. Inasmuch as no judgment has set aside the agency relationship between Bacaling
and Tong, we rule that petitioner Tong maintains material interest to prosecute the instant petition with or without the desired cooperation of Bacaling.
On the issue of whether the private respondents are agricultural tenants and entitled to the benefits accorded by our agrarian laws, we rule in the negative. The
requisites in order to have a valid agricultural leasehold relationship are: (1) The parties are the landowner and the tenant or agricultural lessee; (2) The subject
matter of the relationship is agricultural land; (3) There is consent between the parties to the relationship; (4) the purpose of the relationship is to bring about
agricultural production; (5) There is personal cultivation on the part of the tenant or agricultural lessee; and (6) The harvest is shared between the landowner and
the tenant or agricultural lessee.
We find that the first, third and sixth requisites are lacking in the case at bar. One legal conclusion adduced from the facts in Government Service Insurance
System v. Court of Appeals43 provides that GSIS, not Bacaling, was the owner of the subject properties from 1961 up to 1989 as a result of the foreclosure and
confirmation of the sale of the subject properties. Although the confirmation only came in 1975, the ownership is deemed to have been vested to GSIS way back in
1961, the year of the sale of the foreclosed properties. This is due to the fact that the date of confirmation by the trial court of the foreclosure sale retroacts to the
date of the actual sale itself.44
Thus, the respondents cannot validly claim that they are legitimate and recognized tenants of the subject parcels of land for the reason that their agreement to till
the land was not with GSIS, the real landowner. There is no showing that GSIS consented to such tenancy relationship nor is there proof that GSIS received a
share in the harvest of the tenants. Consequently, the respondents cannot claim security of tenure and other rights accorded by our agrarian laws considering that
they have not been validly instituted as agricultural lessees of the subject parcels of land. And from the time Bacaling recovered the subject properties from GSIS
up to the time the former changed her legal position in the instant case, Bacaling has consistently disclaimed respondents as her alleged tenants. Bacaling's
current legal posture cannot also overturn our finding since, as earlier mentioned, the said change of mind of Bacaling has little or no evidentiary weight under the
circumstances.
The respondents argue that GSIS cannot be considered as the owner of the said properties from 1961 up to 1989 inasmuch as the foreclosure proceedings that
started in 1957 only attained finality during its promulgation by this Court in 1989. Respondents contend that GSIS was the owner of the said parcels of land only
from 1989.
We disagree. The pendency of the GSIS case cannot be construed as a maintenance of status quo with Bacaling as the owner from 1957 up to 1989 for the
reason that what was appealed to this Court was only the issue of redemption, and not the validity of the foreclosure proceedings including the public auction sale,
the confirmation of the public auction sale and the confirmation and transfer of ownership of the foreclosed parcels of land to GSIS. The ownership of GSIS over
the subject parcels of land was not disputed. It was the existence of the right to redeem in a judicial foreclosure that was the subject of the controversy. We ruled
that there was no longer any right of redemption in a judicial foreclosure proceeding after the confirmation of the public auction. Only foreclosures of mortgages in
favor of banking institutions and those made extrajudicially are subject to legal redemption. Since GSIS is not a banking institution and the procedure of the
foreclosure is not extrajudicial in nature, no right of redemption exists after the judicial confirmation of the public auction sale of the said lots.
With respect to the third issue, we find that the one hundred ten (110) sub-lots are indeed residential. In Tiongson v. Court of Appeals45 we held that if the lot in
question is not an agricultural land then the rules on agrarian reform do not apply since the "key factor in ascertaining whether there is a landowner-tenant
relationship xxx is the nature of the disputed property." 46 We reiterated this rule in Natalia Realty, Inc. v. Department of Agrarian Reform47 where we excluded lands
not devoted to agricultural activity, i.e., lands previously converted to non-agricultural or residential uses prior to the effectivity of the 1988 agrarian reform law (R.A.
No. 6657) by agencies other than the DAR, from the coverage of agrarian reform. The statement of the rule is buttressed by P.D. No. 27 which by its terms applies
only to "tenant-farmers of private agricultural lands primarily devoted to rice and corn under a system of shared-crop or lease tenancy, whether classified as landed
estate or not."48
In the case at bar, the indubitable conclusion from established facts is that the one hundred ten (110) sub-lots, originally three (3) parcels of land, have been
officially classified as residential since 1955. The classification began when the NUPC and the Bureau of Lands approved the subdivision of the original three (3)
parcels of land into one hundred ten (110) sub-lots each covered with transfer certificates of title. To build the subdivision project, Nelita Bacaling then obtained a
real estate mortgage loan from the GSIS which she used to fund the project but he was unfortunately unable to complete it due to the immensity of the project
cost. Bacaling undertook to complete the sale of the subdivision when in 1978 she obtained the registration thereof with the National Housing Authority as well as
a license to sell individually the one hundred ten (110) sub-lots. Earlier, in 1977, the City Council of Iloilo also recognized the residential classification of the same
one hundred ten (110) sub-lots when it passed the Land Use Plan and Zoning Ordinance. In 1990, Bacaling sold the same parcels of land to petitioner Tong who
obviously wanted to pursue the development of the subdivision project. It is clear that Tong bought the property for residential and not agricultural purposes upon
the strong assurance of Bacaling that the one hundred ten (110) sub-lots were legally available for such prospect. To be sure, the subject lots were valuable in the
buyer's market only for residential use as shown by the example of adjacent lots which had long been utilized for building subdivisions and the implausibility of
believing that Tong would buy the lands only to lose them at a bargain to agrarian reform. 49
Clearly, both intention and overt actions show the classification of the one hundred ten (110) sub-lots for residential use. There can be no other conclusion from the
facts obtaining in the instant case. Indeed, one cannot imagine Nelita Bacaling borrowing the substantial amount of Six Hundred Thousand Pesos (P600,000.00)

from the GSIS and spending Two Hundred Fifty Thousand Pesos (P250,000.00) for the purpose of developing and subdividing the original three (3) parcels of land
into one hundred ten (110) homelots, with individual transfer certificates of title ready and available for sale, if her purported desire were to keep the landholding for
agricultural purposes. It also makes no sense that petitioner Tong would invest so much money, time and effort in these sub-lots for planting and cultivating
agricultural crops when all the mechanisms are already in place for building a residential community. One cannot likewise deny the consistent official government
action which decreed the said one hundred ten (110) sub-lots as most appropriate for human settlements considering that for several times beginning in 1955 and
in accordance with relevant laws and regulations, the said landholding was categorically reserved as a residential subdivision.
It is also grave error to gloss over the NUPC action since its declarations have long been recognized in similar cases as the present one as clear and convincing
evidence of residential classification. In Magno-Adamos v. Bagasao50 we found the endorsements of the NUPC approving albeit tentatively a subdivision plan to be
a very strong evidence of conversion of the disputed parcels of land into a residential subdivision which would contradict the alleged tenancy relationship. We
found nothing objectionable in the trial court's ruling in Santos v. de Guzman51 ejecting an alleged tenant from the landholding "because the same was included in
a homesite subdivision duly approved by the National Planning Commission." 52 In Republic v. Castellvi53 we gave great weight to the certification of the NUPC that
the subject parcels of land were classified as residential areas and ordered their appraisal as residential and not agricultural lands The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun are residential lands. The finding of the lower court is in consonance
with the unanimous opinion of the three commissioners who, in their report to the court, declared that the lands are residential lands. The Republic
assails the finding that the lands are residential, contending that the plans of the appellees to convert the lands into subdivision for residential purposes
were only on paper, there being no overt acts on the part of the appellees which indicated that the subdivision project had been commenced xxx. We
find evidence showing that the lands in question had ceased to be devoted to the production of agricultural crops, that they had become adaptable for
residential purposes, and that the appellees had actually taken steps to convert their lands into residential subdivisions xxx. The evidence shows that
Castellvi broached the idea of subdividing her land into residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the Armed Forces of
the Philippines xxx. As a matter of fact, the layout of the subdivision plan was tentatively approved by the National Planning Commission on September
7, 1956 xxx. The land of Castellvi had not been devoted to agriculture since 1947 when it was leased to the Philippine Army. In 1957 said land was
classified as residential, and taxes based on its classification as residential had been paid since then xxx. The location of the Castellvi land justifies its
suitability for a residential subdivision.
The NUPC was created under EO 98, s. of 194654 to "prepare general plans, zoning ordinances, and subdivision regulations, to guide and accomplish a
coordinated, adjusted, harmonious reconstruction and future development of urban areas which will in accordance with present and future needs, best promote
health, safety, morals, order, convenience, prosperity, and general welfare, as well as efficiency and economy in the process of development; including among
other things adequate provisions for traffic, the promotion of safety from fire and other dangers, adequate provision for light and air, the promotion of healthful and
convenient distribution of populations xxx." 55Under the express terms of its mandate, the NUPC was therefore duty-bound to act only upon realty projects which
would be used for human settlements and not for agricultural purposes. It is in this light that we must take stock of the 1955 NUPC conversion of the one hundred
ten (110) sub-lots from agricultural to residential classification.
To bolster the exclusive role of the NUPC over developmental projects for residential and industrial purposes, the term "subdivision" (which NUPC was mandated
to review and if properly executed to approve) was defined in EO 98 as "the division of a tract or parcel of land into two (2) or more lots, sites or other divisions for
the purpose, whether immediate or future, of sale or building development, and includes resubdivision, and when appropriate to the context, relates to the process
of subdividing or to the land or area subdivided." 56 The Subdivision Regulations57 (which the NUPC adopted pursuant to EO 98) decreed as mandatory the NUPC
approval of all subdivisions of land in the Philippines intended for residential, commercial and industrial purposes, before lots comprising the subdivision could be
legally sold or building development therein could validly commence Any owner of land wishing to subdivide land shall submit to the Director of Planning [who was the head of NUPC] a plat of the subdivision which shall
conform to the requirements set forth in these Regulations. No subdivider shall proceed with the sale of lots of a subdivision and no plat of a subdivision
shall be filed with the Director of Lands for approval or recorded in the Office of the Register of Deeds until such plat shall have been approved by the
Director of Planning. Applications for plat approval submitted to the District or City Engineer of a town or city in the Philippines shall be forwarded to the
Director of Planning together with the District or City Engineer's recommendations (underscoring supplied).
We are convinced that the 1955 approval by the NUPC of the subdivision of the subject three (3) parcels of land owned by Nelita Bacaling and her spouse into one
hundred ten (110) sub-lots caused the conversion, if not outright classification, of the entire landholding into a residential community for sale to interested buyers.
This is an official classification of the sub-lots as residential units and constitutes the only objective and effectual means of obtaining in 1955 the classification and
reservation of private land for non-agricultural use, i.e. residential, industrial or commercial, since neither P.D. No. 27 nor R.A. No. 6657 58 (together with the
specified formal mechanisms stipulated therein for converting a piece of agricultural land into a residential lot) were then binding and effective. The assignment or
conversion of the one hundred ten (110) sub-lots for residential purposes was not abrogated by P.D. No. 27 under which respondents invalidly secured their
certificates of land transfer since the decree was only prospectively effective 59 and its coverage was limited only to agricultural lands which clearly do not include
the residential sub-lots in question.60
By virtue of the official classification made by NUPC and the other circumstances convincingly proved herein, the only fair and legally acceptable decision in the
instant case would be to declare, as we now indeed rule, that the one hundred ten (110) sub-lots are truly residential in character as well as in purpose and are
thus excluded from the coverage of P.D. No. 27.
Verily, the Certificates of Land Transfer (CLT) issued in respondents' names are not valid and do not change our ruling. The respondents cannot rely on said CLTS
as proof of security of tenure. It is well settled that the certificates of land transfer are not absolute evidence of ownership of the subject lots 61 and consequently do
not bar the finding that their issuance is void from inception since they cover residential lands contrary to the mandate of P.D. No. 27. It follows from the fact of
nullity of the certificates of land transfer in respondents' names that the respondents are not entitled to occupy and possess the one hundred ten (110) sub-lots or
portions thereof without the consent of the owner, herein petitioner Tong.
1wphi1.nt

While not raised as issues in the instant petition, we nevertheless rule now (conformably with Gayos v. Gayos62that it is a cherished rule of procedure that a court
should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation) that respondents cannot
claim disturbance compensation for the reason that the sub-lots are not and have never been available for agrarian reform. In the same vein, respondents also

have no right to be reimbursed by petitioner Jose Juan Tong for the value of or expenses for improvements which they might have introduced on the one hundred
ten (110) sub-lots since they did not allege nor prove the existence of such improvements and their right to compensation thereto, if any. 63
WHEREFORE, the Petition for Review is GRANTED. It is further ordered and adjudged that:
1. The certificates of land transfer over the one hundred ten (110) sub-lots located in Barangay Cubay, Jaro, Iloilo City, in the name of respondents and/or their
successors in interest are hereby DECLARED VOID AB INITIO. The said one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to T-10773 of the
Registry of Deeds of the City of Iloilo, are declared outside the coverage and operation of P.D. No. 27 and other land reform laws.
2. The consolidated Decision of the Court of Appeals in CA-G.R. SP No. 54413 ("Felomino Muya and Crispin Amor v. Nelita Bacaling, represented by her attorneyin-fact, Jose Juan Tong, and the Executive Secretary, Office of the President") and in CA-G.R. SP No. 54414, ("Wilfredo Jereza, Rodolfo Lazarte and Nemesio
Tonocante v. Hon. Executive Secretary, Office of the President and Nelita Bacaling") and its Resolution dated June 5, 2001 denying petitioners' Motion for
Reconsideration are REVERSED AND SET ASIDE.
3. The Decision dated May 22, 1998 and the Resolution dated July 22, 1999 of the Office of the President in OP Case No. 98-K-8180 are REINSTATED with the
modification in that the respondents are not entitled to disturbance compensation; and
4. Respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante together with their assigns and successors in interest are
ordered to vacate and surrender peacefully the possession of the one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to T-10773-Iloilo City, to petitioner
Jose Juan Tong within thirty (30) days from notice of this Decision.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-41420 July 10, 1992

CMS LOGGING, INC., petitioner,
vs.
THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents.

NOCON, J.:
This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision
of the Court of First Instance of Manila, Branch VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity)
against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the former to pay the latter attorney's fees in the amount of P1,000.00
and the costs.
The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the logging business, while private respondent DRACOR is engaged in

whereby the former

appointed the latter as its exclusive export and sales agent for all logs that the former may produce, for a period of five (5)
years. The pertinent portions of the agreement, which was drawn up by DRACOR, are as follows:
the business of exporting and selling logs and lumber. On August 28, 1957, CMS and DRACOR entered into a contract of agency

1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with full authority, subject to the conditions and
limitations hereinafter set forth, to sell and export under a firm sales contract acceptable to SISON, all logs produced by SISON for a period
of five (5) years commencing upon the execution of the agreement and upon the terms and conditions hereinafter provided and DRACOR
hereby accepts such appointment;
xxx xxx xxx
3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export sales of SISON with the buyers and arrange the
procurement and schedules of the vessel or vessels for the shipment of SISON's logs in accordance with SISON's written requests, but

DRACOR shall not in anyway [sic] be liable or responsible for any delay, default or failure of the vessel or vessels to comply with the
schedules agreed upon;
xxx xxx xxx
9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%) per cent commission of the gross sales of logs of SISON
based on F.O.B. invoice value which commission shall be deducted from the proceeds of any and/or all moneys received by DRACOR for
and in behalf and for the account of SISON;
By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672 board feet of logs in Japan, from September 20, 1957 to April
4, 1962.
About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison, and general manager and
legal counsel, Atty. Teodoro R. Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison
officer in selling CMS's logs in Japan for which Shinko earned a commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under this
arrangement, Shinko was able to collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) is entitled to this amount as part of the proceeds of the sale
of the logs. CMS contended that since DRACOR had been paid the 5% commission under the agreement, it is no longer entitled to the additional commission paid
to Shinko as this tantamount to DRACOR receiving double compensation for the services it rendered.
After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90,

directly to several firms in Japan without the aid

or intervention of DRACOR.
CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages, while DRACOR counterclaimed for its commission,
amounting to P144,167.59, from the sales made by CMS of logs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR had

Thus, as its counterclaim to DRACOR's counterclaim,

CMS demanded DRACOR return the amount it unlawfully retained. DRACOR later filed an amended counterclaim,
alleging that the balance of its commission on the sales made by CMS was P42,630.82, thus impliedly admitting that it
retained the amount alleged by CMS.
retained the sum of P101,167.59 as part of its commission for the sales made by CMS.

In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko received the commission of U.S. $77,264.67 arising from the
sale of CMS's logs in Japan, though the trial court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M and M-1)."

