BRITISH AIRWAYS, petitioner,

vs.COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

1. Mahtani obtained the services of a certain Mr. Gumar to prepare his travel plans for India. The
latter, in turn, purchased a ticket from BA
2. Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to
Hongkong via PAL, and from HK to India via BA
3. He checked in at the PAL counter in Manila his two pieces of luggage confident that upon
reaching Hongkong, the same would be transferred to the BA flight bound for Bombay.
4. When Mahtani arrived in Bombay he discovered that his luggage was missing
5. Mahtani filed his complaint for damages and attorney's fees 5 against BA and Mr. Gumar
6. BA filed averred that Mahtani did not have a cause of action against it. BA filed a third-party
complaint 7 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.
7. PAL 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
8. RTC decided against BA.Third-Party Complaint against PAL is DISMISSED for lack of cause
of action.
9. BA appealed to the CA, which however, affirmed RTC
10. SC: an airline's contract of carriage partakes of two types, a contract to deliver a cargo or
merchandise to its destination and a contract to transport passengers to their
destination.
11. In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.
12. The contract of air transportation pursuant to the ticket issued by appellant to plaintiff-
appellee was exclusively between the plaintiff Mahtani and defendant-appellant BA. 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:. carriage to be performed hereunder by several
successive carriers is regarded as a single operation.
13. 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,
14. 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.
15. However, 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
16. 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.
17. 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.
18. Accordingly, BA may file a 3rd party complaint against PAL 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.

PHILIPPINE NATIONAL BANK, petitioner,

vs.MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS (Second
1. PNB had opened a letter of credit and advanced thereon $120,000.00 to Edgington Oil
Refinery for 8,000 tons of hot asphalt.
2. Of this amount, 2,000 tons worth P279,000.00 were released and delivered to ATACO under
a trust receipt guaranteed by Manila Surety & Fidelity Co.
3. To pay for the asphalt, ATACO constituted the Bank its assignee and attorney-in-fact to
receive and collect from the Bureau of Public Works the amount aforesaid out of funds
payable to the assignor
4. ATACO delivered to the Bureau of Public Works. The Bank regularly collected from Public
Works for 6 mos. Thereafter, for some reasons, it stopped collecting.
5. Thereafter, its demands on ATACO and the Surety having been refused, the Bank sued both
in the CFI Manila to recover the balance
6. RTC rendered that defendants, to pay plaintiff, Philippines National Bank,
7. From said decision, only the defendant Surety Company has duly perfected its appeal.
8. However, The Court of Appeals found the Bank to have been negligent in having stopped
collecting from the Bureau of Public Works the moneys falling due in favor of the principal
debtor, ATACO, before the debt was fully collected, thereby allowing such funds to be taken
and exhausted by other creditors to the prejudice of the surety, and held that the Bank's
negligence resulted in exoneration of respondent Manila Surety & Fidelity Company.
9. This holding is now assailed by the Bank. It contends the power of attorney obtained from
ATACO was merely in additional security in its favor, and that it was the duty of the surety,
and not that of the creditor, owed see to it that the obligor fulfills his obligation, and that the
creditor owed the surety no duty of active diligence to collect any, sum from the principal
debtor
10. This argument of appellant Bank misses the point. The Court of Appeals did not hold the
Bank answerable for negligence in failing to collect from the principal debtor but for its neglect
in collecting the sums due to the debtor from the Bureau of Public Works, contrary to its duty
as holder of an exclusive and irrevocable power of attorney to make such collections, since
an agent is required to act with the care of a good father of a family (Civ. Code, Art. 1887) and
becomes liable for the damages which the principal may suffer through his non-performance
(Civ. Code, Art. 1884). Certainly, the Bank could not expect that the Bank would diligently
perform its duty under its power of attorney, but because they could not have collected from
the Bureau even if they had attempted to do so. It must not be forgotten that the Bank's power
to collect was expressly made irrevocable, so that the Bureau of Public Works could very well
refuse to make payments to the principal debtor itself, and a fortiori reject any demands by
the surety.
11. Even if the assignment with power of attorney from the principal debtor were considered as
mere additional security still, by allowing the assigned funds to be exhausted without notifying
the surety, the Bank deprived the former of any possibility of recoursing against that security.
The Bank thereby exonerated the surety, pursuant to Article 2080 of the Civil Code:

ART. 2080. The guarantors, even though they be solidary, are released from their
obligation whenever by come act of the creditor they cannot be subrogated to the rights,
mortgages and preferences of the latter. (Emphasis supplied.)

12. The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau of Public
Works, on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the debtor that as of
its date, October 31, 1949, its outstanding balance was P156,374.83. Said Exhibit "G" has no
bearing on the issue whether the Bank has exercised due diligence in collecting from the
Bureau of Public Works, since the letter was addressed to ATACO, and the funds were to
come from elsewhere. As to the letter of demand on the Public Works office, it does not
appear that any reply thereto was made; nor that the demand was pressed, nor that the
debtor or the surety were ever apprised that payment was not being made. The fact remains
that because of the Bank's inactivity the other creditors were enabled to collect P173,870.31,
when the balance due to appellant Bank was only P158,563.18. The finding of negligence
made by the Court of Appeals is thus not only conclusive on us but fully supported by the
evidence.
13. Even if the Court of Appeals erred on the second reason it advanced in support of the
decision now under appeal, because the rules on application of payments, giving preference
to secured obligations are only operative in cases where there are several distinct debts, and
not where there is only one that is partially secured, the error is of no importance, since the
 principal reason based on the Bank's negligence furnishes adequate support to the decision
of the Court of Appeals that the surety was thereby released. WHEREFORE, the appealed
decision is affirmed,

CONSOLACION L. RAMOS, administratrix-appellant,

vs.BENIGNO A. CAOIBES, attorney-in-fact-appellee.

1. , Concepcion Ramos Dipusoy executed before a notary public two documents which have
been marked as Annex "A" and Annex "B" Annex "A" is a power of attorney which constitute
and appoint Mr. Benigno A. Caoibes, to collect any amount due from the Philippine War
Damage Commission, regarding claim filed for my properties that were lost during the last war
in Balayan, to cash checks, warrants and to sign receipts, vouchers, documents which shall
be necessary to the said purpose.giving and granting full and absolute power and authority to
do and perform all any every act or thing whatsoever to be done necessary in and about the
premises, as fully to all intents and purposes confirming and ratifying all that my said attorney-
in-fact shall lawfully do or cause to be done and by virtue of these presents.
2. Annex B is an affidavit of the following tenor:That in case payment of any amount or amounts
collected from the Philippine War Damage Commission, my nephew and at the same time
attorney-in-fact, shall give my sister Teopista Vda. de Basa one-half (), of the corresponding
amount and the other half () shall be given to my nephew and niece Mr. and Mrs. Benigno
A. Caoibes.
3. Concepcion Ramos died leaving a will admitted to probate in which she ordered that the
credits due to her be distributed among the children Consolacion, Ramon, Socorro and Cirila.
4. One year before she died, Concepcion Ramos filed with the War Damage Commission a
claim . the Commission issued check payable to the deceased Concepcion Ramos. This
check was returned to the Commission and substituted but payable to Benigno A. Caoibes,
who had presented to said entity Annexes "A" and "B", above mentioned,
5. Annexes "A" and "B" were presented to the Commission by Caoibes after the death of
Concepcion. The administratrix, Consolacion L. Ramos, filed a motion with the court asking
that Caoibes be ordered to deposit the sum of P501.62 with the clerk of court. Caoibes
6. He contended that, by virtue of Annex "A", and Annex "B", he had the right to retain, for
himself, half of the sum of P501.62.
7. Lower Courty ordered that Atty. Caoibes deposit the said amount to be at the disposal of the
administratrix and the other parties in these intestate proceedings.
8. SC: Annex A is only a power of attorney., Caoibes, as agent, had the obligation to deliver the
amount collected by virtue of said power to his principal, Concepcion or, after her death, to
the administratrix of her estate, Consolacion. There is absolutely no cession of rights made in
favor of Caoibes in Annex "A", and under Article 1711 of the old Civil Code (which was in
force at the time of the transaction), the contract of agency is presumed to be gratuitous,
unless the agent is a professional agent. There is no proof that Caoibes was such.
Furthermore, according to Article 1732 of said Code, an agency is terminated, among other
causes, by the death of the principal or of the agent. When Caoibes made use of the power of
attorney, his principal, Concepcion was already dead.
9. Coming now to Annex "B", the alleged document of donation, it should be noted that it is not a
donation of real but of personal property and is governed by article 632 of the old Civil Code,
which reads as follows:Donations of personal property may be made verbally or in writing.
Verbal donation requires the simultaneous delivery of the gift. In the absence of this requisite
the donation shall produce no effect, unless made in writing and accepted in the same form
10. The alleged donation was made in writing but it has not been accepted in the same form, and
consequently, has no validity. It cannot be considered a donation upon valuable
consideration, for no services nor any valuable consideration had passed from the donees to
the donor. The mere fact that Caoibes collected the claim from the War Damage Commission
is not such a service as to require compensation. Caoibes did not even prepare the claim.
11. The order appealed from is hereby reversed and Benigno A. Caoibes is ordered to deposit
with the Clerk of Court of Batangas the sum of P501.62 to be at the disposal of the
administratrix in her capacity as such, without pronouncement as to costs. So ordered.
GUTIERREZ HERMANOS, plaintiff-appellant,
vs.ORIA HERMANOS & CO., defendant-appellant.

1. Gutierrez Hermanos and Oria Hermanos entered into a contract wherein GH bound itself to
acquire for and forward to OH certain goods such as rice, cash, petroleum, etc. Because of
this, GH and OH decided to open a mutual current account under Oria Hermanos on the
books of Gutierrez Hermanos with 8% interest. Gutierrez Hermanos informed Oria Hermanos.
that said current account would be closed within 30 days, after which, Oria Hermanos would
have to settle the balance due to Gutierrez Hermanos, if any. However, despite repeated
demands from Gutierrez Hermanos to Oria Hermanos, the latter never paid which led to the
filing of this suit.
2. Up until the closing of the account, GH had sent OH various quantities of salt, petroleum,
tobacco, groceries, and beverages and had collected a commission on the sale. The
semiannual accounts rendered by GH were never questioned. However, OH claims that GH
had set higher prices than the price actually paid, thereby defrauding OH. OH prayed that GH
render an account as well as the vouchers used to determine the purchase price of the said
goods. OH also claimed that GH had kept the discount in addition to collecting commission on
the sale of goods.
3. Issue: whether or not OH is liable to GH for its unsettled account?
4. Yes, but only upon proper accounting of the expenses for the shipment of rice and petroleum
which were claimed to be overpriced.
5. When an agent in executing the orders and commissions of his principal carries out the
instructions he has received from his principal, and does not appear to have exceeded his
authority or to have acted with negligence, deceit, or fraud, he cannot be held responsible for
the failure of his principal to accomplish the object of the agenc
6. Since it was not proven that the price of the goods were overstated, thereby defrauding OH,
OH cannot escape the liability of paying GH for performing the task given to him by OH as his
principal.

FERMIN Z. CARAM, JR., petitioner,

vs.CLARO L. LAURETA, respondent.

FACTS: 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. 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 receipts and other
papers related thereto. Since June 10, 1945, the plaintiff Laureta had been and is still 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. However, the said property was sold to Fermin Caram, Jr., the petitioner, by Marcos Mata
on May 5, 1947. And was able to declare the ODOCT in the possession of Laureta null and void, after
Mata filed for an issuance of new ODOCT before the RD of Davao on the ground of loss of the said
title. The Trial Court ruled infavor of Laureta, stating that Caram, Jr. was not a purchaser in good faith,
and the Court of Appeals thenafter affirmed the decision of the lower court.

PETITIONERS CONTENTION:
 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 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.

ISSUES: Whether petitioner have acted in bad faith through his agents action.

RULING: In the case at bar, the court found that the Attorneys Irespe and Aportadera had knowledge
of the circumstances, and knew that Mata's certificate of title together with other papers pertaining to
the land was taken by soldiers under the command of Col. Claro L. Laureta. 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. 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 which is not there intimated 18 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 registrable. Obviously, Aportadera and Irespe knew
that even if Mata previously had sold the disputed property such sale could not have been
registered.cdrep 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 recorded it in the Registry of Property.

"Should there be no inscription, the ownership shall 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. (1973)". Since Caram was a registrant in bad faith, the situation is as if there was
no registration at all

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.

PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant,

vs.PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA
(PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendants-appellees.

1. Primateria Zurich) is a foreign juridical entity and, at the time of the transactions involved
herein, had its main office at Zurich, Switzerland. It was then engaged in "Transactions in
international trade with agricultural products, particularly in oils, fats and oil-seeds and related
products."
2. On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin, entered into
an agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy
copra in the Philippines for the account of Primateria Zurich, during "a tentative experimental
period of one month from date." The contract was renewed by mutual agreement of the
parties to cover an extended period up to February 24, 1952, later extended to 1953. During
such period, plaintiff caused the shipment of copra to foreign countries, pursuant to
instructions from defendant Primateria Zurich, thru Primateria (Phil.) Inc. referred to
hereafter as Primateria Philippines acting by defendant Alexander G. Baylin and Jose M.
Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of May
30, 1955, was P33,009.71.
3. At the trial, before the Manila court of first instance, it was proven that the amount due from
defendant Primateria Zurich, on account of the various shipments of copra, was P31,009.71,
because it had paid P2,000.00 of the original claim of plaintiff. There is no dispute about
accounting.
4. And there is no question that Alexander G. Baylin and Primateria Philippines acted as the
duly authorized agents of Primateria Zurich in the Philippines. As far as the record discloses,
Baylin acted indiscriminately in these transactions in the dual capacities of agent of the Zurich
firm and executive vice-president of Primateria Philippines, which also acted as agent of
Primateria Zurich. It is likewise undisputed that Primateria Zurich had no licJ
5. udgment was rendered by the lower court holding defendant Primateria Zurich liable to the
plaintiff and absolving defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M.
Crame from any and all liability.
6. Plaintiff appealed from that portion of the judgment dismissing its complaint as regards the
three defendants.
7. plaintiff's theory that Primateria Zurich is a foreign corporation within the meaning of Sections
68 and 69 of the Corporation Law, and since it has transacted business in the Philippines
without the necessary license, as required by said provisions, its agents here are personally
liable for contracts made in its behalf.: "No foreign corporation or corporation formed,
organized, or existing under any laws other than those of the Philippines shall be permitted to
transact business in the Philippines, until after it shall have obtained a license for that purpose
from the Securities and Exchange Commission .. ." And under Section 69, "any officer or
agent of the corporation or any person transacting business for any foreign corporation not
having the license prescribed shall be punished by imprisonment for etc. ... ."
8. The issues which have to be determined, therefore, are the following: 1. Whether defendant
Primateria Zurich may be considered a foreign corporation within the meaning of Sections 68
and 69 of the Corporation Law; 2. Assuming said entity to be a foreign corporation, whether it
may be considered as having transacted business in the Philippines within the meaning of
said sections; and 3. If so, whether its agents may be held personally liable on contracts
made in the name of the entity with third persons in the Philippines.
9. The lower court ruled that the Primateria Zurich was not duly proven to be a
foreign corporation; nor that a societe anonyme ("sociedad anomima") is a corporation; and
that failing such proof, the societe cannot be deemed to fall within the prescription of Section
68 of the Corporation Law. We agree with the said court's conclusion. In fact, our corporation
law recognized the difference between sociedades anonimas and corporations.
10. At any rate, we do not see how the plaintiff could recover from both the principal (Primateria
Zurich) and its agents. It has been given judgment against the principal for the whole amount.
It asked for such judgment, and did not appeal from it. It clearly stated that its appeal
concerned the other three defendants.
11. But plaintiff alleges that the appellees as agents of Primateria Zurich are liable to it under Art.
1897 of the New Civil Code which reads as follows:

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

12. But there is no proof that, as agents, they exceeded the limits of their authority. In fact, the
principal Primateria Zurich who should be the one to raise the point, never raised it,
denied its liability on the ground of excess of authority. At any rate, the article does not hold
that in cases of excess of authority, both the agent and the principal are liable to the other
contracting party.
 13. This view of the cause dispenses with the necessity of deciding the other two issues, namely:
whether the agent of a foreign corporation doing business, but not licensed here is personally
liable for contracts made by him in the name of such corporation.1 Although, the solution
should not be difficult, since we already held that such foreign corporation may be sued here
(And obviously, liability of the agent is necessarily premised on the inability to sue the
principal or non-liability of such principal. Appealed judgment is affirmed,

DAVID (DAVE) THOMAS, plaintiff-appellant,

vs.HERMOGENES S. PINEDA, defendant-appellant.

FACTS: Plaintiff owns the bar and restaurant known as Silver Dollar Caf located in Plaza Santa
Cruz, Manila. In thecourse of time, the defendant became successively cashier and manager of the
business. On the onset of the war, plaintiff made a fictitious sale of the business to defendant to
prevent the businessand its property from falling into enemy hands. Simultaneously with, or soon after
the execution of the simulated sale, the plaintiff and defendant signed aprivate or secret document
stating that the deed of sale conveying the restaurant was fictitious and upon therestoration of peace
and order, the document automatically becomes null and void and of no effect. On February 3, 1945,
the building was destroyed by fire but the defendant had been able to remove some of its furniture.
According to the defendant, all of these goods were accounted for and turned over to the plaintiff.

On May 8, 1945, a bar was opened in Bambang under the name Silver Dollar Caf. On September of
thesame year, it was transferred to its original location in Plaza Santa Cruz.

It is alleged that after liberation, plaintiff brought a certified public accountant to the caf for the
purpose of examining the books of the business. The defendant resisted, and even pointed a gun at
them. Because of thisincident, plaintiff brought the present action to compel an accounting of the
business. It also asked the courtto enjoin the defendant from using the name of that business, Silver
Dollar Caf.

The defendant avers that there was a third, verbal agreement, the import of which was that he was to
operatethe business with no liability other than to turn it over to the plaintiff as the plaintiff would find it
after the war.He insists therefore that he was relieved of any duty to make an accounting.

ISSUE: WON defendant is obliged to render an accounting to the plaintiff? YES.

HELD: The defendants contention is at war with the care and precaution which the plaintiff took to
insure his rights inthe business and its assets. Unless Thomas was willing to give away his property
and its profits, no man in his right senses would have given his manager an outright license such as
the defendant claims to have gotten from his employer.

The exact legal character of the defendants relation to the plaintiff matters not a bit. It was enough to
show,and it had been shown, that he had been entrusted with the possession and management of the
plaintiffsbusiness and property for the owners benefit and had not made an accounting.

Neither did the defendants sweeping statement at the trial that all the proceeds from the business
had been used to support the plaintiff and his daughters to entertain or bribe Japanese officers and
civilians dispense with defendants duty to account. It was clear error for the court to declare that
there were no surplus profits. The courts inquiry ought to have been confined to the determination of
the plaintiffs right to secure anaccounting.

The defendant denied that the plaintiff had any proprietary interest in the saloon in Bambang and at
Plaza Sta.Cruz after liberation. Thomas however said that he borrowed P2000 from a friend, and with
that amount he constructed a temporary building in Bambang and with the stocks saved by the
defendant, opened the business there. He said that, as before, the defendant now worked as
manager, with the difference that underthe new arrangement he was to get one-half the net profits.
The defendant said that he returned several cases of whiskey, rum, gin and other kinds of liquor to
theplaintiff, and he gave the latter P2000 in cash. He avers that this payment was in full and
complete liquidationof the Silver Dollar Caf. The court said that this was highly improbable, to put it
mildly.

The use of the old name for the bar in Bambang suggests that the business was in fact an extension
andcontinuation of the Silver Dollar Caf.

It was also the plaintiff who entered into a written contract of lease with the owner of the Santa Cruz
location. Thomas was even named as its proprietor.

That the defendant was only a manager is also made evident by two sets of business cards of the
Silver DollarCaf which he himself caused to be printed. On the first set, David Thomas was held out
as the proprietor andHermogenes Pineda, as manager. On the second set, which were ordered later,
the defendant was not evenmentioned as manager, but one Bill Magner, while David Thomas name
was retained as proprietor.

At different times from May 8 to December 15, 1945, the defendant handed the plaintiff averse
amountstotaling P24,100 without so much as asking Thomas to sign a receipt for any of them. The
defendant testifiedthat these amounts were simple loans secured by plaintiffs mining shares of stock.
The court held that thelack of any receipt is incompatible with the hypothesis of loans.

There is no escaping the conclusion that the plaintiff was the sole owner of the post-war Silver Dollar
bar andrestaurant, that the defendant was only an industrial partner, and that the said amounts were
withdrawals onaccount of the profits.

The court held that the defendant registered the business in bad faith.The plaintiffs non-use of his
trade name did not work as a forfeiture of his exclusive right to the name.As legal proposition and in
good conscience, the defendants registration of the trade name SilverDollar Caf must be deemed to
have been affected for the benefit of its owner of whom he was a mere trustee or employee.

"The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that
inregard to property forming the subject matter of the agency, he is estopped from acquiring
orasserting a title adverse to that of principal. His position is analogous to that of a trustee and
hecannot consistently, with the principles of good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. A receiver, trustee, attorney, agent or any
otherperson occupying fiduciary relations respecting property or persons utterly disabled from
acquiring forhis own benefit the property committed to his custody for management. This rule is
entirelyindependent of the fact whether any fraud has intervened. No fraud in fact need be shown,
and noexcuse will be heard from any such inquiry that the rule takes so general form. The rule stands
on themoral obligation to refrain from placing one's self in position which ordinarily excite conflicts
betweenself-interest at the expense of one's integrity and duty to another, by making it possible to
profit byyielding to temptation"

JESUS MA. CUI, ET AL., plaintiffs-appellants,

vs.ANTONIO MA. CUI, ET AL., defendants-appellees.

1. Jesus Ma. Cui and Jorge Ma. Cui brought an action in CFi Cebu against Antonio Ma. Cui and
Mercedes Cui de Ramas seeking the annulment of the sale of three parcels of land RFC was
included because the lands were mortgaged to it to secure a loan
2. Don Mariano was declared incompetent on March 31, 1949 and one Victorino Reynes was
appointed as his guardian.
3. On July 13, 1949, the complaint was amended by including as party plaintiffs the guardian as
party plaintiffs Victorino Reynes and the other children and relatives of Don Mariano, namely,
Jose Ma. Cui, Serafin Ma. Cui, Rosario Cui, her husband Irineo Encarnacion, Lourdes C.
Velez, Priscilla Velez and Federico Tamayo.
4. Defendants in their answer set up the defense that the sale mentioned in the complaint is
valid because it was executed when Don Mariano Cui was still in possession of his mental
 faculties and that, while the sale was at first executed in favor of the defendants and their
sister Rosario Cui, Rosario however resold her share to Don Mariano
5. CFI rendered its decision dismissing the complaint and which plaintiffs appealed
6. Plaintiffs and defendants, are the legitimate children of Don Mariano Cui and Doa Antonia
Perales who died intestate .
7. Upon the death of Doa Antonia Perales, the conjugal partnership did not leave any
indebtedness and the conjugal properties were placed under the administration of Don
Mariano Cui;
8. While Mariano was 84 years of age and under the influence of defendants, the latter, by
means of deceit, secured the transfer to themselves of the aforementioned lots without any
pecuniary consideration;
9. That defendants, fraudulently secured a loan from the Rehabilitation properties, and
contructed thereon an apartment building of strong materials consisting of 14 doors, and
another building which were leased to some Cinese commercial firms which defendants have
collected to the prejudice of the plaintiffs
10. Defendants, aver that the properties were entirely the exclusive property of Don Mariano Cui
having been acquired by him as a donation from his uncle that this fact was known to the
plaintiffs, and did not form part of the conjugal properties of the spouses
11. Don Mariano Cui, for a consideration, voluntarily and without deceit, pressure or influence on
the part of defendants, executed and signed the deed , at that time in full enjoyment of his
mental faculties.
12. It is also contended that six days before the sale, Don Mariano had executed a general power
of attorney in favor of defendant Antonio Cui, which act could signify that Don Mariano himself
realized that he was longer capacitated to administer his properties
13. Rosario Cui testified otherwise, Don Mariano was still in good mental condition and this was
corroborated thru different correspondence written by Mariano as she was staying with him.
14. There are other letters and documents which Don Mariano had prepared and executed in the
neighborhood of the time the deed of sale in question was executed which also depict the
mental condition that he possessed at the time,
15. Don Mariano signed and executed the deed of sale Exhibit A not only at a time when he was
still in the full enjoyment of his mental faculties, but also under conditions which indicate that
he knew what he was doing and, as a consequence, it cannot be said that he has entered into
the transaction without his consent or under a misapprehension that the document he was
signing was not the sale of the properties in question but one merely pertaining to their
administration.
16. There is however no concrete proof that may substantiate this claim of undue influence.
17. As an additional arguemen to nullify the deed of sale Exhibit A, appellants raise the question
that said sale should be invalidated at least in so far as the portion of the property sold to
Antonio Cui is concerned, for the reason that when that sale was effected he was then acting
as the agent or administrator of the properties of Don Mariano Cui.
18. While under article 1459 of the old Civil Code an agent or administrator is disqualified from
purchasing property in his hands for sale or management, and, in this case, the property in
question was sold to Antonio Cui while he was already the agent or administrator of the
properties of Don Mariano Cui,
19. (1) This contention is being raised in this appeal for the first time. It was never raised in the
trial court.
20. (2) The power of attorney in question is couched in so general a language that one cannot tell
whether it refers to the properties of Don Mariano or only to the conjugal properties of the
spouses. However, considering that the appointment was extended to Antonio Cui by Don
Mariano so that he may act as agent "for me and for the intestate heirs of the deceased
Antonia Perales", one is led to believe that the power refers to the conjugal properties
wherein he had one-half interest in the heirs of Doa Antonia, the remaining half.
21. (3) The prohibition of the law is contained in article 1459 of the old Civil Code, but this
prohibition has already been removed. Under the provisions of article 1491, section 2, of the
new Civil Code, an agent may now buy property placed in his hands for sale or
administration, provided that the principal gives his consent thereto. While the new Code
came into effect only on August 30, 1950, however, since this is a right that is declared for the
first time, the same may be given retroactive effect if no vested or acquired right is impaired
(Article 2253, new Civil Code). During the lifetime Don Mariano, and particularly on March 8,
1946, the herein appellants could not claim any vested or acquired right in these properties,
 for, as heirs, the most they had was a mere expentancy. We may, therefore, invoke now this
practical and liberal provision of our new Civil Code even if the sale had taken place before its
effectivity.

Having reached the conclusion that the lots in question were the exclusive property of Don Mariano
Cui and that the deed of sale Exhibit A was executed by him freely, intelligently, and with sufficient
pecuniary consideration, we deem it unnecessary to dwell on the other points discussed by both
parties in their briefs and in their respective memoranda. Wherefore, we hereby affirm the decision
appealed from, without pronouncement as to co

THE UNITED STATES, plaintiff-appellee,

vs.DOMINGO REYES, defendant-appellant..

1. R. B. Blackman is a surveyor in the Province of Pangasinan. Domingo Reyes, the accused,

also lives in that province. Blackman employed Reyes to collect certain amounts due from
twelve individuals for Blackman's work in connection with the survey of their lands. The total
amount to be collected by Reyes was P860. He only succeeded in collecting P540. He
delivered to Blackman P368. He retained the balance, or P172. So far as good.
2. The difficult point concerns the exact terms of the contract. It was merely an oral agreement
between Blackman and Reyes.
3. Blackman claims that he agreed to pay Reyes a commission of 10 per cent. Reyes claims
that he was to receive a commission of 20 per cent.
4. The trial court, in its decision, states that " (R. B. Blackman, the surveyor, ordered the said
accused to collect certain debts due for surveying and offered a 10 per cent commission on
all accounts collected.)
5. if we accept the statements of Blackman, Reyes was entitled to 10 per cent of P540 (or
P530), or P54, making P172 misappropriated, or, if we deduct his commission, P118. On the
other hand, if we accept the statements of Reyes, then 20 per cent of the total amount to be
collected, P860, is exactly P172, the amount claimed to have been misappropriated.
6. under the oral contract Reyes was an agent who was bound to pay to the principal all that he
had received by virtue of the agency.
7. since for all practical purposes, the agency was terminated, the agent was under the
obligation to turn over to the principal the amount collected, minus his commission on that
amount.