The

counterclaim was likewise dismissed, as it was shown that DRACOR had waived its rights to the balance of its
commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president of CMS. 8 From said decision, only CMS
appealed to the Court of Appeals.

affirmed the dismissal of the complaint since "[t]he trial court could not have made a
categorical finding that Shinko collected commissions from the buyers of Sison's logs in Japan, and could not have held
that Sison is entitled to recover from Dracor the amount collected by Shinko as commissions, plaintiff-appellant having
failed to prove by competent evidence its claims."
The Court of Appeals, in a 3 to 2 decision,

10

Moreover, the appellate court held:

There is reason to believe that Shinko Trading Co. Ltd., was paid by defendant-appellee out of its own commission of 5%, as indicated in the
letter of its president to the president of Sison, dated February 2, 1963 (Exhibit "N"), and in the Agreement between Aguinaldo Development
Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter:
. . . , I informed you that if you wanted to pay me for the service, then it would be no more than at the standard rate of 5% commission
because in our own case, we pay our Japanese agents 2-1/2%. Accordingly, we would only add a similar amount of 2-1/2% for the service
which we would render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that the Court of Appeals erred in not making a complete findings
of fact; (2) that the testimony of Atty. Teodoro R. Dominguez, regarding the admission by Shinko's president and director that it collected a commission of U.S.
$1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against DRACOR; (3) that the statement of DRACOR's chief legal counsel in his
memorandum dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the commission in question; (4) that the fact that Shinko received
the questioned commissions is deemed admitted by DRACOR by its silence under Section 23, Rule 130 of the Rules of Court when it failed to reply to Atty. Carlos
Moran Sison's letter dated February 6, 1962; (5) that DRACOR is not entitled to its 5% commission arising from the direct sales made by CMS to buyers in Japan;
and (6) that DRACOR is guilty of fraud and bad faith in its dealings with CMS.
With regard to CMS's arguments concerning whether or not Shinko received the commission in question, We find the same unmeritorious.

To begin with, these arguments question the findings of fact made by the Court of Appeals, which are final and conclusive and can not be reviewed on appeal to
the Supreme Court. 12

there is no evidence which

established the fact that Shinko did receive the amount of U.S. $77,264.67 as commission arising from the sale of CMS's
logs to various Japanese firms.
Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's agent or liaison in Japan,

13

The fact that Shinko received the commissions in question was not established by the testimony of Atty. Teodoro R. Dominguez to the effect that Shinko's
president and director told him that Shinko received a commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, the
letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd.

14

is also hearsay since Mr. Shibata was not presented to testify on his letter.

CMS's other evidence have little or no probative value at all. The statements made in the memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31,

the letter dated February 2, 1963 of Daniel

R. Aguinaldo, president of DRACOR, and the reply-letter dated January 9, 1964 by DRACOR's counsel Atty. V. E. Del
Rosario to CMS's demand letter dated September 25, 1963 can not be categorized as admissions that Shinko did receive
the commissions in question.
1965, 15

16

17

The alleged admission made by Atty. Ciocon, to wit

Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which
should enable Shinko to collect a commission of US $67,747.73 only
can not be considered as such since the statement was made in the context of questioning CMS's tally of logs delivered to various Japanese firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit
. . . Knowing as we do that Toyo Menka is a large and reputable company, it is obvious that they paid Shinko for certain services which
Shinko must have satisfactorily performed for them in Japan otherwise they would not have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to concern itself with, much less question, the right of Shinko
Trading Co., Ltd. with which our client debt directly, to whatever benefits it might have derived form the ultimate consumer/buyer of these
logs, Toyo Menka Kaisha, Ltd. There appears to be no justification for your client's contention that these benefits, whether they can be
considered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be regarded part of the gross sales.
can not be considered admissions that Shinko received the questioned commissions since neither statements declared categorically that Shinko did in
fact receive the commissions and that these arose from the sale of CMS's logs.
As correctly stated by the appellate court:
It is a rule that "a statement is not competent as an admission where it does not, under a reasonable construction, appear to admit or
acknowledge the fact which is sought to be proved by it". An admission or declaration to be competent must have been expressed in definite,
certain and unequivocal language (Bank of the Philippine Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18
CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the commissions in question when it failed to respond to Atty.
Carlos Moran Sison's letter dated February 6, 1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty. Sison, through the letter dated
March 5, 1963 of F.A. Novenario,

19

which stated:

This is to acknowledge receipt of your letter dated February 6, 1963, and addressed to Mr. D. R. Aguinaldo, who is at present out of the
country.
xxx xxx xxx
We have no record or knowledge of any such payment of commission made by Toyo Menka to Shinko. If the payment was made by Toyo
Menka to Shinko, as stated in your letter, we knew nothing about it and had nothing to do with it.
The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of $77,264.67 US Dollars," can not be given weight since this was
based on the summary prepared by CMS itself, Exhibits "M" and "M-1".

Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is not entitled thereto since these were apparently paid by the
buyers to Shinko for arranging the sale. This is therefore not part of the gross sales of CMS's logs.
However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR was entitled to its commission from the sales made by CMS to
Japanese firms.

and may be availed of even if the period

fixed in the contract of agency as not yet expired. As the principal has this absolute right to revoke the agency, the agent
can not object thereto; neither may he claim damages arising from such revocation, unless it is shown that such was
done in order to evade the payment of agent's commission.
The principal may revoke a contract of agency at will, and such revocation may be express, or implied,

20

21

22

23

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet, during the existence of the contract of agency, DRACOR
admitted that CMS sold its logs directly to several Japanese firms. This act constituted an implied revocation of the contract of agency under Article 1924 of the
Civil Code, which provides:
Art. 1924 The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons.

this Court ruled that the act of a contractor, who, after executing
powers of attorney in favor of another empowering the latter to collect whatever amounts may be due to him from the
Government, and thereafter demanded and collected from the government the money the collection of which he entrusted
to his attorney-in-fact, constituted revocation of the agency in favor of the attorney-in-fact.
In New Manila Lumber Company, Inc. vs. Republic of the Philippines,

24

Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without the intervention of DRACOR, the latter is no longer entitled to its
commission from the proceeds of such sale and is not entitled to retain whatever moneys it may have received as its commission for said transactions. Neither
would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded to the agent for the revocation of the agency, and the case at
bar is not one falling under the exception mentioned, which is to evade the payment of the agent's commission.
Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had committed acts of fraud and bad faith, We find the same
unmeritorious. Like the contention involving Shinko and the questioned commissions, the findings of the Court of Appeals on the matter were based on its
appreciation of the evidence, and these findings are binding on this Court.
In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's contention that Shinko earned a separate commission of U.S. $1.00
for every 1,000 board feet of logs from the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with regard to DRACOR's right to retain
the amount of P101,536.77 as part of its commission from the sale of logs by CMS, and hold that DRACOR has no right to its commission. Consequently,
DRACOR is hereby ordered to remit to CMS the amount of P101,536.77.
WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding paragraph. Costs de officio.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 83122 October 19, 1990
ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E. PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC., respondents.
Albino B. Achas for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29, 1988 decision of the Court of Appeals and the April 27, 1988 resolution denying the petitioners' motion for
reconsideration, which decision and resolution reversed the decision dated June 23,1986 of the Court of First Instance of Manila, Branch 34 in Civil Case No.
121126 upholding the petitioners' causes of action and granting all the reliefs prayed for in their complaint against private respondents.
The antecedent facts of the case are as follows:
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private respondent Philippine American General Insurance Company, Inc. (Philamgen
for short) since 1965. As such, he was authorized to solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered
was entitled to receive the full agent's commission of 32.5% from Philamgen under the scheduled commission rates (Exhibits "A" and "1"). From 1973 to 1975,
Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. (Division of Electronics Airconditioning and Refrigeration) in the amount of
P4.4 Million from which he was entitled to a commission of 32% (Exhibit "B"). However, Valenzuela did not receive his full commission which amounted to P1.6
Million from the P4.4 Million insurance coverage of the Delta Motors. During the period 1976 to 1978, premium payments amounting to P1,946,886.00 were paid
directly to Philamgen and Valenzuela's commission to which he is entitled amounted to P632,737.00.
In 1977, Philamgen started to become interested in and expressed its intent to share in the commission due Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty
basis (Exhibit "C"). Valenzuela refused (Exhibit "D").
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of the commission with Valenzuela (Exhibit E). This was followed
by another sharing proposal dated June 1, 1978. On June 16,1978, Valenzuela firmly reiterated his objection to the proposals of respondents stating that: "It is with
great reluctance that I have to decline upon request to signify my conformity to your alternative proposal regarding the payment of the commission due me.
However, I have no choice for to do otherwise would be violative of the Agency Agreement executed between our goodselves." (Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took drastic action against
Valenzuela. They: (a) reversed the commission due him by not crediting in his account the commission earned from the Delta Motors, Inc. insurance (Exhibit "J"
and "2"); (b) placed agency transactions on a cash and carry basis; (c) threatened the cancellation of policies issued by his agency (Exhibits "H" to "H-2"); and (d)
started to leak out news that Valenzuela has a substantial account with Philamgen. All of these acts resulted in the decline of his business as insurance agent
(Exhibits "N", "O", "K" and "K-8"). Then on December 27, 1978, Philamgen terminated the General Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision
Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition).
The petitioners sought relief by filing the complaint against the private respondents in the court a quo (Complaint of January 24, 1979, Annex "F" Petition). After
due proceedings, the trial court found:
xxx xxx xxx
Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent by making it
appear that plaintiff Arturo P. Valenzuela has a substantial account with defendant PHILAMGEN particularly Delta Motors, Inc.'s Account,
thereby prejudicing defendant PHILAMGEN's interest (Exhibits 6,"11","11- "12- A"and"13-A").
Defendants also invoked the provisions of the Civil Code of the Philippines (Article 1868) and the provisions of the General Agency
Agreement as their basis for terminating plaintiff Arturo P. Valenzuela as one of their General Agents.
That defendants' position could have been justified had the termination of plaintiff Arturo P. Valenzuela was (sic) based solely on the
provisions of the Civil Code and the conditions of the General Agency Agreement. But the records will show that the principal cause of the
termination of the plaintiff as General Agent of defendant PHILAMGEN was his refusal to share his Delta commission.
That it should be noted that there were several attempts made by defendant Bienvenido M. Aragon to share with the Delta commission of
plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to
make matters worse, defendants made it appear that plaintiff Arturo P. Valenzuela had substantial accounts with defendant PHILAMGEN.
Not only that, defendants have also started (a) to treat separately the Delta Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the
Delta commission due plaintiff Arturo P. Valenzuela by not crediting or applying said commission earned to the account of plaintiff Arturo P.
Valenzuela, (c) placed plaintiff Arturo P. Valenzuela's agency transactions on a "cash and carry basis", (d) sending threats to cancel existing
policies issued by plaintiff Arturo P. Valenzuela's agency, (e) to divert plaintiff Arturo P. Valenzuela's insurance business to other agencies,
and (f) to spread wild and malicious rumors that plaintiff Arturo P. Valenzuela has substantial account with defendant PHILAMGEN to force
plaintiff Arturo P. Valenzuela into agreeing with the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1, Petition).
xxx xxx xxx
These acts of harrassment done by defendants on plaintiff Arturo P. Valenzuela to force him to agree to the sharing of his Delta commission,
which culminated in the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent, do not justify said
termination of the General Agency Agreement entered into by defendant PHILAMGEN and plaintiff Arturo P. Valenzuela.
That since defendants are not justified in the termination of plaintiff Arturo P. Valenzuela as one of their General Agents, defendants shall be
liable for the resulting damage and loss of business of plaintiff Arturo P. Valenzuela. (Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p.
11)

The court accordingly rendered judgment, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against defendants ordering the latter to reinstate plaintiff Arturo P.
Valenzuela as its General Agent, and to pay plaintiffs, jointly and severally, the following:
1. The amount of five hundred twenty-one thousand nine hundred sixty four and 16/100 pesos (P521,964.16) representing plaintiff Arturo P.
Valenzuela's Delta Commission with interest at the legal rate from the time of the filing of the complaint, which amount shall be adjusted in
accordance with Article 1250 of the Civil Code of the Philippines;
2. The amount of seventy-five thousand pesos (P75,000.00) per month as compensatory damages from 1980 until such time that defendant
Philamgen shall reinstate plaintiff Arturo P. Valenzuela as one of its general agents;
3. The amount of three hundred fifty thousand pesos (P350,000.00) for each plaintiff as moral damages;
4. The amount of seventy-five thousand pesos (P75,000.00) as and for attorney's fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell, Carlos K. Catolico and PHILAMGEN respondents
herein, and defendants-appellants below, interposed an appeal on the following:
ASSIGNMENT OF ERRORS
I
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH
DEFENDANT PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY.
II
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF
32.5% ON THE DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED
AND THAT CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL DAMAGES, ATTORNEYS FEES AND COSTS.
IV
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT
ERRED IN AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO ARE MERE CORPORATE AGENTS ACTING
WITHIN THE SCOPE OF THEIR AUTHORITY.
V
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF PLAINTIFF ARTURO P. VALENZUELA WAS PROPER, THE
LOWER COURT ERRED IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA VALENZUELA, WHO, NOT BEING THE REAL PARTY IN
INTEREST IS NOT TO OBTAIN RELIEF.
On January 29, 1988, respondent Court of Appeals promulgated its decision in the appealed case. The dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby modified accordingly and judgment is hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the sum of one million nine hundred thirty two thousand five hundred
thirty-two pesos and seventeen centavos (P1,902,532.17), with legal interest thereon from the date of finality of this judgment until fully paid.
2. Both plaintiff-appellees to pay jointly and severally defendants-appellants the sum of fifty thousand pesos (P50,000.00) as and by way of
attorney's fees.
No pronouncement is made as to costs. (p. 44, Rollo)

There is in this instance irreconcilable divergence in the findings and conclusions of the Court of Appeals, vis-a-visthose of the trial court particularly on the pivotal
issue whether or not Philamgen and/or its officers can be held liable for damages due to the termination of the General Agency Agreement it entered into with the
petitioners. In its questioned decision the Court of Appeals observed that:
In any event the principal's power to revoke an agency at will is so pervasive, that the Supreme Court has consistently held that termination
may be effected even if the principal acts in bad faith, subject only to the principal's liability for damages (Danon v. Antonio A. Brimo & Co., 42
Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of the Philippines
Annotated [1986] 696).
The lower court, however, thought the termination of Valenzuela as General Agent improper because the record will show the principal cause
of the termination of the plaintiff as General Agent of defendant Philamgen was his refusal to share his Delta commission. (Decision, p. 9; p.
13, Rollo, 41)
Because of the conflicting conclusions, this Court deemed it necessary in the interest of substantial justice to scrutinize the evidence and records of the cases.
While it is an established principle that the factual findings of the Court of Appeals are final and may not be reviewed on appeal to this Court, there are however
certain exceptions to the rule which this Court has recognized and accepted, among which, are when the judgment is based on a misapprehension of facts and
when the findings of the appellate court, are contrary to those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court of Appeals,
139 SCRA 576 [1986]). Where the findings of the Court of Appeals and the trial court are contrary to each other, this Court may scrutinize the evidence on record
(Cruz v. Court of Appeals, 129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the
conclusion of the Court of Appeals is grounded entirely on speculation, surmises or conjectures, or when the inference made is manifestly mistaken, absurd or
impossible, or when there is grave abuse of discretion, or when the judgment is based on a misapprehension of facts, and when the findings of facts are conflict
the exception also applies (Malaysian Airline System Bernad v. Court of Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records of the case and the findings of facts of both the court a quo and respondent appellate court, we are constrained to
affirm the trial court's findings and rule for the petitioners.
We agree with the court a quo that the principal cause of the termination of Valenzuela as General Agent of Philamgen arose from his refusal to share his Delta
commission. The records sustain the conclusions of the trial court on the apparent bad faith of the private respondents in terminating the General Agency
Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are entitled to great weight (People v. Atanacio, 128 SCRA 22 [1984]) and should
not be disturbed on appeal unless for strong and cogent reasons, because the trial court is in a better position to examine the evidence as well as to observe the
demeanor of the witnesses while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v. Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v.
Court of Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the findings and conclusions of the trial court are supported by substantial
evidence and there appears to be no cogent reason to disturb them (Mendoza v. Court of Appeals. 156 SCRA 597 [1987]).
As early as September 30,1977, Philamgen told the petitioners of its desire to share the Delta Commission with them. It stated that should Delta back out from the
agreement, the petitioners would be charged interests through a reduced commission after full payment by Delta.
On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50% thus giving them an agent's commission of 16.25%. On February 8,
1978, Philamgen insisted on the reduction scheme followed on June 1, 1978 by still another insistence on reducing commissions and proposing two alternative
schemes for reduction. There were other pressures. Demands to settle accounts, to confer and thresh out differences regarding the petitioners' income and the
threat to terminate the agency followed. The petitioners were told that the Delta commissions would not be credited to their account (Exhibit "J"). They were
informed that the Valenzuela agency would be placed on a cash and carry basis thus removing the 60-day credit for premiums due. (TSN., March 26, 1979, pp.
54-57). Existing policies were threatened to be cancelled (Exhibits "H" and "14"; TSN., March 26, 1979, pp. 29-30). The Valenzuela business was threatened with
diversion to other agencies. (Exhibit "NNN"). Rumors were also spread about alleged accounts of the Valenzuela agency (TSN., January 25, 1980, p. 41). The
petitioners consistently opposed the pressures to hand over the agency or half of their commissions and for a treatment of the Delta account distinct from other
accounts. The pressures and demands, however, continued until the agency agreement itself was finally terminated.
It is also evident from the records that the agency involving petitioner and private respondent is one "coupled with an interest," and, therefore, should not be freely
revocable at the unilateral will of the latter.
In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation and persuasion of the prospective clients to buy insurance
policies. Normally, agents would encounter much embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement of the insurance
policies. To sell policies, an agent exerts great effort, patience, perseverance, ingenuity, tact, imagination, time and money. In the case of Valenzuela, he was able
to build up an Agency from scratch in 1965 to a highly productive enterprise with gross billings of about Two Million Five Hundred Thousand Pesos
(P2,500,000.00) premiums per annum. The records sustain the finding that the private respondent started to covet a share of the insurance business that
Valenzuela had built up, developed and nurtured to profitability through over thirteen (13) years of patient work and perseverance. When Valenzuela refused to
share his commission in the Delta account, the boom suddenly fell on him.
The private respondents by the simple expedient of terminating the General Agency Agreement appropriated the entire insurance business of Valenzuela. With the
termination of the General Agency Agreement, Valenzuela would no longer be entitled to commission on the renewal of insurance policies of clients sourced from
his agency. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela jointly and severally liable with the insured for unpaid premiums.
Under these circumstances, it is clear that Valenzuela had an interest in the continuation of the agency when it was unceremoniously terminated not only because
of the commissions he should continue to receive from the insurance business he has solicited and procured but also for the fact that by the very acts of the
respondents, he was made liable to Philamgen in the event the insured fail to pay the premiums due. They are estopped by their own positive averments and
claims for damages. Therefore, the respondents cannot state that the agency relationship between Valenzuela and Philamgen is not coupled with interest. "There
may be cases in which an agent has been induced to assume a responsibility or incur a liability, in reliance upon the continuance of the authority under such
circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or liability" (See MEC 569 p. 406).