ROSA VILLA MONNA, plaintiff-appellee,

vs.GUILLERMO GARCIA BOSQUE, ET AL., defendants.
GUILLERMO GARCIA BOSQUE, F. H. GOULETTE, and R. G. FRANCE, appellants.

1. plaintiff, Rosa Villa y Monna, viuda de E. Bota, was the owner of a printing establishment and
bookstore located at 89 Escolta, Manila, and known as La Flor de Cataluna, Viuda de E.
Bota,
2. Upon the date stated, the plaintiff, then and now a resident of Barcelona, Spain, acting
through Manuel Pirretas, as attorney in fact, sold the establishment above-mentioned to the
defendants Guillermo Garcia Bosque and Jose Pomar Ruiz, for the stipulated sum of
P55,000, payable as follows: Fifteen thousand pesos (P15,000) on November 1, next ensuing
upon the execution of the contract, being the date when the purchasers were to take
possession; ten thousand pesos (P10,000) at one year from the same date; fifteen thousand
pesos (P15,000) at two years; and the remaining fifteen thousand pesos (P15,000) at the end
of three years.
3. By the contract of sale the deferred installments bear interest at the rate of 7 per centum per
annum. In the same document the defendants France and Goulette obligated themselves as
solidary sureties with the principals
 4. In the year 1920, Manuel Pirretas y Monros, the attorney in fact of the plaintiff, absented
himself from the Philippine Islands on a prolonged visit to Spain; and in contemplation of his
departure he executed a document, dated January 22, 1920, purporting to be a partial
substitution of agency, whereby he transferred to "the mercantile entity Figueras Hermanos,
or the person, or persons, having legal representation of the same," the powers that had been
previously conferred on Pirretas by the plaintiff "in order that," so the document runs, "they
may be able to effect the collection of such sums of money as may be due to the plaintiff
5. When the time came for the payment of the second installment and accrued interest due at
the time, the purchasers were unable to comply with their obligation, and after certain
negotiations between said purchasers and one Alfredo Rocha, representative of Figueras
Hermanos, acting as attorney in fact for the plaintiff, an agreement was reached, whereby
Figueras Hermanos accepted the payment of P5,800 on November 10, 1920, and received
for the balance five promissory notes payable, respectively, on December 1, 1920, January 1,
1921, February 1, 1921, March 1, 1921, and April 1, 1921. The first three of these notes were
in the amount of P1,000 each, and the last two for P2,000 each, making a total of P7,000. It
was furthermore agreed that the debtors should pay 9 per centum per annum on said
deferred installments, instead of the 7 per centum mentioned in the contract of sale. These
notes were not paid promptly at maturity but the balance due upon them was finally
paid in full by Bosque on December 24, 1921.
6. About this time the owners of the business La Flor de Catalua, appear to have converted it
into a limited partnership under the style of Guillermo Garcia Bosque, S. en C.;" and presently
a corporation was formed to take over the business under the name "Bota Printing Company,
Inc.", the partnership appears to have conveyed all its assets to this corporation for the
purported consideration .
7. Meanwhile the seven notes representing the unpaid balance of the second installment and
interest were failing due without being paid. A certain M. T. Figueras later enters into an
agreement with Bosque, stating as follows:
a. Guillermo was indebted to Rosa in the amount of P32,000 for which R. G. France and
F. H. Goulette are bound as joint and several sureties, and that the partnership
mentioned had transferred all its assets to the Bota Printing Company, Inc., of which
George Andrews was a principal stockholder.
b. France and Goulette shall be relieved from all liability on their contract as sureties
and that in lieu of Guillermo, France and Goulette, the Bota Printing Company, Inc.,
as debtor to the extent of P20,000, which indebtedness was expressly assumed by it,
and George Andrews as debtor to the extent of P12,000, will undertake to pay Rosa.
8. Rosa is now alleging that Figueras had no authority to execute the contract containing the
release of Guillermo et al from their liability, and that she had not ratified the same. Guillermo
et al argue otherwise, using the agreement as a novation releasing him from personal liability.

ISSUE(S):
WON Rosa is bound to the agreement made by Figueras, therefore removing her cause of action
against Guillermo et al.

RATIO:
The court first looks at the partial substitution of agency made by Manuel Pirretas, conferring on
Figueras Hermanos or the person or persons exercising legal representation of FH all of the powers
that had been conferred on Pirretas by the plaintiff in the original power of attorney.

It was argued that the original power of attorney included a wide range of powers (including the
general power of Pirretas to sell the business upon conditions fixed by Pirretas, as well as the power
of substitution to collect balance due to Rosa). However, the Court has also said that the substitution
agreement between Pirretas and FH were explicit the sole purpose of the substitution was only to
collect the balance of the selling price of the Printing Establishment and Bookstore above-mentioned,
which has been sold to Messrs. Bosque and Pomar. Nothing can be construed to authorize
Figueras to discharge debtors or novate the contract. On the other hand, the substitution
agreement is very much explicit in limiting the powers of Figueras.

Furthermore, it was the mercantile entity Figueras Hermanos (or its legal representatives) who were
given the capacity to exercise the substituted power. Not MT Figueras. M. T. Figueras intervenes as
purpoted attorney in fact without anything whatever to show that he is in fact the legal representative
of Figueras Hermanos or that he is there acting in such capacity. The act of substitution conferred
no authority whatever on M. T. Figueras as an individual.

DISPOSITIVE: Appealed judgment affirmed.

NATIONAL POWER CORPORATION, Plaintiff-Appellant, v. NATIONAL MERCHANDISING

CORPORATION and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, Defendants-
Appellants.

1. On October 17, 1956, NAPOCOR and NAMERCO, as the representative of the International
Commodities Corporation New York City, 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

2. Performance bond was executed by the Domestic Insurance Company in favor of the NPC to
guarantee the sellers obligations
3. It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City
within sixty days and that failure to effect delivery would subject the seller and its surety to the
payment of liquidated damages
4. 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.
5. 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 "non-availability
of bottom or vessel" was not a fortuitous event that would excuse non-performance

6. The Government Corporate Counsel rescinded the contract of sale due to the New York
suppliers non-performance of its obligations. The same counsel in his letter of June 8, 1957
demanded from Namerco the payment of P360,572.80 as liquidated damages.
7. 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
8. 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 .
9. Defendants appeal 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.
10. 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.
11. 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"
12. 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"
13. 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 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.
 14. 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).

15. NPC counter-argues that Namerco should have advised the NPC of the limitations on its
authority to negotiate the sale.
16. 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.
17. 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).

18. 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).
19. 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
20. 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.
21. 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.

22. 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. 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.
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 liquidated damages.

MARIANO A. ALBERT, plaintiff-appellant,

vs.UNIVERSITY PUBLISHING CO., INC., defendant-appellee.
 1. Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co.,
Inc.
2. that on July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a
contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00 for the
exclusive right to publish his revised Commentaries on the Revised Penal Code and for his
share in previous sales of the book's first edition; that defendant had undertaken to pay in
eight quarterly installments of P3,750.00 and that defendant had failed to pay the second
installment.
3. Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the
execution and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who
breached their contract by failing to deliver his manuscript.
4. Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted
5. CFI favoured ordering the defendant to pay the administrator Justo R. Albert,
6. court a quo ordered issuance of an execution writ against University Publishing Co., Inc.
7. Sheriff of Manila discovered that there is no such entity as University Publishing Co., Inc."
8. The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange
Commission has not been disputed. Defendant would only raise the point that "University
Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that
"University Publishing Co., Inc." is an existing corporation with an independent juridical
personality. Precisely, however, on account of the non-registration it cannot be considered a
corporation, not even a corporation de facto .It has therefore no personality separate from
Jose M. Aruego; it cannot be sued independently.
9. The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is
inapplicable here. Aruego represented a non-existent entity and induced not only the plaintiff
but even the court to believe in such representation. He signed the contract as "President" of
"University Publishing Co., Inc.," stating that this was "a corporation duly organized and
existing under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert)
into believing the same. One who has induced another to act upon his wilful
misrepresentation that a corporation was duly organized and existing under the law, cannot
thereafter set up against his victim the principle of corporation by estoppel
10. "University Publishing Co., Inc." purported to come to court, answering the complaint and
litigating upon the merits. But as stated, "University Publishing Co., Inc." has no independent
personality; it is just a name. Jose M. Aruego was, in reality, the one who answered and
litigated, through his own law firm as counsel. He was in fact, if not, in name, the defendant.
11. SC: 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." Had Jose M. Aruego been
named as party defendant instead of, or together with, "University Publishing Co., Inc.," there
would be no room for debate as to his personal liability. Since he was not so named, the
matters of "day in court" and "due process" have arisen.

In this connection, it must be realized that parties to a suit are "persons who have a right to control the
proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a
decision" (67 C.J.S. 887) and Aruego was, in reality, the person who had and exercised these
rights. Clearly, then, Aruego had his day in court as the real defendant; and due process of law has
been substantially observed.

By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon
inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has
said, " "Due process of law" contemplates notice and opportunity to be heard before judgment is
rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat vs.
Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due process"
clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it by paying
undue homage to formality. For substance must prevail over form. It may now be trite, but none the
less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:

12. The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent
principal, was the real party to the contract sued upon; that he was the one who reaped the
benefits resulting from it, so much so that partial payments of the consideration were made by
him; that he violated its terms, thereby precipitating the suit in question; and that in the
 litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility
under the judgment falls on him.

NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners,

vs.HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC., respondents.

Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business of
manufacturing, making bottling and selling soft drinks and beverages to the general public. Petitioner
Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation. Although
she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro Manila,
Eugenio had a regular charge account in both the Quezon City plant (under the name "Abigail
Minimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent
corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of
private respondent in its Quezon City plant.

On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners Nora
S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of First
Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its
complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners
purchased and received on credit various products from its Quezon City plant. As of December 31,
1980, petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various
occasions in 1980, petitioners also purchased and received on credit various products from
respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an
outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid
obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11,
1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint
alleged, they failed to pay despite oral and written demands.1

In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and
received by them from private respondent's Route Manager Jovencio Estrada of its Malate
Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store.
Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not
be indebted to Pepsi-Cola. The details of said receipts are as follows:

TPR No. Date of Issue Amount

500320 600 Fulls returned 5/6/80 P23,520.00

500326 600 Fulls returned 5/10/80 23,520.00
500344 600 Fulls returned 5/14/80 23,520.00
500346 Cash 5/15/80 10,000.00 2

Total P80,560.00

Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in
Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00,3 which was included in the
computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned
amounts were credited in their favor, it would be respondent corporation which would be indebted to
them in the sum of P3,546.02 representing overpayment.

After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering
petitioners, as defendants therein to jointly and severally pay private respondent the amount of
P74,849.00, plus 12% interest per annum until the principal amount shall have been fully paid, as well
as P20,000.00 as attorney's fees.4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals
declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of
the 1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law
on which they are based. The Court of Appeals accordingly remanded the records of the case to the
trial court, directing it to render another decision in accordance with the requirements of the
Constitution.5

In compliance with the directive of the Court of Appeals, the lower court rendered a second decision
on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and
severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of
the action until full payment of the amount adjudged.6 On appeal therefrom, the Court of Appeals
affirmed the judgment of the trial court in a decision promulgated on September 27, 1991. 7 A motion
for the reconsideration of said judgment of respondent court was subsequently denied in a resolution
dated January 23, 1992.8

We agree with petitioners and respondent court that the crux of the dispute in the case at bar is
whether or not the amounts in the aforementioned trade provisional receipts should be credited in
favor of herein petitioner spouses.

In a so-called encyclopedic sense, however, our course of action in this case and the denouement of
the controversy therein takes into account the jurisprudential rule that in the present recourse we
would normally have restricted ourselves to questions of law and eschewed questions of fact were it
not for our perception that the lower courts manifestly overlooked certain relevant factual
considerations resulting in a misapprehension thereof. Consequentially, that position shall necessarily
affect our analysis of the rules on the burden of proof and the burden of evidence, and ultimately,
whether the proponent of the corresponding claim has preponderated or rested on an equipoise or
fallen short of preponderance.

First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its
Legal Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo
Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-payment
of debts to the company, inefficiency, and loss of trust and confidence."9 The interview was reset to
August 4, 1981 to enable said petitioner to bring along with him their union president, Luis Isip. On
said date, a statement of overdue accounts were prepared showing that petitioners owed respondent
corporation the following amounts:

Muntinlupa Plant
Nora's Store
Trade Account P38,357.20 (as of 12/3/80) 10
Loaned Empties P35,856.40 (as of 7/11/81) 11

Quezon City Plant

Abigail Minimart
Regular Account P20,437.40 (as of 1980) 12

Total P94,651.00

A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the loaned
empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the value of
the loaned empties. 13Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a
spurious document, was deducted from their liability in their trade account with the Muntinlupa
plant. 14 Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items:

Muntinlupa Plant
Nora Store
Trade Account P32,726.20 15
Loaned Empties P21,686.00 16

Quezon City Plant

Abigail Minimart
 Trade Account P20,437.2017

Total P74,849.40

After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be
allowed to retire and the existing accounts be deducted from his retirement pay, but that he later
withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently filed
a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme Court,
showed that this petitioner was indeed illegally dismissed, and that he never filed an application for
retirement. In fact, this Court made a finding that the retirement papers allegedly filed in the name of
this petitioner were forged.18 This makes two falsified documents to be foisted against petitioners.

With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the
aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel
manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during the
investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the aforesaid
TPRs.19 He also presented a supposed affidavit which Estrada allegedly executed during that
investigation to affirm his verbal statements therein. Surprisingly, however, said supposed affidavit is
inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never testified
thereafter in court and what he is supposed to have done or said was merely related by Azurin.

Now, on this point, respondent court disagreed with herein petitioners that the testimony on the
alleged denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his
affidavit dated February 5, 1982 21wherein he affirmed his denial, are hearsay evidence because
Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the
terse statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on
December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation
categorically denying that he issued and signed the disputed TPRs is, therefore, not hearsay," 22 there
was no further explanation on this unusual doctrinal departure.

The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those
facts which he knows of his personal knowledge; that is, which are derived from his own perception,
except as otherwise provided in the Rules.23 In the present case, Estrada failed to appear as a
witness at the trial. It was only Azurin who testified that during the investigation he conducted, Estrada
supposedly denied having signed the TPRs. It is elementary that under the measure on hearsay
evidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada's denial. For that
matter, it is not admissible in evidence, petitioners' counsel having seasonably objected at the trial to
such testimony of Azurin as hearsay. And, even if not objected to and thereby admissible, such
hearsay evidence has no probative value whatsoever. 24

It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former
case or proceeding, judicial or administrative, involving the same parties and subject matter, may be
given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private
respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule.

Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an
administrative hearing under statutory regulations and safeguards. It was merely an inter-office
interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of the
alleged stenographic notes, assuming arguendo that these notes are admissible in evidence, would
show that the "investigation" was more of a free-flowing question and answer type of discussion
wherein Estrada was asked some questions, after which Eugenio was likewise asked other questions.
Indeed, there was no opportunity for Eugenio to object, much less to cross-examine Estrada. Even in
a formal prior trial itself, if the opportunity for
cross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-
examine the witness when the testimony was offered, evidence relating to the testimony given therein
is thereafter inadmissible in another proceeding, absent any conduct on the part of the accused
amounting to a waiver of his right to cross-examine.26
Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted to
the trial court. A copy of the stenographic report of the entire testimony at the former trial must be
supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony of
the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed
stenographic notes on which respondent corporation relies is unauthenticated and necessarily
inadmissible for the purpose intended.

Lastly, although herein private respondent insinuated that Estrada was not presented as a witness
because he had disappeared, no evidence whatsoever was offered to show or even intimate that this
was due to any machination or instigation of petitioners. There is no showing that his absence was
procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar, except for
the self-serving statement that Estrada had disappeared, no plausible explanation was given by
respondent corporation. Estrada was an employee of private respondent, hence it can be assumed
that it could easily trace or ascertain his whereabouts. It had the resources to do so, in
contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to defend
them here. Private respondent could not have been unaware of the importance of Estrada's testimony
and the consequent legal necessity for presenting him in the trial court, through coercive process if
necessary.

Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the
hearsay evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not
prepared by the affiants themselves but by another who uses his own language in writing the affiant's
statements, which may thus be either omitted or misunderstood by the one writing them.29 The
dubiety of that affidavit, as earlier explained, is further underscored by the fact that it was executed
more than two months after the investigation, presumably for curative purposes as it were.

Now, the authenticity of a handwriting may be proven, among other means, by its comparison made
by the witness or the court with writings admitted or treated as genuine by the party against whom the
evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged affidavit of
Estrada states". . . that the comparison that was made as to the authenticity of the signature
appearing in the TPRs and that of my signature showed that there was an apparent dissimilarity
between the two signatures, xerox copy of my 201 File is attached hereto as Annex 'F' of this
affidavit.31 However, a search of the Folder of Exhibits in this case does not reveal that private
respondent ever submitted any document, not even the aforementioned 201 File, containing a
specimen of the signature of Estrada which the Court can use as a basis for comparison. Neither was
any document containing a specimen of Estrada's signature presented by private respondent in the
formal offer of its exhibits.32

Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said
investigation to sign three times to provide specimens of his genuine signature."33 There is, however,
no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still
be unable to make the necessary comparison because two signatures appear on the right margin of
each and every page of the stenographic notes, without any indication whatsoever as to which of the
signatures is Estrada's. The whole document was marked for identification but the signatures were
not. In fact, although formally offered, it was merely introduced by the private respondent "in order to
show that Jovencio Estrada had been investigated and categorically denied having collected from
Abigail Minimart and denying having signed the receipts claimed by Alfredo Eugenio to be his
payment,"34 and not for the purpose of presenting any alleged signature of Estrada on the document
as a basis for comparison.

This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation
was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and
which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from
cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not be
found, and necessarily aware that his alleged denial of his signatures on said TPRs and his affidavit
rendered the same vulnerable to the challenge that they are hearsay and inadmissible, respondent
corporation did nothing more. In fact, Estrada's disappearance has not been explained up to the
present.
The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used
in the day-to-day business transactions of the company. These trade provisional receipts are bound
and given in booklets to the company sales representatives, under proper acknowledgment by them
and with a record of the distribution thereof. After every transaction, when a collection is made the
customer is given by the sales representative a copy of the trade provisional receipt, that is, the
triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused
TPRs, as well as the collections made, are turned over by the sales representative to the appropriate
company officer.35

According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed at
the bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by delivering
the original copy thereof stamped paid and signed by its cashier to the customer. . . . Defendants-
appellants (herein petitioners) failed to present the original copies of the TPRs in question, showing
that they were never confirmed by the plaintiff, nor did they demand from plaintiff the confirmed
original copies thereof." 36

We do not agree with the strained implication intended to be adverse to petitioners. The TPRs
presented in evidence by petitioners are disputably presumed as evidentiary of payments made on
account of petitioners. There are presumptions juris tantum in law that private transactions have been
fair and regular and that the ordinary course of business has been followed. 37 The role of
presumptions in the law on evidence is to relieve the party enjoying the same of the evidential burden
to prove the proposition that he contends for, and to shift the burden of evidence to the adverse party.
Private respondent having failed to rebut the aforestated presumptions in favor of valid payment by
petitioners, these would necessarily continue to stand in their favor in this case.

Besides, even assuming arguendo that herein private respondent's cashier never received the
amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly
authorized agent with respect to petitioners, did not receive those amounts from the latter. As
correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for
as long as they pay their obligations to the sales representative of the private respondent using the
latter's official receipt, said payment extinguishes their obligations." 38 Otherwise, it would
unreasonably cast the burden of supervision over its employees from respondent corporation to its
customers.

The substantive law is that payment shall be made to the person in whose favor the obligation has
been constituted, or his successor-in-interest or any person authorized to receive it.39 As far as third
persons are concerned, an act is deemed to have been performed within the scope of the agent's
authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the principal and his
agent. 40 In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the responsibility
of the collector to turn over the collection." 41

Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following
observation:

. . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10,
and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800
cases of soft drinks from plaintiff before those dates. Yet the Statement of Overdue
Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-
husband and his representative Luis Isip signed on August 3, 1981 does now show
more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's
Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1980 or the
month before."42

We regret the inaccuracy in said theory of respondent court which was impelled by its sole and limited
reliance on a mere statement of overdue amounts. Unlike a statement of account which truly reflects
the day-to-day movement of an account, a statement of an overdue amount is only a summary of the
account, simply reflecting the balance due thereon. A statement of account, being more specific and
detailed in nature, allows one to readily see and verify if indeed deliveries were made during a specific
period of time, unlike a bare statement of overdue payments. Respondent court cannot make its
aforequoted categorical deduction unless supporting documents accompanying the statement of
overdue amounts were submitted to enable easy and accurate verification of the facts.

A perusal of the statement of overdue accounts shows that, except for a reference number given for
each entry, no further details were volunteered nor offered. It is entirely possible that the statement of
overdue account merely reflects the outstanding debt of a particular client, and not the specific
particulars, such as deliveries made, particularly since the entries therein were surprisingly entered
irrespective of their chronological order. Obviously, therefore, one can not use the statement of
overdue amounts as conclusive proof of deliveries done within a particular time frame.

Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank
forms of the TPRs because he was a former route manager no evidence whatsoever was presented
by private respondent in support of that theory. We are accordingly intrigued by such an unkind
assertion of respondent corporation since Azurin himself admitted that their accounting department
could not even inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is
significant that respondent corporation did not take proper action if indeed some receipts were
actually lost, such as the publication of the fact of loss of the receipts, with the corresponding
investigation into the matter.

We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio
submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation
meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y.
Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the
reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store,
had eloped and she had possession of the TPRs. 45 It was only in November, 1981 when petitioners
were able to talk to Nanette that they were able to find and retrieve said TPRs. He added that during
the reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be
credited in his favor, hence he signed the reconciliation documents. Accordingly, when he presented
the TPRs to private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the
amount stated in the reconciliation sheet was not final, as it was still subject to such receipts as may
thereafter be presented by petitioners.

On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales
Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from
the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount had
already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola ,
Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be
deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a
payment of P80,560.00, there was consequently an overpayment of P5,710.60.

All told, we are constrained to hold that respondent corporation has dismally failed to comply with the
pertinent rules for the admission of the evidence by which it sought to prove its contentions.
Furthermore, there are questions left unanswered and begging for cogent explanations why said
respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the
weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the requisite
quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in
this case.

WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming
that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent
Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora and
Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former.
GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner
vs.THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS PHILIPPINE
CORPORATION, respondents.

1. 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.

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. 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;

BA Finance Corporation v. Court of Appeals, G.R. No. 94566 July 3, 1992

1. 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.

Facts: Spouses Manuel and Lilia Cuady obtained from Supercars, Inc. bought a Ford Escort 1300,
four-door sedan in installments. To secure the faithful and prompt compliance of the obligation under
the said promissory note, the Cuady spouses constituted a chattel mortgage on the aforementioned
motor vehicle. Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to
B.A. Finance Corporation. The Cuadys made partial payment leaving an un paid balance.In addition
thereto, the Cuadys owe B.A. Finance .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
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.
The 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. In view of the failure
of the Cuadys to pay the remaining installments on the note, B.A. Finance Corporation sued them.

B.A. Finance Corporation contended 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.

Issue: Whether or not BA Finance can still collect on the deficiency of the Chattel Mortgage.

Held: In granting B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady
spouses created in the formers 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; in such case, the assignee of the mortgage agreement is bound by the same
stipulation and if the assignee failed to file and prosecute the insurance claim when the car was
damaged totally, the mortgagor is relieved from his obligation to pay as he suffered a loss
because of the failure of the mortgagee to file the claim.

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.

BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners,

vs.HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-
G.R. CV No. 35180,1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos
and Rene R. Savellon," which affirmed the decision of 19 August 1991 of the Regional Trial Court
(RTC) of Cebu, Branch 9, in Civil Case No. CEB-81872 holding petitioners Bacaltos Coal Mines and
German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally liable to private
respondent San Miguel Corporation under a Trip Charter Party.

The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into
the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit
"1"),4 dated 1 March 1988, the pertinent portions of which read as follows:

I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second

street, Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize
RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd.,
Cebu City, Province of Cebu, Philippines, to use the coal operating contract of
BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose
that it may serve. Namely, but not by way of limitation, as follows:

(1) To acquire purchase orders for and in behalf of BACALTOS

COAL MINES;

(2) To engage in trading under the style of BACALTOS COAL

MINES/RENE SAVELLON;

(3) To collect all receivables due or in arrears from people or

companies having dealings under BACALTOS COAL MINES/RENE
SAVELLON;

(4) To extend to any person or company by substitution the same

extent of authority that is granted to Rene Savellon;
 (5) In connection with the preceeding paragraphs to execute and sign
documents, contracts, and other pertinent papers.

Further, I hereby give and grant to RENE SAVELLON full authority to do and perform
all and every lawful act requisite or necessary to carry into effect the foregoing
stipulations as fully to all intents and purposes as I might or would lawfully do if
personally present, with full power of substitution and revocation.

The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL
MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON" and private
respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its
"SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal
Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within seven
days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round
trips to Davao."

As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE
SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under
the heading of BACALTOS COAL MINES with the address at No 376-R Osmea Blvd., Cebu City
(Exhibit "B-1"). 6

The vessel was able to make only one trip. Its demands to comply with the contract having been
unheeded, SMC filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB-
8187 for specific performance and damages. In their Answer,7 the petitioners alleged that Savellon
was not their Chief Operating Officer and that the powers granted to him are only those clearly
expressed in the Authorization which do not include the power to enter into any contract with SMC.
They further claimed that if it is true that SMC entered into a contract with them, it should have issued
the check in their favor. They setup counterclaims for moral and exemplary damages and attorney's
fees.

Savellon did not file his Answer and was declared in default on 17 July 1990. 8

At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the
following issues for resolution:

Plaintiff

1. Whether or not defendants are jointly liable to plaintiff for damages on account of
breach of contract;

2. Whether or not the defendants acted in good faith in its representations to the
plaintiff;

3. Whether or not defendant Bacaltos was duly enriched on the payment made by the
plaintiff for the use of the vessel;

4. Whether or not defendant Bacaltos is estopped to deny the authorization given to

defendant Savellon;

Defendants

1. Whether or not the plaintiff should have first investigated the ownership of vessel
M/V PREM [SHIP] II before entering into any contract with defendant Savellon;

2. Whether or not defendant Savellon was authorized to enter into a shipping contract
with the [plaintiff] corporation;
 3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in
payment of the contract in the name of defendant Savellon and not in the name of
defendant Bacaltos Coal Mines;

4. Whether or not the plaintiff is liable on defendants'

counterclaim.9

After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners
and Savellon as follows:

WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in

favor of plaintiff and against defendants, ordering defendants Rene Savellon,
Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay to plaintiff:

1. The amount of P433,000.00 by way of reimbursement of the consideration paid by

plaintiff, plus 12% interest to start from date of written demand, which is June 14,
1989;

2. The amount of P20,000.00 by way of exemplary damages;

3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation

expenses. Plus costs. 10

It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to
enter into the Trip Charter Party. It did not give credence to the petitioners' claim that the authorization
refers only to coal or coal mining and not to shipping because, according to it, "the business of coal
mining may also involve the shipping of products" and "a company such as a coal mining company is
not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that
even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter
Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge
of the real intent of the parties to the Authorization and has reason to rely on the written Authorization
submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an
official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party,
and the petitioners denial that they caused the printing of such official receipt is "lame" because they
submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A-
1") is written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as
that appearing in their voucher; (d) the petitioners were benefited by the payment because the real
payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized
Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon;
and, (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the
Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon
should have "bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim"
against him.

In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial
court erred in: (a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon
and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos
Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of
P650,000.00 after the vessel made only one trip and before it completed three trips as required in the
Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter
into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon
and Bacaltos Coal Mines. 11

As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held
that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency
while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was
not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since
the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon
as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the
"five prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation";
(d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal
Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners'
business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any
event, the construction of obscure words should not favor him since he prepared the Authorization in
favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of
Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he
should not now be permitted to disavow what he initially stated to be true and to interpose the defense
that Bacaltos Coal Mines has a distinct legal personality.

Their motion for a reconsideration of the above decision having been denied, the petitioners filed the
instant petition wherein they raise the following errors:

I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE

SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP
CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT
INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE
FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION;

II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT

BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN
TRUST FOR BACALTOS COAL MINES, THE PRIVATE
RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND

III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER

GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH
RENE SAVELLON AND CO-PETITIONER BACALTOS COAL
MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT
PETITIONER BACALTOS COAL MINES AND PETITIONER
BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL
PERSONALITIES. 12

After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and
the comment thereto and reply to the comment, the Court resolved to give due course to the petition.

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority
of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's
authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed
agent, whether the assumed agency be a general or special one, are bound at their peril, if they
would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of
the authority, and in case either is controverted, the burden of proof is upon them to establish
it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows:

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

The person dealing with the agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that the
agent is exceeding his authority, he cannot claim protection. So if the suggestions of
probable limitations be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real estate of the case, but should either refuse
to deal with the agent at all, or should ascertain from the principal the true condition of
affairs. [emphasis supplied].

In the instant case, since the agency of Savellon is based on a written document, the Authorization of
1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be determined on the
basis thereof. The language of the Authorization is clear. It pertinently states as follows:

I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating
contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it
may serve. Namely, but not by way of limitation, as follows . . . [emphasis supplied].

There is only one express power granted to Savellon, viz., to use the coal operating contract
for anylegitimate purpose it may serve. The enumerated "five prerogatives" to employ the
term used by the Court of Appeals are nothing but the specific prerogatives subsumed
under or classified as part of or as examples of the power to use the coal operating contract.
The clause "but not by way of limitation" which precedes the enumeration could only refer to
or contemplate other prerogatives which must exclusively pertain or relate or be germane to
the power to use the coal operating contract. The conclusion then of the Court of Appeals that
the Authorization includes the power to enter into the Trip Chapter Party because the "five
prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the
broadest scope of Savellon's authority is limited to the use of the coal operating contract and
the clause cannot contemplate any other power not included in the enumeration or which are
unrelated either to the power to use the coal operating contract or to those already
enumerated. In short, while the clause allows some room for flexibility, it can comprehend
only additional prerogatives falling within the primary power and within the same class as
those enumerated. The trial court, however, went further by hastily making a sweeping
conclusion that "a company such as a coal mining company is not prohibited to engage in
entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was
that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and
operates vessels, and even if it owned any such vessels, that it was allowed to charter or
lease them. The trial court also failed to note that the Authorization is not a general power of
attorney. It is a special power of attorney for it refers to a clear mandate specifically
authorizing the performance of a specific power and of express acts subsumed therein. 17 In
short, both courts below unreasonably expanded the express terms of or otherwise gave
unrestricted meaning to a clause which was precisely intended to prevent unwarranted and
unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of
Appeals that there is obscurity in the Authorization which must be construed against German
Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is
no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then
there will be more reason to place SMC on guard and for it to exercise due diligence in
seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its
peril the nature and extent of Savellon's written agency. Unfortunately, it did not.

Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous
and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the
Authorization.

Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that
there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to
enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second
prerogative under the Authorization, to wit:

(2) To engage in trading under the style of BACALTOS COAL MINES/RENE

SAVELLON;

unmindful that such is but a part of the primary authority to use the coal operating contract
which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona,
expressly so admitted on cross-examination, thus:

Atty. Zosa (to witness ON CROSS)

Q You said that in your office Mr. Rene Savellon presented to you
this authorization marked Exhibit "C" and Exhibit "1" for the
defendant?

A Yes, sir.

Q Did you read in the first part[y] of this authorization Mr. Valdescona
that Mr. Rene Savellon was authorized as the coal operating contract
of Bacaltos Coal Mines?

A Yes, sir.

Q Did it not occur to you that you should have examined further the
authorization of Mr. Rene Savellon, whether or not this coal operating
contract allows Mr. Savellon to enter into a trip charter party?

A Yes, sir. We discussed about the extent of his authorization and he

referred us to the number 2 provision of this authorization which is to
engage in trading under the style of Bacaltos Coal Mines/Rene
Savellon, which we followed up to the check preparation because it is
part of the authority.

Q In other words, you examined this and you found out that Mr.
Savellon is authorized to use the coal operating contract of Bacaltos
Coal Mines?

A Yes, sir.

Q You doubted his authority but you found out in paragraph 2 that he
is authorized that's why you agreed and entered into that trip charter
party?

A We did not doubt his authority but we were questioning as to the

extent of his operating contract.

Q Did you not require Mr. Savellon to produce that coal operating
contract of Bacaltos Coal Mines?

A No sir. We did not. 18

Since the principal subject of the Authorization is the coal operating contract, SMC should have
required its presentation to determine what it is and how it may be used by Savellon. Such a
determination is indispensable to an inquiry into the extent or scope of his authority. For this reason,
we now deem it necessary to examine the nature of a coal operating contract.
A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as
amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and
production of coal resources 19 in a specified contract area. 20 Section 9 of the decree prescribes the
obligation of the contractor, thus:

Sec. 9. Obligations of Operator in Coal Operating Contract. The operator under a

coal operating contract shall undertake, manage and execute the coal operations
which shall include:

(a) The examination and investigation of lands supposed to contain coal, by detailed
surface geologic mapping, core drilling, trenching, test pitting and other appropriate
means, for the purpose of probing the presence of coal deposits and the extent
thereof;

(b) Steps necessary to reach the coal deposit so that it can be mined, including but
not limited to shaft sinking and tunneling; and

(c) The extraction and utilization of coal deposits.

The Government shall oversee the management of the operation contemplated in a

coal operating contract and in this connection, shall require the operator to:

(a) Provide all the necessary service and technology;

(b) Provide the requisite financing;

(c) Perform the work obligations and program prescribed in the coal operating
contract which shall not be less than those prescribed in this Decree;

(d) Operate the area on behalf of the Government in accordance with good coal
mining practices using modern methods appropriate for the geological conditions of
the area to enable maximum economic production of coal, avoiding hazards to life,
health and property, avoiding pollution of air, lands and waters, and pursuant to an
efficient and economic program of operation;

(e) Furnish the Energy Development Board promptly with all information, data and
reports which it may require;.

(f) Maintain detailed technical records and account of its expenditures;

(g) Conform to regulations regarding, among others, safety demarcation of

agreement acreage and work areas, non-interference
with the rights of the other petroleum, mineral and natural resources operators;

(h) Maintain all necessary equipment in good order and allow access to these as well
as to the exploration, development and production sites and operations to inspectors
authorized by the Energy Development Board;

(i) Allow representatives authorized by the Energy Development Board full access to
their accounts, books and records for tax and other fiscal purposes.

Section 11 thereof provides for the minimum terms and conditions of a coal operating contract.

From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines
would have provided SMC knowledge of the activities which are germane, related, or incident to the
power to use it. But it did not even require Savellon to produce the same.
SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a
vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the
vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant
case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it
was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as
well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination
as follows:

A In October, a certain Rene Savellon called our office offering us

shipping services. So I told him to give us a formal proposal and also
for him to come to our office so that we can go over his proposal and
formally discuss his offer.

Q Did Mr. Rene Savellon go to your office?

A Few days later he came to our office and gave us his proposal
verbally offering a vessel for us to use for our cargo.

Q Did he mention the owner of that vessel?

A Yes, sir. That it is Bacaltos.

Q Did he present a document to you?

A Yes, sir. He presented to us the authorization.

Q When Mr. Rene Savellon presented to you the authorization what

did you do?.

A On the strength of that authorization we initially asked him for us to

check the vessel to see its sea worthiness, and we assigned our in-
house surveyor to check the sea worthiness of the vessel which was
on dry dock that time in Danao.

Q What was the result of your inspection?

A We found out the vessel's sea worthiness to be our cargo carrier.

Q After that what did you do?

A After that we were discussing the condition of the contract.

Q Were you able to execute that contract?

A Yes, sir .21

He further declared as follows:

Q When you entered into a trip charter contract did you check the
ownership of M/V Premship?

A The representation made by Mr. Rene Savellon was that Bacaltos

Coal Mines operates the vessel and on the strength of the
authorization he showed us we were made to believe that it was
Bacaltos Coal Mines that owned it.
 COURT: (to witness)

Q In other words, you just believed Rene Savellon?

A Yes, sir.

COURT: (to witness)

Q You did not check with Bacaltos Coal Mines?

A That is the representation he made.

Q Did he show you document regarding this M/V Premship II?

A No document shown.22

The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear
therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have
required the presentation of pertinent documentary proof of ownership of the vessel to be chartered.
Its in-house surveyor who saw the vessel while drydocked in Danao and thereafter conducted a sea
worthiness test could not have failed to ascertain the registered owner of the vessel. The petitioners
themselves declared in open court that they have not leased any vessel for they do not need it in their
coal operations23 thereby implying that they do not even own one.

The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel
because such ownership is warranted on the face of the trip charter party begs the question since
Savellon's authority to enter into that contract is the very heart of the controversy.

We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged
in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business
form known as a "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite
its reservation to present the original for purposes of comparison at the next
hearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best
evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when
SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1,"
the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not
authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is
not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in
question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only
belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely
objected to, it has no probative value as to the ownership of the vessel.

There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The
petitioners denied having received it. 27 The evidence for SMC established beyond doubt that it was
Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in
favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in
favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and delivered it to
Savellon who there upon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC
committed negligence in drawing the check in the manner aforestated. It even disregarded the
request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON.
Furthermore, assuming that the transaction was permitted in the Authorization, the check should still
have been drawn in favor of the principal. SMC then made possible the wrong done. There is an
equitable maxim that between two innocent parties, the one who made it possible for the wrong to be
done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is
that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the
extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril.
Having thus found that SMC was the author of its own damage and that the petitioners are, therefore,
free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal
Mines is a corporation with a personality distinct and separate from German Bacaltos.

WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993
of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another
judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch
9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant
RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case
as against herein petitioners.

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 aspropina 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 rule is to prevent the
possibility of any wrong, not to remedy or repair an actual damage. 3 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.

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 insurance agent for the account of
his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 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.5

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 lien. 7 The duty of a commission agent to
render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias.8

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 had informed the principal of the gift or bonus or profit he received
from the purchaser and his principal did not object therto. 11 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.

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, petitioner-appellant 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.

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.5 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:

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,6 the decision was affirmed, prompting Metrobank to file this
petition for review on the following grounds:

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.7 It was only when Metrobank gave the go-signal that Gomez was finally allowed
by Golden Savings to withdraw them from his own account.

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."8 For a bank with its long experience, this
explanation is unbelievably naive.

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.9 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: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 General11 where the Court held:

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, 12 but we feel
this case is inapplicable to the present controversy.1wphi1 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.

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.

GONZALO TUASON, plaintiff-appellee,

vs.
DOLORES OROZCO, defendant-appellant.

Hartigan, Marple, Rohde and Gutierrez for appellant.

Ledesma, Sumulong and Quintos for appellee.

MAPA, J.:

On November 19, 1888, Juan de Vargas y Amaya, the defendant's husband, executed a power of
attorney to Enrique Grupe, authorizing him, among other things, to dispose of all his property, and
particularly of a certain house and lot known as No. 24 Calle Nueva, Malate, in the city of Manila, for
the price at which it was actually sold. He was also authorized to mortgage the house for the purpose
of securing the payment of any amount advanced to his wife, Dolores Orozco de Rivero, who,
inasmuch as the property had been acquired with funds belonging to the conjugal partnership, was a
necessary party to its sale or incumbrance.

On the 21st of January, 1890, Enrique Grupe and Dolores Orozco de Rivero obtained a loan from the
plaintiff secured by a mortgage on the property referred to in the power of attorney. In the caption of
the instrument evidencing the debt it is stated that Grupe and Dolores Orozco appeared as the parties
of the first part and Gonzalo Tuason, the plaintiff, as the party of the second part; that Grupe acted for
himself and also in behalf of Juan Vargas by virtue of the power granted him by the latter, and that
Dolores Orozco appeared merely for the purpose of complying with the requirement contained in the
power of attorney. In the body of the instrument the following appears:

1. Enrique Grupe acknowledges to have this day received from Gonzalo Tuason as a loan,
after deducting therefrom the interest agreed upon, the sum of 3,500 pesos in cash, to his
entire satisfaction, which sum he promises to pay within one year from the date hereof.

2. Grupe also declares that of the 3,500 pesos, he has delivered to Dolores Orozco the sum
of 2,200 pesos, having retained the remaining 1,300 pesos for use in his business; that
notwithstanding this distribution of the amount borrowed, he assumes liability for the whole
 sum of 3,500 pesos, which he promises to repay in current gold or silver coin, without
discount, in this city on the date of the maturity of the loan, he otherwise to be liable for all
expenses incurred and damages suffered by his creditor by reason of his failure to comply
with any or all of the conditions stipulated herein, and to pay further interest at the rate of 1
per cent per month from the date of default until the debt is fully paid.

3. Grupe pledges as special security for the payment of the debt 13 shares of stock in the
"Compaia de los Tranvias de Filipinas," which shares he has delivered to his creditor duly
indorsed so that the latter in case of his insolvency may dispose of the same without any
further formalities.

4. To secure the payment of the 2,200 pesos delivered to Dolores Orozco as aforesaid he
specially mortgages the house and lot No. 24, Calle Nueva, Malate, in the city of Manila (the
same house referred to in the power at attorney executed by Vargas to Grupe).

5. Dolores Orozco states that, in accordance with the requirement contained in the power of
attorney executed by Vargas to Grupe, she appears for the purpose of confirming the
mortgage created upon the property in question.

6. Gonzalo Tuason does hereby accept all rights and actions accruing to him under his
contract.

This instrument was duly recorded in the Registry of Property, and it appears therefrom that Enrique
Grupe, as attorney in fact for Vargas, received from the plaintiff a loan of 2,200 pesos and delivered
the same to the defendant; that to secure its payment he mortgaged the property of his principal with
defendant's consent as required in the power of attorney. He also received 1,300 pesos. This amount
he borrowed for his own use. The recovery of this sum not being involved in this action, it will not be
necessary to refer to it in this decision. The complaint refers only to the 2,200 pesos delivered to the
defendant under the terms of the agreement.

The defendant denies having received this sum, but her denial can not overcome the proof to the
contrary contained in the agreement. She was one of the parties to that instrument and signed it. This
necessarily implies an admission on her part that the statements in the agreement relating to her are
true. She executed another act which corroborates the delivery to her of the money in question that
is, her personal intervention in the execution of the mortgage and her statement in the deed that the
mortgage had been created with her knowledge and consent. The lien was created precisely upon the
assumption that she had received that amount and for the purpose of securing its payment.

In addition to this the defendant wrote a letter on October 23, 1903, to the attorneys for the plaintiff
promising to pay the debt on or before the 5th day of November following. The defendant admits the
authenticity of this letter, which is a further evidence of the fact that she had received the amount in
question. Thirteen years had elapsed since she signed the mortgage deed. During all this time she
never denied having received the money. On the contrary, she promised to settle within a short time.
The only explanation that we can find for this is that she actually received the money as set forth in
the instrument.

The fact that the defendant received the money from her husband's agent and not from the creditor
does not affect the validity of the mortgage in view of the conditions contained in the power of attorney
under which the mortgage was created. Nowhere does it appear in this power that the money was to
be delivered to her by the creditor himself and not through the agent or any other person. The
important thing was that she should have received the money. This we think is fully established by the
record.

This being an action for the recovery of the debt referred to, the court below properly admitted the
instrument executed January 21, 1890, evidencing the debt.

The appellant claims that the instrument is evidence of a debt personally incurred by Enrique Grupe
for his own benefit, and not incurred for the benefit of his principal, Vargas, as alleged in the
complaint. As a matter of fact, Grupe, by the terms of the agreement, bound himself personally to pay
the debt. The appellant's contention however, can not be sustained. The agreement, so far as that
amount is concerned, was signed by Grupe as attorney in fact for Vargas. Pursuant to instructions
contained in the power of attorney the money was delivered to Varga's wife, the defendant in this
case. To secure the payment of the debt, Varga's property was mortgaged. His wife took part in the
execution of the mortgage as required in the power of attorney. A debt thus incurred by the agent is
binding directly upon the principal, provided the former acted, as in the present case, within the scope
of his authority. (Art. 1727 of the Civil Code.) The fact that the agent has also bound himself to pay
the debt does not relieve from liability the principal for whose benefit the debt was incurred. The
individual liability of the agent constitutes in the present case a further security in favor of the creditor
and does not affect or preclude the liability of the principal. In the present case the latter's liability was
further guaranteed by a mortgage upon his property. The law does not provide that the agent can not
bind himself personally to the fulfillment of an obligation incurred by him in the name and on behalf of
his principal. On the contrary, it provides that such act on the part of an agent would be valid. (Art.
1725 of the Civil Code.)

The above mortgage being valid and having been duly recorded in the Register of Property, directly
subjects the property thus encumbered, whoever its possessor may be, to the fulfillment of the
obligation for the security of which it was created. (Art. 1876 of the Civil Code and art. 105 of the
Mortgage Law.) This presents another phase of the question. Under the view we have taken of the
case it is practically of no importance whether or not Enrique Grupe bound himself personally to pay
the debt in question. Be this as it may and assuming that Vargas, though principal in the agency, was
not the principal debtor, the right in rem arising from the mortgage would have justified the creditor in
bringing his action directly against the property encumbered had he chosen to foreclose the mortgage
rather than to sue Grupe, the alleged principal debtor. This would be true irrespective of the personal
liability incurred by Grupe. The result would be practically the same even though it were admitted that
appellant's contention is correct.

The appellant also alleges that Enrique Grupe pledged to the plaintiff thirteen shares of stock in the
"Compaia de los Tranvias de Filipinas" to secure the payment of the entire debt, and contends that it
must be shown what has become of these shares, the value of which might be amply sufficient to pay
the debt, before proceeding to foreclose the mortgage. This contention can not be sustained in the
face of the law above quoted to the effect that a mortgage directly subjects the property encumbered,
whoever its possessor may be, to the fulfillment of the obligation for the security of which it was
created. Moreover it was incumbent upon the appellant to show that the debt had been paid with
those shares. Payment is not presumed but must be proved. It is a defense which the defendant may
interpose. It was therefore her duty to show this fact affirmatively. She failed, however, to do so.

The appellant's final contention is that in order to render judgment against the mortgaged property it
would be necessary that the minor children of Juan de Vargas be made parties defendant in this
action, they having an interest in the property. Under article 154 of the Civil Code, which was in force
at the time of the death of Vargas, the defendant had the parental authority over her children and
consequently the legal representation of their persons and property. (Arts. 155 and 159 of the Civil
Code.) It can not be said, therefore, that they were not properly represented at the trial. Furthermore
this action was brought against the defendant in her capacity as administratrix of the estate of the
deceased Vargas. She did not deny in her answer that she was such administratix.

Vargas having incurred this debt during his marriage, the same should not be paid out of property
belonging to the defendant exclusively but from that pertaining to the conjugal partnership. This fact
should be borne in mind in case the proceeds of the mortgaged property be not sufficient to ay the
debt and interest thereon. The judgment of the court below should be modified in so far as it holds the
defendant personally liable for the payment of the debt.

The judgment thus modified is affirmed and the defendant is hereby ordered to pay to the plaintiff the
sum of 2,200 pesos as principal, together with interest thereon from the 21st day of January, 1891,
until the debt shall have been fully discharged. The appellant shall pay the costs of this appeal.

After the expiration of ten days let judgment be entered in accordance herewith and let the case be
remanded to the court below for execution. So ordered.
GUADALUPE GONZALEZ and LUIS GOMEZ, plaintiffs-appellants,
vs.
E.J. HABERER, defendant-appellee.

Feria and La O for appellants.

Paredes, Buencamino and Yulo for appellee.

OSTRAND, J.:

This action is brought to recover the sum of P34,260 alleged to be due the plaintiffs from the
defendant upon a written agreement for the sale of a tract of land situated in the Province of Nueva
Ecija. The plaintiffs also ask for damages in the sum of P10,000 for the alleged failure of the
defendant to comply with his part of the agreement.

The defendant in his answer admits that of the purchase price stated in the agreement a balance of
P31,000 remains unpaid, but by way of special defense, cross-complaint and counter-claim alleges
that at the time of entering into the contract the plaintiffs through false representations lead him to
believe that they were in possession of the land and that the title to the greater portion thereof was not
in dispute; that on seeking to obtain possession he found that practically the entire area of the land
was occupied by adverse claimants and the title thereto disputed; that he consequently has been
unable to obtain possession of the land; and that the plaintiffs have made no efforts to prosecute the
proceedings for the registration of the land. He therefore asks that the contract be rescinded; that the
plaintiffs be ordered to return to him the P30,000 already paid by him to them and to pay P25,000 as
damages for breach of the contract.

The court below dismissed the plaintiffs' complaint, declared the contract rescinded and void and
gave the defendant judgment upon his counterclaim for the sum of P30,000, with interest from the
date upon which the judgment becomes final. The case is now before this court upon appeal by the
plaintiffs from that judgment.

The contract in question reads as follows:

Know all men by these presents:

That I, Guadalupe Gonzalez y Morales de Gomez, married with Luis Gomez, of age, and
resident of the municipality of Bautista, Province of Pangasinan, Philippine Islands, do hereby
state:

1. That I am the absolute and exclusive owner of a parcel of land situated in the barrio of
Partida, municipality of Guimba, Nueva Ecija, described as follows:

Bounded on the north by the land of Don Marcelino Santos; on the east, by the land of Doa
Cristina Gonzalez; on the south by the Binituan River; and on the west, by the land of Doa
Ramona Gonzalez; containing an area of 488 hectares approximately.

2. That an application was filed for the registration of the above described land in the registry
of property of Nueva Ecija, which application is still pending in the Court of First Instance of
Nueva Ecija.

3. That in consideration of the sum of P125 per hectare I do hereby agree and bind myself to
sell and transfer by way of real and absolute sale the land above described to Mr. E.J.
Habere, binding myself to execute the deed of sale immediately after the decree of the court
adjudicating said land in my favor is registered in the registry of property of the Province of
Nueva Ecija. The condition of this obligation to sell are as follows:

"1. That Mr. E.J. Haberer has at this moment paid me the sum of P30,000 on account
of the price of the aforesaid land.
 "2. That said Mr. E.J. Haberer agrees and binds himself to pay within six months from
the date of the execution of this document the unpaid balance of the purchase price.

"3. That said Mr. E.J. Haberer shall have the right to take possession of the aforesaid
land immediately after the execution of this document together with all the
improvements now existing on the same land, such as palay plantation and others.

"4. That said Mr. E.J. agrees and binds himself to pay the expenses to be incurred
from this date in the registration of the aforesaid land up to the filing of the proper
decree in the office of the register of deeds of the Province of Nueva Ecija.

"5. That in the event that the court should hold that I am not the owner of all or any
part of the aforesaid land, I agree and bind myself to return without interest all such
amounts of money as I have received or may receive from Mr. E.J. Haberer as the
purchase price of said land, but, in the event that the court should adjudicate a part of
the aforesaid land to me, then I agree and bind myself to sell said portion adjudicated
to me, returning all the amounts received from Mr. E.J. Haberer in excess of the price
of said portion at the rate of P125 per hectare.

"6. The Mr. E.J. Haberer does hereby waive any interest or indemnity upon the
amount that I am to return to him and which I have receive from Mr. E.J. Haberer as
the purchase price of the aforesaid land."

I, E.J. Haberer, married, of age, and resident of the municipality of Talavera, Nueva Ecija, do
hereby state that, having known the contents of this document, I accept the same with all the
stipulations and conditions thereof.

I, Luis Gomez, married, of age, and resident of the municipality of Bautista, Province of
Pangasinan, do hereby grant my wife, Da. Guadalupe Gonzalez y Morales de Gomez, the
due marital license to execute this document and make effective the definite sale of the land
as above stipulated, she being empowered to execute the deed of sale and other necessary
documents in order that the full ownership over the aforesaid land may be transferred to Mr.
E.J. Haberer, as stipulated in this document.

In testimony whereof, we hereunto set our hands at Manila, this 7th day of July, 1920.

(Sgd.) GUADALUPE G. DE GOMEZ

E.J. HABERER
LUIS GOMEZ

Signed in the presence of the witnesses:

(Sgd.) EMIGDIO DOMINGO

L.G. ALVAREZ

(Acknowledged before notary.)

It is conceded by the plaintiffs that the defendant never obtained actual or physical possession of the
land, but it is argued that under the contract quoted the plaintiffs were under no obligation to place
him in possession. This contention cannot be sustained. Cause 3 of paragraph 3 of the contract gave
the defendant the right to take possession of the land immediately upon the execution of the contract
and necessarily created the obligation on the part of the plaintiffs to make good the right thus granted;
it was one of the essential conditions of the agreement and the failure of the plaintiffs to comply with
this condition, without fault on the part of the defendant, is in itself sufficient ground for the rescission,
even in the absence of any misrepresentation on their part. (Civil Code, art. 1124 ; Pabalan vs. Velez,
22 Phil., 29.)
It is therefore unnecessary to discuss the question whether the defendant was induced to enter into
the agreement through misrepresentation made by the plaintiff Gomez. We may say, however, that
the evidence leaves no doubt that some misrepresentations were made and that but for such
misrepresentations the defendant would not have been likely to enter into the agreement in the form it
appeared. As to the contention that the plaintiff Gonzalez cannot be charged with the
misrepresentations of Gomez, it is sufficient to say that the latter in negotiating for the sale of the land
acted as the agent and representative of the other plaintiff, his wife; having accepted the benefit of the
representations of her agent she cannot, of course, escape liability for them. (Haskell vs. Starbird, 152
Mass., 117; 23 A.S.R., 809.)

The contention of the appellants that the symbolic delivery effected by the execution and delivery of
the agreement was a sufficient delivery of the possession of the land, is also without merit. The
possession referred to in the contract is evidently physical; if it were otherwise it would not have been
necessary to mention it in the contract. (See Cruzado vs. Bustos and Escaler, 34 Phil., 17.)

The judgment appealed from is in accordance with the law, is fully sustained by the evidence, and is
therefore affirmed, with the costs against the appellants. So ordered.

PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED
JARDINICO, respondents.

DECISION

PANGANIBAN, J.:

Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the
owner's agent, a builder in good faith? This is the main issue resolved in this petition for review
on certiorari to reverse the Decision1of the Court of Appeals2 in CA-G.R. No. 11040, promulgated on
August 20, 1987.

By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this case
(along with several others) to the Third Division. After due deliberation and consultation, the Court
assigned the writing of this Decision to the undersigned ponente.

The Facts

The facts, as found by respondent Court, are as follows:

Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II and located at
Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought
the rights to the lot from Robillo. At that time, Lot 9 was vacant.

Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City on
December 19, 1978 Transfer Certificate of Title No. 106367 in his name. It was then that he
discovered that improvements had been introduced on Lot 9 by respondent Wilson Kee, who had
taken possession thereof.

It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same subdivision from C.T.
Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the Contract to
Sell on Installment, Kee could possess the lot even before the completion of all installment payments.
On January 20, 1975, Kee paid CTTEI the relocation fee of P50.00 and another P50.00 on January
27, 1975, for the preparation of the lot plan. These amounts were paid prior to Kee's taking actual
possession of Lot 8. After the preparation of the lot plan and a copy thereof given to Kee, CTTEI
through its employee, Zenaida Octaviano, accompanied Kee's wife, Donabelle Kee, to inspect Lot 8.
Unfortunately, the parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee proceeded to
construct his residence, a store, an auto repair shop and other improvements on the lot.

After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach
an amicable settlement, but failed.

On January 30, 1981, Jardinico's lawyer wrote Kee, demanding that the latter remove all
improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal
Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against
Kee.

Kee, in turn, filed a third-party complaint against petitioner and CTTEI.

The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further ruled
that petitioner and CTTEI could not successfully invoke as a defense the failure of Kee to give notice
of his intention to begin construction required under paragraph 22 of the Contract to Sell on
Installment and his having built a sari-sari store without the prior approval of petitioner required under
paragraph 26 of said contract, saying that the purpose of these requirements was merely to regulate
the type of improvements to be constructed on the Lot.3

However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for
the latter's failure to pay the installments due, and that Kee had not contested the rescission. The
rescission was effected in 1979, before the complaint was instituted. The MTCC concluded that Kee
no longer had any right over the lot subject of the contract between him and petitioner. Consequently,
Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim
reimbursement for the improvements he introduced on said lot.

The MTCC thus disposed:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows:

1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered by TCT No.
106367 and to remove all structures and improvements he introduced thereon;

2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P15.00 a day
computed from the time this suit was filed on March 12, 1981 until he actually vacates the
premises. This amount shall bear interests (sic) at the rate of 12 per cent (sic) per annum.

3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville Subdivision are
ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as attorney's fees and
P700.00 as cost and litigation expenses.4

On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and CTTEI
were not at fault or were not negligent, there being no preponderant evidence to show that they
directly participated in the delivery of Lot 9 to Kee5 . It found Kee a builder in bad faith. It further ruled
that even assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of
unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was served with
notice to vacate said lot, and thus was liable for rental.

The RTC thus disposed:

WHEREFORE, the decision appealed from is affirmed with respect to the order against the
defendant to vacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-
106367 of the land records of Bacolod City; the removal of all structures and improvements
introduced thereon at his expense and the payment to plaintiff (sic) the sum of Fifteen
(P15.00) Pesos a day as reasonable rental to be computed from January 30, 1981, the date
 of the demand, and not from the date of the filing of the complaint, until he had vacated (sic)
the premises, with interest thereon at 12% per annum. This Court further renders judgment
against the defendant to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as
attorney's fees, plus costs of litigation.

The third-party complaint against Third-Party Defendants Pleasantville Development

Corporation and C.T. Torres Enterprises, Inc. is dismissed. The order against Third-Party
Defendants to pay attorney's fees to plaintiff and costs of litigation is reversed. 6

Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed directly to
the Supreme Court, which referred the matter to the Court of Appeals.

The appellate court ruled that Kee was a builder in good faith, as he was unaware of the "mix-up"
when he began construction of the improvements on Lot 8. It further ruled that the erroneous delivery
was due to the negligence of CTTEI, and that such wrong delivery was likewise imputable to its
principal, petitioner herein. The appellate court also ruled that the award of rentals was without basis.

Thus, the Court of Appeals disposed:

WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and

judgment is rendered as follows:

1. Wilson Kee is declared a builder in good faith with respect to the improvements he
introduced on Lot 9, and is entitled to the rights granted him under Articles 448, 546 and 548
of the New Civil Code.

2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development

Corporation are solidarily liable under the following circumstances:

A. If Eldred Jardinico decides to appropriate the improvements and, thereafter,

remove these structures, the third-party defendants shall answer for all demolition
expenses and the value of the improvements thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer
for the amount representing the value of Lot 9 that Kee should pay to Jardinico.

3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development

Corporation are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney's
fees, as well as litigation expenses.

4. The award of rentals to Jardinico is dispensed with.

Furthermore, the case is REMANDED to the court of origin for the determination of the actual
value of the improvements and the property (Lot 9), as well as for further proceedings in
conformity with Article 448 of the New Civil Code. 7

Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.

The Issues

The petition submitted the following grounds to justify a review of the respondent Court's Decision, as
follows:

1. The Court of Appeals has decided the case in a way probably not in accord with law or the
the (sic) applicable decisions of the Supreme Court on third-party complaints, by ordering
third-party defendants to pay the demolition expenses and/or price of the land;
 2. The Court of Appeals has so far departed from the accepted course of judicial proceedings,
by granting to private respondent-Kee the rights of a builder in good faith in excess of what
the law provides, thus enriching private respondent Kee at the expense of the petitioner;

3. In the light of the subsequent events or circumstances which changed the rights of the
parties, it becomes imperative to set aside or at least modify the judgment of the Court of
Appeals to harmonize with justice and the facts;

4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly
a builder in bad faith, having violated several provisions of the contract to sell on installments;

5. The decision of the Court of Appeals, holding the principal, Pleasantville Development
Corporation (liable) for the acts made by the agent in excess of its authority is clearly in
violation of the provision of the law;

6. The award of attorney's fees is clearly without basis and is equivalent to putting a premium
in (sic) court litigation.

From these grounds, the issues could be re-stated as follows:

(1) Was Kee a builder in good faith?

(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and

(3) Is the award of attorney's fees proper?

The First Issue: Good Faith

Petitioner contends that the Court of Appeals erred in reversing the RTC's ruling that Kee was a
builder in bad faith.

Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals
that Kee was a builder in good faith. We agree with the following observation of the Court of Appeals:

The roots of the controversy can be traced directly to the errors committed by CTTEI, when it
pointed the wrong property to Wilson Kee and his wife. It is highly improbable that a
purchaser of a lot would knowingly and willingly build his residence on a lot owned by
another, deliberately exposing himself and his family to the risk of being ejected from the land
and losing all improvements thereon, not to mention the social humiliation that would follow.

Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the
identity of his property. Lot 8 is covered by Transfer Certificate of Title No. T-69561, while Lot
9 is identified in Transfer Certificate of Title No. T-106367. Hence, under the Torrens system
of land registration, Kee is presumed to have knowledge of the metes and bounds of the
property with which he is dealing. . . .

xxx xxx xxx

But as Kee is a layman not versed in the technical description of his property, he had to find a
way to ascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to
the subdivision developer's agent and applied and paid for the relocation of the lot, as well as
for the production of a lot plan by CTTEI's geodetic engineer. Upon Kee's receipt of the map,
his wife went to the subdivision site accompanied by CTTEI's employee, Octaviano, who
authoritatively declared that the land she was pointing to was indeed Lot 8. Having full faith
and confidence in the reputation of CTTEI, and because of the company's positive
identification of the property, Kee saw no reason to suspect that there had been a
misdelivery. The steps Kee had taken to protect his interests were reasonable. There was no
 need for him to have acted ex-abundantia cautela, such as being present during the geodetic
engineer's relocation survey or hiring an independent geodetic engineer to countercheck for
errors, for the final delivery of subdivision lots to their owners is part of the regular course of
everyday business of CTTEI. Because of CTTEI's blunder, what Kee had hoped to forestall
did in fact transpire. Kee's efforts all went to naught.8

Good faith consists in the belief of the builder that the land he is building on is his and his ignorance of
any defect or flaw in his title 9 . And as good faith is presumed, petitioner has the burden of proving
bad faith on the part of Kee 10 .

At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from
petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kee's good faith.
Petitioner failed to prove otherwise.

To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22 and 26 of the
Contract of Sale on Installment.

We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in good
faith, that is, on his state of mind at the time he built the improvements on Lot 9. These alleged
violations may give rise to petitioner's cause of action against Kee under the said contract (contractual
breach), but may not be bases to negate the presumption that Kee was a builder in good faith.

Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment covering
Lot 8 between it and Kee was rescinded long before the present action was instituted. This has no
relevance on the liability of petitioner, as such fact does not negate the negligence of its agent in
pointing out the wrong lot. to Kee. Such circumstance is relevant only as it gives Jardinico a cause of
action for unlawful detainer against Kee.

Petitioner next contends that Kee cannot "claim that another lot was erroneously pointed out to him"
because the latter agreed to the following provision in the Contract of Sale on installment, to wit:

13. The Vendee hereby declares that prior to the execution of his contract he/she has
personally examined or inspected the property made subject-matter hereof, as to its location,
contours, as well as the natural condition of the lots and from the date hereof whatever
consequential change therein made due to erosion, the said Vendee shall bear the expenses
of the necessary fillings, when the same is so desired by him/her. 11

The subject matter of this provision of the contract is the change of the location, contour and condition
of the lot due to erosion. It merely provides that the vendee, having examined the property prior to the
execution of the contract, agrees to shoulder the expenses resulting from such change.

We do not agree with the interpretation of petitioner that Kee contracted away his right to recover
damages resulting from petitioner's negligence. Such waiver would be contrary to public policy and
cannot be allowed. "Rights may be waived, unless the waiver is contrary to law, public order, public
policy, morals, or good customs, or prejudicial to a third person with a right recognized by law." 12

The Second Issue: Petitioner's Liability

Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after
ruling that there was no evidence from which fault or negligence on the part of petitioner and CTTEI
can be inferred. The Court of Appeals disagreed and found CTTEI negligent for the erroneous
delivery of the lot by Octaviano, its employee.

Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous
delivery of Lot 9 to Kee was an act which was clearly outside the scope of its authority, and
consequently, CTTEI I alone should be liable. It asserts that "while [CTTEI] was authorized to sell the
lot belonging to the herein petitioner, it was never authorized to deliver the wrong lot to Kee" 13 .
Petitioner's contention is without merit.

The rule is that the principal is responsible for the acts of the agent, done within the scope of his
authority, and should bear the damage caused to third persons 14 . On the other hand, the agent who
exceeds his authority is personally liable for the damage 15

CTTEI was acting within its authority as the sole real estate representative of petitioner when it made
the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this
negligence that is the basis of petitioner's liability, as principal of CTTEI, per Articles 1909 and 1910 of
the Civil Code.

Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24, 1987
entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the
Court of Appeals of such deal.

The deed of sale contained the following provision:

1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now pending appeal with the
Court of Appeals, regardless of the outcome of the decision shall be mutually disregarded and
shall not be pursued by the parties herein and shall be considered dismissed and without
effect whatso-ever; 16

Kee asserts though that the "terms and conditions in said deed of sale are strictly for the parties
thereto" and that "(t)here is no waiver made by either of the parties in said deed of whatever favorable
judgment or award the honorable respondent Court of Appeals may make in their favor against herein
petitioner Pleasantville Development Corporation and/or private respondent C.T. Torres Enterprises;
Inc." 17

Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated,
petitioner's liability is grounded on the negligence of its agent. On the other hand, what the deed of
sale regulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached an
agreement independent of the outcome of the case.

Petitioner further assails the following holding of the Court of Appeals:

2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development

Corporation are solidarily liable under the following circumstances:

a. If Eldred Jardinico decides to appropriate the improvements and, thereafter,

remove these structures, the third-party defendants shall answer for all demolition
expenses and the value of the improvements thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer
for the amount representing the value of Lot 9 that Kee should pay to Jardinico. 18

Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at
its expense. In other words, Kee would be able to own the lot, as buyer, without having to pay
anything on it, because the aforequoted portion of respondent Court's Decision would require
petitioner and CTTEI jointly and solidarily to "answer" or reimburse Kee therefor.

We agree with petitioner.

Petitioner' s liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner
should be held liable for damages. Now, the extent and/or amount of damages to be awarded is a
factual issue which should be determined after evidence is adduced. However, there is no showing
that such evidence was actually presented in the trial court; hence no damages could flow be
awarded.

The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good faith,
respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the
Court of Appeals to make a "slight modification" in the application of such law, on the ground of
"equity". At any rate, as it stands now, Kee and Jardinico have amicably settled through their deed of
sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the
dispositive portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and
CTTEI solidarily liable.

The Third Issue: Attorney's Fees

The MTCC awarded Jardinico attorney's fees and costs in the amount of P3,000.00 and P700.00,
respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling that
petitioner was without fault or negligence. The Court of Appeals, however, reinstated the award of
attorney's fees after ruling that petitioner was liable for its agent's negligence.

The award of attorney's fees lies within the discretion of the court and depends upon the
circumstances of each case 19 . We shall not interfere with the discretion of the Court of Appeals.
Jardinico was compelled to litigate for the protection of his interests and for the recovery of damages
sustained as a result of the negligence of petitioner's agent 20 .

In sum, we rule that Kee is a builder in good faith. The disposition of the Court of Appeals that Kee "is
entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code" is deleted, in
view of the deed of sale entered into by Kee and Jardinico, which deed now governs the rights of
Jardinico and Kee as to each other. There is also no further need, as ruled by the appellate Court, to
remand the case to the court of origin "for determination of the actual value of the improvements and
the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil
Code."

WHEREFORE , the petition is partially GRANTED. The Decision of the Court of Appeals is hereby
MODIFIED as follows:

(1) Wilson Kee is declared a builder in good faith;

(2) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises,
Inc. are declared solidarily liable for damages due to negligence; however, since the amount
and/or extent of such damages was not proven during the trial, the same cannot now be
quantified and awarded;

(3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises,
Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as
well as litigation expenses; and

(4) The award of rentals to Jardinico is dispensed with.

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner,
vs.
CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorney-
in-Fact PONCIANO C. MARQUEZ, respondents.

DECISION

QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision1 and Resolution,2 dated
November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.
33568. The appellate court had affirmed the Decision3 dated October 10, 1989 of the Regional Trial
Court (RTC) of Manila, Branch 3, finding petitioner as defendant and the co-defendants below jointly
and severally liable to the plaintiffs, now herein respondents.

The antecedent facts are as follows:

Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by

petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her
insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January
1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment
program for policyholders. It was offering 8% prepaid interest a month for certain amounts deposited
on a monthly basis. Enticed, she initially invested and issued a post-dated check dated January 7,
1977 for P10,000.4 In return, Valle issued Pedroso his personal check for P800 for the 8%5prepaid
interest and a Filipinas Life "Agents Receipt" No. 807838.6

Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that there was such a promotion. She was even told
she could "push through with the check" she issued. From the records, the check, with the
endorsement of Alcantara at the back, was deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC), Escolta Branch.

Relying on the representations made by the petitioners duly authorized representatives Apetrior and
Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the maturity
of her initial investment. A month after, her investment of P10,000 was returned to her after she made
a written request for its refund. The formal written request, dated February 3, 1977, was written on an
inter-office memorandum form of Filipinas Life prepared by Alcantara.7 To collect the amount,
Pedroso personally went to the Escolta branch where Alcantara gave her the P10,000 in cash. After a
second investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but at a
lower rate of 5%8 prepaid interest a month. Upon maturity of Pedrosos subsequent investments, Valle
would take back from Pedroso the corresponding yellow-colored agents receipt he issued to the
latter.

Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder, about the
investment plan. Palacio made a total investment of P49,5509 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her investment, Valle did not want to return some P17,000
worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to return
her money. With the assistance of their lawyer, they went to Filipinas Life Escolta Office to collect
their respective investments, and to inquire why they had not seen Valle for quite some time. But their
attempts were futile. Hence, respondents filed an action for the recovery of a sum of money.

After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and
Alcantara jointly and solidarily liable to the respondents.

On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently denied the motion
for reconsideration.

Petitioner now comes before us raising a single issue:

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE
LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY
LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF
HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS.10
Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and
severally liable to the herein respondents?

Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance
company and was not engaged in the business of collecting investment money. It contends that the
investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope of
their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents. 11

On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments from
them. In fact, Filipinas Lifes official documents and facilities were used in consummating the
transactions. These transactions, according to respondents, were confirmed by its officers Apetrior
and Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining
the authority of petitioners agents; and it is Filipinas Life that failed in its duty to ensure that its agents
act within the scope of their authority.

Considering the issue raised in the light of the submissions of the parties, we find that the petition
lacks merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in
rendering the assailed decision and resolution.

It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550,
respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Lifes official
receipts, whose authenticity were not disputed. Valles authority to solicit and receive investments was
also established by the parties. When respondents sought confirmation, Alcantara, holding a
supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is
true that a person dealing with an agent is put upon inquiry and must discover at his own peril the
agents authority, in this case, respondents did exercise due diligence in removing all doubts and in
confirming the validity of the representations made by Valle.

Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By the contract of
agency, a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.12 The general rule is that the principal is
responsible for the acts of its agent done within the scope of its authority, and should bear the
damage caused to third persons.13 When the agent exceeds his authority, the agent becomes
personally liable for the damage.14 But even when the agent exceeds his authority, the principal is still
solidarily liable together with the agent if the principal allowed the agent to act as though the agent
had full powers.15 In other words, the acts of an agent beyond the scope of his authority do not bind
the principal, unless the principal ratifies them, expressly or impliedly. 16 Ratification in agency is the
adoption or confirmation by one person of an act performed on his behalf by another without
authority.17

Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond his
authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and
knowingly ratified Valles acts. It cannot even be denied that Filipinas Life benefited from the
investments deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas Life
had clothed Valle with apparent authority; hence, it is now estopped to deny said authority. Innocent
third persons should not be prejudiced if the principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his agents acts beyond the latters authority.
The act of the agent is considered that of the principal itself. Qui per alium facit per seipsum facere
videtur. "He who does a thing by an agent is considered as doing it himself."18

WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated
November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.
33568 are AFFIRMED.
WISE & CO., INC., plaintiff-appellee,
vs.
DIONISIO P. TANGLAO, defendant-appellant.

The appellant in his own behalf.

Franco and Reinoso for appellee.

AVANCEA, C. J.:

In the Court of First Instance of Manila, Wise & Co. instituted civil case No. 41129 against Cornelio C.
David for the recovery of a certain sum of money David was an agent of Wise & Co. and the amount
claimed from him was the result of a liquidation of accounts showing that he was indebted in said
amount. In said case Wise & Co. asked and obtained a preliminary attachment of David's property. To
avoid the execution of said attachment, David succeeded in having his Attorney Tanglao execute on
January 16, 1932, a power of attorney (Exhibit A) in his favor, with the following clause:

To sign for me as guarantor for himself in his indebtedness to Wise & Company of Manila,
which indebtedness appears in civil case No. 41129, of the Court of First Instance of Manila,
and to mortgage my lot (No. 517-F of the subdivision plan Psd-20, being a portion of lot No.
517 of the cadastral survey of Angeles, G. L. R. O. Cad. Rec. No. 124), to guarantee the said
obligations to the Wise & Company, Inc., of Manila.

On the 18th of said month David subscribed and on the 23d thereof, filed in court, the following
document (Exhibit B):

COMPROMISE

Come now the parties, plaintiff by the undersigned attorneys and defendants in his own behalf
and respectfully state:

I. That the defendant confesses judgment for the sum of six hundred forty pesos
(P640), payable at the rate of eighty pesos (P80) per month, the first payment to be
made on February 15, 1932 and successively thereafter until the full amount is paid;
the plaintiff accepts this stipulation.

II. That as security for the payment of said sum of P640, defendant binds in favor of,
and pledges to the plaintiff, the following real properties:

1. House of light materials described under tax declaration No. 9650 of the
municipality of Angeles, Province of Pampanga, assessed at P320.

2. Accesoria apartments with a ground floor of 180 sq. m. with the first story
of cement and galvanized of iron roofing located on the lot belonging to
Mariano Tablante Geronimo, said accesoria is described under tax
declaration No. 11164 of the municipality of Angeles, Province of Pampanga,
assessed at P800.

3. Parcel of land described under Transfer Certificate of Title No. 2307 of the
Province of Pampanga recorded in the name of Dionisio Tanglao of which
defendant herein holds a special power of attorney to pledge the same in
favor of Wise & Co., Inc., as a guarantee for the payment of the claim against
him in the above entitled cause. The said parcel of land is bounded as
follows: NE. lot No. 517 "Part" de Narciso Garcia; SE. Calle Rizal; SW. lot
No. 517 "Part" de Bernardino Tiongco; NW. lot No. 508 de Clemente Dayrit;
containing 431 sq. m. and described in tax declaration No. 11977 of the
municipality of Angeles, Pampanga, assessed at P423.
 That this guaranty is attached to the properties above mentioned as first lien and for this
reason the parties agree to register this compromise with the Register of Deeds of
Pampanga, said lien to be cancelled only on the payment of the full amount of the judgment in
this case.

Wherefore, the parties pray that the above compromise be admitted and that an order issue
requiring the register of Deeds of Pampanga to register this compromise previous to the filing
of the legal fees.

David paid the sum of P343.47 to Wise & Co., on account of the P640 which he bound himself to pay
under Exhibit B, leaving an unpaid balance of P296.53.

Wise & Co. now institutes this case against Tanglao for the recovery of said balance of P296.53.

There is no doubt that under Exhibit, A, Tanglao empowered David, in his name, to enter into a
contract of suretyship and a contract of mortgage of the property described in the document, with
Wise & Co. However, David used said power of attorney only to mortgage the property and did not
enter into contract of suretyship. Nothing is stated in Exhibit B to the effect that Tanglao became
David's surety for the payment of the sum in question. Neither is this inferable from any of the clauses
thereof, and even if this inference might be made, it would be insufficient to create an obligation of
suretyship which, under the law, must be express and cannot be presumed.

It appears from the foregoing that defendant, Tanglao could not have contracted any personal
responsibility for the payment of the sum of P640. The only obligation which Exhibit B, in connection
with Exhibit A, has created on the part of Tanglao, is that resulting from the mortgage of a property
belonging to him to secure the payment of said P640. However, a foreclosure suit is not instituted in
this case against Tanglao, but a purely personal action for the recovery of the amount still owed by
David.

At any rate, even granting that defendant Tanglao may be considered as a surety under Exhibit B, the
action does not yet lie against him on the ground that all the legal remedies against the debtor have
not previously been exhausted (art. 1830 of the Civil Code, and decision of the Supreme Court of
Spain of March 2, 1891). The plaintiff has in its favor a judgment against debtor David for the payment
of debt. It does not appear that the execution of this judgment has been asked for and Exhibit B, on
the other hand, shows that David has two pieces of property the value of which is in excess of the
balance of the debt the payment of which is sought of Tanglao in his alleged capacity as surety.

For the foregoing considerations, the appealed judgment is reversed and the defendant is absolved
from the complaint, with the costs to the plaintiff. So ordered.

EUSEBIO M. LOPEZ, EUSEBIO LOPEZ, JR., DEOGRACIAS P. LIRIO, SOLEDAD LIRIO-DOLOR

and RENATO C. DOLOR, in his capacity as Judicial Administrator of the Intestate Estate of the late
Faustino Dolor, petitioners,
vs.
HON. CARMELINO G. ALVENDIA as presiding judge of branch XVI, CFI Manila, DAVID MINSBERG,
ADELAIDA S. MINSBERG, and CITY SHERIFF OF MANILA, respondents.

R. V. Victoriano & W. S. Fajardo for petitioners.

Agitila & Macasaet for respondents.

PAREDES, J.:

Sometime in March, 1957, David and Adelaida Minsberg, private-parties respondents herein, bought
a parcel of residential land from the petitioners. On March 25, 1957, the first payment in the amount of
P900.00 was handed and on April 1, 1957, the amount of P1,100.00 was paid to complete the down
payment. On the lather date, a written contract was executed, wherein it was covenanted that upon
completion of the payment of P7,560.00, the certificate of title on the lot will be issued to private
parties respondents. In July, 1958, the Minsbergs received from petitioners a written notice, to the
effect that if they (private-parties respondents) fail to pay the balance of P5,560.00 in two weeks' time,
the down payment of P2,000.00 will be forfeited and they would lose all their rights over the lot. On
July 31, 1958, the Minsbergs paid the balance and, in turn, demanded the title. The petitioners,
however, failed to deliver the title, in spite of the full payment of the purchase price, but told the
respondents to wait for a few days, inasmuch as the necessary papers were in the process of
preparation. In 1960, the Minsbergs began the construction of their house on the lot, and when their
estimates failed to complete the house, they again sought the issuance of the title, in order to enable
them to mortgage the same and obtain funds. Instead of giving the title, petitioners issued a mere
certification, stating that they Minsbergs have paid in full the purchase price of the lot. The certification
did not merit the acceptance by the banks of the application for loan, with the lot as security.

Claiming that they suffered damages due to the failure of the petitioners to issue to them the title of
the lot, the Minsbergs instituted Civil Case No. 49628 with the CFI of Manila, presided by respondent,
the Hon. Carmelino Alvendia, with the following petitoria:

WHEREFORE, in view of all the foregoing, it is respectfully prayed that in the case judgment
be rendered against defendant, and in favor of the plaintiffs:

1. Ordering the defendants to deliver to plaintiffs the certificate of title on Lot No. 5, Block No.
7, St. Ignacius Village Subdivision Plan SIVS;

2. Ordering defendants to pay plaintiffs damages in the sum of P45,000.00 and attorney's fee
in the sum of P4,500.00;

3. Ordering defendants to pay the costs of suit;

4. And granting to plaintiffs such other reliefs and remedies which may be warranted by the
circumstances.

In the same complaint, it was alleged that the reason why petitioners herein were not able to deliver
the title upon demand, was the fact that the title of the whole subdivision was with the GSIS the land,
part of which is the lot in question, having been mortgaged to secure a loan of P1,600,000.00, a fact
not communicated to the Minsbergs.

Petitioners herein presented separate answers and various defenses, which We shall refrain from
discussing, since they are not necessary for the resolution of the present proceedings. After the
joining of the issues, an agreement was reached by the parties, thru the intervention of the Court,
which was made the basis of a decision in the case. The dispositive part of the decision, dated August
24, 1962, states:

While this case was being tried and after the plaintiffs have rested their case, the parties
through the intervention of the Court, having arrived at the following agreement:

That the defendants shall deliver to the plaintiffs the torrens title to Lot No. 5, Block No. 7 of
the consolidated subdivision plan (LRC) Pcs-359, containing 540 square meters, more or less
and described as follows:

xxx xxx xxx

WHEREFORE, judgment is rendered, sentencing the defendants jointly and severally to

deliver to the plaintiffs a torrens title issued in the name of Adelaida Saguban-Minsberg of
legal age, Filipino, married to David Minsberg and with postal address at Room 408 Maria
Dolores Building, Manila, covering Lot 5, Block 7 of the Consolidated Subdivision plan (LRC)
Pcs-359 and to jointly and severally may the plaintiffs the sum of P3,500.00 as
damages. Both said title and damages should be delivered to the plaintiffs not later than
 September 21, 1962. Should the defendants fail to deliver the title and/or the amount of
P3,500.00, the amount of damages shall be automatically raised to P10,000.00 and a writ of
execution of the decision with the damages raised to P10,000.00 shall immediately be issued.

Under date of September 28, 1962, the Minsbergs presented a "Motion for Execution," it appearing
that although the title was delivered, one of the checks issued to cover the P3,500.00 damages was
dishonored by the drawee bank with the notation "no arrangement," when presented on September
26, 1962. There was failure to live up to the conditions of the agreement as embodied in the decision
and, therefore, a motion for execution, for P10,000.00 was presented. Petitioners herein filed on
October 4, 1962, a Manifestation and/or Opposition, contending that they have substantially complied
with the judgment; that the non-cashing of the check by the drawee bank, was due to a mere
"oversight", on the part of the cashier of the bank A statement dated October 4, 1962 showing that
there was an oversight, was attached to the manifestation and/or opposition, the contents of which
read:

This is to certify that Republic Bank Check No. 152597, drawn by Mr. Eusebio Lopez, Jr., in
favor of Mr. David Minsberg on September 21, 1962 in the sum of P3,277.38, is a good and
valid check and the dishonor of the said check is a pure case of oversight. The herein
described cheek can, therefore, be presented to us for payment anytime and/or redeposited
by the payee, Mr. David Minsberg.