Furthermore, there is an exception to the principle that an agency is revocable at will and that is when the agency has been given not only for the interest of the
principal but for the interest of third persons or for the mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases to be freely
revocable by the sole will of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following citations are apropos:
The principal may not defeat the agent's right to indemnification by a termination of the contract of agency (Erskine v. Chevrolet Motors Co.
185 NC 479, 117 SE 706, 32 ALR 196).
Where the principal terminates or repudiates the agent's employment in violation of the contract of employment and without cause ... the
agent is entitled to receive either the amount of net losses caused and gains prevented by the breach, or the reasonable value of the
services rendered. Thus, the agent is entitled to prospective profits which he would have made except for such wrongful termination provided
that such profits are not conjectural, or speculative but are capable of determination upon some fairly reliable basis. And a principal's
revocation of the agency agreement made to avoid payment of compensation for a result which he has actually accomplished (Hildendorf v.
Hague, 293 NW 2d 272; Newhall v. Journal Printing Co., 105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-Moore Co. [C.A. 2
NY] 273 F 2d 340)
If a principal violates a contractual or quasi-contractual duty which he owes his agent, the agent may as a rule bring an appropriate action for
the breach of that duty. The agent may in a proper case maintain an action at law for compensation or damages ... A wrongfully discharged
agent has a right of action for damages and in such action the measure and element of damages are controlled generally by the rules
governing any other action for the employer's breach of an employment contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v.
Stoehr, 54 Ohio 157, 43 NE 2798)
At any rate, the question of whether or not the agency agreement is coupled with interest is helpful to the petitioners' cause but is not the primary and compelling
reason. For the pivotal factor rendering Philamgen and the other private respondents liable in damages is that the termination by them of the General Agency
Agreement was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he is liable in damages. This is
in accordance with the precepts in Human Relations enshrined in our Civil Code that "every person must in the exercise of his rights and in the performance of his
duties act with justice, give every one his due, and observe honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or
negligently causes damages to another, shall indemnify the latter for the same (Art. 20, id). "Any person who wilfully causes loss or injury to another in a manner
contrary to morals, good customs and public policy shall compensate the latter for the damages" (Art. 21, id.).
As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and uncollected premiums which the respondent court ordered Valenzuela
to pay Philamgen the amount of One Million Nine Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532,17) with legal interest
thereon until fully paid (Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that the respondent court erred in holding Valenzuela liable. We find no
factual and legal basis for the award. Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and render the
insurance policy not binding
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of insurance is valid and binding unless and until the
premiums thereof have been paid except in the case of a life or industrial life policy whenever the grace period provision applies (P.D. 612,
as amended otherwise known as the Insurance Code of 1974)
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held that the non-payment of premium does not merely suspend but
puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract. And in Arce v. The Capital Insurance and Surety
Co. Inc.(117 SCRA 63, [1982]), we reiterated the rule that unless premium is paid, an insurance contract does not take effect. Thus:
It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance
Act before Sec. 72 was amended by the underscored portion. Supra. Prior to the Amendment, an insurance contract was effective even if the
premium had not been paid so that an insurer was obligated to pay indemnity in case of loss and correlatively he had also the right to sue for
payment of the premium. But the amendment to Sec. 72 has radically changed the legal regime in that unless the premium is paid there is
no insurance. " (Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Emphasis supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. (Citing
Insurance Law and Practice by John Alan Appleman, Vol. 15, p. 331; Emphasis supplied)
The foregoing findings are buttressed by Section 776 of the insurance Code (Presidential Decree No. 612, promulgated on December 18,
1974), which now provides that no contract of Insurance by an insurance company is valid and binding unless and until the premium thereof
has been paid, notwithstanding any agreement to the contrary (Ibid., 92 SCRA 425)
Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The insurance coverage did not go into effect or did not continue
and the obligation of Philamgen as insurer ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to demand, much
less sue Valenzuela for the unpaid premiums would be the height of injustice and unfair dealing. In this instance, with the lapsing of the policies through the
nonpayment of premiums by the insured there were no more insurance contracts to speak of. As this Court held in the Philippine Phoenix Surety case, supra "the
non-payment of premiums does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the
contract."
The respondent appellate court also seriously erred in according undue reliance to the report of Banaria and Banaria and Company, auditors, that as of December
31, 1978, Valenzuela owed Philamgen P1,528,698.40. This audit report of Banaria was commissioned by Philamgen after Valenzuela was almost through with the

presentation of his evidence. In essence, the Banaria report started with an unconfirmed and unaudited beginning balance of account of P1,758,185.43 as of
August 20, 1976. But even with that unaudited and unconfirmed beginning balance of P1,758,185.43, Banaria still came up with the amount of P3,865.49 as
Valenzuela's balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December 31, 1976, and December 31, 1977, Valenzuela had no unpaid
account with Philamgen (Ref: Annexes "D", "D-1", "E", Petitioner's Memorandum). But even disregarding these annexes which are records of Philamgen and
addressed to Valenzuela in due course of business, the facts show that as of July 1977, the beginning balance of Valenzuela's account with Philamgen amounted
to P744,159.80. This was confirmed by Philamgen itself not only once but four (4) times on different occasions, as shown by the records.
On April 3,1978, Philamgen sent Valenzuela a statement of account with a beginning balance of P744,159-80 as of July 1977.
On May 23, 1978, another statement of account with exactly the same beginning balance was sent to Valenzuela.
On November 17, 1978, Philamgen sent still another statement of account with P744,159.80 as the beginning balance.
And on December 20, 1978, a statement of account with exactly the same figure was sent to Valenzuela.
It was only after the filing of the complaint that a radically different statement of accounts surfaced in court. Certainly, Philamgen's own statements made by its own
accountants over a long period of time and covering examinations made on four different occasions must prevail over unconfirmed and unaudited statements
made to support a position made in the course of defending against a lawsuit.
It is not correct to say that Valenzuela should have presented its own records to refute the unconfirmed and unaudited finding of the Banaria auditor. The records
of Philamgen itself are the best refutation against figures made as an afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where the
figures would be reconciled. Philamgen refused to meet with him and, instead, terminated the agency agreement.
After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of credits representing the commission due from Delta and other accounts,
Valenzuela had overpaid Philamgen the amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it committed a
mistake in its computation. The alleged error may be given credence if committed only once. But as earlier stated, the reconciliation of accounts was arrived at four
(4) times on different occasions where Philamgen was duly represented by its account executives. On the basis of these admissions and representations,
Philamgen cannot later on assume a different posture and claim that it was mistaken in its representation with respect to the correct beginning balance as of July
1977 amounting to P744,159.80. The Banaria audit report commissioned by Philamgen is unreliable since its results are admittedly based on an unconfirmed and
unaudited beginning balance of P1,758,185.43 as of August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela after the controversy has started. In fact, after hearing
plaintiffs have already rested their case.
The results of said audit were presented in Court to show plaintiff Arturo P. Valenzuela's accountability to defendant PHILAMGEN. However,
the auditor, when presented as witness in this case testified that the beginning balance of their audit report was based on an unaudited
amount of P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was unverified and merely supplied by the officers of defendant
PHILAMGEN.
Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P. Valenzuela's balance as of 1978 amounted to only P3,865.59, not
P826,128.46 as stated in defendant Bienvenido M. Aragon's letter dated December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in
defendant's Exhibit 46 (Audit Report of Banaria dated December 24, 1980).
These glaring discrepancy (sic) in the accountability of plaintiff Arturo P. Valenzuela to defendant PHILAMGEN only lends credence to the
claim of plaintiff Arturo P. Valenzuela that he has no outstanding account with defendant PHILAMGEN when the latter, thru defendant
Bienvenido M. Aragon, terminated the General Agency Agreement entered into by plaintiff (Exhibit A) effective January 31, 1979 (see
Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has shown that as of October 31, 1978, he has overpaid defendant PHILAMGEN in the
amount of P53,040.37 (Exhibit "EEE", which computation was based on defendant PHILAMGEN's balance of P744,159.80 furnished on
several occasions to plaintiff Arturo P. Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ and , ZZ2).
Prescinding from the foregoing, and considering that the private respondents terminated Valenzuela with evidentmala fide it necessarily follows that the former are
liable in damages. Respondent Philamgen has been appropriating for itself all these years the gross billings and income that it unceremoniously took away from
the petitioners. The preponderance of the authorities sustain the preposition that a principal can be held liable for damages in cases of unjust termination of
agency. In Danon v. Brimo, 42 Phil. 133 [1921]), this Court ruled that where no time for the continuance of the contract is fixed by its terms, either party is at liberty
to terminate it at will, subject only to the ordinary requirements of good faith. The right of the principal to terminate his authority is absolute and unrestricted, except
only that he may not do so in bad faith.
The trial court in its decision awarded to Valenzuela the amount of Seventy Five Thousand Pesos (P75,000,00) per month as compensatory damages from June
1980 until its decision becomes final and executory. This award is justified in the light of the evidence extant on record (Exhibits "N", "N-10", "0", "0-1", "P" and "P1") showing that the average gross premium collection monthly of Valenzuela over a period of four (4) months from December 1978 to February 1979, amounted
to over P300,000.00 from which he is entitled to a commission of P100,000.00 more or less per month. Moreover, his annual sales production amounted to
P2,500,000.00 from where he was given 32.5% commissions. Under Article 2200 of the new Civil Code, "indemnification for damages shall comprehend not only
the value of the loss suffered, but also that of the profits which the obligee failed to obtain."

The circumstances of the case, however, require that the contractual relationship between the parties shall be terminated upon the satisfaction of the judgment. No
more claims arising from or as a result of the agency shall be entertained by the courts after that date.
ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and resolution of April 27, 1988 of respondent court are hereby SET
ASIDE. The decision of the trial court dated January 23, 1986 in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE
HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall
earn only legal interests without any adjustments under Article 1250 of the Civil Code and that the contractual relationship between Arturo P. Valenzuela and
Philippine American General Insurance Company shall be deemed terminated upon the satisfaction of the judgment as modified.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36585 July 16, 1984
MARIANO DIOLOSA and ALEGRIA VILLANUEVA-DIOLOSA, petitioners,
vs.
THE HON. COURT OF APPEALS, and QUIRINO BATERNA (As owner and proprietor of QUIN BATERNA
REALTY), respondents.
Enrique L. Soriano for petitioners.
Domingo Laurea for private respondent.

RELOVA, J.:
Appeal by certiorari from a decision of the then Court of Appeals ordering herein petitioners to pay private
respondent "the sum of P10,000.00 as damages and the sum of P2,000.00 as attorney's fees, and the costs."
This case originated in the then Court of First Instance of Iloilo where private respondents instituted a case of
recovery of unpaid commission against petitioners over some of the lots subject of an agency agreement that were
not sold. Said complaint, docketed as Civil Case No. 7864 and entitled: "Quirino Baterna vs. Mariano Diolosa and
Alegria Villanueva-Diolosa", was dismissed by the trial court after hearing. Thereafter, private respondent elevated
the case to respondent court whose decision is the subject of the present petition.
The parties petitioners and respondents-agree on the findings of facts made by respondent court which are
based largely on the pre-trial order of the trial court, as follows:
PRE-TRIAL ORDER
When this case was called for a pre-trial conference today, the plaintiff, assisted by Atty. Domingo
Laurea, appeared and the defendants, assisted by Atty. Enrique Soriano, also appeared.
A. During the pre-trial conference the parties, in addition to what have been admitted in the
pleadings, have agreed and admitted that the following facts are attendant in this case and that they
will no longer adduce evidence to prove them:

1. That the plaintiff was and still is a licensed real estate broker, and as such licensed
real estate broker on June 20, 1968, an agreement was entered into between him as
party of the second part and the defendants spouses as party of the first part,
whereby the former was constituted as exclusive sales agent of the defendants, its
successors, heirs and assigns, to dispose of, sell, cede, transfer and convey the lots
included in VILLA ALEGRE SUBDIVISION owned by the defendants, under the
terms and conditions embodied in Exhibit "A", and pursuant to said agreement
(Exhibit "A"), the plaintiff acted for and in behalf of the defendants as their agent in
the sale of the lots included in the VILLA ALEGRE SUBDIVISION;
2. That on September 27, 1968, the defendants terminated the services of plaintiff as
their exclusive sales agent per letter marked as Exhibit "B", for the reason stated in
the latter.
B. During the trial of this case on the merit, the plaintiff will adduce by competent evidence the
following facts:
1. That as a real estate broker, he had sold the lots comprised in several
subdivisions, to wit: Greenfield Subdivision, the Villa Beach Subdivision, the Juntado
Subdivision, the St. Joseph Village, the Ledesma Subdivision, the Brookside
Subdivision, the Villa Alegre Subdivision, and Cecilia Subdivision, all in the City of
Iloilo except St. Joseph which is in Pavia Iloilo.
2. That the plaintiff, as a licensed real estate broker, has been seriously damaged by
the action of the defendants in rescinding, by Exhibit "B", the contract (Exhibit "A") for
which the plaintiff suffered moral damages in the amount of P50,000.00, damages to
his good will in the amount of P100,000.00, for attorney's fees in the amount of
P10,000.00 to protect his rights and interests, plus exemplary damages to be fixed
by the Court.
3. That the plaintiff is entitled to a commission on the lots unsold because of the
rescission of the contract.
C. The defendants during the trial will ill prove by competent evidence the following:
1. That the plaintiff's complaint was filed to make money out of the suit from
defendants, to harrass and to molest defendants;
2. That because of the unjustified and unfounded complaint of the plaintiff, the
defendants suffered moral damages in the amount of P50,000.00, and that for the
public good, the court may order the plaintiff to pay the defendants exemplary
damages in the amount of P20,000.00, plus attorney's fees of P10,000.00.
D. Contentions of the parties:
1. The plaintiff contends:
(a) That under the terms of the contract (Exhibit "A") the plaintiff had
unrevocable authority to sell all the lots included in the Villa Alegre
Subdivision and to act as exclusive sales agent of the defendants
until all the lots shall have been disposed of;

(b) That the rescission of the contract under Exhibit "B", contravenes
the agreement of the parties.
2. The defendants contend:
(a) That they were within their legal right to terminate the agency on
the ground that they needed the undisposed lots for the use of the
family;
(b) That the plaintiff has no right in law to case for commission on lots
that they have not sold.
E. The parties hereby submit to the Court the following issues:
1. Whether under the terms of Exhibit "A" the plaintiff has the irrevocable right to sen
or dispose of all the lots included within Villa Alegre Subdivision;
2. Can the defendants terminate their agreement with the plaintiff by a letter like
Exhibit "B"?
F. The plaintiff submitted the following exhibits which were admitted by the defendants:
Exhibit "A" agreement entered into between the parties on June 20, 1968 whereby
the plaintiff had the authority to sell the subdivision lots included in Villa Alegre
subdivision;
Exhibit "B" Letter of the defendant Alegria V. Diolosa dated September 27, 1968
addressed to the plaintiff terminating the agency and rescinding Exhibit "A" for the
reason that the lots remained unsold lots were for reservation for their grandchildren.
The Court will decide this case based on the facts admitted in the pleadings, those agreed by the
parties during the pre-trial conference, and those which they can prove during the trial of this case, in
accordance with the contention of the parties based on the issues submitted by them during the pretrial conference.
SO ORDERED.
Iloilo City, Philippines, August 14, 1969.
(SGD) VALERIO V.
ROVIRA
Judge
(pp. 22-25, Rollo)
The only issue in this case is whether the petitioners could terminate the agency agreement, Exhibit "A", without
paying damages to the private respondent. Pertinent portion of said Exhibit "A" reads:
That the PARTY OF THE FIRST PART is the lawful and absolute owner in fee simple of VILLA
ALEGRE SUBDIVISION situated in the District of Mandurriao, Iloilo City, which parcel of land is more
particularly described as follows, to wit:

A parcel of land, Lot No. 2110-b-2-C, PSD 74002, Transfer Certificate of Title No.
T_____ situated in the District of Mandurriao, Iloilo, Philippines, containing an area of
39016 square meters, more or less, with improvements thereon.
That the PARTY OF THE FIRST PART by virtue of these presents, to enhance the sale of the lots of
the above-described subdivision, is engaging as their EXCLUSIVE SALES AGENT the PARTY OF
THE SECOND PART, its successors, heirs and assigns to dispose of, sell, cede, transfer and convey
the above-described property in whatever manner and nature the PARTY OF THE SECOND PART,
with the concurrence of the PARTY OF THE FIRST PART, may deem wise and proper under the
premises, whether it be in cash or installment basis, until all the subject property as subdivided is
fully disposed of. (p. 7 of Petitioner's brief. Emphasis supplied).
Respondent court, in its decision which is the subject of review said:
Article 1920 of the Civil Code of the Philippines notwithstanding, the defendants could not terminate
the agency agreement, Exh. "A", at will without paying damages. The said agency agreement
expressly stipulates ... until all the subject property as subdivided is fully disposed of ..." The
testimony of Roberto Malundo(t.s.n. p. 99) that the plaintiff agreed to the intention of Mrs. Diolosa to
reserve some lots for her own famay use cannot prevail over the clear terms of the agency
agreement. Moreover, the plaintiff denied that there was an agreement to reserve any of the lots for
the family of the defendants. (T.s.n. pp. 16).
There are twenty seven (27) lots of the subdivision remaining unsold on September 27, 1968 when
the defendants rescinded the agency agreement, Exhibit "A". On that day the defendants had only
six grandchildren. That the defendants wanted to reserve the twenty seven remaining lots for the six
grandchildren is not a legal reason for defendants rescind the agency agreement. Even if the
grandchildren were to be given one lot each, there would still be twenty-one lots available for sale.
Besides it is undisputed that the defendants have other lands which could be reserved for their
grandchildren. (pp. 26-27, Rollo)
The present appeal is manifestly without merit.
Under the contract, Exhibit "A", herein petitioners allowed the private respondent "to dispose of, sell, cede, transfer
and convey ... until out the subject property as subdivided is fully disposed of." The authority to sell is not
extinguished until all the lots have been disposed of. When, therefore, the petitioners revoked the contract with
private respondent in a letter, Exhibit "B"
Dear Mr. Baterna:
Please be informed that we have finally decided to reserve the remaining unsold lots, as of this date
of our VILLA ALEGRE Subdivision for our grandchildren.
In view thereof, notice is hereby served upon you to the effect that our agreement dated June 20,
1968 giving you the authority to sell as exclusive sales agent of our subdivision is hereby rescinded.
Please be duly guided.
Very truly yours,
(SGD) ALEGRIA V. DIOLOSA
Subdivision Owner

(p. 11 of Petitioner's Brief)

they become liable to the private respondent for damages for breach of contract.
And, it may be added that since the agency agreement, Exhibit "A", is a valid contract, the same may be rescinded
only on grounds specified in Articles 1381 and 1382 of the Civil Code, as follows:
ART. 1381. The following contracts are rescissible:
(1) Those which are entered in to by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are
the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other name
collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission.
ART. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor
could not be compelled at the time they were effected, are also rescissible."
In the case at bar, not one of the grounds mentioned above is present which may be the subject of an action of
rescission, much less can petitioners say that the private respondent violated the terms of their agreement-such as
failure to deliver to them (Subdivision owners) the proceeds of the purchase price of the lots.
ACCORDINGLY, the petition is hereby dismissed without pronouncement as to costs.
SO ORDERED.
[G.R. No. 66541. November 20, 1990.]
GUARDEX ENTERPRISES and/or MARCELINA A. ESCANDOR, Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION and JUMBEE ORBETA, Respondents.
Rogelio B. De Guzman, for Petitioners.
Vicente R. Guzman for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; CRIMINAL PROCEDURE; SEARCH WARRANT; PROBABLE CAUSE; DEFINITION AND REQUISITES THEREOF. The right against unreasonable searches and
seizures is guaranteed under Article III (Bill of Rights), Section 2 of the 1987 Constitution of the Philippines. Under this provision, the issuance of a search warrant is justified
only upon a finding of probable cause. Probable cause for a search has been defined as such facts and circumstances which would lead a reasonably discreet and prudent man to
believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched (Burgos, Sr. v. Chief of Staff, G.R.
No. 64261, Dec. 26, 1984, 133 SCRA 800). In determining the existence of probable cause, it is required that: 1) the judge (or) officer must examine the . . witnesses
personally; 2) the examination must be under oath; and (3) the examination must be reduced to writing in the form of searching questions and answers (Marinas v. Sioco, 104
SCRA 403, Ponsica v. Ignalaga, G.R. No. 72301, July 31, 1987, 152 SCRA 647). These requirements are provided under Section 4, Rule 126 of the New Rules of Criminal
Procedure.
2. ID.; ID.; ID.; ID.; FINDING OR OPINION THEREOF BY THE EXAMINING JUDGE, MUST BE SUPPORTED BY THE RECORD; NOT OBSERVED IN THE CASE AT BAR. It has been
ruled that the existence of probable cause depends to a large degree upon the finding or opinion of the judge conducting the examination (Luna v. Plaza, G.R. No. L-27511, Nov.
29, 1968), however, the opinion or finding of probable cause must, to a certain degree, be substantiated or supported by the record. In this case, We find that the requirement
mandated by the law and the rules that the judge must personally examine the applicant and his witnesses in the form of searching questions and answers before issuing the
warrant, was not sufficiently complied with. The applicant himself was not asked any searching question by Judge Magallanes. The records disclose that the only part played by
the applicant, Lieutenant Rojas was to subscribe the application before Judge Magallanes. The application contained pre-typed questions, none of which stated that applicant had
personal knowledge of a robbery or a theft and that the proceeds thereof are in the possession and control of the person against whom the search warrant was sought to be

issued. In the case of Roan v. Gonzales, G.R. No. 71410, Nov. 25, 1986, 145 SCRA 687, citing the case of Mata v. Bayona, G.R. No. 50720, March 26, 1984, 128 SCRA 388,
where the applicant himself was not subjected to an interrogation but was questioned only "to ascertain, among others, if he knew and understood (his affidavit) and only
because the application was not yet subscribed and sworn to," We held that: "It is axiomatic that the examination must be probing and exhaustive, not merely routinary or pro
forma, if the claimed probable cause is to be established. The examining magistrate must not simply rehash the contents of the affidavit but must make his own inquiry on the
intent and justification of the application."
cralaw virtua1aw library

3. ID.; ID.; ID.; ARTICLES SOUGHT TO BE SEIZED, MUST BE DESCRIBED WITH PARTICULARITY. Another infirmity of Search Warrant No. 181 is its generality. The law requires
that the articles sought to be seized must be described with particularity. The items listed in the warrant, to wit: "NAPOCOR Galvanized bolts, grounding motor drive assembly,
aluminum wires and other NAPOCOR Towers parts and line accessories" are so general that the searching team can practically take half of the business of Kener Trading, the
premises searched. Kener Trading, as alleged in petitioners petition before respondent Court of Appeals and which has not been denied by respondent, is engaged in the
business of buying and selling scrap metals, second hand spare parts and accessories and empty bottles. Far more important is that the items described in the application do not
fall under the list of personal property which may be seized under Section 2, Rule 126 of the Rules on Criminal Procedure because neither the application nor the joint deposition
alleged that the item/s sought to be seized were: a) the subject of an offense; b) stolen or embezzled property and other proceeds or fruits of an offense; and c) used or
intended to be used as a means of committing an offense.
4. ID.; ID.; ID.;SEIZURE OF INCRIMINATING ARTICLES, CANNOT VALIDATE AN INVALID WARRANT. No matter how incriminating the articles taken from the petitioner may be,
their seizure cannot validate an invalid warrant. Again, in the case of Mata v. Bayona, G.R. No. 50720, March 26, 1984, 128 SCRA 388: ". . . that nothing can justify the issuance
of the search warrant but the fulfillment of the legal requisites. It might be well to point out what has been said in Asian Surety & Insurance Co., Inc. v. Herrera: It has been said
that of all the rights of a citizen, few are of greater importance or more essential to his peace and happiness than the right of personal security, and that involves the exemption
of his private affairs, books and papers from inspection and scrutiny of others. While the power to search and seize is necessary to the public welfare, still it must be exercised
and the law enforced without transgressing the constitutional rights of the citizens, for the enforcement of no statute is of sufficient importance to justify indifference to the basic
principles of government." "Thus, in issuing a search warrant the Judge must strictly comply with the requirements of the Constitution and the statutory provisions. A liberal
construction should be given in favor of the individual to prevent stealthy encroachment upon, or gradual depreciation of the rights secured by the Constitution. No presumption
of regularity are to be invoked in aid of the process when an officer undertakes to justify it."

DECISION

NARVASA, J.:

A claim for alleged unpaid commissions of an agent is what is basically involved in the action at bar. Somehow, it twice escaped outright rejection for lack of jurisdiction in the
Department of Labor where the case was resolved at the first instance and on appeal. Both the Labor Arbiter and the National Labor Relations Commission appeared unaware of
the utter lack of labor-related issues in the parties conflicting contentions as to the existence of agency relations between them, and proceeded to decide the case. Neither of
them of course had competence to do so. Be that as it may, the instant petition for certiorari will be decided on its merits to the end that the controversy may now be laid to rest
without further proceedings.
chanroble s virtual lawlibrary

The protagonists in this case are:

chanrob1es virtual 1aw library

1) Marcelina A. Escandor engaged, under the name and style of Guardex Enterprises, in (a) the manufacture and sale of fire-fighting equipment such as fire extinguishers, fire
hose cabinets and related products, and (b) occasionally, the building or fabrication of fire trucks; and
2) Jumbee Orbeta a "freelance" salesman. 1
It appears that Orbeta somehow learned that Escandor had offered to fabricate a fire truck for Rubberworld (Phil.) Inc. He wrote to Escandor inquiring about the amount of
commission for the sale of a fire truck. Escandor wrote back on the same day to advise that it was P15,000.00 per unit. Four days later, Orbeta offered to look after (follow-up)
Escandors pending proposal to sell a fire truck to Rubberworld, and asked for P250.00 as representation expenses. Escandor agreed and gave him the money.
When no word was received by Escandor from Orbeta after three days, she herself inquired in writing from Rubberworld about her offer of sale of a fire truck. Having apparently
received an encouraging response, Escandor sent Rubberworld a revised price quotation some ten days later.
In the meantime, Orbeta sold to other individuals some of Escandors fire extinguishers, receiving traveling expenses in connection therewith as well as the corresponding
commissions. He then dropped out of sight.
About seven months afterwards, Escandor herself finally concluded a contract with Rubberworld for the latters purchase of a fire truck. The transaction was consummated with
the delivery of the truck and full payment thereof by Rubberworld.
At this point, Orbeta suddenly reappeared and asked for his commission for the sale of the fire truck to Rubberworld. Escandor refused, saying that he had had nothing to do with
the offer, negotiation and consummation of the sale.
Insisting that he was entitled to the commission, Orbeta filed a complaint against Escandor with the Ministry of Labor. The Labor Arbiter agreed with him and rendered judgment
in his favor, on August 26, 1982. That judgment was affirmed by the National Labor Relations Commission on December 29, 1983, on appeal taken by Escandor. 2 Hence, this
petition for certiorari, to annul those judgments as having been rendered with grave abuse of discretion if not indeed without or in excess of jurisdiction.
It is claimed that an implied agency had been created between Escandor and Orbeta on the basis of the following circumstances:

chanroble s virtual lawlibrary

1) the alleged verbal authority given to him to offer a fire truck to Rubberworld;
2) the alleged written authority to sell the truck contained in a letter of Escandors dated August 14, 1978;
3) Escandors having given Orbeta P250.00 as representation expenses; and
4) Orbetas submission of a price quotation to Rubberworld and his having arranged a meeting between Escandor and Rubberworlds Purchasing Manager.
The circumstances have not been correctly read by Orbeta and his co-respondents.
Escandor denies that she had ever given Orbeta any such verbal authority. Indeed, months prior to Orbetas approaching Escandor, the latter had already made a written offer of
a fire truck to Rubberworld. All that she consented to was for Orbeta to "follow up" that pending offer. In truth, it does not even appear that on the strength of this
"arrangement" vague as it was Orbeta undertook the promised follow-up at all. He reported nothing of his efforts or their fruits to Escandor. It was Escandor who, in the
months that followed her initial meeting with Orbeta, determinedly pushed the Rubberworld deal. Orbeta was simply nowhere to be found. Furthermore, it seems fairly evident
that the "representation allowance" of P250 was meant to cover the expenses for the "follow-up" offered by Orbeta an ambiguous fact which does not of itself suggest the
creation of an agency and is not at all inconsistent with the theory of its absence in this case.
Even a finding that under these circumstances, an agency had indeed been constituted will not save the day for Orbeta, because nothing in the record tends to prove that he
succeeded in carrying out its terms or even as much as attempted to do so. The evidence in fact clearly indicates otherwise. The terms of Escandors letter of August 14, 1978
assuming that it was indeed an "authority to sell," as Orbeta insists are to the effect that entitlement to the P15,000 commission is contingent on the purchase by a customer
of a fire truck, the implicit condition being that the agent would earn the commission if he was instrumental in bringing the sale about. Orbeta certainly had nothing to do with
the sale of the fire truck, and is not therefore entitled to any commission at all.
Furthermore, even if Orbeta is considered to have been Escandors agent for the time he was supposed to "follow up" the offer to sell, such agency would have been deemed
revoked upon the resumption of direct negotiations between Escandor and Rubberworld, Orbeta having in the meantime abandoned all efforts (if indeed any were exerted) to
secure the deal in Escandors behalf.
chanrobles law library : red

It has of course already been stated at the outset that, given the sole issue raised by the parties concededly from the cases inception (i.e., whether or not Orbeta is Escandors
agent as regards the sale of a fire truck to Rubberworld), the competence to resolve the controversy did not pertain to either the Labor Arbiter or the NLRC. The jurisdiction

vested in them by the Labor Code extends, generally speaking, only to cases arising from employer-employee relationships.3 What has all along been at issue here, as advanced
by the parties themselves and as is evident from the facts, is the existence of a contract of agency 4 not employment or lease of services. It is indeed a puzzle how the
fundamental differences between the two 5 altogether escaped not only the parties counsel in this case but also the tribunals before which it had been brought. Nevertheless,
since no one has thought to question their authority even up to this late stage, as in fact all the parties appear to have completely accepted the validity of their exercise of
jurisdiction over the case, the Court has opted, as already stated, to render judgment on its merits and end the controversy once and for all. 6
WHEREFORE, the petition for certiorari is GRANTED, and the judgment of the National Labor Relations Commission dated December 29, 1983, and that of the Labor Arbiter dated
August 26, 1982, are hereby REVERSED and SET ASIDE and another one rendered dismissing respondent Jumbee Orbetas claim for unpaid commissions.
chanrobles virtual lawlibrary

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78295 & 79917 April 10, 1989
ATTORNEY CELSO D. LAVIA, REMEDIOS M. MUYOT, SPOUSES VIRGILIO D. CEBRERO and SEGUNDINA
MAGNO-CEBRERO, petitioners,
vs.
HONORABLE COURT OF APPEALS and JOSEFINA C. GABRIEL, respondents.
Arturo A. Alafriz & Associates for petitioners.
Ramon A. Academia for private respondent.

GRIO-AQUINO, J.:
Two petitions were filed in this Court to review: (1) the contempt resolution dated May 4, 1987, of the Court of
Appeals, and (2) its decision dated September 15, 1987 in a special civil action of certiorari (CA-G.R. SP No.
11260).
G.R. No. 78295.
Assailed in G.R. No. 78295 is the resolution dated May 4, 1987 of the Court of Appeals: (a) annulling Judge
Vicencio's order cancelling the notice of lis pendens on the title of the disputed property; (b) ordering the Register of
Deeds of Manila to revive the said notice of lis pendens; and (c) requiring Judge Vicencio, his branch clerk of court,
Virgilio Caballero, and petitioner, Attorney Celso Lavia, to show cause, within one week from notice, why they
should not be punished for contempt of court for having disobeyed the temporary restraining order of the Court of
Appeals.
On April 6, 1983, Maria Carmen Gabriel y Paterno, single, 72 years old, executed a donation mortis causa in favor
of her widowed sister-in-law, Josefina C. Gabriel, 75 years of age, over a 3,081 square-meter parcel of land with
improvements in Sampaloc, Manila, covered by Transfer Certificate of Title No. 155865 in Carmen's name. The
donation was thumbmarked by Carmen before Notary Public Jose T. Constantino. It was accepted by the donee in
the same instrument (pp. 77-82 & 293, Rollo, G.R. No. 79917).
Four months later, on August 11, 1983, Carmen, who was already gravely ill with breast cancer, executed a Last Win
And Testament in which she bequeathed the same Sampaloc property to her cousin and companion, Remedios C.
Muyot, and willed a small 240-square-meter lot in Antipolo, Rizal (TCT No. 278-6) to Josefina. She named a friend,
Concepcion M. De Garcia, as executrix of her will (pp. 288-291, Rollo, G.R. No. 79917).

On August 15, 1983, Carmen executed a General Power of Attorney appointing Remedios M. Muyot, as her
attomey-in-fact for the following purposes:
1. To administer, take charge, and manage for my sole benefit, all my properties,
whether real or personal, wheresoever located;
2. To collect, demand and recover all debts, notes or sums of money due me now or
which in the future may become due or payable to me, and for this purpose, to issue
such receipts, papers, or deeds in my name and stead; to cash or endorse checks
drawn in my favor, to deposit in, or withdraw from, any accounts with any banks
wherever I may have savings, checking, or time deposit accounts;
3. To execute, sign, authenticate, and enter into any and all contracts and
agreements for me and in my name with any person or entity; and, if necessary to
settle my personal obligations, such as for medical expenses, to mortgage or to
dispose of for value any or portion of any of my properties, whether real or personal;
and
4. To bring suit, defend, and enter into compromises in my name and stead, in
connection with actions brought for or against me, of whatever nature and kind.
(Annex D, p. 61, Rollo, G.R. No. 79917.)
On November 3, 1983, Josefina registered an adverse claim on the title of the Sampaloc property based on the
donation made by Carmen in her favor (p. 98, Rollo, G.R. No. 79917).
The next day, November 4, 1983, Remedios Muyot, as Carmen's attorney- in-fact, hired Atty. Celso D. Lavia, as
Carmen's counsel, on a 30% contingent fee basis (Annex E, p. 62, Rollo, G.R. No. 79917).
On November 19, 1983, Carmen thumbmarked an "AFFIDAVIT OF DENIAL" repudiating the donation of the
Sampaloc property to Josefina because it was allegedly procured through fraud and trickery. She alleged that in
April 1983, she still could sign her name, and that she had no intention of donating the property to Josefina who had
not done her any favor and in fact abandoned her during her illness (pp. 100 and 113, Rollo, G.R. No. 79917).
On the same occasion, November 19, 1983, she thumbmarked a "REVOCATION OF DONATION" before Notary
Public James Beltran (p. 85, Rollo, G.R. No. 79917).
Two days later, on November 21, 1983, Remedios Muyot, as Carmen's attorney-in-fact, sold the Sampaloc property
to Virgilio D. Cebrero for an alleged consideration of P2,664,655 (p. 88, Rollo, G.R. No. 79917).
On November 29, 1983, Carmen passed away (Annex C, p. 83, Rollo, G.R. No. 79917).
On December 1, 1983, the "REVOCATION OF DONATION" was registered on the back of Carmen's TCT No.
155865 (p. 119, Rollo, G.R. No. 79917).
On December 5, 1983, Josefina filed a complaint in the Regional Trial Court of Manila against Carmen's estate and
the Register of Deeds of Manila to annul the Deed of Revocation of Donation (Civil Case No. 83-21629). She
alleged that the deed of revocation, made only ten (10) days before Carmen's death, was false and fictitious. She
asked the court to appoint an administrator ad litem for the estate of Carmen P. Gabriel (Annex B, p. 55, Rollo, G.R.
No. 79917). Upon filing the complaint, she caused to be recorded a Notice of Lis Pendens on the title of the property
(p. 98, Rollo, G.R. No. 79917).

Without appointing a special administrator for Carmen's estate, the court caused summons to be served on the
estate. The summons was received by Remedios Muyot (Annex C, p. 60, Rollo, G.R. No. 79917).
On January 24, 1984, the Cebreros registered the sale of the Sampaloc property to them and obtained TCT No.
158305 in their names (p. 90, Rollo, G.R. No. 79917).
On February 6, 1984, Josefina's complaint was amended to implead Muyot and the Cebrero spouses as additional
defendants. In addition to the original causes of action, the amended complaint sought the nullification of Muyot's
General Power of Attorney and the sale of the Sampaloc property to the Cebrero spouses (Annex G, p. 68, Rollo,
G.R. No. 79917).
Atty. Lavia filed an Answer (later an "Amended Answer with Compulsory Counter-claim") for the Estate and Muyot
(Annexes H and I, pp. 91 and 105, Rollo, G.R. No. 79917).
Thereupon, Josefina filed a motion to disqualify him on the ground that his authority as counsel for Carmen was
extinguished upon her death. She also assailed the service of summons to the decedent's Estate through Muyot
and reiterated her motion for the appointment of a special administrator for the Estate. Atty. Lavia opposed the
motions (Annexes K and L, pp. 125 and 130, Rollo, G.R. No. 79917).
On September 23, 1986, Judge Vicencio denied Josefina's motion to disqualify Atty. Lavia. He also denied the
motion to appoint a special administrator for the Estate "since the deceased left a Will naming an administratrix
(executrix) and the latter has accepted the trust." He sustained his court's jurisdiction over the Estate based on the
service of summons upon Muyot (Annex P, p. 179, Rollo, G.R. No. 79917).
On January 23, 1987, Cebrero filed a motion to cancel the notice of lis pendens on the Sampaloc property (Annex
B, Rollo, G.R. No. 78295). Before Judge Vicencio could act on it, Josefina filed a petition for certiorari on February
6, 1987 in the Court of Appeals (CA-G.R. SP No. 11260) assailing Judge Vicencio's order of September 23,1986
(Annex P, p. 179, Rollo, G.R. No. 79919) and praying for a writ of preliminary injunction to stop him from further
proceeding in Civil Case No. 8321629 (Annex V, p. 236, Rollo, G.R. No. 79917). The Court of Appeals issued a
restraining order on February 10, 1987, ordering the lower court to "desist from proceeding with Civil Case No. 8321629 until further orders." (Annex W, p. 260, Rollo, G.R. No. 79917.)
However, on March 16, 1987, in spite of the restraining order, Judge Vicencio issued an order cancelling the notice
of lis pendens (Annex N, p. 170, Rollo, G.R. No. 78295) because he believed the Appellate Court's restraining order
of February 10, 1987 expired on March 3, 1987, i.e., after 20 days.
On motions of Josefina (Annex O, p. 153, Rollo, G.R. No. 79917 and Annex P, p. 178, Rollo, G.R. No. 78295), the
Court of Appeals, on May 4,1987, set aside Judge Vicencio's order and required him, as well as his branch clerk of
court and Attorney Lavia to show cause why they should not be punished for contempt of court. The Court of
Appeals held that the 20-day limitation on the life of a restraining order did not apply to it but only to lower court
"judges," for Section 5 of BP Blg. 224 provides that:
... the judge to whom the application for preliminary injunction was made, may issue a restraining
order to be effective only for a period of twenty days from date of its issuance. Within the said
twenty-day period, the judge must cause an order to be served on the defendant, requiring him to
show cause, at a specified time and place, why the injunction should not be granted ...
While the Appellate Court was aware that Section 8 of the Interim Rules uses the word "court" instead of "judges," it
opined that:

l. ... the Interim Rules was not meant to effect, modify or alter BP 224 which took
effect in 1982, subsequent to the enactment of BP 129, particularly so since BP 224
specifically governs the exclusive subject of restraining orders, whereas the Interim
Rules treats of the broad Judiciary Reorganization Act of 1981.
2. BP 224 is a legislative act laying down a substantive policy regulating the issuance
and effectivity of restraining orders issued by 'judges,' specifically decreeing a
limitation of 20 days to such orders of 'judges'.
The highest tribunal of the land in National Dental Supply Co. vs. Bibiano Meer, 90 Phil. 265 ... ruled
in no uncertain terms that the Supreme Court in the exercise of its rule-making power cannot repeal
or alter a substantive piece of legislation. (p. 49, Rollo, G.R. No. 78295.)
The Court of Appeals further observed that the application of BP Blg. 224 to "judges" only "springs from practical
considerations evident from the Rule itself." (p. 51, Rollo, G.R. No. 78295.) It pointed out that:
... Rule 58, as amended by BP 224 requires-upon issuance of a restraining order and within 20 days
from said issuance-that 'the judge must cause an order to be served on the defendant, requiring him
to show cause, at a specified time and place, why the injunction should not be granted, and
determine within the same period whether or not the preliminary injunction shall be granted . . In
other words, an actual hearing on the application for injunction must be scheduled; the parties must
be notified thereof, and immediately thereafter, the judge must resolve the application-all within
twenty (20) days from the date of issuance of the restraining order. The clearly recognized
implication being that after said period-whether the parties have already received notice or not,
whether the hearing has been conducted or not-the restraining order if not yet converted into an
injunction by then, automatically self-destructs. Certainly, while these pressing time and procedural
constraints may reasonably be brought to bear upon the Regional Trial Courts whose injunctive writs
may be enforced only within the narrow confines of their respective regions (Sec. 3[a], Interim Rules
and Guidelines), they cannot sensibly be imposed upon the Court of Appeals and the Honorable
Supreme Court whose territorial jurisdiction stretches to the many ends of our broad archipelago.
(Emphasis supplied.) (pp. 51-52, Rollo, G.R. No. 78295.)
On May 26, 1987, Lavia, Muyot, and Cebrero filed in this Court a petition for certiorari and prohibition (G.R. No.
78295) assailing that resolution. They prayed that the Court of Appeals be enjoined from further proceeding in CAG.R. SP No. 11260.
Without giving due course to the petition, We ordered the respondents to comment (p. 189, Rollo, G.R. No. 78295).
During the pendency of G.R. No. 78295, and eleven (11) months after the Court of Appeals issued the assailed
order on May 4, 1987, this Court rendered a divided opinion in another case, "Delbros Hotel Corporation vs. The
Intermediate Appellate Court, et al." (G.R. No. 72566, April 12,1988), defining the scope of BP Blg. 224. In a ten to
four decision with one abstention, this Court held:
The applicability of the above-quoted provision (Sec. 5, B.P. Blg. 224) to the then Intermediate
Appellate Court, now the Court of Appeals, can hardly be doubted. The Interim Rules and Guidelines
were promulgated to implement the Judiciary Reorganization Act of 1981 (B.P. Blg. 129) which
include the Intermediate Appellate Court among the courts organized thereunder. This is
emphasized in the preamble of the Interim Rules which states that the same shall apply to all inferior
courts according to the Constitution. The term 'inferior courts' as used therein refers to all courts
except the Supreme Court, the Sandiganbayan and the Court of Tax Appeals. Thus, paragraphs 14
and 15 of the Interim Rules expressly provide for Procedure in the Intermediate Appellate Court.

Indeed, if paragraph 8 of the Interim Rules were not intended to apply to temporary restraining
orders issued by the respondent Court, there would have been absolutely no reason for the inclusion
of said paragraph in the Interim Rules. The limited life-span of temporary restraining orders issued
by the regional trial courts and municipal trial courts is already provided for in B.P. Blg. 224. It was
precisely to include the Intermediate Appellate Court within the same limitation as to the effectivity of
its temporary restraining orders that B.P. Blg. 224 was incorporated in the Interim Rules, with the
significant change of the word 'judge' to 'court,' so as to make it clear and unequivocal that the
temporary restraining orders contemplated therein are those issued not only by trial judges but also
by justices of the appellate court. (Delbros Hotel Corporation vs. Intermediate Appellate
Court,supra.)
This decision sustains Judge Vicencio's, not the Court of Appeals', interpretation of BP Blg. 224. However, this
circumstance does not excuse his defiance of the Appellate Court's restraining order, for the heart of the issue in this
case, is not whether the Court of Appeals correctly interpreted BP Blg. 224, but whether petitioners' disobedience of
the Appellate Court's restraining order was contemptuous. We hold that it was.
Before the promulgation of the Delbros decision on April 12, 1988, there existed no jurisprudence interpreting
"judges" as used in BP Blg. 224, to include the justices of the Court of Appeals also. Hence, even if Judge Vicencio
thought that Court of Appeals justices were covered by BP Blg. 224, out of respect for the second highest court of
the land, he should have obeyed its explicit mandate for him to desist from proceeding with Civil Case No. 83-21629
"until further orders." His disobedience of that lawful order of the Court was contemptuous (Sec. 3-b, Rule 71, Rules
of Court). His rushing to lift the notice of lis pendens barely four (4) days before his retirement from the Bench on
March 20,1987, and while his own jurisdiction in the case was still in issue, puts his motives under a cloud.
If the petitioners wanted the Court of Appeals to hear Josefina's application for a preliminary writ of injunction within
twenty (20) days after it issued the temporary restraining order, they should have filed a motion to that effect, or,
they should have asked the Court to limit the duration of its restraining order. Instead, without notice to the other
party or to the Court of Appeals, they persuaded the trial judge to grant their pending motion to cancel the notice
of lis pendens. The secrecy that shrouded that maneuver is a badge of their bad faith and constitutes contempt for
the Appellate Court that issued the restraining order.
G.R. No. 79917.
During the pendency of G.R. No. 78295 in this Court, the Court of Appeals rendered a decision on September 15,
1987 in CA-G.R. SP No. 11260, granting Josefina's petition for certiorari, prohibition and mandamus. The dispositive
part of its decision reads:
WHEREFORE, based on all the foregoing considerations, judgment is hereby rendered: (1)
annulling the assailed order dated 12 January 1987 as well as its related earlier order of September
23, 1986; (2) declaring that the lower court did not acquire jurisdiction over the person of the estate
of Maria Carmen P. Gabriel; (3) ordering respondent Atty. Celso Lavia to refrain from representing
the estate of the deceased Maria Carmen P. Gabriel in Civil Case No. 8321629; and (4) declaring
that all pleadings, motions and papers filed by Atty. Lavia are sham and ordered expunged from the
records of said case.
Resolution of the contempt incident against respondent judge, Atty. Lavia and the branch clerk of
court of respondent judge is hereby held in abeyance pending the Supreme Court's resolution of
respondent's petition for review. (pp. 53-54, Rollo, G.R. No. 79917.)

Within the 30-day extension granted by this Court, Attorney Lavia, Remedios Muyot, and the Cebrero spouses
appealed by certiorari to this Court where their petition was docketed as G.R. No. 79917. The case was later
consolidated with G.R. No. 78295.
The Court of Appeals held that Attorney Lavia may not appear "as counsel for the estate of Carmen P. Gabriel
because his authority as her counsel was extinguished upon Carmen's death" (Art. 1919, Civil Code). It also held
that "respondent Remedios Muyot was not capacitated to receive summons for the estate because the general
power of attorney constituting her as agent of the deceased became inoperative upon the death of the principal."
The service of summons upon her was void (pp. 52-53, Rollo, G.R. No. 79917).
However, the Court held that a special administrator need not be appointed for the estate in Civil Case No. 8321629 as the last will and testament of Maria Carmen P. Gabriel had been allowed probate on 3 February 1987 in
Sp. Proc. No. 8423954 and letters testamentary had been issued to the duly designated executrix, Concepcion M.
De Garcia (p. 54, Rollo, G.R. No. 79917), to represent the Estate.
The petitioners allege in their petition for review of the decision that the Court of Appeals erred:
1. in holding that the trial court had not acquired jurisdiction over the estate of
Carmen P. Gabriel; and
2. in holding that Attorney Celso Lavia's authority as counsel for Carmen P. Gabriel
was extinguished upon her death.
The petitioners' argument that service of the summons on Remedios Muyot was valid and sufficient to vest
jurisdiction in the Court over the Estate of Carmen P. Gabriel, because Muyot was Carmen's attorney-in-fact, is not
correct. The estate of a dead person may only be summoned through the executor or administrator of his estate for
it is the executor or administrator who may sue or be sued (Sec. 3, Rule 3, Rules of Court) and who may bring or
defend actions for the recovery or protection of the property or rights of the deceased (Sec. 2, Rule 87, Rules of
Court). The general power of attorney appointing Remedios as Carmen's agent or attorney-in- fact was extinguished
upon Carmen's demise (Art. 1919[3], Civil Code; Ramos vs. Caoibes 94 Phil. 440; Hermosa vs. Longara 93 Phil.
977). Thereafter, Remedios was bereft of authority to represent Carmen.
The petitioner's contention that the agency was "constituted in the common interest of the principal and the agent"
and that hence it was not extinguished by the death of the principal (Art. 1930, Civil Code) is refuted by the
instrument itself which explicitly provided that the powers conferred on the agent were to be exercised for the "sole
benefit" of the principal, Carmen P. Gabriel (Annex D, p. 61, Rollo, G.R. No. 79917).
Carmen's death likewise divested Attorney Lavia of authority to represent her as counsel. A dead client has no
personality and cannot be represented by an attorney (Barrameda vs. Barbara, 90 Phil. 718, 723; Caisip vs. Hon.
Cabangon, 109 Phil. 150).
WHEREFORE, finding no reversible error in the appealed decision and orders of the Court of Appeals in CA-G.R.
SP No. 11260, the petitions for review are dismissed with costs against the petitioners.
SO ORDERED.