This certification is issued upon the request of Mr. Lopez.

(Sgd.) SIMPLICIO MANALO

Cashier

Simultaneously with the filing of the Manifestation and/or Opposition, the petitioners herein deposited
with the trial court the amount of P3,277.38, in cash, the value of the dishonored check, to show good
faith, and prayed that the motion for execution be denied.

On December 4, 1962, the respondent Judge issued an Order, the pertinent portions of which state:

In view of the foregoing considerations, the Court holds that the defendants failed to comply
with the requirements in the decision that they pay the plaintiffs as damages the sum of
P3,500.00 not later than September 21, 1962. Having failed in the said requirement, the
second portion of the decision automatically comes into effect, namely, that the amount of the
damages should be raised to P10,000.00.

WHEREFORE, let a writ of execution for the sum of P10,000.00 be issued against the
defendants in the above-entitled case.

Against the above Order, petitioners presented on December 11, 1962, an Urgent Motion for
Reconsideration and to Lift the Writ of Execution, stating that at the time of the issuance, delivery and
presentment of the dishonored check, there was already an arrangement between the petitioners and
the Republic Bank, thru Atty. Eusebio Lopez, Jr.; that the dishonor was due to an oversight and/or
honest intake that upon learning of the dishonor, they informed private-parties respondents, thru
counsel, to redeposit or present for payment the check with drawee bank; and that on October 5,
1962, before the issuance of the execution, they deposited with the Court the full amount of the
dishonored check; that there was a substantial compliance with the decision. In the same motion,
petitioners prayed that they be allowed to present evidence to prove an honest mistake or oversight
and/or excusable negligence. On December 12, 1962, an Urgent Ex-Parte Motion to Suspend
proceedings on Writ of Execution was filed by petitioners, claiming that, with the death of Faustino
Dolor, his ownership over the Dolor's Pharmacy, which was being levied upon, had ceased, and,
therefore, could not be reached by the Writ of Execution and the Writ should be lifted over the
properties of said Pharmacy. On December 14, 1962, the respondent Judge issued an Order, denying
the motion to suspend proceedings on the writ of execution. On December 15, 1962, the respondent
Court issued the following Order:
 In issuing a check, the defendants have decided to effect a method of satisfying their
obligation which is fraught with danger, to say the least. This is because plaintiffs could have
refused to accept the check. The check not being currency is not a legal tender and a creditor
could not be compelled to accept it in payment of his credit.

Finally, the Civil Code of the Philippines, provides:

xxx xxx xxx

The delivery of the promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired. (Art. 1249, pars. 1 & 2, Civil Code of
the Philippines.)

The foregoing legal provision, applied to the undisputed facts in this case, will clearly indicate
that it is immaterial whether or not the defendants had money with the drawee bank sufficient
to cover the value of the check they have issued for P3,500.00 on September 21, 1962.
Hence, the offer to introduce evidence to substantiate this alleged fact should be as it is
hereby denied.

In view of the foregoing considerations, the Court hereby denies the motion for
reconsideration and to lift the writ of execution.

Petitioners came to this Court, on a Petition for Certiorari, Mandamus and/or Prohibition with
Preliminary Injunction. They claim that the respondent Court in issuing the order of December 4,
1962, directing the issuance of a writ of execution; the Order of December 12, 1962, denying the
motion for reconsideration and to lift the writ of execution; the Order denying the motion to suspend
the proceedings and in not allowing them to introduce evidence to show the oversight by the cashier
of the drawee bank, in not honoring the checks issued in payment of the damages, acted with grave
abuse of discretion and/or committed an oppresive exercise of authority, for which they could not
appeal, or have any other plain, speedy and adequate remedy in the ordinary course of law. They
prayed that a Writ of Preliminary Injunction be issued, directed against the respondent Sheriff of
Manila, to desist from further proceeding on the Writ of Execution dated December 8, 1962 and
enjoining the respondent Judge to refrain from issuing an alias Writ of Execution; and for the
annulment of the orders complained of.

On January 17, 1963, this Court gave due course to the petition at bar and issued a preliminary writ,
as prayed for. Thereafter, an Urgent Petition to Lift Garnishment was granted by this Court, upon the
posting of an increased bond of P10,000.00.

The respondents, answering the petition, after the usual admissions and denials, contended that there
was no grave abuse of discretion practiced by the respondent Judge, in issuing the orders
complained of claiming that the decision was based on a compromise agreement entered into by the
parties, after the respondents had rested their case. They also point out that they claimed P49,500.00
as damages and attorney's fees, and the sum of P10,000.00 was provided in the decision as
damages upon the failure of the petitioners, to comply with the conditions of the compromise
agreement and said decision.

Under the facts obtaining in the case, We find no abuse of discretion, much less a grave one,
committed by respondent judge, in issuing the Orders complained of. The jurisdiction of the trial court
to take cognizance of the case is conceded. Petitioners admit their failure to live up to the terms of the
judgment, which was rendered, pursuant to a compromise agreement and where time was of the
essence. They attribute, however, their failure, to an alleged "mere oversight" on the part of the
cashier of the drawee bank in not cashing the check when presented, and contend, by such "mere
over sight", that they have substantially complied with the judgment. We find the contention
untenable. From the rendition of the decision, to the date they were to comply with the same, one (1)
month transpired. Within the span of such time, petitioners could have ascertained that the
arrangement they now claim to have made with the Bank, was known to its cashier who did not state
at all in his certification that there was such a previous arrangement. The respondent Court did not
simply believe that there was an arrangement; and this disbelief is strengthened by the facts and
circumstances of record. Likewise, petitioners asked the respondent Court to allow them to submit
evidence to show the supposed "oversight," but said court did not deem it necessary to do so.
Granting for the purposes of argument, that the said acts were erroneous still, they were merely
mistakes of fact or errors of judgment and/or of law, not within the reach of a writ of certiorari, much
less a writ of mandamus. Having failed to comply with the decision, petitioners have no cause to
lament if petitioners did not agree with the orders complained of, they could have appealed
them. Certiorari is not a substitute for appeal. And, the bank, having accepted the alleged
arrangement, had constituted itself as the agent of the petitioners. The principal is responsible for the
acts of the agent done within the scope of his authority, and should bear the damages caused upon
third parties. If the fault (oversight) lies on the bank, petitioners are free to sue said bank for damages
occasioned thereby.

PREMISES CONSIDERED, the petition should be, as it is hereby dismissed, for lack of merits. The
Writ of Preliminary Injunction earlier issued, is dissolved. Costs against petitioners in both instances.

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
BERNARDO BAGAMASPAD and BIENVENIDO M. FERRER, defendants-appellants.

Jose G. Flores, for appellants.

Nemesio P. Labunao for appellee.

MONTEMAYOR, J.:

On May 25, 1948, the plaintiff Philippine National Bank, a banking corporation organized and
operating under the laws of the Philippines, with main office in the City of Manila and agencies in
different provinces like the province of Cotabato, initiated this suit in the Court of First Instance of
Cotabato for the purpose of collecting from the defendants Bernardo Bagamaspad and Bienvenido M.
Ferrer who, in the years 1946 and 1947, were its Agent and Assistant Agent, respectively, in its
Cotabato Agency, the sum of P704,903.18, said to have been disbursed and released by them as
special crop loans, without authority and in a careless manner to manifestly insolvent, unqualified or
fictitious borrowers, all contrary to the rules and regulations of the plaintiff Bank. In the course of the
trial, upon petition of plaintiff's counsel, the amount of the claim was reduced to P699,803.57, due to
payments made by some of the borrowers. On March 31, 1949, the trial court rendered judgment in
favor of the plaintiff, ordering both defendants to pay jointly and severally to it the sum of
P699,803.57, representing the uncollected balance of the special crop loans improperly released by
said defendants, with legal interest thereon from the date of the filing of the complaint, plus costs. The
two defendants appealed from that decision. The appeal was first taken to the Court of Appeals but in
view of the amount involved it was certified to this Tribunal by the said Court of Appeals.

The uncontroverted facts in the present case may be briefly stated as follows. Because of the Pacific
War and by reason of the destruction and loss of animals of labor, farm implements, and damage to
or abandonment of farm lands, after liberation there was acute shortage of foodstuff. President Roxas
in order to foment and encourage food production, instructed the plaintiff Philippine National Bank to
extend special facilities to farmers in the form of crop loans in order to enable them to rehabilitate their
farms. In pursuance of said instructions and to cooperate with the Administration, the plaintiff Bank
passed the corresponding resolution (Exhibit B) authorizing the granting of ten-month special crop
loans to bona fide food producers, land-owners or their tenants, under certain conditions. Delfin
Buencamino, one of the Vice-President of the Bank and head of the Branches and Agencies
Department of said institution, was entrusted with the supervision of the granting of these loans. Juan
Tueres, one of the Assistant Managers of said Department drafted the corresponding rules and
regulations regarding the granting of said specials crops loans. After approval by Buencamino, these
rules and regulations were embodied in a circular letter (Exhibit C), a copy of which was personally
delivered to defendant Ferrer. These rules and regulations were later amplified by another circular
letter (Exhibit D). Besides circularizing its branches and agencies with these rules and regulations, on
June 14, 1946, the Bank held in Manila a conference in of all its manager and Agents. Defendant
Ferrer, Assistant Agent of the Cotabato Agency attended the conference in representation of said
Agency. He arrived late but Tueres explained to him what had been discussed during the conference,
emphasizing to him the necessity of exercising diligence and care in the granting of the crop loans to
see to it that they are granted only tobona fide planters, land-owners or tenants, as well as repeating
to him the advice of Vicente Carmona, President of the bank, that the Managers and Agents of the
Bank should not allow themselves to be fooled.

The Cotabato Agency under the management of the two defendants began granting these special
crop loans in July, 1946, and by March of the following year, 1947, said Agency had granted to over
5,000 borrowers, loans in the total amount of a little over eight and half million pesos.

The theory on which the Bank's claim and complaint are based is that the two defendants
Bagamaspad and Ferrer acting as Agent and Assistant Agent of the Cotabato Agency, in granting
new crop loans after November 13, 1946, violated the instructions of the Bank, and that furthermore,
in granting said crop loans, they acted negligently and did not exercise the care and precaution
required of them in order to prevent the release of crop loans to persons who were neither qualified
borrowers nor entitled to the assistance being rendered by the Government and the Bank, all contrary
to the rules and regulations issued by the Bank.

Because of the form heavy disbursements made by the Cotabato Agency in the form of crop loans
and because of exhaustion of its funds, said agency sent a telegram, Exhibit 11, dated November 11,
1946, requesting authority from the central office to secure cash from the Zamboanga Agency.
Replying to this telegram, Delfin Buencamino sent a letter, Exhibit E, dated November 13, 1946,
addressed to the Cotabato Agency stating among other things that the purposes of these funds (to be
obtained from the Zamboanga Agency was to meet the release of the second installment crop loans
being granted which according to the telegram aggregated P60,000 daily. The letter reminded the
Agency's that the Central office had not yet received the Agency's monthly reports on special crop
loans granted, as required by the regulations, and it emphasized the necessity of performing
inspection of the field to verify whether the amount released as first installment was actually used for
the purpose for which it was granted, before releasing the second installment. In relation with the said
letter, Exhibit F, dated November 18, 1946, to the central office making reference to said Exhibit E,
reiterating the Agency's heavy disbursements on second installments for crop loans and stating that
Ferrer had been instructed to proceed to Zamboanga to secure the needed cash, and that Ferrer was
able to secure P300,000 from the Zamboanga Agency. Then making reference to and quoting a
portion of the letter of Buencamino, Exhibit E, Bagamaspad in his letter said:

In connection with the following portion:

"In this connection, we would like to state that the purpose of these funds is to meet the
release of the second installment of crop loans being granted by that agency, which,
according to your said telegram, will run toP600,000 daily."

of your above mentioned letter, may we know if could still entertain new applicants on Special
Crop Loans? We are constrained to request for this matter because there are now on file no
less than 1,000 new applicants which we could not entertain because of your above quoted
statement. Yesterday they held a demonstration and copy of the picture is hereto attached. In
addition, there are about 5,000 settlers in Koronadal Valley who, according to your
indorsement of Oct. 31, 1946 to the Technical Assistant to the President of the Philippines,
could be given crop loans. If we could not therefore disburse from the funds taken from
Zamboanga Agency against first installment of applicants on crop loans, we shall appreciate if
you could give us definite course of action towards the clarifications of our stand to the public.

We are again sending Asst. Agent B.M. Ferrer to Zamboanga to despatch this letter without
delay and wait there for whatever instruction that you may give with reference to our desire to
secure more cash from our Zamboanga Agency, say P1,000,000 and whether we shall
continue granting special crop loans or not.
 With reference to the cash that we desire to secure more, we could tell you with assurance
that the same shall arrive their safely under guard on a chartered plane which will cost not
more than P300 only.

From this letter of Bagamaspad of which his co-defendant and Ferrer must have been aware,
because he himself prepared it upon order of Bagamaspad(pp. 340-344, t.s.n.), particularly the
portion above-quoted, it will be seen that without waiting for authority to secure funds from the
Zamboanga Agency, Ferrer obtained P300,000 from said Agency, and that Bagamaspad again had
sent Ferrer to Zamboanga to await instruction from the central office regarding their desire and
intention to secure in additional P1,000,000 for the Cotabato Agency. As matter of fact, however,
once in Zamboanga, and without waiting for instructions, Ferrer again secured P500,000 from the
Zamboanga Agency. It was while Ferrer already carrying the P500,000 was about to board the plane
that was to taken him to Cotabato, that he received the answer from the central office, Exhibit G,
authorizing him to obtain only P3,0000,000 from the Zamboanga Agency, with the statement that as
soon as the said amount was exhausted, the Cotabato Agency may again request for replenishment.
This letter of the Central Office again emphasized the necessity of strict compliance with the rules and
regulations regarding the required field inspection before releasing the second installment. The said
letter, Exhibit G, ended with the following:

Concerning the new special crop loan applications numbering about 1,000, we would like to
be informed whether the farms of the said applicants have already been actually planted,
considering that at this periodplanting season in low-land palay region is now over. As the
purpose for which special crop loans are being granted by the Bank is to provide the farmers
with funds to meet the expenses of their farms and if said farms have already been planted,
we believe that the farmers may not need said credit facilities unless it has been found out by
actual investigation and verification that said loans are needed by them.

Please, therefore, let us hear from you regarding this matter. (Emphasis ours)

In answer to this letter, Exhibit G, defendants sent a telegram, Exhibit H, dated November 25, 1946 to
the central office in Manila, stating that for Cotabato, the planting season for second crops of
December. In answer to Exhibit H, the central office sent a telegram, Exhibit I, dated November 28,
1946, expressly instructing the Cotabato Agency to discontinue granting new crop loans. The
defendants claim that this telegram, Exhibit I, was received by them by mail on December 7, 1946.

In their brief the appellant contend that the trial court erred in finding and holding that extending new
special crop loans after November 26, 1946, amounting to P726,680, as they as Agent and Assistant
Agent, respectively, of the of the Cotabato Agency, did so at their own risk and in violation of the
instructions received from the Manila office; also that the court erred in holding that they (appellants)
acted with extreme laxity, negligence and carelessness in granting said new special crops loans. On
the first assigned error appellants maintain that outside of the telegram, Exhibit I, which they claim to
have received only on December 7, 1946, there was no instruction by the central office stopping the
granting of new special crop loans.

It may be that there was no such express instruction couched in so many words directly ordering the
defendants to stop granting new special crop loans, but that said idea of the central office could be
gathered from its letter, Exhibit E, and that it was understood and clearly, by the defendants, is
evident. If defendants did not so understand it, namely, that they were no longer authorized to grant
new special crop loans, how else may we interpret the contents of the letter of Bagamaspad, Exhibit
F, particularly that portion wherein after quoting a portion of the central office letter Exhibit E, he asks
if they (defendants) could still entertain new applications for special crop loans? At least, they then
doubted their to grant new special crop loans and until that doubt was cleared up and determined by
new instructions from their superiors, it was their bounden duty to stop granting new loans. Appellant
Ferrer himself, in response to question asked by the trial court during the hearing, said that in case of
doubt as to whether or not to disburse funds of the bank, he should consult and await instructions.
Appellants asked for instructions as to whether or not they should grant new special crop loans. This
request for instructions is contained clearly in Bagamaspad's letter, Exhibit F, where in one paragraph
he ask: "May we know if we could still entertain new applications on special crop loans?" And, in
another paragraph he says? "We are again sending Asst. Agent B.M. Ferrer to Zamboanga . . . and
wait there for further instructions that you may give . . . and whether we shall continue granting special
crops loans or not." The trouble is that without waiting for said requested instructions, appellants
proceeded to grant new special crop loans from November 26, 1946, to January 4, 1947.

Appellants not only granted new special crop loans after they were given to understand by the central
office that they should no longer grant said loans and before appellants received instructions as to
what they should do in that regard, but they also violated the express instructions of the Bank to the
effect that funds received from the Zamboanga Agency should be utilized only to pay second
installments on special crop loans. Of course, defendants contend that the total of P800,000 secured
from the Zamboanga Agency were all used in paying second installments, but the contrary is amply
established by Exhibit T, a statement prepared by Felicisimo Lopez, Chief Examiner of the Bank
showing that out of the P500,000 secured from the Zamboanga Agency on or about November 18,
1946, the amount of P232,931.58 was paid on account of new special crop loans or first installments.
The plaintiff-appellee Bank in its brief explains in details this use of part of the Zamboanga funds in
paying first installments on new crop loans.

As to the alleged error committed by the trial court in finding and holding that the appellants were
extremely lax, negligent and careless in granting new special crop loans, we quote with approval a
portion of the well considered decision of the trial Judge, Hon. Arsenio Solidum, on this point:

From the evidence of record, one cannot help but be amazed at the extreme laxity,
negligence and carelessness on the part of the defendants in the granting of the special crop
loans. It seems that all precautions to protect the interest of the Philippine National Bank as
the principal of the defendants were thrown overboard. From all appearances, the door of the
Cotabato Agency was left wide open by the defendants as an invitation for all persons to
come in secure from them special crop loans regardless of whether or not under the rules
prescribed therefor they were rightfully entitled thereto. . . . (p. 165, Record on Appeal)

xxx xxx xxx

What really happened was that in those days of crop loan boom, the borrowers made a
holiday of the funds of the Cotabato Agency of the Philippine National Bank with indulgence
and tolerance of the defendants as the managing officials of the Agency. And the saddest part
of it all was that the money did not go to the farmers who needed it most but to unscrupulous
persons, who, taking undue advantage of the laxity and looseness of the defendants in doling
out these loans, secured special crop loan funds without the least idea of investing them in
food production campaign for which they were primarily intended. Part of the booty went to
the pockets of those who acted as intermediaries in the procurement of the loans under the
very noses of the defendants fully knowing that such practice was prohibited by the rules and
regulations of the Philippine National Bank governing the operation of the provincial agencies
(Exhibits "W", "T-1", to "T-11", "U-1" to "U-2") . . . (pp. 176-177, Record on Appeal)

The lower court as may be seen, severely critcized and condemned the acts of laxity, negligence and
carelessness of the appellants. But the severity of this criticism and condemnation would appear to be
amply warranted by the evidence. Out of the numerous acts of laxity, negligence and carelessness
established by the record, a few cases may be cited. Exhibit C and D which contain instructions and
rules and regulations governing the granting of special crop loans, provide that before a crop is
granted the Agent or Sub-Agent of the Bank must be satisfied that the applicant is either landowner
well known to be possessing the particular property on which the crop is to be produced, the particular
property on which the crop ids to be produced, or if the applicant be tenant he must be recommended
by the landowner concerned or in the absence of said landowner must be properly identified that he is
the bona fide tenant actually tilling the land from which the crop to mortgage would be harvested.

The evidence shows that in violation of these instructions and regulations, the defendants released
large loans aggregating P348,768.22 to about 103 borrowers who were neither landowners or tenants
but only public land sales applicants that is to say, persons who have merely filed applications to buy
public lands. It is a well known fact that when a person desires to apply for the purchase of public
lands usually containing trees, under brush, cogon or other wild vegetation, and never previously
cultivated, he merely goes over the land, takes it out and then files his application, tries to determine
the location of the land, its identity, proceeds to classify it to see if it is open to sale and if so, perhaps
makes rough survey of it to establish its exact location and fix boundaries with respect to the entire
area of the public domain. The application naturally carries no implication of occupancy, possession,
much less cultivation and dominion. And yet, in spite of all this, the applicants who were neither
landowners or tenants.

The record further shows that Mr. Villamarzo, District Land Officer for Cotabato with whom these sale
applications had been filed, came to know that he had been issuing to the applicants, which were
nothing but acknowledgements of the filing of the applications, had been used by said applicants to
secure special crop loans, and so he went to see the appellants as early as the middle of August of
1946 and advised them that those certificates were issued merely to show that applications had been
filed with him but that it did not mean that said applications had already been investigated, much less
that the lands covered by them had been surveyed. Then about the end of the same month
Villamarzo accompanied by Almonte, a Division Land Inspector of the Bureau of Lands, again went to
the defendants and repeated the advice and warning. Despite all these, as already stated, appellants
granted new special crop loans to 103 of these public land sales applicants, knowing as they must
have known that the borrowers were neither landowners nor tenants. Furthermore, it should be
remembered that these special crop loans according to regulations were payable in ten (10) months,
and were to be secured by chattel mortgages on the crops to be produced. A virgin land, especially if
covered with trees or underbrush, needs to be cleared and placed in condition for cultivation before
crops may produced. That work of clearing would take some time. A public land sale applicant, even
assuming that he immediately began to clear the land applied for even before favorable action on his
application is taken, is hardly in a position to meet the requirements of the regulations governing the
granting of special crop loans, namely, to mortgage the crop he is going to produce, and pay the loan
within ten months.

Appellants in their over-enthusiasm and seemingly inordinate desire to grant as many loans as
possible and in amounts disproportionate to the needs of the borrowers, admitted and passed upon
more loan applications than they could properly handle. From July, 1946 to March, 1947 the total
amount of about eight and half (81/2) million pesos was released in the form of special crop loans to
about 5,105 borrowers and this, in a relatively sparsely populated province like Cotabato. As a
consequence of this big volume of business the bookkeeper of the Agency could not keep up with the
posting of the daily transactions in his books and ledgers and he was several months behind. There
were so many applications acted upon and accepted that they could not all be carefully examined and
many of them do not even bear the initials or signatures of the appellants as required by regulations.
Some of the chattel mortgages given to secure the payments of the loans, contrary to regulations, do
not show the number of cavans of palay to be produced on the land and to be mortgaged in favor of
the Bank.

Contrary to the Bank's rules and regulations regarding the granting of special crops loans, the
defendants allowed intermediaries to intervene in the granting of special crop loans. Many lawyers,
business agents and other persons intervened in the granting of the loans. We may have an idea of
the of the part played by these intermediaries by referring to a portion of the report, Exhibit V,
prepared by Mr. Lagdameo, one of the Assistant Managers of the Agencies and Branches
Department of the plaintiff Bank, sent to Cotabato to investigate the crop loan anomalies in the
Cotabato Agency, which portion we quote below:

On top of this, were the heavy expenses incurred by the borrowers to secure crop loans. The
rush was so unprecendented that applicants had to stay had to stay for weeks in hotels in
Cotabato to lobby for the approval of their applications. They even went to the extent of
engaging intermediaries who in the words of some borrowers were the best ones to fix things
with the agency for the approval and immediate release of the loan. These intermediaries are
government employees and business agents and particularly practicing attorneys who
charged fees up to 5 per cent of the total loans approved. Instances have been shown that
the Agency itself collected the attorney's fees and delivered them to the parties concerned. In
other cases, the intermediaries themselves were the ones who received the proceeds of the
loans and distributed them to the borrowers. It has also been found that loan papers including
the preparation of promissory notes, debit tickets, etc., were prepared by said intermediaries
and submitted to the Agency already executed. . . ..
There is evidence to the effect that sometimes the fees of these intermediaries were collected by the
Agency itself and were later turned over to appellant Ferrer, perhaps to be later given by him to said
intermediaries.

One of the provisions of the rules and regulations concerning the granting of loans is to the effect that
loans to be released by a Provincial Agency like that of the appellant's should be approved by loan
Board to be composed of the Agent, like defendant Bagamaspad; the Assistant Agent, like defendant
Ferrer or the Inspector if there is no Assistant Agent; and the Municipal Treasurer where the borrower
resides. The evidence, however, shows that many of the special crop loans released by the
appellants have not been approved by this Board and others have not even been approved by
anyone of them.

It will be remembered that in the letter of Vice President Buencamino, Exhibit G, dated November 19,
1946, speaking of the new special crop loan applications numbering about 1,000 mentioned by
appellant Bagamaspad in his letter, Exhibit F, the plaintiff Bank wanted to know whether on that date,
November 19th, the farmers in Cotabato had already planted their farms in which case there was no
need for obtaining crop loans to meet the expenses of planting. Answering this query, the Cotabato
Agency under the appellants, sent a telegram (Exhibit H) dated November 25, 1946, to the plaintiff
Bank saying that the planting season for Cotabato for second crops ends in December. This was
evidently intended to justify the granting of special crop loans even at the end of the year. The
evidence however, belies the correctness of this statement and information. Mr. Aniceto Padilla,
Assistant Provincial Agricultural Supervisor, a graduate of the College of Agriculture of the University
of the Philippines, told the court that his office, which is the Provincial Agricultural Station in Cotabato,
has determined the proper period for planting crops raised in that province and that for upland palay,
the planting season is during the months of March, April up to May; that for lowland palay is June and
July; and that second crops may be planted in September even as late as October. From this, one
may conclude that it is not true as the appellants informed the bank that the planting season for palay
(second crop) in Cotabato ends in December. Whether this incorrect information was given
deliberately or thru negligence and carelessness, we deem it unnecessary to determine.

To give a further idea of the confusion, lack of care and method with which the Cotabato Agency was
managed by the appellants, the record shows that in January, 1947, Mr. Simeon Intal, Traveling
Auditor of the Philippine National Bank, was sent to Cotabato with instructions to make an audit of the
accounts of the Cotabato Agency and to see for himself the reported irregularities being committed in
said Agency with respect to the granting of special crop loans. According to Mr. Intal he found the
Cotabato Agency like a market place full of people. He saw crop loan papers like promissory notes,
loan applications and chattel mortgages scattered all over the Agency, some on the desks of
employees, on open shelves or on top of filing cabinets, and others on the floor. He found that
transactions which had taken place five months before were not yet posted in the books of the
Agency. In February, 1947, Mr. Amado Lagdameo, then one of the Assistant Managers of the
Branches and Agencies Department of the Bank, was also sent to Cotabato and there he found the
same condition found and reported by Intal. In order to make thorough investigation of the anomalies
reportedly obtaining in the Cotabato Agency, Felicisimo Lopez, a certified public accountant and Chief
Examiner of the plaintiff Bank, was sent to Cotabato in June, 1947. He checked up the findings of
Intal about the deplorable condition of the books and records of the Agency and he agreed with said
findings. Lopez and Intal and assisted by Benjamin de Guzman, Branch Auditor of the Bank at the
Davao Branch, Mr. Macuja (who later succeeded Benjamin de Guzman), Mr. Juan B. Sanchez, now
Branch Auditor in Legaspi, Mr. Antonio Cruz of the Head Office, Mr. Danao from Oriental Misamis, Mr.
Fernandez from Zamboanga and Mr. Romena of the Davao Branch, went to work on the books and
records of the books and records of the Cotabato Agency and it took them almost four months to
straighten out the special crop loan accounts and bring the books up-to-date, after which, they found
that as of June 10, 1947, the Cotabato Agency had released special crop loans in the aggregate sum
of P8,688,864.