SEE Lim v. People, G.R. No. L-34338, November 21, 1984

SEE Orient Air Services v. CA, G.R. No. 76931, May 29, 1991
SEE Sevilla v. CA, G.R. Nos. L-41182-3, April 15, 1988
SEE Siasat v. IAC, G.R. No. L-67889, October 10, 1985

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-58794 August 24, 1984
SPOUSES LYDIA TERRADO & MARTIN ROSARIO, and DOMINGO FERNANDEZ, petitioners,
vs.
HON. COURT OF APPEALS, HON. FELICIDAD CARANDANG VILLALON, Judge, CFI of Pangasinan, Deputy Sheriff OSCAR SIBUNA of Pangasinan, and
GERUNCIO LACUESTA, respondents.
G.R. No. L-64489 August 24, 1984
SPOUSES LYDIA TERRADO & MARTIN ROSARIO, DOMINGO FERNANDEZ, and EMILIANO GARLITOSpetitioners,
vs.
INTERMEDIATE APPELLATE COURT, DEPUTY SHERIFF OF PANGASINAN FELIPE M. AQUINO, and GERUNCIO LACUESTA, respondents.
Gerry Calub and Ricardo Perez for petitioner in L-58794.
Rogelio Terrado for petitioner in L-64489.
Geruncio Lacuesta for and in his own behalf as private respondent in 58794 and 64489.

GUERRERO, J.:
Pursuant to Act No. 4041 of the Philippine Legislature approved January 21, 1983, the Fisheries situated in the locality known as Mangabul, Bayambang,
Pangasinan, and falling within Plan No. Ipd Ninety-two of the Bureau of Lands and recently declared by the courts as public land was reserved and the usufruct
thereof ceded to the municipality of Bayambang, Province of Pangasinan, to be used or disposed of in accordance with the general municipal law relative to the
letting of fisheries in municipal waters: Provided, That the timber and other forest products therein shall be placed under the administration and control of the forest
service; Provided further, that the cession shall not be interpreted as limiting the power of the Secretary of Agriculture and Natural Resources to prescribe rules
and regulations for the protection of game birds, mammals or fish within the area ceded to the municipality of Bayambang. (Section 1, Act 4041. This Act was
declared enforced by Proclamation No. 545 (1933).
On May 15, 1974, the Sanggunian Bayan of Bayambang, Pangasinan passed Resolution No. 35 enacting Ordinance NO. 8, series of 1974, establishing the
Bayambang Fishery and Hunting Park and Municipal Water Shed embracing all the vast area of the Mangabul Fisheries consisting of about 2,061 hectares with 19
fishponds and not less than 1,500 hectares of watershed area. In the said ordinance, the municipality designated appointed and constituted private respondent
Geruncio Lacuesta as Manager-Administrator for a period of 25 years, renewable for another 25 years, under the condition that said respondent shall pay the
municipality. a sum equivalent to 10% of the annual gross income that may be derived from the sale of forest products, wild game and fish, which amount shall not
be less than P200,000.00 annually. He was further required to post a bond in the amount of P200,000.00 to guaranty payment of the 10% due the municipality.
Municipal Ordinance No. 8 was approved by the Provincial Board of Pangasinan on October 11, 1974 and thereafter was forwarded to the then Secretary of
Agriculture and Natural Resources for approval pursuant to the provisions of the Fisheries Act, Act No. 4003.
On April 4, 1975, the Secretary disapproved the Ordinance because it grants fishery privileges to respondent Lacuesta without the benefit of competitive public
hearing in contravention of the provisions of Act 4003 as amended.
Respondent Lacuesta interposed an appeal from the disapproval by the Secretary of Agriculture and Natural Resources to the Office of the President but the
appeal was withdrawn by said respondent in his letter dated July 14, 1977.
The Municipality then informed respondent Lacuesta of the disapproval of the Ordinance by the Secretary of Agriculture & Natural Resources and directed him to
refrain and desist from acting as Administrator-Manager under the contract but the latter refused and insisted in maintaining possession of the fisheries. Inspite of
such refusal, the Sanggunian Bayan of Bayambang, Pangasinan passed Resolution No. 31, series of 1977, resolving to advertise for public bidding all fisheries at
the Mangabul area for four years and to direct the Municipal Treasurer to prepare the necessary notices of public bidding, and accordingly, the Municipal Mayor
and the Municipal Treasurer caused to issue a Notice of Public Bidding scheduled July 5, 6, and 7, 1977. Among the winning bidders were the petitioners herein,
the spouses Lydia Terrado and Martin Rosario and Domingo Fernandez who were immediately placed in possession of the Mangabul fisheries as of July 6, 1977.
Private respondent Geruncio Lacuesta immediately filed on July 8, 1977 a petition for prohibition and mandamus with damages with the Court of First Instance of
Pangasinan, Branch IX in San Carlos City, presided by Judge Augusto Saroca against the Municipal Mayor, the Municipal Treasurer, the Sanggunian Bayan and
the members thereof, praying that the respondent municipal officials named therein be prohibited from executing any contract of lease with the winning bidders
and from enforcing Resolution No. 31, series of 1977, and further asked that a temporary restraining order be issued against said respondent officials from
performing the acts enjoined.

Pursuant to the prayer in the petition for prohibition in Civil Case No. 516, Judge Saroca issued a restraining order enjoining and prohibiting all the respondents,
their agents, representatives and/or anybody acting for and on their own behalf, from executing any contract of lease with the winning bidders in the biddings
conducted on July 5, 6, and 7, 1977 and from enforcing Resolution No. 31, series of 1977 until further orders from the court. Respondents in this Civil Case No.
516 filed a motion to dissolve the temporary restraining order but was denied on August 17, 1977.
Upon ex-parte motion by Lacuesta asking that the Sheriff of the court be authorized to enforce the restraining order of July 11, 1977 and to arrest and keep in his
custody all persons violating the same, Judge Saroca issued on October 7, 1977 an order directing Deputy Sheriff Alberto V. Soriano to proceed to the Mangabul
fisheries and enforce the restraining order of July 11, 1977 against the respondent municipal officials, their agents and representatives and to arrest and keep in
custody any and - all persons found to be violating said order. Thereafter, the Deputy Sheriff informed the court on October 26, 1977 that he served copies of the
restraining order dated July 11, 1977 on all parties concerned and that they peacefully vacated and gave the possession of the fisheries without interposing any
formal objection, to the plaintiffs, Geruncio Lacuesta, et al.
Still in Civil Case No. 516, Lacuesta filed a petition dated September 16, 1977 asking that the defendants named in said petition including the spouses Lydia
Terrado Rosario and Martin Rosario and others be ordered to explain why they should not be punished for contempt and that they be arrested immediately and
kept in custody until they stop violating the restraining order of July 11, 1977, further alleging that said spouses employing misrepresentation, strategies, deceit,
threat and force took over the Mayor fishery and illegally fished therein and are continuing to fish the same including the Manansan Alangigan, Tubor and
Banawang na Dueg Fisheries which they had previously took over from the movant Lacuesta.
The situation became serious as on October 10, 1977 the Sanggunian Bayan passed Resolution No. 34, series of 1977 "requesting the assistance from the
Department of Natural Resources, the Philippine Constabulary, Department of Justice, the Provincial Fiscal, the Provincial Governor and other agencies, for them
to enjoin respondent from disturbing and interfering with the administration by the Municipality of Mangabul Fisheries and other areas."
In the meantime that these incidents were pending before Judge Saroca, the members of the Sanggunian Bayan as petitioners filed on November 15, 1977 a
petition for certiorari with the defunct Court of Appeals against Judge Saroca, the INP Station Commander, Deputy Sheriff Soriano, and Geruncio Lacuesta and
others assailing the order issued on July 11, 1977 as well as the order issued October 7, 1977 as null and void, the same having been issued without jurisdiction
and with grave abuse of discretion, the case docketed as CA-G.R. No. SP-07252-R. The appellate court denied the petition for certiorari and held that Judge
Saroca did not act without or in excess of jurisdiction or with grave abuse of discretion in issuing the restraining order of July 11, 1977. The Sanggunian Bayan
members elevated the case on a petition for review on certiorari, G.R. No. 49064 but was denied for lack of merit per Our resolution dated October 16, 1978.
While the certiorari proceeding was pending before the Court of Appeals, the resolution on the motion for contempt before Judge Saroca was held in abeyance but
upon final decision by the court, Lacuesta moved the court on July 15, 1979 to resolve the contempt motion as well as for the order of their arrest. After hearing,
Judge Saroca issued the order dated August 30, 1979 holding that the continued possession of the spouses Lydia Terrado Rosario and Martin Rollo Rosario as
winning bidders constituted disobedience to and unlawful interference with the temporary restraining order of July 11, 1977 and directed Deputy Sheriff Soriano to
enforce the July 11 and October 7, 1977 orders, to cause the arrest of said Rosario spouses including their agents and representatives and any and all person
representing themselves as winning bidders in the public bidding held on July v, 1977 and to hold them in custody until further orders of the court, unless said
spouses and their agents and the winning bidders voluntarily refrain from disobeying and interfering with the process of the court, in which case they may be
discharged from custody. In the same order, Judge Saroca set a pre-trial conference and hearing on the merits on September 25, 26, and 27, 1979.
Having been adjudged in contempt of court and their immediate arrest ordered by Judge Saroca in the order mentioned above dated August 30, 1979, the
spouses Lydia Terrado Rosario and Martin Rosario filed the petition for prohibition with the prayer for a writ of preliminary mandatory injunction assailing the
questioned order as null and void, having been issued in grave abuse of discretion amounting to lack of jurisdiction and praying that respondent Judge Saroca be
restrained from implementing the same, the petition docketed as CA-G.R. No. SP-09724.
Resolving the petition (CA-G.R. No. SP-09724), the Court of Appeals, acting through the Former Eleventh Division with Justices Victoriano, J., ponente, and
Reyes and Nocon, JJ., concurring, ruled and set aside the assailed order of August 30, 1979, holding that the Rosario spouses were not parties to the case,
hence, they could not be bound by the restraining order of July 11, 1977 which enjoined and prohibited the parties: "(1) from executing any contract of lease with
the winning bidders in the bidding conducted on July 5, 6, and 7, 1977; and/or (2) from enforcing resolution No. 31, series of 1977 of the Sangguniang Bayan of
Bayambang, Pangasinan, until further orders from this court." The order of Judge Saroca dated August 30, 1979 was, therefore, ordered set aside as having been
issued in excess of jurisdiction and with grave abuse of discretion. The decision of the Court of Appeals in CA-G.R. No. SP-09724 was promulgated January 24,
1980 thereby upholding the possession of the spouses Lydia Terrado and Martin Rosario.
Meanwhile, the Municipality of Bayambang, represented by Mayor Jaime P. Junio and the Sangguniang Bayan of Bayambang represented by the members
thereof, filed on September 5, 1979 Civil Case no. SCC-648 in the Court of First Instance of Pangasinan, Branch X, San Carlos City against Geruncio Lacuesta for
annulment of the contract entered into between the Municipality and Lacuesta under Ordinance No. 8 hereinbefore mentioned, injunction and damages with prayer
for the issuance of a writ of preliminary injunction. After the hearing of the incident for the issuance of the writ of preliminary injunction, Judge Saroca issued an
order dated November 15, 1979 granted the writ as prayed for and ordered the defendant Lacuesta, his agents, lawyers, representatives, laborers and other
person or persons under his employ to refrain and desist from interfering with and molesting the plaintiffs in the use of and in the exercise of plaintiffs' usufructury
rights until further orders from the court. On November 16, 1979, the day Judge Saroca retired from the service, he issued another order to the sheriff to cause
defendant Lacuesta to refrain from and desist from enforcing and implementing Resolution No. 35 enacting Ordinance No. 8, series of 1974 and the contract of
management and administration, restraining them further from interfering with and molesting the plaintiffs in the use of and in the exercise of the latters'
usufructuary rights until further orders from the court.
On November 23, 1979, Lacuesta elevated to the Supreme Court the November 15 and 16 orders of Judge Saroca in a petition for certiorari with prayer for
preliminary injunction docketed as G.R. No. 51984. In Our resolution of January 14, 1980, the petition for certiorari was denied for lack of merit. His motion for
reconsideration was also denied in Our resolution of February 18, 1980.
With the retirement of Judge Saroca, the case was transferred to Branch III, Court of First Instance of Pangasinan, Dagupan City, presided over by Judge
Felicidad Carandang-Villalon, the case now docketed and numbered as D-5118. Lacuesta then filed a Motion to Dissolve the Injunction and to Order Plaintiffs to

Vacate and Turn All the Fisheries to Defendants (the injunction previously issued by Judge Saroca dated November 15, 1979). The Motion was granted by Judge
Carandang-Villalon on the ground that 6 4 after the plaintiffs have recognized and confirmed the validity of the resolution and the contract, and after the defendant
had started to perform his duties and obligations under the contract, the legal and factual ground which led the court to issue the writ has ceased to exist, and
consequently, the dissolution of the writ of preliminary mandatory injunction dated November 15, 1979 appears warranted by prevailing circumstances." Plaintiff
Municipality moved for reconsideration which was denied in the court's order of March 9, 1981 which also ordered the issuance of the writ of execution after the
approval of defendant Lacuesta's bond of P200,000.00.
The plaintiff Municipality thereafter assailed the above orders of Judge Carandang-Villalon dated November 8, 1981 and March 9, 1981 in the former's petition for
certiorari with prayer for writ of preliminary injunction, the petition filed in the Court of Appeals and docketed as CA-G.R. 12586, dated June 16, 1981.
In the decision of the Court of Appeals, Seventh Division, promulgated September 29, 1981, the court held that "being bereft of merit, as shown above, the instant
petition is hereby denied due course and outrightly dismissed. Accordingly, the temporary restraining order heretofore issued is hereby lifted and the urgent motion
to lift restraining order filed on August 19, 1981 and on August 27, 1981 are hereby left unconsidered for having been rendered moot and academic by the
resolution." The motion for reconsideration of the decision was denied by resolution of the appellate court on November 11, 1981.
Meanwhile, when the Court of First Instance of Pangasinan, Branch III, Judge Carandang-Villalon presiding, received copy of the decision in SP-12586
promulgated September 29, 1981, the court issued an order on October 5, 1981 for the ex-prosecution of its previous order to dissolve the preliminary injunction
and place Lacuesta in possession of the contested fisheries and accordingly, a writ of execution was issued on October 7, 1981.
Another petition for certiorari was filed by the spouses Lydia Terrado and Martin Rosario and Domingo Fernandez docketed as CA-G.R. No. SP-13175, assailing
the issuance of the order and writ dated October 5 and 7, 1981 respectively for allegedly violating due process as they were issued before the lapse of the 15-day
reglementary period. In this petition, SP-3175, the court required respondent Judge and Lacuesta to comment, the same time issuing a temporary restraining order
against the assailed order and writ of October 5 and 7, 1981 of the respondent court.
On November 7, 1981, the appellate court (through the Seventh Division and ponente who handled both SP-12586 and SP-13175), rendered its resolution in SP13175 dismissing the petition for lack of merit and setting aside the order of October 14, 1981 to include the lifting of the restraining order of even date. The
appellate court ruled that:
Our decision in said CA-G.R. No. SP-12586 held in effect that the impugned orders (like the order of January 8, 1981), were properly issued
by the respondent court. Hence, those interlocutory orders, the effectivity of which were suspended by the certiorari proceedings in CA-G.R.
No. SP-12586, presumed to be immediately executory upon the lifting of the restraining order as done in the decision of September 29,
1981. This must be so, notwithstanding the filing on October 21, 1981 of an "Urgent Ex-Parte Motion For Extension" to file motion for
reconsideration of said decision because an injunction, once dissolved, cannot be revived except by a new exercise of judicial power, and no
appeal by a dissatisfied party can of itself revive it. (Watcon vs. Enriquez, 1 Phil. 480; Sitia Teco vs. Venture, 9 Phil. 497; II Martin, Rules of
Court, 1969 Ed., p. 84).
Thus, when respondent court issued its herein impugned order of October 5, 1981 and the Writ of Execution pursuant thereto on October 7,
1981, it was merely putting into effect the immediately operative interlocutory order dissolving the injunction. There was therefore, no abuse
of discretion.
When the resolution in SP-13175 was received in the lower court, Judge Villalon issued on November 6, 1981 an "Alias Writ of Execution and Possession" which
reiterated its writ of October 7, 1981. The alias writ was received by the Municipality, through counsel, on November 12, 1981.
On November 16, 1981, the Municipality of Bayambang, represented by its Mayor, filed another certiorari petition to annul the alias writ of November 6, 1981, in
CA-G.R. No. 13353 against Judge Carandang-Villalon and Geruncio Lacuesta, the petition being signed by Atty. Oliver O. Lozano.
Since CA-G.R. No. SP-12586 and CA-G.R. No. SP-13353 involve the same subject matter, the Special Sixth Division of the Court of Appeals to which CA-G.R.
No. SP-13353 was assigned or raffled, resolved in its Resolution of November 27, 1981 to consolidate the case with CA-G.R. No. SP-12586 then pending with the
Seventh Division of the Court of Appeals as to the plaintiff Municipality's motion for reconsideration.
The two certiorari petitions, CA-G.R. No. 12586 and CA G.R. No. SP-13353, now consolidated in the Seventh Division, were resolved in the Resolution dated
December 4, 1981, thus: "WHEREFORE, the foregoing considered, the petition in 13353 is hereby dismissed for being a scrap of paper, the temporary restraining
order heretofore issued is hereby lifted, and the scheduled hearing on December 10, 1981 hereby discontinued. The motion for reconsideration in SP-12586 is
hereby denied for lack of merit.
Since the Court of Appeals, Seventh Division, dismissed the petition in CA-G.R. No. SP-13353 as a mere scrap of paper because Atty. Oliver O. Lozano was not
authorized to represent the petitioner Municipality, Atty. Lozano submitted the required authority in his Motion for Reconsideration of the resolution dismissing the
petition, further praying that the resolution of the Sixth Division giving due course to the petition as well as the temporary restraining order issued therein be
reinstated or restored.
Acting on the motion of the Municipality entitled "Ex-Parte Reiteration of Motion for Restoration of Temporary Restraining Order" filed on December 22, 1981 and
the "Urgent Ex-Parte Motion to Stop Arrest of Petitioner's Laborers" filed on December 23, 198 1, the court in its Resolution of December 24, 1981 set the hearing
of the first motion on January 15, 1982 and as to the second motion, the court deemed "it wise and proper in the spirit of love and compassion this Christmas time,
to order that no arrests be ordered by the respondent court against persons involved in 'those fisheries in areas covered by existing lease contracts executed by
plaintiff Municipality in favor of entities and/or persons before November 15, 1979' until after the results of the November 15 hearing are received. ... In effect,
therefore, we are ordering, as it is hereby ordered that a partial temporary restraining order be issued only as involved the areas with existing lease contract
entered into by the Municipality prior to November 15, 1979.

After the hearing on January 15, 1982 as alluded to above, the court promulgated its Resolution dated January 28, 1982, holding that the pleadings signed by Atty.
Oliver O. Lozano are deemed valid for purposes of considering the incidents therein and that the impugned alias writ of execution issued by respondent court on
November 6, 1981 is hereby declared void only insofar as it has deleted the exception involving "those fisheries and areas covered by existing lease contract
executed by the plaintiff Municipality in favor of entities and/or persons before November 15, 1979. Further, the respondent court was directed to conduct a factual
determination of (a) who are the persons or what are the entities involved, and (b) the clearly specified areas covered by their contracts, and that prior to the
holding of such factual determination however, the respondent court was ordered to settle the nature of those "lease contracts" i.e., whether ordinary lease
contract over a fishery area or contract of lease of services. Finally, the Court of Appeals ordered that "in case the respondent court finds, after putting to rest the
nature of those lease contracts referred to in the original order of dissolution and after making the factual determination herein ordered, that such contracts no
longer exist, then the Partial Temporary Restraining Order above mentioned shall be deemed ineffective for having then become moot and academic The Motion
for Contempt of Court filed by Lacuesta on January 13, 1982 was also denied by the court.
Pursuant to the resolution of the Court of Appeals dated January 28, 1982 and in compliance therewith in conducting a factual determination of who are the
persons or what are the entities involved and the clearly specified areas covered by their contracts, Judge Villalon, after conducting hearings, submitted to the
appellate court in her Ist Indorsement dated April 30, 1982, stating that "it is definite that there are admittedly no areas covered by any existing lease contract
executed by the plaintiff Municipality in favor of entities and/or persons before November 15, 1979 within the contemplation of the Order dated January 8, 1981
which order has ordered the dissolution of the writ of preliminary mandatory injunction dated November 15, 1979 issued by then retired Hon. Judge Augusto
Saroca for reasons set forth in the Order.
Acting upon the above report of Judge Villalon, the Court of Appeals promulgated its Resolution dated July 7, 1982, resolving that "in view of the above, the partial
temporary restraining order has become ineffective for having then become moot and academic. WHEREFORE, the motion filed by private respondent is hereby
granted (Motion Ex-Parte for Total Lifting of Partial Restraining Order). The Partial Temporary Restraining Order issued on December 24, 1981 is hereby lifted and
set aside.
Two other petitions for certiorari were also filed with the Court of Appeals assailing the October 8, 1982 Order of Judge Villalon which ordered the issuance of a
writ of execution and implementation of the Order of January 8, 1981, the first being CA-G.R. No. 15033 entitled "Spouses Lydia Terrado and Martin Rosario, et al.
vs. Hon. Felicidad Carandang-Villalon, et al.," filed October 18, 1982 and the second, CA-G.R. No. 13175, "Spouses Lydia Terrado, et al. vs. Hon. Felicidad
Carandang-Villalon, et al." dated October 9, 1981. CA-G.R. No. 15033 was dismissed on March 22, 1983, while CA-G.R. G.R. No. 1317 5 on November 5, 1981.
The five (5) cases relating to the same subject matter, which are CA-G.R. No. 15033-SP, CA-G.R. 14501-SP, CA-G.R. 13353- SP CA-G.R. No. 13175-SP and CAG.R. No. 12586-SP, were then consolidated in the decision of the Court of Appeals promulgated March 22,1983.
The dismissal of the petition in CA-G.R. No. 13175 and the issuance of the alias writ of execution and possession issued by respondent Judge Villalon in Civil
Case No. D-5118 is now elevated to Us in G.R. No. 58794.
Likewise, the decision of the appellate court dismissing the petition in CA-G.R. No. 15033-SP and the Order issued by the trial court dated January 8, 1981 have
been raised to Us in G.R. No. 64489. Both petitions at bar, G.R. No. 58794 and G.R. No. 64489, have been consolidated per Our Resolution of August 24, 1983.
The records of the petition before Us in G.R. No. 64489 disclose that upon written request of Judge Felicidad Carandang-Villalon that she be relieved from taking
further cognizance of Civil Case No. SCC-648 (D-5118) entitled "Geruncio Lacuesta, et al. vs. The Municipality of Bayambang, the Supreme Court in its
Resolution en banc dated June 7, 1983 granted the request of the Judge and directed the Clerk of Court of the Regional Trial Court of Dagupan to transfer the
records of the case to the Clerk of the Regional Trial Court of San Carlos City for raffling among the two branches thereat. Accordingly, Judge Carandang-Villalon
issued an Order dated June 17, 1983 directing the Stenographer who took the proceedings 30 days to make complete transcript of the same and the Officer-inCharge of the court to prepare the voluminous exhibits and thereafter effect the transmittal of the full records of the case. Notwithstanding her relief, the same
Judge issued a further order dated September 2, 1983 commanding the Sheriff and the Commanding Officer of the 153rd PC Company to restore defendant
Lacuesta and his men to possession of all the fisheries and areas covered by his contract pursuant to the Order of the court dated October 8, 1982. This Order
was implemented according to the Sheriff's Return dated September 20, 1983.
Through the maze and muddle of this protracted legal controversy, it is plain and clear that the complaints and petitions including all legal incidents and motions
filed in the trial court, the appellate court and before this Tribunal are traceable. in origin to the enactment and implementation of Municipal Ordinance No. 8, series
of 1974, of the Municipality of Bayambang, Pangasinan, establishing the Bayambang Fishery & Hunting Park and Municipal Watershed coveting the so-called
Mangabul Fisheries. As stated in Section of the Ordinance, the purposes of the Park are: 1. To attract tourists to Bayambang and thus increase the income of the
municipality and create new employment and new sources of income for the people; 2. To restore and conserve the natural environment of the area by means of
reforestation of the forest or timberland reserved, thru engineering works, and other means within the Ipd-92 area; 3. To restore or improve, conserve and develop
the fisheries, zones, and exploit the fish resources of all the fisheries therein; 4. To supply agro-industrial enterprises that may be established in Bayambang with
raw materials from the area; and 5. To provide sports and recreation facilities and wholesome sports and recreational activities for the people.
Further, under the Ordinance, the Municipality designated, appointed and constituted private respondent Lacuesta as Manager-Administrator for a period of
twenty-five (25) years, renewable for another twenty-five (25) years upon mutual agreement (Section 4). Among the powers, duties and obligations of the
Manager-Administrator are: 1. To reforest with woods or economic value all the timberland portions indicated in Plan Ipd-92 and those that need to be reforested
for ecological purposes; 2. To stock the forest with wildlife or economic value, protect the forest products and wildlife and regulate their multiplication in accordance
with existing laws; 3. To deepen the fisheries, swamps and tributary streams by dredging, employing modern scientific and technological methods to restore or
improve and develop the fisheries to increase the fees yield; 4. To conduct and regulate sports fishing and hunting in the park and collect fees therefrom; 5. To use
or dispose of the fisheries portion in accordance with the general law on municipal waters; 6. To establish in a suitable site within the park a fishing and hunting
camp to be called "Camp Imelda." In Section 7 of the Ordinance, the Manager-Administrator shall pay to the municipal government the sum equivalent to ten
(10%) percent of the annual gross income derived from an fees charged for fishing and hunting in the park and entry into Camp Imelda, from the sale of forest
products, wild games and fish from the area, but not less than P200,000.00.

In accordance with the Ordinance, a Contract of Management and Administration was executed by the Municipality, represented by its Municipal Mayor as the
Usufructuary and Atty. Geruncio Lacuesta as the Manager-Administrator, setting forth therein the terms and conditions laid down in the Ordinance as well as the
mode and manner of the payment of the sum of P200,000.00 annually due to the Municipality including the posting of a surety bond and other details of the
management and administration of the fisheries by the Manager-Administrator, which contract was executed on January 28, 1975 at Bayambang, Pangasinan.
Thus, the validity or legality of the Municipal Ordinance in question is the crucial and vital issue that must be resolved once and for all to put an end to this raging
litigation that has become the tug-of-war between the Municipality and Lacuesta, together with other interested parties, over the vast and rich fishing grounds. In
resolving said issue and ultimately the very root of the conflict, the following undisputed facts are controlling and decisive: 1. That Municipal Ordinance No. 8 has
been disapproved by the Secretary of Agriculture and Natural Resources; and 2. That private respondent has since died as shown in the Return of the Postmaster
of Bayambang as noted in Our Resolution of July 2, 1984.
1. Ordinance No. 8, having been submitted to the Provincial Board of Pangasinan and approved by it by virtue of Resolution No. 171 dated October 11, 1974, the
same was submitted to the Secretary of Agriculture & Natural Resources as required by Section 4 of Act No. 4003, The Fisheries Act, as amended by
Commonwealth Act No. 471 passed June 16, 1939, and further amended by RA No. 659 approved June 16, 1951, thus:
Sec. 4. Instructions, orders, rules and regulations. The Secretary of Agriculture and Commerce shall from time to time issue instructions,
orders, rules and regulations consistent with this Act, as may be necessary and proper to carry into effect the provisions thereof and for the
conduct of proceedings arising under such provisions; and all licenses, permits, leases and contracts issued, granted or made herein shall
be subject to the same.
All ordinances, rules or regulations pertaining to fishing or fisheries promulgated or enacted by provincial boards, municipal boards or
councils, or municipal district councils shall be submitted to the Secretary of Agriculture and Commerce for approval and shag have full force
and effect unless notice in writing of their disapproval is communicated by the secretary to the board or council concerned within thirty days
after submission of the ordinance, rule, or regulation.
From the evidence on record, it appears that a Master Plan for the Bayambang Fishing and Hunting Park and Municipal Watershed (Mangabul Fisheries
Reservation) of Atty. Geruncio Lacuesta, Manager-Administrator of the said park, was submitted to the Bureau of Fisheries and Aquatic Resources. In the
Indorsement of the Director of Fisheries & Aquatic Resources to the Secretary, Department of Natural Resources, the Comments, among others, state: "2.
Records of this bureau show that Resolution No. 171, s. 174 of the Provincial Board of Pangasinan, embodying Resolution No. 35, s. 1974, enacting Ordinance
No. 8, s. 1974 of the Municipal Council of Bayambang, Pangasinan and Resolution No. 24, s. 1975 of the same council requesting reconsideration and rectification
of the 5th Indorsement of that department dated April 4, 1975, were returned DISAPPROVED and denied, respectively, by the Secretary of Natural Resources to
the Municipal Council of Bayambang, Pangasinan .
Upon the recommendation of the Director of Fisheries and Aquatic Resources that "In the light, therefore, of the foregoing, the Master Plan for the Bayambang
Fishing and Hunting Park and Municipal Watershed (Mangabul Fisheries Reservation), insofar as fishing and fisheries thereat are concerned should not be given
due course and should be DISAPPROVED in the absence of adequate provisions thereon to the effect that the grant of the exclusive fishery privileges within its
municipal waters shag be granted by the municipal council (now sangguniang bayan) to the highest bidder conformable with a fishery ordinance duly approved by
the Secretary of Natural Resources, pursuant to Sections 5, 67 and 69 of Act No. 4003, as amended (now sections 4, 29 and 30 of Presidential Decree No. 704),"
the Secretary of the Department of Natural Resources disapproved the Master Plan.
The legal basis for the disapproval of the Ordinance No. 8 and the Master Plan mentioned above is clear and explicit in Sections 4, 67 and 69 of Act No. 4003 as
amended by PD 704, Revising and Consolidating All Laws and Decrees Affecting Fishing and Fisheries. These Sections provide:
Sec. 4. Jurisdiction of the Bureau. The Bureau shall have jurisdiction and responsibility in the management, conservation, development,
protection, utilization and disposition of an fishery and aquatic resources of the country except municipal waters which shall be under the
municipal or city government concerned: Provided, That fish pens and seaweed culture in municipal centers shall be under the jurisdiction of
the Bureau: Provided, further, That all municipal or city ordinances and resolutions affecting fishing and fisheries and any disposition
thereunder shall be submitted to the Secretary for appropriate action and shall have full force and effect only upon his approval. The Bureau
shall also have the authority to regulate and supervise the production, capture and gathering of fish and fishery/aquatic products.
The Bureau shall prepare and implement, upon approval of the Fishery Industry Development Council, a Fishery Industry Development
Program.
Section 29. Grant of Fishery Privileges. A municipal or city council, conformably with an ordinance duly approved by the Secretary
pursuant to section 4 hereof, may: (a) grant to the highest qualified bidder the exclusive privilege of construction and operating fish corrals,
oyster culture beds, or of gathering "bangus" fry, or the fry of other species in municipal waters for a period not exceeding five (5) years: ...
Section 30. Municipal concessions and leases concerning fisheries. lease or concession granted by a municipal or city council under
authority of an ordinance approved pursuant to section 4 hereof, concerning fishing or fisheries in streams, lakes, rivers, in land and/or
municipal waters, shall be valid and enforceable unless the Secretary, upon recommendation of the Director, approves the same.
Indeed, the Ordinance is clearly against the provisions of the law for it granted exclusive fishery privileges to the private respondent without benefit of public
bidding. Under the Fisheries Act, the Municipality may not delegate to a private individual as Manager-Administrator to "use or dispose of the fisheries portion in
accordance with the general law on municipal waters" nor to charge foes for fishing and hunting in the park, much less sell forest products, wild games and fish
from the area.