To us who have always had the impression and the idea that the business of a Bank is conducted in
an orderly, methodical and businesslike manner, that its papers, especially those relating to loans with
their corresponding securities, are properly filed, well-kept and in a safe place, its books kept up-to-
date, and that its funds are not given out in loans without careful and scrupulous scrutiny of the
responsibility and solvency of the borrowers and the sufficiency of the security given by them, the
conditions obtaining in the Cotabato Agency due to the apparent indifference, carelessness or
negligence of the appellants, is indeed shocking. And it is because of these shortcomings of the
appellants their disregard of the elementary rules and practice of banking and their violation of
instructions of their superiors, that these anomalies resulting in financial losses to the Bank were
made possible.

The trial court based the civil liability of the appellants herein on the provisions of Arts. 1718 and 1719
of the Civil Code, defining and enumerating the duties and obligations of an agent and his liability for
failure to comply with such duties, and Art. 259 of the Code of Commerce which provides that an
agent must observe the provisions of law and regulations with respect to business transactions
entrusted to him otherwise he shall be responsible for the consequences resulting from their breach
or omissions; and also Art. 1902 of the Civil Code which provides for the liability of one for his tortious
act, that is to say, any act or omission which causes damage to another by his fault or negligence.
Appellants while agreeing with the meaning and scope of the legal provisions cited, nevertheless
insist that those provisions are not applicable to them inasmuch as they are not guilty of any violation
of instructions or regulations of the plaintiff Bank; and that neither are they guilty of negligence of
carelessness as found by the trial court. A careful study and consideration of the record, however,
convinces us and we agree with the trial court that the defendants-appellants have not only violated
instructions of the plaintiff Bank, including things which said Bank wanted done or not done, all of
which were fully understood by them, but they (appellants) also violated standing regulations
regarding the granting of loans; and, what is more, thru their carelessness, laxity and negligence, they
allowed loans to be granted to persons who were not entitled to receive loans.

It is the contention of the appellants that the act of plaintiff Bank in filling suits against the borrowers to
whom appellants were said to have granted loans without authority, which suits resulted in the
payment of part of said loans resulting in the reduction of the original claim of the plaintiff Bank from
P704,903.18 to P699,803.57, should be interpreted and considered as a ratification of the acts of the
appellants. What is more, it is more, it is contended that it would be iniquitous for the plaintiff to go
against the defendants for whatever amounts may have been loaned by the latter and at the same
time go against the individual borrowers for collection of the respective sums borrowed by them. That
would be enriching the plaintiff at the expense of the defendants." We cannot subscribe to this theory.
As pointed out by Counsel for appellee, ordinarily, a principal who collects either judicially or
extrajudicially a loan made by an agent without authority, thereby ratifies the said act of the agent. In
the present case, however, in filing suits against some of the borrowers to collect at least part of the
unauthorized loans, there was no intention on the part of the plaintiff Bank to ratify the acts of
appellants. Neither did the plaintiff receive any substantial benefit by its act of filing these suits if we
consider the fact that the collections so far made, form a small or insignificant portion of the entire
principal and interest. And, we fail to see any iniquity in this act of the plaintiff in suing some of the
borrowers to collect what it could at the same time holding the appellants liable for the balance,
because the plaintiff Bank is not trying to enrich itself at the expense of the defendants but is merely
trying to diminish as much as possible the loss to itself and automatically decrease the financial
liability of appellants. Considering the large amount for which appellants are found liable, it is a matter
of serious doubt if they are in a position to pay it. Moreover, whatever amount is collected by the
plaintiff Bank from borrowers, serves to diminish the financial liability of the appellants, in the same
way that the original claim of P704,903.18, at the very instance of plaintiff was reduced to
P699,803.57. In other words, the act of the plaintiff Bank in the matter, far from being iniquitous, is
really beneficial to the appellants.

Appellants further contend that the present action is rather premature for the reason that there is no
showing that the borrowers to whom they allegedly gave loans without authority, are manifestly
insolvent or unqualified, and that the loans granted to them are uncollectible and have been written off
the books of the Bank as "bad debts". We find this contention untenable. It is not necessary for the
plaintiff Bank to first go against the individual borrowers, exhaust all remedies against them and then
hold the defendants liable only for the balance which cannot be collected. The case of Corsicana
National Bank vs. Johnson, 64 L. ed. 141, cited by the trial court and by the plaintiff bank is in point.
The issue in that case whether or not a bank could proceed against one of its officials for losses which
it had sustained in consequence of the unauthorized loans released by said official, or whether it
should first pursue its remedies against the borrowers or await the liquidation of their estates. The
Supreme Court of the United States in said case held that the cause of action of the Bank accrued
and the injury to it was complete on the very day that the amounts of the unauthorized loans were
released by the erring official. We quote a part of that decision:

Assuming the Fleming and Templeton notes were found to represent an excessive loan,
knowingly participated in or assented to by defendant as a director of the Bank, in our opinion
the cause of action against him accrued on or about June 10, 1907, when the Bank, through
his act, parted with the money loaned, receiving in return only negotiable paper that it could
not lawfully accept because the transaction was prohibited by section 5200, Rev. Stat.
(Comp. Stat. section 9761, 6 Fed. Stat. Anno. 2d ed., p. 761). The damage as well as the
injury was complete at that time, and the Bank was not obliged to await the maturity of the
notes, because immediately it became the duty of the officers or directors who knowingly
participated in making the excessive loan to undo the wrong done by taking the notes off the
hands of the Bank and restoring to it the money that had been loaned. Of course, whatever of
value the Bank recovered from the borrowers on account of the loan would go in diminution of
the damages; but the responsible officials would have no right to require the Bank to pursue
its remedies against the borrowers or await the liquidation of their estates. The liability
imposed by the statute upon the director is a direct liability, not contingent or collateral.

In view of all the foregoing, and finding no reversible error in the decision appealed from, the same is
hereby affirmed with costs against the appellants. So ordered.

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:red

On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to sell issued in
favor of the Ventanillas valid and subsisting and annulling the contracts to sell in 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." chanrobles.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:chanrobles.com.ph

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

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

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

Moreover, Manila Remnant also failed to check the records of its agent immediately after the
revocation of the agency contract despite the fact that such revocation was due to reported anomalies
in 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.chanrobles.com.ph : virtual law
library

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

SO ORDERED.

ANGELA BLONDEAU and FERNANDO DE LA CANTERA Y UZQUIANO, plaintiffs-appellants,

vs.
AGUSTIN NANO and JOSE VALLEJO, defendants-appellees.

John R. McFie, Jr., for appellants.

Evangelista and Santos for appellee Vallejo.
No appearance for the other appellee.

MALCOLM, J.:

This action was brought in the Court of First Instance of Manila to foreclose a mortgage alleged to
have been made by the defendants Agustin Nano and Jose Vallejo to the plaintiff Angela Blondeau,
bearing date November 5, 1931, to secure the payment of the sum of P12,000, and covering property
situated on Calle Georgia, Manila. Nano, purporting to represent both defendants, after filing an
answer, was found in contempt of court. The other defendant Vallejo thereupon presented an
amended answer in which it was alleged that his signature to the mortgage was a forgery. Following
the trial, judgment was rendered against Nano but not against Vallejo. From this judgment the
plaintiffs have taken an appeal.

With all due deference to the findings of the trial judge, now an honored member of this court, we are
inclined to the view, first, that the accessorias bearing Nos. 905A to 905F, Calle Georgia, Manila,
were as indicated in the mortgage, the property of the defendant Agustin Nano, and second, that the
purported signature of the defendant Vallejo to the mortgage was not a forgery. In support of the first
of our statements, attention need only be invited to a series of documents, including the transfer
certificate of title, showing that Vallejo was considered the owner of the land only. As to the second
statement, it needs be recalled that the mortgage was executed in the home of the plaintiffs, and that
of those present, the principal plaintiff Angela Blondeau and her husband Fernando de la Cantera,
together with the instrumental witness Pedro Jimenez Zoboli, identified Vallejo as the person who
signed the document. As against their testimony stands the alibi of Vallejo, partially corroborated by
the testimony of the notary public Gregorio Bilog. It is expecting a great deal to have us believe that
not only the mortgage but the power of attorney of Vallejo in favor of Nano and a series of documents
were the product of the evil machinations of Nano, and that although Nano and Vallejo, members of
same family, lived together, Vallejo was entirely unacquainted with the activities of Nano in dealing
with their joint property. It is significant that the proper cedulas of Vallejo were presented for the
accomplishment of the documents, and that if there was fraud, not one but a number of notaries
public were deceived thereby.

We repeat that upon its face, the mortgage appears to be regular and to have been duly executed
and accepted by Vallejo on November 5, 1931. The evidence then resolves itself into a question of
the execution of the mortgage by Vallejo on the one hand, and the denial of its execution on the other
hand. That there was a conflict between experts as to the handwriting, one being of the opinion that
the signatures of Vallejo were genuine, and the other being of the opinion that they were not genuine,
is not unexpected. Under such conditions, the question is, which side produced the weightier
testimony, and as hereinbefore indicated, we are of the opinion that the balance inclined in favor of
the plaintiffs.

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 perpetrated. When Fernando de
la Cantera, a member of the Philippine bar and the husband of Angela Blondeau, the principal
plaintiff, searched the registration records, he found them in due form, including the power of attorney
of Vallejo, 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 lent P12,000 to the
defendant Vallejo.

The Torrens system is intended for the registration of title, rather than the muniments of title. It
represents a departure from the orthodox principles of property law. Under the common law, if the
pretended signature of the mortgagor is a forgery, the instrument is invalid for every purpose and will
pass on the title or rights to anyone, unless the spurious document is ratified and accepted by the
mortgagor. The Torrens Act on the contrary permits a forged transfer, when duly entered in the
registry, to become the root of a valid title in a bona fide purchaser. The act erects a safeguard
against a forged transfer being registered, by the requirement that no transfer shall be registered
unless the owner's certificate was produced along with the instrument of transfer. 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 lands.
(53 C.J., 1141, 1142; Act No. 496, as amended, secs. 47, 51, 55.)

With respect to the conclusiveness of the Torrens title and the binding force and effect of annotations
thereon even when through a forged deed the land passes into the possession of an innocent
purchaser for value, the basic rule is found in the opinion delivered by Mr. Chief Justice Arellano in De
la Cruz vs. Fabie ( [1916], 35 Phil., 144). The history of the case was as follows:

Vedasto Velazquez was attorney in fact of Gregoria Hernandez. Gregoria Hernandez

registered her title of ownership to the land in question in the property registry and was issued
certificate of title No. 121. Vedasto Velazquez, being the attorney in fact of Gregoria
Hernandez, had in his possession all the muniments of title of the land, including the
certificate of title No. 121, and, abusing her confidence in him, a few days after the
registration of the land, forged a notarial instrument wherein he made it appear that she had
sold the said land to him for the price of P8,000.

Vedasto Velazquez then went to the register of deeds and applied for the registration of the
land in his own name, presenting Gregoria Hernandez' certificate of title No. 121 for
 cancellation, and the deed of conveyance which was purported to have been made by
Gregoria Hernandez in his favor in order that he might be registered as the true owner of the
land. All this was done; Gregoria Hernandez' title was cancelled and certificate of title No. 43
was issued to Vedasto Velazquez.

xxx xxx xxx

On May 31, 1907, Vedasto Velazquez sold the land finally and absolutely to Ramon Fabie, who
presented to the register of deeds the notarial instrument executed for the purpose and was
thereupon furnished with the certificate of title No. 766." On these facts, it was held that Fabie was an
innocent holder of a title for value and that, under section 55 of the Land Registration Law, he was the
absolute owner of the land.

The decision above cited has repeatedly been reexamined by this court, one of the most recent
instances being found in the case of El Hogar Filipino vs. Olviga ( [1934], 60 Phil., 17). While counsel
for the appellee is undoubtedly correct in his contention that neither the case of Fabie nor the case of
Olgiva nor any other case relied upon by the appellants is on all fours with the present facts, the
principle on which these cases rest should here be carried forward and given application.

The recent decision of the United States Supreme Court in the case of Eliason vs. Wilborn ( [1930],
281 U.S., 457), is of enlightening interest. Plaintiffs in this case, purchasers of land previously brought
under the Illinois Torrens Act, delivered the certificate of title to a party under an agreement to sell,
who forged a deed to himself, had a certificate issue in his name, and then conveyed to defendants
who were good faith purchasers for value. Plaintiffs informed the register of the forgery after the
defendants had bought, and demanded the cancellation of the deeds and certificates, and the reissue
of a certificate to themselves. The register refused, and a petition was brought to compel such action.
The Circuit Court for Cook County, Illinois, the Supreme Court of Illinois, and the United States
Supreme Court, united in dismissing the petition. Mr. Justice Holmes, delivering the opinion of the
latter court, said:

. . . The statute requires the production of the outstanding certificate, as a condition to the
issue of a new one. The appellants saw fit no entrust it to Napletone and they took the risk.
They say that according to the construction of the act adopted the registrar's certificate would
have had the same effect even if the old certificate had not been produced. But that, if correct,
is no answer. Presumably the register will do his duty, and if he does he will require the old
certificate to be handed in. It does not justify the omission of a precaution that probably would
be sufficient, to point out that a dishonest official could get around it. There is not the slightest
reason to suppose that Napletone would have got a certificate on which the Wilborns could
rely, without the delivery of the old one by the appellants. 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 confidence must bear the loss.

Vargas & Maalac in their treatise on the Philippine Land Registration Law quote with approval the
comment of Mr. Powell in his book on Land Registration, section 213. The question which the author
propounded was: Why does the law say that the person who had no title at all and only a forged deed
as a color of title should become the true owner of the land by merely continuing to occupy and enjoy
the land which in fact does not belong to him, but which belongs to the victim of the forgery? His
answer was:

. . . that public policy, expediency, and the need of a statute of repose as to the possession of
land, demand such a rule. Likewise, public policy, expediency, and the need of repose and
certainty as to land titles demand that the bona fide purchaser of a certificate of title to
registered land, who, though he buys on a forged transfer, succeeds in having the land
registered in his name, should nevertheless hold an unimpeachable title. There is more
natural justice in recognizing his title as being valid than there is in recognizing as valid the
title of one who has succeeded in ripening a forged color of title by prescription.
 In the first place, a forger cannot effectuate his forgery in the case of registered land by
executing a transfer which can be registered, unless the owner has allowed him, in some
way, to get possession of the owner's certificate. The Act has erected in favor of the owner,
as a safeguard, against a forged transfer being perpetrated against him, the requirement that
no voluntary transfer shall be registered unless the owner's certificate is produced along with
the instrument of transfer. Therefore, if the owner has voluntarily or carelessly allowed the
forger to come into possession of his owner's certificate he is to be judged according to the
maxim, that when one of two innocent persons must suffer by the wrongful act of a third
person the loss fall on him who put it into the power of that third person to perpetrate the
wrong. Furthermore, even if the forger stole the owner's certificate, the owner is up against no
greater hardship than is experienced by one whose money or negotiable paper payable to
bearer is stolen and transferred by the thief to an innocent purchaser.

Other incidental facts might be mentioned and other incidental legal propositions might be discussed,
but in its final analysis this is a case of a mortgagee relying upon a Torrens title, and loaning money in
all good faith on the basis of the title standing in the name of the mortgagors only thereafter to
discover one defendant to be an alleged forger and the other defendant, if not a party to the
conspiracy, at least having by his negligence or acquiescence made it possible for the fraud to
transpire. Giving to the facts the most favorable interpretation for Vallejo, yet, as announced by the
United States Supreme Court, the maxim is, as between two innocent persons, in this case Angela
Blondeau and Jose Vallejo, one of whom must suffer the consequence of a breach of trust, the one
who made it possible by his act of confidence must bear the loss, in this case Jose Vallejo.
Accordingly, the four errors assigned will be sustained, the judgment reversed, and in the court of
origin a new one entered sustaining plaintiff's mortgage and granting her the relief prayed for in her
complaints .So ordered, without special pronouncement as to the costs in either instance.

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by Mother and Attorney-
in-Fact VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA SAN
AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-FORTMAN,
MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN,
ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents.

DECISION

NACHURA, J.:

For our resolution is a petition for review on certiorari assailing the April 23, 2003 Decision 1 and
October 8, 2003 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 59426. The appellate
court, in the said decision and resolution, reversed and set aside the January 14, 1998 Decision 3 of
the Regional Trial Court (RTC), which ruled in favor of petitioners.

The dispute stemmed from the following facts.

During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-
square meter parcel of land situated in Barangay Anos, Los Baos, Laguna and covered by Original
Certificate of Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on September 13, 1990 while Pedro
San Agustin died on September 14, 1991. Both died intestate, survived by their eight (8) children:
respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.

Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided
Shares5conveying in favor of petitioners (the Pahuds, for brevity) their respective shares from the lot
they inherited from their deceased parents for 525,000.00.6 Eufemia also signed the deed on behalf
of her four (4) other co-heirs, namely: Isabelita on the basis of a special power of attorney executed
on September 28, 1991,7 and also for Milagros, Minerva, and Zenaida but without their apparent
written authority.8 The deed of sale was also not notarized.9

On July 21, 1992, the Pahuds paid 35,792.31 to the Los Baos Rural Bank where the subject
property was mortgaged.10 The bank issued a release of mortgage and turned over the owners copy
of the OCT to the Pahuds.11 Over the following months, the Pahuds made more payments to Eufemia
and her siblings totaling to 350,000.00.12 They agreed to use the remaining 87,500.0013 to defray
the payment for taxes and the expenses in transferring the title of the property. 14 When Eufemia and
her co-heirs drafted an extra-judicial settlement of estate to facilitate the transfer of the title to the
Pahuds, Virgilio refused to sign it.15

On July 8, 1993, Virgilios co-heirs filed a complaint16 for judicial partition of the subject property
before the RTC of Calamba, Laguna. On November 28, 1994, in the course of the proceedings for
judicial partition, a Compromise Agreement17 was signed with seven (7) of the co-heirs agreeing to
sell their undivided shares to Virgilio for 700,000.00. The compromise agreement was, however, not
approved by the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs,
refused to sign the agreement because he knew of the previous sale made to the
Pahuds.18lawphil.net

On December 1, 1994, Eufemia acknowledged having received 700,000.00 from Virgilio.19 Virgilio
then sold the entire property to spouses Isagani Belarmino and Leticia Ocampo (Belarminos)
sometime in 1994. The Belarminos immediately constructed a building on the subject property.

Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds
immediately confronted Eufemia who confirmed to them that Virgilio had sold the property to the
Belarminos.20 Aggrieved, the Pahuds filed a complaint in intervention21 in the pending case for judicial
partition.1avvphil

After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion of the decision
reads:

WHEREFORE, the foregoing considered, the Court orders:

1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15 by the
plaintiffs as heirs of deceased Sps. Pedro San Agustin and Agatona Genil in favor of the
Intervenors-Third Party plaintiffs as valid and enforceable, but obligating the Intervenors-Third
Party plaintiffs to complete the payment of the purchase price of 437,500.00 by paying the
balance of 87,500.00 to defendant Fe (sic) San Agustin Magsino. Upon receipt of the
balance, the plaintiff shall formalize the sale of the 7/8 portion in favor of the Intervenor[s]-
Third Party plaintiffs;

2. declaring the document entitled "Salaysay sa Pagsang-ayon sa Bilihan" (Exh. "2-a") signed
by plaintiff Eufemia San Agustin attached to the unapproved Compromise Agreement (Exh.
"2") as not a valid sale in favor of defendant Virgilio San Agustin;

3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin of the property
covered by OCT No. O (1655)-O-15 registered in the names of Spouses Pedro San Agustin
and Agatona Genil in favor of Third-party defendant Spouses Isagani and Leticia Belarmino
as not a valid sale and as inexistent;

4. declaring the defendant Virgilio San Agustin and the Third-Party defendants spouses
Isagani and Leticia Belarmino as in bad faith in buying the portion of the property already sold
by the plaintiffs in favor of the Intervenors-Third Party Plaintiffs and the Third-Party Defendant
Sps. Isagani and Leticia Belarmino in constructing the two-[storey] building in (sic) the
property subject of this case; and
 5. declaring the parties as not entitled to any damages, with the parties shouldering their
respective responsibilities regarding the payment of attorney[]s fees to their respective
lawyers.

No pronouncement as to costs.

SO ORDERED.22

Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the sale made
by Eufemia for and on behalf of her other co-heirs to the Pahuds should have been declared void and
inexistent for want of a written authority from her co-heirs. The CA yielded and set aside the findings
of the trial court. In disposing the issue, the CA ruled:

WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered by the
Regional Trial Court of Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C for Judicial Partition
is hereby REVERSED and SET ASIDE, and a new one entered, as follows:

(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is now
considered closed and terminated;

(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total amount they

received from the latter, plus an interest of 12% per annum from the time the complaint [in]
intervention was filed on April 12, 1995 until actual payment of the same;

(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses, Isagani and
Leticia Belarmino[,] as valid and binding;

(4) Declaring appellants-spouses as buyers in good faith and for value and are the owners of
the subject property.

No pronouncement as to costs.

SO ORDERED.23

Petitioners now come to this Court raising the following arguments:

I. The Court of Appeals committed grave and reversible error when it did not apply the second
paragraph of Article 1317 of the New Civil Code insofar as ratification is concerned to the sale
of the 4/8 portion of the subject property executed by respondents San Agustin in favor of
petitioners;

II. The Court of Appeals committed grave and reversible error in holding that respondents
spouses Belarminos are in good faith when they bought the subject property from respondent
Virgilio San Agustin despite the findings of fact by the court a quo that they were in bad faith
which clearly contravenes the presence of long line of case laws upholding the task of giving
utmost weight and value to the factual findings of the trial court during appeals; [and]

III. The Court of Appeals committed grave and reversible error in holding that respondents
spouses Belarminos have superior rights over the property in question than petitioners
despite the fact that the latter were prior in possession thereby misapplying the provisions of
Article 1544 of the New Civil Code.24

The focal issue to be resolved is the status of the sale of the subject property by Eufemia and her co-
heirs to the Pahuds. We find the transaction to be valid and enforceable.

Article 1874 of the Civil Code plainly provides:

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

Also, under Article 1878,25 a special power of attorney is necessary for an agent to enter into a
contract by which the ownership of an immovable property is transmitted or acquired, either
gratuitously or for a valuable consideration. Such stringent statutory requirement has been explained
in Cosmic Lumber Corporation v. Court of Appeals:26

[T]he authority of an agent to execute a contract [of] sale of real estate must be conferred in writing
and must give him specific authority, either to conduct the general business of the principal or to
execute a binding contract containing terms and conditions which are in the contract he did execute.
A special power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency (couched) in general terms to sell must
be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney
must so express the powers of the agent in clear and unmistakable language. When there is any
reasonable doubt that the language so used conveys such power, no such construction shall be given
the document.27

In several cases, we have repeatedly held that the absence of a written authority to sell a piece of
land is, ipso jure, void,28 precisely to protect the interest of an unsuspecting owner from being
prejudiced by the unwarranted act of another.

Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia,
Isabelita and her two brothers to the Pahuds sometime in 1992 should be valid only with respect to
the 4/8 portion of the subject property. The sale with respect to the 3/8 portion, representing the
shares of Zenaida, Milagros, and Minerva, is void because Eufemia could not dispose of the interest
of her co-heirs in the said lot absent any written authority from the latter, as explicitly required by law.
This was, in fact, the ruling of the CA.

Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the land should
have been deemed ratified when the three co-heirs, namely: Milagros, Minerva, and Zenaida,
executed their respective special power of attorneys29 authorizing Eufemia to represent them in the
sale of their shares in the subject property. 30

While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible to
ratification,31we nevertheless uphold its validity on the basis of the common law principle of estoppel.

Article 1431 of the Civil Code provides:

Art. 1431. Through 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.

True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of
attorney to dispose of the 3/8 portion of the property. Initially, in their answer to the complaint in
intervention,32 Eufemia and her other co-heirs denied having sold their shares to the Pahuds. During
the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992.33 Thus, the previous denial was superseded, if not accordingly amended,
by their subsequent admission.34 Moreover, in their Comment,35 the said co-heirs again admitted the
sale made to petitioners.36

Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction
made by Eufemia to the Pahuds on the basis of want of written authority to sell. They could have
easily filed a case for annulment of the sale of their respective shares against Eufemia and the
Pahuds. Instead, they opted to remain silent and left the task of raising the validity of the sale as an
issue to their co-heir, Virgilio, who is not privy to the said transaction. They cannot be allowed to rely
on Eufemia, their attorney-in-fact, to impugn the validity of the first transaction because to allow them
to do so would be tantamount to giving premium to their sisters dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar them from
making a contrary claim.

It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another by
the latters reliance upon a deceitful representation by an agent in the course of his employment (1) if
the representation is authorized; (2) if it is within the implied authority of the agent to make for the
principal; or (3) if it is apparently authorized, regardless of whether the agent was authorized by him
or not to make the representation.37

By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that
they have indeed clothed Eufemia with the authority to transact on their behalf. Clearly, the three co-
heirs are now estopped from impugning the validity of the sale from assailing the authority of Eufemia
to enter into such transaction.

Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void because they no
longer had any interest over the subject property which they could alienate at the time of the second
transaction.38 Nemo dat quod non habet. Virgilio, however, could still alienate his 1/8 undivided share
to the Belarminos.

The Belarminos, for their part, cannot argue that they purchased the property from Virgilio in good
faith. As a general rule, a purchaser of a real property is not required to make any further inquiry
beyond what the certificate of title indicates on its face. 39 But the rule excludes those who purchase
with knowledge of the defect in the title of the vendor or of facts sufficient to induce a reasonable and
prudent person to inquire into the status of the property.40Such purchaser cannot close his eyes to
facts which should put a reasonable man on guard, and later claim that he acted in good faith on the
belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect
exists, or his obvious neglect by closing his eyes to the possibility of the existence of a defect in the
vendors title, will not make him an innocent purchaser for value, if afterwards it turns out that the title
was, in fact, defective. In such a case, he is deemed to have bought the property at his own risk, and
any injury or prejudice occasioned by such transaction must be borne by him. 41

In the case at bar, the Belarminos were fully aware that the property was registered not in the name of
the immediate transferor, Virgilio, but remained in the name of Pedro San Agustin and Agatona
Genil.42 This fact alone is sufficient impetus to make further inquiry and, thus, negate their claim that
they are purchasers for value in good faith.43 They knew that the property was still subject of partition
proceedings before the trial court, and that the compromise agreement signed by the heirs was not
approved by the RTC following the opposition of the counsel for Eufemia and her six other co-
heirs.44 The Belarminos, being transferees pendente lite, are deemed buyers in mala fide, and they
stand exactly in the shoes of the transferor and are bound by any judgment or decree which may be
rendered for or against the transferor.45 Furthermore, had they verified the status of the property by
asking the neighboring residents, they would have been able to talk to the Pahuds who occupy an
adjoining business establishment46 and would have known that a portion of the property had already
been sold. All these existing and readily verifiable facts are sufficient to suggest that the Belarminos
knew that they were buying the property at their own risk.

WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of Appeals as well as
its October 8, 2003 Resolution in CA-G.R. CV No. 59426, are REVERSED and SET ASIDE.
Accordingly, the January 14, 1998 Decision of Branch 92 of the Regional Trial Court of Calamba,
Laguna is REINSTATED with the MODIFICATION that the sale made by respondent Virgilio San
Agustin to respondent spouses Isagani Belarmino and Leticia Ocampo is valid only with respect to the
1/8 portion of the subject property. The trial court is ordered to proceed with the partition of the
property with dispatch.
PRUDENTIAL BANK, petitioner,
vs.
THE COURT OF APPEALS, AURORA CRUZ, respondents.

Monique Q. Ignacio for petitioner.

Eduardo C. Tutaan for private respondent.

CRUZ, J.:

We deal here with another controversy involving the integrity of a bank.

The complaint in this case arose when private respondent Aurora F.

Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential
Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The placement was for 63
days at 13.75% annual interest. For this purpose, the amount of P196,122.88 was withdrawn from the
depositors' Savings Account No. 2546 and applied to the investment. The difference of P3,877.07
represented the pre-paid interest.

The transaction was evidenced by a Confirmation of Sale1 delivered to Cruz two days later, together
with a Debit Memo2 in the amount withdrawn and applied to the confirmed sale. These documents
were issued by Susan Quimbo, the employee of the bank to whom Cruz was referred and who was
apparently in charge of such transactions.3

Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "roll-over" or renew
her investment. Quimbo, who again attended to her, prepared a Credit Memo4 crediting the amount of
P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the amount of
P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of P3,877.02.5

This time, Cruz was asked to sign a Withdrawal Slip6 for P196,122.98, representing the amount to be
re-invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of
the bank. Several days later, Cruz received another Confirmation of Sale 7 and a copy of the Debit
Memo.8

On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After
verification of her records, however, she was informed that the investment appeared to have been
already withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale
and the Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for
questioning as she had not been reporting for the past week. Shocked by this information, Cruz
became hysterical and burst into tears. The branch manager, Roman Santos, assured her that he
would look into the matter.9

Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment.
She received no definite answer, not even to the letter she wrote the bank which was received by
Santos himself. 10 Finally, Cruz sent the bank a demand letter dated November 12, 1986 for the
amount of P200,000.00 plus interest. 11 In a reply dated November 20, 1986, the bank's Vice
President Lauro J. Jocson said that there appeared to be an anomaly
and requested Cruz to defer court action as they hoped to settle the matter amicably. 12 Increasingly
worried, Cruz sent another letter reiterating her demand. 13 This time the reply of the bank was
unequivocal and negative. She was told that her request had to be denied because she had already
withdrawn the amount she was claiming. 14

Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the Regional
Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and
attorney's fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her
investment. The bank also instituted a third-party complaint against Quimbo, who did not file an
answer and was declared in default. 15 The bank, however, did not present any evidence against her.

After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed as follows:

ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party

plaintiff to pay to the plaintiffs the following amounts:

1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October
27, 1986, until fully paid;

2. P30,000.00, as moral damages;

3. P20,000.00, as exemplary damages; and

4. P25,000.00, as reasonable attorney's fees.

The counterclaim and the third-party complaint of the defendant/third-party plaintiff

are dismissed.

With costs against the defendant/third-party plaintiff.

The decision was affirmed in toto on appeal to the respondent court.

The judgment of the Court of Appeals 16 is now faulted in this petition, mainly on the ground that the
bank should not have been found liable for a quasi-delict when it was sued for breach of contract.

The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to delay
enforcement of the liability clearly established against it.

The basic issues are factual. The private respondent claims she has not yet collected her investment
of P200,000.00 and has submitted in proof of their contention the Confirmation of Sale and the Debit
Memo issued to her by Quimbo on the official forms of the bank. The petitioner denies her claim and
points to the Withdrawal Slip, which it says Cruz has not denied having signed. It also contends that
the Confirmation of Sale and the Debit Memo are fake and should not have been given credence by
the lower courts.

The findings of the trial court on these issues have been affirmed by the respondent court and we see
no reason to disturb them. The petitioner has not shown that they have been reached arbitrarily or in
disregard of the evidence of record. On the contrary, we find substantial basis for the conclusion that
the private respondents signed the Withdrawal Slip only as part of the bank's new procedure of re-
investment. She did not actually receive the amount indicated therein, which she was made to
understand was being re-invested in her name. The bank itself so assured her in the Confirmation of
Sale and the Debit Memo later issued to her by Quimbo.

Especially persuasive are the following observations of the trial court: 17

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of
P196,122.98 from their savings account, if her only intention was to make such a
withdrawal. For, if, indeed, it was the desire of the plaintiffs to withdraw their money
from the defendant/third-party plaintiff, they could have withdrawn an amount in round
figures. Certainly, it is unbelievable that their withdrawal was in the irregular amount
of P196,122.98 if they really received it. On the contrary, this amount, which is the
price of the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora
F. Cruz, she did not receive this money, but it was left by her with the defendant/third-
party plaintiff in order to buy Central Bank bills placement for another sixty-three (63)
days, for which she signed a withdrawal slip at the instance of third-party defendant
 Susan Quimbo who told her that it was a new bank requirement for the roll-over of a
matured placement which she trustingly believed.

Indeed, the bank has not explained the remarkable coincidence that the amount indicated in the
withdrawal slip is exactly the same amount Cruz was re-investing after deducting therefrom the pre-
paid interest.

The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the
Debit Memo which were made on its official, forms. These are admittedly not available to the general
public or even its depositors and are handled only by its personnel. Even assuming that they were not
signed by its authorized officials, as it claims, there was no obligation on the part of Cruz to verify their
authority because she had the right to presume it. The documents had been issued in the office of the
bank itself and by its own employees with whom she had previously dealt. Such dealings had not
been questioned before, much leas invalidated. There was absolutely no reason why she should not
have accepted their authority to act on behalf of their employer.

It is also worthy of note and wonder that although the bank impleaded Quimbo in a third-party
complaint, it did not pursue its suit even when she failed to answer and was declared in default. The
bank did not introduce evidence against her although it could have done so under the rules. No less
remarkably, it did not call on her to testify on its behalf, considering that under the circumstances
claimed by it, she would have been the best witness to show that Cruz had actually withdrawn her
P200,000.00 placement. Instead, the bank chose to rely on its other employees whose testimony was
less direct and categorical than the testimony Quimbo could have given.

We do not find that the Court of Appeals held the bank liable on a quasi-delict. The argument of the
petitioner on this issue is pallid, to say the least, consisting as it does only of the observation that the
article cited by the respondent court on the agent's liability falls under the heading in the Civil Code
on quasi-delicts. On the other hand, the respondent court clearly declared that:

The defendant/third-party plaintiff being liable for the return of the P200,000.00
placement of the plaintiffs, the extent of the liability of the defendant/third-party
plaintiff for damages resultant thereof, which is contractual, is for all damages which
may be reasonably attributed to the non-performance of the obligation, . . .

xxx xxx xxx

Because of the bad faith of the defendant/third-party plaintiff in its breach of its
contract with the plaintiffs, the latter are, therefore, entitled to an award of moral
damages . . . (Emphasis supplied)

There is no question that the petitioner was made liable for its failure or refusal to deliver to Cruz the
amount she had deposited with it and which she had a right to withdraw upon its maturity. That
investment was acknowledged by its own employees, who had the apparent authority to do so and so
could legally bind it by its acts vis-a-vis Cruz. Whatever might have happened to the investment
whether it was lost or stolen by whoever was not the concern of the depositor. It was the concern
of the bank.

As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it
matured pursuant to the terms of her investment as acknowledged and reflected in the Confirmation
of Sale. The failure of the bank to deliver the amount to her pursuant to the Confirmation of Sale
constituted its breach of their contract, for which it should be held liable.

The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are
clearly and absolutely against the petitioner.

Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur.
"He who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil
Code thus:
 Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

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.

Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agent's apparent representation yields to the
principal's true representation and the contract is considered as entered into between
the principal and the third person. 18

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

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

It would appear from the facts established in the case before us that the petitioner was less than
eager to present Quimbo at the trial or even to establish her liability although it made the initial effort
which it did not pursue to hold her answerable in the third-party complaint. What ever happened
to her does not appear in the record. Her absence from the proceedings feeds the suspicion of her
possible misdeed, which the bank seems to have studiously ignored by its insistence that the missing
money had been actually withdrawn by Cruz. By such insistence, the bank is absolving not only itself
but also, in effect and by extension, the disappeared Quimbo who apparently has much to explain.

We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the obligation she
was claiming against it. It was obvious that an irregularity had been committed by the bank's
personnel, but instead of repairing the injury to Cruz by immediately restoring her money to her, it
sought to gloss over the anomaly in its own operations.

Cruz naturally suffered anxious moments and mental anguish over the loss of the investment. The
amount of P200,000.00 is not small even by present standards. By unjustly withholding it from her on
the unproved defense that she had already withdrawn it, the bank violated the trust she had reposed
in it and thus subjected itself to further liability for moral and exemplary damages.

If a person dealing with a bank does not read the fine print in the contract, it is because he trusts the
bank and relies on its integrity. The ordinary customer applying for a loan or even making a deposit
(and so himself extending the loan to the bank) does not bother with the red tape requirements and
the finicky conditions in the documents he signs. His feeling is that he does not have to be wary of the
bank because it will deal with him fairly and there is no reason to suspect its motives. This is an
attitude the bank must justify.

While this is not to say that bank regulations are meaningless or have no binding effect, they should,
however, not be used for covering up the fault of bank employees when they blunder or, worse,
intentionally cheat him. The misdeeds of such employees must be readily acknowledged and rectified
without delay. The bank must always act in good faith. The ordinary customer does not feel the need
for a lawyer by his side every time he deals with a bank because he is certain that it is not a predator
or a potential adversary. The bank should show that there is really no reason for any apprehension
because it truly deserves his faith in it.

WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs against
the petitioner. It is so ordered.

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,

vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA,
RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.

PANGANIBAN, J.:

When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority to
sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction
by issuing a board resolution to enable the buyers to register the property in their names. It has a duty
to perform necessary and lawful acts to enable the other parties to enjoy all benefits of the contract
which it had authorized.

The Case

Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998 Decision of
the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20, 1997 Decision 2 of
the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed as follows:

Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs
against the respondent-appellant. 3

The dispositive portion of the judgment affirmed by the CA ruled in this wise:

WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby the
[petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is hereby
ordered to immediately issue a Board Resolution confirming the Deed of Sale it executed in
favor of Renato Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents] the sum of
FIVE HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND (P10,000.00)
PESOS as attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as moral damages;
THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to pay the costs. 4

Also assailed is the February 26, 1999 CA Resolution 5 which denied petitioner's Motion for
Reconsideration.

The Facts

The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows:

This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was
declared in default on motion of the [respondents] for failure to file an answer within the
reglementary-period after it was duly served with summons. On April 26, 1996, [herein
petitioner] filed a motion to set aside the order of default with objection thereto filed by [herein
respondents].
On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order of
default. On July 10, 1996, the defendant filed a motion for reconsideration of the order of June
17, 1996 with objection thereto by [respondents]. On July 12, 1996, an order was issued
denying [petitioner's] motion for reconsideration. On July 31, 1996, [respondents] filed a
motion to set case for hearing. A copy thereof was duly furnished the [petitioner] but the latter
did not file any opposition and so [respondents] were allowed to present their evidence ex-
parte. A certiorari case was filed by the [petitioner] with the Court of Appeals docketed as CA
GR No. 41497-SP but the petition was denied in a decision rendered on March 31, 1997 and
the same is now final.

The evidence presented by the [respondents] through the testimony of Marife O. Nio, one of
the [respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a co-
[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The
parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo
Ocfemia. Her other co-[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato
Ocfemia, Jr. and Winston Ocfemia are her brothers and sisters.1wphi1.nt

Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the petition
which are located in Bombon, Camarines Sur and that they are the ones possessing them
which [were] originally owned by her grandparents, Juanita Arellano Ocfemia and Felicisimo
Ocfemia. During the lifetime of her grandparents, [respondents] mortgaged the said five (5)
parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as shown by the
Deed of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh. B).

The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the
mortgaged properties consisting of seven (7) parcels of land and so the mortgage was
foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. Out of
the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the
[respondents] because these five (5) parcels of land described in paragraph 6 of the petition
were sold by the [petitioner] bank to the parents of Marife O. Nio as evidenced by a Deed of
Sale executed in January 1988 (Exhs. C, C-1 and C-2).

The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not
been, however transferred in the name of the parents of Merife O. Nio after they were sold to
her parents by the [petitioner] bank because according to the Assessor's Office the five (5)
parcels of land, subject of the sale, cannot be transferred in the name of the buyers as there
is a need to have the document of sale registered with the Register of Deeds of Camarines
Sur.

In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur with
the Deed of Sale (Exh. C) in order to have the same registered. The Register of Deeds,
however, informed her that the document of sale cannot be registered without a board
resolution of the [petitioner] Bank. Marife Nio then went to the bank, showed to if the Deed of
Sale (Exh. C), the tax declaration and receipt of tax payments and requested the [petitioner]
for a board resolution so that the property can be transferred to the name of Renato Ocfemia
the husband of petitioner Francisca Ocfemia and the father of the other [respondents] having
died already.

The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She
was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale. She
was asked and she complied with the request of the [petitioner] for a copy of the deed of sale
and receipt of payment. The president of the [petitioner] bank told her to get an authority from
her parents and other [respondents] and receipts evidencing payment of the consideration
appearing in the deed of sale. She complied with said requirements and after she gave all
these documents, Marife O. Nio was again told to wait for two (2) weeks because the
[petitioner] bank would still study the matter.

After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was told that the
resolution of the board would not be released because the [petitioner] bank ha[d] no records
 from the old manager. Because of this, Marife O. Nio brought the matter to her lawyer and
the latter wrote a letter on December 22, 1995 to the [petitioner] bank inquiring why no action
was taken by the board of the request for the issuance of the resolution considering that the
bank was already fully paid [for] the consideration of the sale since January 1988 as shown
by the deed of sale itself (Exh. D and D-1 ).

On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D and
D-1) informing the latter that the request for board resolution ha[d] already been referred to
the board of directors of the [petitioner] bank with another request that the latter should be
furnished with a certified machine copy of the receipt of payment covering the sale between
the [respondents] and the [petitioner] (Exh. E). This request of the [petitioner] bank was
already complied [with] by Marife O. Nio even before she brought the matter to her lawyer.

On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the [petitioner]
bank informing the latter that they were already furnished the receipts the bank was asking
[for] and that the [respondents] want[ed] already to know the stand of the bank whether the
board [would] issue the required board resolution as the deed of sale itself already show[ed]
that the [respondents were] clearly entitled to the land subject of the sale (Exh. F). The
manager of the [petitioner] bank received the letter which was served personally to him and
the latter told Marife O. Nio that since he was the one himself who received the letter he
would not sign anymore a copy showing him as having already received said letter (Exh. F).

After several days from receipt of the letter (Exh. F) when Marife O. Nio went to the
[petitioner] again and reiterated her request, the manager of the [petitioner] bank told her that
they could not issue the required board resolution as the [petitioner] bank ha[d] no records of
the sale. Because of this Merife O. Nio already went to their lawyer and ha[d] this petition
filed.

The [respondents] are interested in having the property described in paragraph 6 of the
petition transferred to their names because their mother and co-petitioner, Francisca Ocfemia,
is very sickly and they want to mortgage the property for the medical expenses of Francisca
Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died and her suffering
from arthritis and pulmonary disease already became serious before December 1995.

Marife O. Nio declared that her mother is now in serious condition and they could not have
her hospitalized for treatment as they do not have any money and this is causing the family
sleepless nights and mental anguish, thinking that their mother may die because they could
not submit her for medication as they do not have money. 6

The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision.

Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary
Restraining Order directing the trial court "to refrain and desist from executing [pending appeal] the
decision dated May 20, 1997 in Civil Case No. RTC-96-3513, effective immediately until further orders
from this Court." 8

Ruling of the Court of Appeals

The CA held that herein respondents were "able to prove their present cause of action" against
petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the Petition involved a
matter incapable of pecuniary estimation; (2) mandamus fell within the jurisdiction of RTC; and (3)
assuming that the action was for specific performance as argued by the petitioner, it was still
cognizable by the said court.

Issues

In its Memorandum, 9 the bank posed the following questions:

 1. Question of Jurisdiction of the Regional Trial Court. Has a Regional Trial Court original
jurisdiction over an action involving title to real property with a total assessed value of less
than P20,000.00?

2. Question of Law. May the board of directors of a rural banking corporation be compelled
to confirm a deed of absolute sale of real property owned by the corporation which deed of
sale was executed by the bank manager without prior authority of the board of directors of the
rural banking corporation? 10

This Court's Ruling

The present Petition has no merit.

First Issue:
Jurisdiction of the Regional Trial Court

Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the appellate
court that the present action was incapable of pecuniary estimation, petitioner argues that the matter
in fact involved title to real property worth less than P20,000. Thus, under RA 7691, the case should
have been filed before a metropolitan trial court, a municipal trial court or a municipal circuit trial court.

We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the
complaint. 11 In the present case, the Petition for Mandamus filed by respondents before the trial court
prayed that petitioner-bank be compelled to issue a board resolution confirming the Deed of Sale
covering five parcels of unregistered land, which the bank manager had executed in their favor. The
RTC has jurisdiction over such action pursuant to Section 21 of BP 129, which provides:

Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original
jurisdiction;

(1) in the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction which may be enforced in any part of their respective regions; and

(2) In actions affecting ambassadors and other public ministers and consuls.

A perusal of the Petition shows that the respondents did not raise any question involving the title to
the property, but merely asked that petitioner's board of directors be directed to issue the subject
resolution. Moreover, the bank did not controvert the allegations in the said Petition. To repeat, the
issue therein was not the title to the property; it was respondents' right to compel the bank to issue a
board resolution confirming the Deed of Sale.

Second Issue:
Authority of the Bank Manager

Respondents initiated the present proceedings, so that they could transfer to their names the subject
five parcels of land; and subsequently, to mortgage said lots and to use the loan proceeds for the
medical expenses of their ailing mother. For the property to be transferred in their names, however,
the register of deeds required the submission of a board resolution from the bank confirming both the
Deed of Sale and the authority of the bank manager, Fe S. Tena, to enter into such transaction.
Petitioner refused. After being given the runaround by the bank, respondents sued in exasperation.

Allegations in the Petition for Mandamus Deemed Admitted

Respondents based their action before the trial court on the Deed of Sale, the substance of which
was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S.
Tena as the representative of the bank. Petitioner, however, failed to specifically deny under oath the
allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in default.
Pertinent provisions of the Rules of Court read:

Sec. 7. Action or defense based on document. Whenever an action or defense is based

upon a written instrument or document, the substance of such instrument or document shall
be set forth in the pleading, and the original or a copy thereof shall be attached to the
pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may
with like effect be set forth in the pleading.

Sec. 8. How to contest genuineness of such documents. When an action or defense is

founded upon a written instrument, copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument shall
be deemed admitted unless the adverse party, under oath, specifically denies them, and sets
forth what he claims to be the facts; but this provision does not apply when the adverse party
does not appear to be a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused. 12

In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the due
execution of the said contract. Such admission means that it acknowledged that Tena was authorized
to sign the Deed of Sale on its behalf. 13 Thus, defenses that are inconsistent with the due execution
and the genuineness of the written instrument are cut off by an admission implied from a failure to
make a verified specific denial.

Other Acts of the Bank

In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to
enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If the bank management believed
that it had title to the property, it should have taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.

Likewise, Tena had previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons where representation is made
in the course of its normal business by an agent like Manager Tena, even though such agent is
abusing her authority. 14 Clearly, persons dealing with her could not be blamed for believing that she
was authorized to transact business for and on behalf of the bank. Thus, this Court has ruled in Board
of Liquidators v. Kalaw: 15

Settled jurisprudence has it that where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general manager may bind the company
without formal authorization of the board of directors. In varying language, existence of such
authority is established, by proof of the course of business, the usages and practices of the
company and by the knowledge which the board of directors has, or must be presumed to
have, of acts and doings of its subordinates in and about the affairs of the corporation. So
also,

. . . authority to act for and bind a corporation may be presumed from acts of recognition in
other instances where the power was in fact exercised.

. . . Thus, when, in the usual course of business of a corporation, an officer has been allowed
in his official capacity to manage its affairs, his authority to represent the corporation may be
implied from the manner in which he has been permitted by the directors to manage its
business.

Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner
has failed to file an answer to the Petition below within the reglementary period, let alone present
evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Nino, went
to the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed
to categorically declare that Tena had no authority. This Court stresses the following:

. . . Corporate transactions would speedily come to a standstill were every person dealing with
a corporation held duty-bound to disbelieve every act of its responsible officers, no matter
how regular they should appear on their face. This Court has observed in Ramirez
vs. Orientalist Co., 38 Phil. 634, 654-655, that

In passing upon the liability of a corporation in cases of this kind it is always well to
keep in mind the situation as it presents itself to the third party with whom the contract
is made. Naturally he can have little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external manifestation of corporate
consent. The integrity of commercial transactions can only be maintained by holding
the corporation strictly to the liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine which would permit the property
of man in the city of Paris to be whisked out of his hands and carried into a remote
quarter of the earth without recourse against the corporation whose name and
authority had been used in the manner disclosed in this case. As already observed, it
is familiar doctrine that if a corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent authority, and thus holds him
out to the public as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation through such agent,
be estopped from denying his authority; and where it is said "if the corporation
permits this means the same as "if the thing is permitted by the directing power of the
corporation." 16

In this light, the bank is estopped from questioning the authority of the bank manager to enter into the
contract of sale. If a corporation knowingly permits one of its officers or any other agent to act within
the scope of an apparent authority, it holds the agent out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agent's authority. 17

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a
clear legal duty to issue the board resolution sought by respondent's. Having authorized her to sell the
property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use.

The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in the
orderly operations of the register of deeds and the full enjoyment of respondents' rights. Petitioner-
bank persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid in
dealing with respondents regarding this matter. In this light, the Court finds it proper to assess the
bank treble costs, in addition to the award of damages.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED.
The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble costs against
petitioner.

SO ORDERED.

TRINIDAD J. FRANCISCO, plaintiff-appellee,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.

-----------------------------

G.R. No. L-18155 March 30, 1963

TRINIDAD J. FRANCISCO, plaintiff-appellant,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.

Vicente J. Francisco for plaintiff-appellee.

The Government Corporate Counsel for defendant-appellant.

REYES, J.B.L., J.:

Appeal by the Government Service Insurance System from the decision of the Court of First Instance
of Rizal (Hon. Angel H. Mojica, presiding), in its Civil Case No. 2088-P, entitled "Trinidad J. Francisco,
plaintiff, vs. Government Service Insurance System, defendant", the dispositive part of which reads as
follows:

WHEREFORE, judgment is hereby rendered: (a) Declaring null and void the consolidation in
the name of the defendant, Government Service Insurance System, of the title of the VIC-
MARI Compound; said title shall be restored to the plaintiff; and all payments made by the
plaintiff, after her offer had been accepted by the defendant, must be credited as
amortizations on her loan; and (b) Ordering the defendant to abide by the terms of the
contract created by plaintiff's offer and it's unconditional acceptance, with costs against the
defendant.

The plaintiff, Trinidad J. Francisco, likewise appealed separately (L-18155), because the trial court did
not award the P535,000.00 damages and attorney's fees she claimed. Both appeals are, therefore,
jointly treated in this decision.

The following facts are admitted by the parties: On 10 October 1956, the plaintiff, Trinidad J.
Francisco, in consideration of a loan in the amount of P400,000.00, out of which the sum of
P336,100.00 was released to her, mortgaged in favor of the defendant, Government Service
Insurance System (hereinafter referred to as the System) a parcel of land containing an area of
18,232 square meters, with twenty-one (21) bungalows, known as Vic-Mari Compound, located at
Baesa, Quezon City, payable within ten (10) years in monthly installments of P3,902.41, and with
interest of 7% per annum compounded monthly.

On 6 January 1959, the System extrajudicially foreclosed the mortgage on the ground that up to that
date the plaintiff-mortgagor was in arrears on her monthly installments in the amount of P52,000.00.
Payments made by the plaintiff at the time of foreclosure amounted to P130,000.00. The System itself
was the buyer of the property in the foreclosure sale.

On 20 February 1959, the plaintiff's father, Atty. Vicente J. Francisco, sent a letter to the general
manager of the defendant corporation, Mr. Rodolfo P. Andal, the material portion of which recited as
follows:

Yesterday, I was finally able to collect what the Government owed me and I now propose to
pay said amount of P30,000 to the GSIS if it would agree that after such payment the
foreclosure of my daughter's mortgage would be set aside. I am aware that the amount of
P30,000 which I offer to pay will not cover the total arrearage of P52,000 but as regards the
balance, I propose this arrangement: for the GSIS to take over the administration of the
mortgaged property and to collect the monthly installments, amounting to about P5,000, due
on the unpaid purchase price of more than 31 lots and houses therein and the monthly
installments collected shall be applied to the payment of Miss Francisco's arrearage until the
same is fully covered. It is requested, however, that from the amount of the monthly
installments collected, the sum of P350.00 be deducted for necessary expenses, such as to
pay the security guard, the street-caretaker, the Meralco Bill for the street lights and sundry
items.

It will be noted that the collectible income each month from the mortgaged property, which as
I said consists of installments amounting to about P5,000, is more than enough to cover the
 monthly amortization on Miss Francisco's loan. Indeed, had she not encountered difficulties,
due to unforeseen circumstances, in collecting the said installments, she could have paid the
amortizations as they fell due and there would have been really no need for the GSIS to
resort to foreclosure.

The proposed administration by the GSIS of the mortgaged property will continue even after
Miss Francisco's account shall have been kept up to date. However, once the arrears shall
have been paid, whatever amount of the monthly installments collected in excess of the
amortization due on the loan will be turned over to Miss Francisco.

I make the foregoing proposal to show Francisco's sincere desire to work out any fair
arrangement for the settlement of her obligation. I trust that the GSIS, under the broadminded
policies of your administration, would give it serious consideration.

Sincerely,.

s/ Vicente J. Francisco
t/ VICENTE J. FRANCISCO

On the same date, 20 February 1959, Atty. Francisco received the following telegram:.

VICENTE FRANCISCO
SAMANILLO BLDG. ESCOLTA.

GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED

PROPERTY OF YOUR DAUGHTER

ANDAL"

On 28 February 1959, Atty. Francisco remitted to the System, through Andal, a check for P30,000.00,
with an accompanying letter, which reads:

I am sending you herewith BPI Check No. B-299484 for Thirty Thousand Pesos (P30,000.00)
in accordance with my letter of February 20th and your reply thereto of the same date, which
reads:

GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED

PROPERTY OF YOUR DAUGHTER

xxx xxx xxx

The defendant received the amount of P30,000.00, and issued therefor its official receipt No.
1209874, dated 4 March 1959. It did not, however, take over the administration of the compound. In
the meantime, the plaintiff received the monthly payments of some of the occupants thereat; then on
4 March 1960, she remitted, through her father, the amount of P44,121.29, representing the total
monthly installments that she received from the occupants for the period from March to December
1959 and January to February 1960, minus expenses and real estate taxes. The defendant also
received this amount, and issued the corresponding official receipt.

Remittances, all accompanied by letters, corresponding to the months of March, April, May, and June,
1960 and totalling P24,604.81 were also sent by the plaintiff to the defendant from time to time, all of
which were received and duly receipted for.

Then the System sent three (3) letters, one dated 29 January 1960, which was signed by its assistant
general manager, and the other two letters, dated 19 and 26 February 1960, respectively, which were
signed by Andal, asking the plaintiff for a proposal for the payment of her indebtedness, since
according to the System the one-year period for redemption had expired.
In reply, Atty. Francisco sent a letter, dated 11 March 1960, protesting against the System's request
for proposal of payment and inviting its attention to the concluded contract generated by his offer of
20 February 1959, and its acceptance by telegram of the same date, the compliance of the terms of
the offer already commenced by the plaintiff, and the misapplication by the System of the remittances
she had made, and requesting the proper corrections.