Neither can the Municipality grant the exclusive privilege of fishing for a period more than five (5) years, whereas in the instant case, the period granted the
Manager-Administrator was for twenty-five (25) years, renewable for another twenty-five years.
Moreover, under the specific provision of Act No. 4041, there is the proviso that the timber and other forest products therein shall be placed under the
administration and control of the forest service so that insofar as the ordinance relates to the timber and other forest products and the reforestation of the
timberland portions indicated in Plan Ipd-92 including the powers, duties and responsibilities of the Manager-Administrator affecting the forestry portions are
violative of Act No. 4041.
It is of no moment that at the pre-trial hearing of Civil Case No. SCC-648 (which was transferred to Branch 111, CFI Dagupan and docketed as D-5118) the parties
had admitted the legality of Ordinance No. 8. The issue as to the legality of Ordinance No. 8 is not a question of fact that the parties may stipulate and agree at the
pre-trial hearing of the case which is for annulment of the contract under Ordinance No. 8. Such is a question of law for if the Ordinance is illegal and contrary to
law, the contract executed in pursuance thereto is consequently illegal. Acts executed against the provisions of mandatory or prohibitory laws shall be void, except
when the law itself authorizes their validity. (Art. 5, New Civil Code).
From Our jurisprudence, We cite a number of cases ruling that a public bidding is essential to the validity of the grant of exclusive privilege of fishery to a private
party, thus:
The law (Sec. 2323 of the Revised Administrative Code) requires that when the exclusive privilege of fishery or the right to conduct a fish-b
reeding ground is granted to a private party, the same shall be let to the highest bidder in the same manner as is being done in exploiting a
ferry, a market or a slaughter house belonging to the municipality (See Municipality of San Luis vs. Venture, et all 56 Phil. 329). The
requirement of competitive bidding is for the purpose of inviting competition and to guard against favoritism, fraud and corruption in letting of
fishery privileges (See 3 McQuillin, Municipal Corporations, 2nd Ed., p. 1170; Harles Gaslight Co. vs. New York, 83 N.Y. 309; and 2 Dillon,
Municipal Corporations, p. 1219) (San Diego vs. The Municipality of Naujan Province of Mindoro, 107 Phil. 118).
It may thus be restated that the law that governs the award of fishery privileges in municipal waters is the provisions of Section 67 and 69 of
Act No. 4003, as amended by Commonwealth Acts Nos. 115 and 471. The provisions of Sections 2321, 2323 and 2319 of the Revised
Administrative Code of 1917 have thereby been modified by Act 4003, as amended. Under the applicable law the Municipal Council may
lease fishery privileges for a period not exceeding five years to the highest bidder in a public bidding held, where the call for bid had specified
the period for the lease. (San Buenaventura vs. Municipality of San Jose, Camarines Sur, et al, 121 Phil. 101, 114).
The Municipal Council cannot extend the period of lease once it had been fixed on the basis of the period provided in the call for bids. In the
lease of fishery privileges for a period not exceeding five years the previous approval of the provincial Board is not necessary. If the lease is
for a period of more than five years, but not exceeding ten years, the previous approval of the Provincial Board is necessary. If the lease is
for a period exceeding ten years, but not more than twenty years, the prior approval of the Secretary of Agriculture and Natural Resources is
necessary. In all cases the lease must be based on a competitive public bidding. (San Buenaventura vs. Municipality of San Jose, Camarines
Sur, et all supra p. 115).
While the respondent appellate court in CA-G.R. No. 12586-SP made the pronouncement that:
Besides, Sec. 4, Act No. 4003 (which was then the law in force before being superseded by PD 704 on May 16, 1975) provides that an
ordinance affecting fishing and fisheries "shall have full force and effect unless notice in writing of (its) disapproval is communicated by the
Secretary to the Board of council concerned, within thirty days after submission of the ordinance." The ordinance was submitted for approval
on January 2, 1975 and the disapproval came only 102 days after such submission, on April 14, 1975. Paragraph (a) of the pretrial
stipulation (Annex "6" of Respondent's Comment) states that "the said ordinance was submitted to the then Secretary of Natural Resources
who disapproved the ordinance, insofar as fishing and fisheries are concerned after 30 days from submission."
We cannot sustain the above holding in view of Our holding in the case of Nepomuceno, et al. vs. Ocampo, et al.,supra, wherein We held that the only purpose in
the enactment of Republic Act 659 which required the Secretary of Agriculture and Natural Resources to approve municipal ordinances pertaining to fishing or
fisheries within 30 days after submission of the ordinance, rule or regulation is simply to expedite prompt action by the Department Chief concerned. Since
Ordinance No. 8 granted fishery privileges exclusively to the private respondent without benefit of public bidding and for a period exceeding five (5) years, the said
ordinance and the contract of management executed in accordance therewith were null and void ab initio, such that the failure of the Secretary of Agriculture &
Natural Resources to disapprove the same within 30 days from its submission does not render validity to the illegal legislation of the municipal council nor to the
contract executed under the same.
From the foregoing conclusion that the ordinance is illegal and void, per force the contract of management and administration between the Municipality and
Lacuesta is likewise null and void. It also follows that the complaint filed by Lacuesta for prohibition in Civil Case No. 516 to enjoin the Municipal Council of
Bayambang from leasing the Mangabul Fisheries upon public bidding as authorized in its Resolution' No. 31, series of 1977 is without legal basis and merit for
Lacuesta has no right or interest under the void ordinance and contract. The suit must be dismissed and We hereby order its immediate dismissal.
2. We have noted earlier the death of Lacuesta in Our Resolution of July 2, 1984. His death is an irreversible fact that throws an entirely new bearing on the legal
controversy at hand. For essentially, the contract of management and administration between the Municipality and Lacuesta is one of agency whereby a person
binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. (Article 1868, New
Civil Code). Here in the case at bar, Lacuesta bound himself as Manager-Administrator of the Bayambang Fishing & Hunting Park and Municipal Watershed to
render service or perform duties and responsibilities in representation or on behalf of the Municipality of Bayambang, with the consent or authority of the latter
pursuant to Ordinance No. 8. Under Article 1919, New Civil Code, agency is extinguished by the death of the agent. His rights and obligations arising from the
contract are not transmittable to his heirs. (Art. 1311 , New Civil Code).

3. Petitioners in both cases before Us, G.R. No. 58794 and G.R. No. 64489, anchor their claims to certain portions of the Mangabul Fisheries which they allege to
have won in public bidding under the authority of Resolution No. 31, series of 1977 of the Municipal Council of Bayambang which leased the fisheries for a fouryear period. The period has already lapsed, hence their fishing privilege is no longer effective as of June 30, 1981. To restore and place petitioners in possession
of the fisheries would be an extension of their four-year period lease which is not authorized under the ordinance cited above.
Nonetheless, the assailed order of Judge Villalon dated September 3, 1983 restoring possession of the fisheries to Lacuesta and his men which was issued after
her relief from the case upon her own request is clearly irregular and without authority. There should be and there ought to be full obedience and compliance by a
subordinate court of the orders and resolutions of this Court. There cannot be any iota of discipline much less efficiency in the administration of justice if the lower
echelons in the judicial hierarchy can freely act as they wish inspire of their relief. This should be a stem warning to all judges and personnel in all the courts.
We brush aside the procedural aspects raised in the petitions before Us and in the interest of public welfare and speedy administration of justice, avoiding further
multiplicity of suits, We consider the intrinsic merits of the controversy which as We pointed out previously, rest on the validity of the Municipal Ordinance in
question. Thus, in sum and substance, We hereby pronounce the nullity of Ordinance No. 8, series of 1974 of the Municipal Council of Bayambang, Pangasinan
and the contract of management and supervision executed between the Municipality of Bayambang and Geruncio Lacuesta as Manager-Administrator of the
Bayambang Fishery & Hunting Park and Municipal Watershed.
Since Ordinance No. 8 and the contract of management and supervision are both null and void, the Alias Writ of Execution and Possession dated November 6,
1981 and the Order of October 8, 1982 for the issuance of writ of execution and possession to place and restore possession of the Mangabul Fisheries, of portions
thereof or fisheries therein to Geruncio Lacuesta, his agents, men and/or representatives under the said contract and by virtue of the ordinance are, including the
writ also issued on October 8, 1982, without legal force and effect.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the Alias Writ of Execution and Possession issued November 6, 1981 and assailed in G.R. No. 58794, as
well as the Order and Writ dated October 8, 1982 raised in G.R. No. 64489, are hereby NULLIFIED and SET ASIDE. No costs.
SO ORDERED.

B. Withdrawal of the agent

C. Death, civil interdiction, insanity or insolvency

G.R. No. 155541. January 27, 2004]

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the decision of the Court of Appeals in CAG.R. CV No. 09107, dated September 30, 2002, which reversed the November 19, 1995
Order of Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994,
entitled Testate Estate of Juliana Diez Vda. De Gabriel. The petition was filed by the
Estate of the Late Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its
duly appointed and qualified Administrator.
[1]

As correctly summarized by the Court of Appeals, the relevant facts are as follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (Philtrust). The decedent died on April 3,
1979. Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles,

filed her Income Tax Return for 1978. The return did not indicate that the decedent had
died.
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special
Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp.
Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special
Administrator. Philtrusts motion for reconsideration was denied by the probate court.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his
appointment, and appointed Antonio Lantin to take over as Special
Administrator.Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his
appointment, and Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an administrative
investigation on the decedents tax liability and found a deficiency income tax for the year
1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by
registered mail a demand letter and Assessment Notice No. NARD-78-82-00501
addressed to the decedent c/o Philippine Trust Company, Sta. Cruz, Manila which was the
address stated in her 1978 Income Tax Return. No response was made by Philtrust. The
BIR was not informed that the decedent had actually passed away.
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as
the Commissioner and Auditor Tax Consultant of the Estate of the decedent.
On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of
distraint and levy to enforce collection of the decedents deficiency income tax liability,
which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent
filed a Motion for Allowance of Claim and for an Order of Payment of Taxes with the
court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation
Division of the BIR, which was not acted upon because the assessment notice had
allegedly become final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a
formal opposition to the BIRs Motion for Allowance of Claim based on the ground that
there was no proper service of the assessment and that the filing of the aforesaid claim
had already prescribed. The BIR filed its Reply, contending that service to Philippine Trust
Company was sufficient service, and that the filing of the claim against the Estate on
November 22, 1984 was within the five-year prescriptive period for assessment and
collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC).

On November 19, 1985, the court a quo issued an Order denying respondents claim
against the Estate, after finding that there was no notice of its tax assessment on the
proper party.
[2]

[3]

On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as
CA-G.R. CV No. 09107, assailing the Order of the probate court dated November 19,
1985. It was claimed that Philtrust, in filing the decedents 1978 income tax return on April
5, 1979, two days after the taxpayers death, had constituted itself as the administrator of
the estate of the deceased at least insofar as said return is concerned. Citing Basilan
Estate Inc. v. Commissioner of Internal Revenue, respondent argued that the legal
requirement of notice with respect to tax assessments requires merely that the
Commissioner of Internal Revenue release, mail and send the notice of the assessment to
the taxpayer at the address stated in the return filed, but not that the taxpayer actually
receive said assessment within the five-year prescriptive period. Claiming that Philtrust
had been remiss in not notifying respondent of the decedents death, respondent therefore
argued that the deficiency tax assessment had already become final, executory and
incontestable, and that petitioner Estate was liable therefor.
[4]

[5]

[6]

[7]

[8]

On September 30, 2002, the Court of Appeals rendered a decision in favor of the
respondent. Although acknowledging that the bond of agency between Philtrust and the
decedent was severed upon the latters death, it was ruled that the administrator of the
Estate had failed in its legal duty to inform respondent of the decedents death, pursuant to
Section 104 of the National Internal Revenue Code of 1977. Consequently, the BIRs
service to Philtrust of the demand letter and Notice of Assessment was binding upon the
Estate, and, upon the lapse of the statutory thirty-day period to question this claim, the
assessment became final, executory and incontestable. The dispositive portion of said
decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET
ASIDE. Another one is entered ordering the Administrator of the Estate to pay the Commissioner
of Internal Revenue the following:
a. The amount of P318,223.93, representing the deficiency income tax liability for the year 1978,
plus 20% interest per annum from November 2, 1982 up to November 2, 1985 and in addition
thereto 10% surcharge on the basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of the
Tax Code as amended by PD 69 and 1705; and
b. The costs of the suit.
SO ORDERED.

[9]

Hence, the instant petition, raising the following issues:

1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax
assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust
Company was a valid service in order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment
and final demand was already final, executory and incontestable.
Petitioner Estate denies that Philtrust had any legal personality to represent the
decedent after her death. As such, petitioner argues that there was no proper notice of the
assessment which, therefore, never became final, executory and incontestable.
Petitioner further contends that respondents failure to file its claim against the Estate
within the proper period prescribed by the Rules of Court is a fatal error, which forever
bars its claim against the Estate.
[10]

[11]

Respondent, on the other hand, claims that because Philtrust filed the decedents
income tax return subsequent to her death, Philtrust was the de facto administrator of her
Estate. Consequently, when the Assessment Notice and demand letter dated November
18, 1982 were sent to Philtrust, there was proper service on the Estate. Respondent
further asserts that Philtrust had the legal obligation to inform petitioner of the decedents
death, which requirement is found in Section 104 of the NIRC of 1977. Since Philtrust did
not, respondent contends that petitioner Estate should not be allowed to profit from this
omission. Respondent further argues that Philtrusts failure to protest the aforementioned
assessment within the 30-day period provided in Section 319-A of the NIRC of 1977
meant that the assessment had already become final, executory and incontestable.
[12]

[13]

[14]

[15]

[16]

The resolution of this case hinges on the legal relationship between Philtrust and the
decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under
this primary issue is the sub-issue of whether or not service on Philtrust of the demand
letter and Assessment Notice No. NARD-78-82-00501 was valid service on petitioner, and
the issue of whether Philtrusts inaction thereon could bind petitioner. If both sub-issues
are answered in the affirmative, respondents contention as to the finality of Assessment
Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because
Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest
an assessment. Failure to file such a protest within said period means that the
assessment ipso jure becomes final and unappealable, as a consequence of which legal
proceedings may then be initiated for collection thereof.
We find in favor of the petitioner.
The first point to be considered is that the relationship between the decedent and
Philtrust was one of agency, which is a personal relationship between agent and

principal.Under Article 1919 (3) of the Civil Code, death of the agent or principal
automatically terminates the agency. In this instance, the death of the decedent on April 3,
1979 automatically severed the legal relationship between her and Philtrust, and
such could not be revived by the mere fact that Philtrust continued to act as her agent
when, on April 5, 1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically severed
at the moment of the Taxpayers death, none of Philtrusts acts or omissions could bind the
estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice
No. NARD-78-82-00501 was improperly done.
It must be noted that Philtrust was never appointed as the administrator of the Estate
of the decedent, and, indeed, that the court a quo twice rejected Philtrusts motion to be
thus appointed. As of November 18, 1982, the date of the demand letter and Assessment
Notice, the legal relationship between the decedent and Philtrust had already been nonexistent for three years.
Respondent claims that Section 104 of the National Internal Revenue Code of 1977
imposed the legal obligation on Philtrust to inform respondent of the decedents death.The
said Section reads:
SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or where, though
exempt from tax, the gross value of the estate exceeds three thousand pesos, the executor,
administrator, or any of the legal heirs, as the case may be, within two months after the decedents
death, or within a like period after qualifying as such executor or administrator, shall give written
notice thereof to the Commissioner of Internal Revenue.
The foregoing provision falls in Title III, Chapter I of the National Internal Revenue
Code of 1977, or the chapter on Estate Tax, and pertains to all cases of transfers subject
to tax or where the gross value of the estate exceeds three thousand pesos. It has
absolutely no applicability to a case for deficiency income tax, such as the case at bar. It
further lacks applicability since Philtrust was never the executor, administrator of the
decedents estate, and, as such, never had the legal obligation, based on the above
provision, to inform respondent of her death.
Although the administrator of the estate may have been remiss in his legal obligation
to inform respondent of the decedents death, the consequences thereof, as provided in
Section 119 of the National Internal Revenue Code of 1977, merely refer to the imposition
of certain penal sanctions on the administrator. These do not include the indefinite tolling
of the prescriptive period for making deficiency tax assessments, or the waiver of the
notice requirement for such assessments.

Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice
No. NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust to
either (1) respond to the demand letter and assessment notice, (2) inform respondent of
the decedents death, or (3) inform petitioner that it had received said demand letter and
assessment notice. This lack of legal obligation was implicitly recognized by the Court of
Appeals, which, in fact, rendered its assailed decision on grounds of equity.
[17]

Since there was never any valid notice of this assessment, it could not have become
final, executory and incontestable, and, for failure to make the assessment within the fiveyear period provided in Section 318 of the National Internal Revenue Code of 1977,
respondents claim against the petitioner Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection. Except as provided in the
succeeding section, internal revenue taxes shall be assessed within five years after the return was
filed, and no proceeding in court without assessment for the collection of such taxes shall be begun
after the expiration of such period. For the purpose of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That
this limitation shall not apply to cases already investigated prior to the approval of this Code.
Respondent argues that an assessment is deemed made for the purpose of giving
effect to such assessment when the notice is released, mailed or sent to the taxpayer to
effectuate the assessment, and there is no legal requirement that the taxpayer actually
receive said notice within the five-year period. It must be noted, however, that the
foregoing rule requires that the notice be sent to the taxpayer, and not merely to a
disinterested party. Although there is no specific requirement that the taxpayer should
receive the notice within the said period, due process requires at the very least that such
notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty and
Development Corporation, we had occasion to say:
[18]

[19]

An assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. It also signals the time when penalties and interests begin to accrue
against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires
that it must be served on and received by the taxpayer.
In Republic v. De le Rama, we clarified that, when an estate is under administration,
notice must be sent to the administrator of the estate, since it is the said administrator, as
representative of the estate, who has the legal obligation to pay and discharge all debts of
the estate and to perform all orders of the court. In that case, legal notice of the
assessment was sent to two heirs, neither one of whom had any authority to represent the
estate. We said:
[20]

The notice was not sent to the taxpayer for the purpose of giving effect to the assessment, and said
notice could not produce any effect. In the case of Bautista and Corrales Tan v. Collector of
Internal Revenue this Court had occasion to state that the assessment is deemed made when the
notice to this effect is released, mailed or sent to the taxpayer for the purpose of giving effect to
said assessment. It appearing that the person liable for the payment of the tax did not receive the
assessment, the assessment could not become final and executory. (Citations omitted, emphasis
supplied.)
In this case, the assessment was served not even on an heir of the Estate, but on a
completely disinterested third party. This improper service was clearly not binding on the
petitioner.
By arguing that (1) the demand letter and assessment notice were served on Philtrust,
(2) Philtrust was remiss in its obligation to respond to the demand letter and assessment
notice, (3) Philtrust was remiss in its obligation to inform respondent of the decedents
death, and (4) the assessment notice is therefore binding on the Estate, respondent is
arguing in circles. The most crucial point to be remembered is that Philtrust had absolutely
no legal relationship to the deceased, or to her Estate. There was therefore no
assessment served on the Estate as to the alleged underpayment of tax. Absent this
assessment, no proceedings could be initiated in court for the collection of said tax, and
respondents claim for collection, filed with the probate court only on November 22, 1984,
was barred for having been made beyond the five-year prescriptive period set by law.
[21]

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CAG.R. CV No. 09107, dated September 30, 2002, is REVERSED and SET ASIDE. The
Order of the Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994,
dated November 19, 1985, which denied the claim of the Bureau of Internal Revenue
against the Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the
decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
SEE Rallos v. Felix Go Chan, G.R. No. L-24332, January 31, 1978
SEE Terrado v. CA, G.R. No. L-58794 & L-64489, August 24, 1984
D. Dissolution of the firm or corporation
F. Accomplishment of the object or purpose
H. Expiration of the period