By letter, dated 31 May 1960, the defendant countered the preceding protest that, by all means, the
plaintiff should pay attorney's fees of P35,644.14, publication expenses, filing fee of P301.00, and
surcharge of P23.64 for the foreclosure work done; that the telegram should be disregarded in view of
its failure to express the contents of the board resolution due to the error of its minor employees in
couching the correct wording of the telegram. A copy of the excerpts of the resolution of the Board of
Directors (No. 380, February 20, 1959) was attached to the letter, showing the approval of Francisco's
offer

... subject to the condition that Mr. Vicente J. Francisco shall pay all expenses incurred by the
GSIS in the foreclosure of the mortgage.

Inasmuch as, according to the defendant, the remittances previously made by Atty. Francisco were
allegedly not sufficient to pay off her daughter's arrears, including attorney's fees incurred by the
defendant in foreclosing the mortgage, and the one-year period for redemption has expired, said
defendant, on 5 July 1960, consolidated the title to the compound in its name, and gave notice thereof
to the plaintiff on 26 July 1960 and to each occupant of the compound.

Hence, the plaintiff instituted the present suit, for specific performance and damages. The defendant
answered, pleading that the binding acceptance of Francisco's offer was the resolution of the Board,
and that Andal's telegram, being erroneous, should be disregarded. After trial, the court below found
that the offer of Atty. Francisco, dated 20 February 1959, made on behalf of his daughter, had been
unqualifiedly accepted, and was binding, and rendered judgment as noted at the start of this opinion.

The defendant-appellant corporation assigns six (6) errors allegedly committed by the lower court, all
of which, however, are resolvable on the single issue as to whether or not the telegram generated a
contract that is valid and binding upon the parties.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1wph1.t

We find no reason for altering the conclusion reached by the court below that the offer of compromise
made by plaintiff in the letter, Exhibit "A", had been validly accepted, and was binding on the
defendant. The terms of the offer were clear, and over the signature of defendant's general manager,
Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been accepted. There was
nothing in the telegram that hinted at any anomaly, or gave ground to suspect its veracity, and the
plaintiff, therefore, can not be blamed for relying upon it. There is no denying that the telegram was
within Andal's apparent authority, but the defense is that he did not sign it, but that it was sent by the
Board Secretary in his name and without his knowledge. Assuming this to be true, how was appellee
to know it? Corporate transactions would speedily come to a standstill were every person dealing with
a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular
they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634,
654-655, that

In passing upon the liability of a corporation in cases of this kind it is always well to keep in
mind the situation as it presents itself to the third party with whom the contract is made.
Naturally he can have little or no information as to what occurs in corporate meetings; and he
must necessarily rely upon the external manifestations of corporate consent. The integrity of
commercial transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law; and we would be sorry to announce
a doctrine which would permit the property of a man in the city of Paris to be whisked out of
his hands and carried into a remote quarter of the earth without recourse against the
 corporation whose name and authority had been used in the manner disclosed in this case.
As already observed, it is familiar doctrine that if a corporation knowingly permits one of its
officers, or any other agent, to do acts within the scope of an apparent authority, and thus
holds him out to the public as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said "if the corporation permits" this
means the same as "if the thing is permitted by the directing power of the corporation."

It has also been decided that

A very large part of the business of the country is carried on by corporations. It certainly is not
the practice of persons dealing with officers or agents who assume to act for such entities to
insist on being shown the resolution of the board of directors authorizing the particular officer
or agent to transact the particular business which he assumes to conduct. A person who
knows that the officer or agent of the corporation habitually transacts certain kinds of business
for such corporation under circumstances which necessarily show knowledge on the part of
those charged with the conduct of the corporate business assumes, as he has the right to
assume, that such agent or officer is acting within the scope of his authority. (Curtis Land &
Loan Co. vs. Interior Land Co., 137 Wis. 341, 118 N.W. 853, 129 Am. St. Rep. 1068; as cited
in 2 Fletcher's Encyclopedia, Priv. Corp. 263, perm. Ed.)

Indeed, it is well-settled 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.
(2 Fletcher's Encyclopedia, Priv. Corp. 255, Perm. Ed.)

Hence, even if it were the board secretary who sent the telegram, the corporation could not evade the
binding effect produced by the telegram..

The defendant-appellant does not disown the telegram, and even asserts that it came from its offices,
as may be gleaned from the letter, dated 31 May 1960, to Atty. Francisco, and signed "R. P. Andal,
general manager by Leovigildo Monasterial, legal counsel", wherein these phrases occur: "the
telegram sent ... by this office" and "the telegram we sent your" (emphasis supplied), but it alleges
mistake in couching the correct wording. This alleged mistake cannot be taken seriously, because
while the telegram is dated 20 February 1959, the defendant informed Atty. Francisco of the alleged
mistake only on 31 May 1960, and all the while it accepted the various other remittances, starting on
28 February 1959, sent by the plaintiff to it in compliance with her performance of her part of the new
contract.

The inequity of permitting the System to deny its acceptance become more patent when account is
taken of the fact that in remitting the payment of P30,000 advanced by her father, plaintiff's letter to
Mr. Andal quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of
the terms of the allegedly unauthorized telegram, for as Ballentine says:

Knowledge of facts acquired or possessed by an officer or agent of a corporation in the

course of his employment, and in relation to matters within the scope of his authority, is notice
to the corporation, whether he communicates such knowledge or not. (Ballentine, Law on
Corporations, section 112.)

since a corporation cannot see, or know, anything except through its officers.

Yet, notwithstanding this notice, the defendant System pocketed the amount, and kept silent about
the telegram not being in accordance with the true facts, as it now alleges. This silence, taken
together with the unconditional acceptance of three other subsequent remittances from plaintiff,
constitutes in itself a binding ratification of the original agreement (Civil Code, Art. 1393).
 ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a
tacit ratification if, with knowledge of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.

Nowhere else do the circumstances call more insistently for the application of the 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..

The defendant's assertion that the telegram came from it but that it was incorrectly worded renders
unnecessary to resolve the other point on controversy as to whether the said telegram constitutes an
actionable document..

Since the terms offered by the plaintiff in the letter of 20 February 1959 (Exhibit "A") provided for
the setting aside of the foreclosure effected by the defendant System, the acceptance of the offer left
the account of plaintiff in the same condition as if no foreclosure had taken place. It follows, as the
lower court has correctly held, that the right of the System to collect attorneys' fees equivalent to 10%
of the due (P35,694.14) and the expenses and charges of P3,300.00 may no longer be enforced,
since by the express terms of the mortgage contract, these sums were collectible only "in the event of
foreclosure."

The court a quo also called attention to the unconscionability of defendant's charging the attorney's
fees, totalling over P35,000.00; and this point appears well-taken, considering that the foreclosure
was merely extra-judicial, and the attorneys' work was limited to requiring the sheriff to effectuate the
foreclosure. However, in view of the parties' agreement to set the same aside, with the consequential
elimination of such incidental charges, the matter of unreasonableness of the counsel fees need not
be labored further.

Turning now to the plaintiff's separate appeal (Case G.R. No. L-18155): Her prayer for an award of
actual or compensatory damages for P83,333.33 is predicated on her alleged unrealized profits due
to her inability to sell the compound for the price of P750,000.00 offered by one Vicente Alunan, which
sale was allegedly blocked because the System consolidated the title to the property in its name.
Plaintiff reckons the amount of P83,333.33 by placing the actual value of the property at P666,666.67,
a figure arrived at by assuming that the System's loan of P400,000.00 constitutes 60% of the actual
value of the security. The court a quo correctly refused to award such actual or compensatory
damages because it could not determine with reasonable certainty the difference between the offered
price and the actual value of the property, for lack of competent evidence. Without proof we cannot
assume, or take judicial notice, as suggested by the plaintiff, that the practice of lending institutions in
the country is to give out as loan 60% of the actual value of the collateral. Nor should we lose sight of
the fact that the price offered by Alunan was payable in installments covering five years, so that it may
not actually represent true market values.

Nor was there error in the appealed decision in denying moral damages, not only on account of the
plaintiff's failure to take the witness stand and testify to her social humiliation, wounded feelings,
anxiety, etc., as the decision holds, but primarily because a breach of contract like that of defendant,
not being malicious or fraudulent, does not warrant the award of moral damages under Article 2220 of
the Civil Code (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961; Fores vs. Miranda, L-12163, 4 March
1959).

There is no basis for awarding exemplary damages either, because this species of damages is only
allowed in addition to moral, temperate, liquidated, or compensatory damages, none of which have
been allowed in this case, for reasons herein before discussed (Art. 2234, Civil Code; Velayo vs. Shell
Co. of P.I., L-7817, Res. July 30, 1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27, 1953,
49 O.G. No. 2, 515).

As to attorneys' fees, we agree with the trial court's stand that in view of the absence of gross and
evident bad faith in defendant's refusal to satisfy the plaintiff's claim, and there being none of the other
grounds enumerated in Article 2208 of the Civil Code, such absence precludes a recovery. The award
of attorneys' fees is essentially discretionary in the trial court, and no abuse of discretion has been
shown.

FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with costs against the
defendant Government Service Insurance System, in G.R. No.L-18287.

DY PEH, AND/OR VICTORY RUBBER MANUFACTURING, Petitioner, v. COLLECTOR OF

INTERNAL REVENUE, Respondent.

Rene A. Diokno for Petitioner.

Solicitor General Arturo A. Alafriz Assistant Solicitor General Felicisimo R. Rosete and Special
Attorney Alejandro B. Afurong for Respondent.

SYLLABUS

1. CIVIL LAW; AGENCY; AGENTS ACTS BIND HIS PRINCIPAL; CASE AT BAR. Where Tan
Chuan Liong, petitioners agent who made the payment of the latters taxes, falsified the official
receipts, applying a portion of the amounts given by petitioner to him to pay the tax obligation of other
taxpayers such as that the official receipts in petitioners hands did not reflect the truth thereby making
him liable to pay deficiency percentage taxes in the total amount of P15,939.27, the conclusion must
necessarily be that the agents acts bind his principal, without prejudice, of course, to the latter
seeking recourse against him in an appropriate civil or criminal action.

2. TAXATION; COURT OF TAX APPEALS; APPEAL FROM DECISION THEREOF TO SUPREME

COURT; ONLY ERRORS OF LAW ARE REVIEWABLE BY COURT. The trial courts ruling upon
these questions of whether it was petitioner, in person, who made the payment of his taxes and
whether or not the official receipts in petitioners possession were falsified, and if so by whom, must
be sustained pursuant to our consistent ruling to the effect that in reviews from the decisions of the
Court of Appeals, only errors of law are reviewable by this Court.

DECISION

DIZON, J.:

Petition filed by Dy Peh for the review of the decision and resolution of the Court of Tax Appeals
dated April 29, and December 23, 1961, respectively, in C.T.A. Case No. 538, ordering him to pay
deficiency percentage taxes in the total amount of P51,939.27.

The following facts are not disputed:chanrob1es virtual 1aw library

Petitioner, during all the time material to this case, was engaged in the business of manufacturing and
selling rubber shoes and allied products in the city of Cebu, under the registered firm name Victory
Rubber Manufacturing.

Sometime in the year 1955 the Bureau of Internal Revenue unearthed anomalies committed in the
office of the Treasurer of the city of Cebu in connection with the payment of taxes by some taxpayers,
amongst them petitioner herein. As a result the respondent assessed against, and demanded from
petitioner the payment of the following sums: P4,725, including P100 as penalty, P29,980, including
P50 as penalty, and P17,425 including P50 as penalty, on January 27, 1956, November 12, 1955 and
November 12, 1955, respectively. This assessment was based upon short payments in connection
with taxes due from petitioner during the periods covered by the assessment. The investigation of the
anomalies disclosed that the amounts of the taxes allegedly paid by him, as appearing in the original
of every official receipt he had in his possession, were bigger than the amounts appearing in the
corresponding duplicate, triplicate and quadruplicate copy thereof kept in the office of the City
Treasurer of Cebu. Such discrepancies are hereunder tabulated as follows:chanrob1es virtual 1aw
library

Official Appearing in the Appearing in the Duplicate,

Receipt Original Triplicate and/or

Number Date Amount Quadruplicate

Re 1st cause of action Date Amount Difference

699004 4-20-54 P3,227.47 4-20-54 P227.47 P3,000.00

704201 7-20-54 3,681.41 7-20-54 681.41 3,000.00

709008 10-20-54 1,892.78 10-20-54 192.78 1,700.00

A-210319 1-20-55 2,575.46 1-20-55 175.46 2,400.00

A-218105 4-20-55 3,968.68 4-20-55 168.69 3,800.00

Re 2nd cause of action

1923194 4-21-52 P4,380.37 4-21-52 P380.37 P4,000.00

1972817 7-21-52 4,140.29 7-21-52 140.29 4,000.00

6399188 10-20-52 2,113.07 10-20-52 113.07 2,000.00

7769180 1-17-53 1,457.42 4-7-53 6.00 1,451.42

7778387 4-18-53 4,057.56 4-18-52 57.56 4,000.00

8423087 7-20-53 2,850.63 720-53 50.63 2,800.00

8470851 10-20-53 2,901.87 10-20-53 101.87 2,800.00

693613 1-20-54 2,996.26 1-20-54 96.26 2,900.00

Re 3rd cause of action

A-1709018 1-17-52 P3,815.18 1-17-52 P115.18 P3,700.00

Petitioners contention below and here is this: since the checks issued by him covered in full the
amount due for each quarter, and were accepted and deposited by the City Treasurer of Cebu; since
the originals of the official receipts issued by the latter show that the full amount of the taxes due from
him had been paid, he must be deemed to have paid such taxes in full, and any anomaly in the
application of the amounts paid by him consisting in the diversion of part thereof to pay the taxes of
other taxpayers whether attributable solely to employees in the office of said Treasurer or to other
parties should not be held against him.

Respondents contention, on the other hand, is that the amounts actually paid by petitioner were
those appearing on the duplicates, triplicates and quadruplicates of the official receipts mentioned
heretofore; that the originals thereof were falsified or altered to make them show payment in full of the
taxes due from petitioner.

In connection with the issues thus joined petitioner tried to prove that the payments in question were
made by him personally, while, on the other hand, respondent claimed that said payments were made
not by petitioner personally but by Tan Chuan Liong, his authorized agent in the matter of payment of
his taxes; that Bartolome Baguio, Chief of the Internal Revenue Division of the City Treasurers Office
of Cebu, had allowed the wrongful practice of permitting Tan Chuan Liong to prepare the official
receipts in connection with tax payments made by him in behalf of his merchant clients; that it was
Tan Chuan Liong who applied a portion of the amounts given to him by petitioner to pay tax
obligations of other taxpayers, also his clients, and that therefore petitioners recourse is against him.

Whether it was petitioner, in person, who made the payment of his taxes herein involved, or it was his
aforesaid agent, is manifestly a question of fact squarely resolved by the Court of Tax Appeals as
follows:jgc:chanrobles.com.ph

"Petitioner sought to prove that he never employed Tan Chuan Liong as a business agent in the
payment of the tax in question. The preponderance of the evidence shows otherwise. If, as alleged,
petitioner paid the tax personally, why were the official receipts prepared by Tan Chuan Liong and not
by Bartolome Baguio or any authorized employee in the office of the City Treasurer of Cebu? It
appears that Tan Chuan Liong prepared the official receipts of payments of taxpayers who employed
him as business agent. It has not been shown that Tan Chuan Liong prepared any official receipt
covering payment of taxpayers other than those who employed him business agent."cralaw virtua1aw
library

After ruling against petitioner on this question, the Court of Tax Appeals said
further:jgc:chanrobles.com.ph

"Even assuming that Tan Chuan Liong was not employed by petitioner as business agent, petitioner
is not entirely blameless. The records show that the payments were made by checks. The numbers of
the official receipts covering the payments are indicated on the back of the checks. After the checks
had been deposited and the amounts credited in favor of the Government, the cancelled checks were
returned to petitioner. Petitioner is, therefore, charged with knowledge of the fact that the amount
covered by each check was applied in payment not only of his tax but also of taxes of other
taxpayers, the numbers of the official receipts covering which are indicated on the back of the check.
The fact that he accepted the cancelled checks without protest is evidence of his acquiescence to the
manner in which the amount covered by each check was applied by the collecting officer. He cannot
now he heard to complain."cralaw virtua1aw library

We can hardly add any other consideration to strengthen the lower courts ruling.

Another question of fact vital to this case is whether or not the official receipts in petitioners
possession were falsified, and if so by whom.

In this connection, We believe it established as a fact that petitioner had employed Tan Chuan Liong
as a business agent in the matter of payment of his taxes. The testimonies of Bartolome Baguio,
Isidro Badana and Lauro Abalos on this matter (T.s.n. pp. 200-201, 472-473, 483-484, 501-503, 508-
510, 525, 535-539) were corroborated by the statement and report of NBI handwriting expert Felipe
Logan. That Tan Chuan Liong, as such petitioners agent, actually paid to the government less than
the amounts of the taxes due from petitioner is also fully proven by their testimonies and the
duplicate, triplicate and quadruplicate copies of the official receipts which appear upon their face to be
genuine or authentic. The same thing cannot be claimed for the official receipts in question, because
the lower court found that, as in the case Tiu Bon Sin v. Collector etc., C.T.A. No. 286, and Yap Pe
Giok v. Aranas, C.T.A. No. 533, appellant employed the same business agent who misappropriated a
portion of the amounts entrusted to him and paid less than what was due from his principals. In plain
words, the lower court expressed the view that the official receipts in petitioners hands did not reflect
the truth.

The trial courts ruling upon these questions must be sustained pursuant to our consistent ruling to the
effect that in reviews of the nature of the present, only errors of law are reviewable by this Court (G.R.
L-12174 Maria B. Castro v. Collector, April 26, 1962; G.R. L- 9738 Blas Gutierrez, Et. Al. v. Court of
Tax Appeals; G.R. L-8556 Benito Sanchez v. Commissioner of Customs, Sept. 30, 1957 and 54 O.G.
No. 2, p. 361; Eugenio Perez v. Court of Tax Appeals, G.R. L-10507, May 30, 1958; G.R. No. L-
13387 Sy Chiuco v. Collector, March 23, 1960; G.R. No. L-11622 Collector v. Fisher and G.R. No. L-
1168 Fisher v. Collector, January 28, 1961).
The foregoing disposes of the first two assignments of error submitted in petitioners brief. In the third,
it is his contention that the Court a quo erred in holding that he is estopped from questioning the
misapplication of his payments.

This is only a corollary of the questions raised in the previous assignments of error. Inasmuch as We
have held in resolving the latter that, in point of fact, Tan Chuan Liong was petitioners agent, the
conclusion must necessarily be that the agents acts bind his principal; without prejudice, of course, to
the latter seeking recourse against him in an appropriate civil or criminal action.

The fourth and last assignment of error has been impliedly resolved adversely to petitioner in our
rulings upon the first three.

PREMISES CONSIDERED, the decision appealed from is hereby affirmed, with costs.

FRANCISCO ORTIGAS, JR., plaintiff-appellant-appellee,

vs.
LUFTHANSA GERMAN AIRLINES, defendant-appellant-appellee.

Baizas, Alberto and Associates for appellant Lufthansa German Airlines.

Pelaez, Jalandoni and Jamir for appellant Francisco Ortigas, Jr.

BARREDO, J.:

Direct appeals of both parties plaintiff, Francisco Ortigas, and defendant Lufthansa German Airlines,
from the decision of the Court of First Instance of Manila, Branch X, "condemning the defendant to
pay plaintiff the amount of P100,000 as moral damages, P30,000 as exemplary or corrective
damages, with interest on both sums at the legal rate from the commencement of this suit until fully
paid, P20,000 as attorney's fees and the costs" for the former's failure to "comply with its obligation to
give first class accommodation to (the latter) a (Filipino) passenger holding a first class ticket,"
aggravated by the giving of the space instead to a Belgian and the improper conduct of its agents in
dealing with him during the occasion of such discriminatory violation of its contract of carriage.

Defendant buttresses its appeal on the following:

ASSIGNMENT OF ERRORS

THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN

DENYING THE DEFENDANT'S URGENT MOTION FOR POSTPONEMENT DATED
SEPTEMBER 24, 1966.

II

THE LOWER COURT CONSEQUENTLY ERRED IN ORDERING THE STRIKING

FROM THE RECORDS THE TESTIMONY OF WITNESS IVO LAZZARI AND IN
DEEMING THE CASE SUBMITTED FOR DECISION ON THE EVIDENCE OF THE
PLAINTIFF ALONE.

III
 THE LOWER COURT ERRED IN CONDEMNING DEFENDANT TO PAY THE
PLAINTIFF THE AMOUNT OF P100,000.00 AS MORAL DAMAGES, P30,000.00 AS
EXEMPLARY OR CORRECTIVE DAMAGES, WITH INTEREST ON BOTH SUMS AT
THE LEGAL RATE FROM THE COMMENCEMENT OF THIS SUIT UNTIL FULLY
PAID, P20,000.00 AS ATTORNEY'S FEES, AND COSTS. (Pp. 12-13, p. 118,
Record.)

On the other hand, plaintiff's sole ground for his appeal is that "the trial court erred in ordering
Lufthansa to pay Ortigas only P100,000 as moral damages, P20,000 as exemplary or corrective
damages, and P20,000 as attorney's fees." (Plaintiff-Appellant's Brief, p. a.) Thus, apart from the
contention of defendant that it has been denied its full day in court, the only issue raised by both
appellants relate to the amount of the damages awarded by the trial court, plaintiff claiming it is less
than he is entitled to and the defendant insisting on the opposite.

Lufthansa maintains it has not had its full day in court because the trial court abruptly ended the trial
by denying its last motion for postponement notwithstanding it was well founded and forthwith
ordering the striking out of the testimony of its absent witness whose cross-examination had not been
finished and then declaring the case submitted for decision. In this connection, the record reveals the
following facts:

Plaintiff's complaint was filed with the court below on December 24, 1963 and after issues were
joined, a pre-trial was held, the parties submitted a partial stipulation of facts and thereafter went to
trial, the last day of which was on September 28, 1966. As to what happened in between, a detailed
account is made in the brief of Ortigas as plaintiff-appellee as follows:

... Thereafter the case was set for hearing twenty four (24) times, or on April 27, 1964, July 9, 1964,
August 20, 1964, October 1, 1964, November 11, 1964, December 22, 1964, February 3, 1965,
March 18, 1965, May 5, 1965, June 11, 1965, July 22, 1965, August 26, 1965 and September 8,
1965, September 22, 1965, November 3, 1965, November 24, 1965, December 17, 1965, December
29, 1965, January 14, 1966, February 2, 1966, April 19, 1966, April 20, 1966, July 5, 6 and 7, 1966,
August 25, 1966 and September 28, 1966.

One (1) hearing, or that of August 25, 1966, was cancelled because the trial judge,
Hon. Jose L. Moya, was then sick. Other postponements were as follows:

Postponements at instance of
plaintiff

Three (3) settings were cancelled upon motion of plaintiff on grounds that defendant's
counsel (Atty. Crispin Baizas) himself must have found sufficient, for he gave his
conformity thereto. These were the hearings set for:

July 9, 1964 postponed upon plaintiff's motion, dated June 27, 1964, or 12 days
before the hearing, on the ground that he had to attend an important business matter
in Mindanao, which was so urgent that "for plaintiff to even make a flying trip to
Manila for the scheduled hearing might jeopardize and render to naught a project to
which plaintiff has already expended considerable time, money and effort" (RA pp.
28-29. Note: All reference herein will be to plaintiff's Record on Appeal).

August 26, 1965 postpone upon plaintiff's motion, dated August 23, 1965, for the
reason that he was in London for business reasons and could not return to the
Philippines on time for the hearing. This motion is not reproduced in any Record on
Appeal but is admitted.

July 5-7, 1966 18 days before the dates set for the hearing, counsel for plaintiff
filed a motion, dated June 17, 1966, for Postponement on the ground that Atty.
Rodegelio M. Jalandoni, who had been personally handling this case was then in
Washington, D.C. on business and would not be back until the middle part of August,
1966. Considering that the trial of the case was far advanced, it would be difficult for
another lawyer to substitute for Atty. Jalandoni. Defendant's counsel agreed to the
motion (RA pp. 50-51).

Postponement at instance of
both parties

Four (4) settings, or those of August 20, 1964, October 1, 1964, November 11, 1964
and December 22, 1964, were cancelled upon the joint motion of the parties on the
ground that negotiations for the possible settlement of this case were pending (RA
pp. 31-34).

While both attorneys for plaintiff and defendant signed the joint motions for
postponement, the initiative to have the hearings cancelled actually came from
defendant's counsel who claimed that he needed time to consult with his client.
Plaintiff welcomed the possibility of compromise and acceded to join the requests for
postponement but became impatient at and suspicious of the attempt to delay so that
in the motion to postpone the December 22, 1964 hearing, plaintiff insisted on the
insertion of the phrase "be postponed for the last time" (RA p.
34).1wph1.t These took place after the pre-trial but before plaintiff had started
presenting his evidence.

Postponement at instance of
defendant

Of the remaining 16 settings, at least TEN (10) were postponed or could not proceed
except for a few minutes because either Atty. Crispin Baizas, counsel for defendant,
was not available or needed time to prepare or had to attend a meeting somewhere
else, or, as in the case of September 28, 1966, defendants witnesses wanted to avoid
the inconvenience of coming to the Philippines. The situation became such that on
two (2) occasions the court a quo warned the defendant and/or its counsel that it was
postponing the trial "for the last time" and "definitely for the last time." Thus:

February 3, 1965 On this date, although plaintiff was ready to present his evidence
and the Court to hear the parties, Atty. Baizas asked for postponement for the reason
that he had to be somewhere else. The undersigned graciously obliged by not
objecting, albeit the motion was made without warning and in open court.

March 18, 1965 Once again the hearing scheduled for this date was postponed on
motion of Atty. Baizas in open court. The undersigned did not object because, as far
as he can now recall, the excuse given was that opposite counsel had another
appointment.

June 11, 1965 The Court was free the whole morning of this day and plaintiff
actually took the witness stand. After plaintiff was through with his direct testimony,
Atty. Zaida R. Alberto, who appeared for the defendant, asked that the cross-
examination be postponed for the next hearing, on the ground that Atty. Baizas knew
more of the defense. The following appears of record:

"ATTY. ALBERTO:

If Your Honor please, may I request to allow the

cross examination at the next hearing.

COURT:

You can handle the cross

examination now.
 ATTY. ALBERTO:

The defense are more in the

knowledge of Atty. Baizas.

COURT:

If you postpone the cross-examination we will forget

the testimony and will be spending much time
referring to his testimony, so you better cross-
examine him while his testimony is still fresh.

ATTY. ALBERTO:

May I ask for a reconsideration, Your Honor, anyway

it is past 11:00 o'clock I do not think there will be
enough time.

COURT:

We still have one hour.

ATTY. ALBERTO:

I ask for a reconsideration, Your

Honor.

COURT:

On motion of the defendant's counsel, the

continuation of the trial is postponed to July 22,
1965, at 8:30 a.m. The parties were notified in open
court of this new assignment." (t.s.n. pp. 43-44, June
11, 1965)

Notwithstanding there was an hour left, which was precious considering the crowded
calendar of the Court, and Judge Moya wanted to hear the cross-examination
because plaintiff's testimony was fresh, the Court pleased counsel for the defendant
and postponed the hearing to July 22, 1965.

September 22, 1965 At this hearing the undersigned requested that Dr. Isidro
Pertiera be permitted to take the witness stand. He is a heart specialist and it was
difficult to bring him to court because of his many patients. His direct testimony did
not take long, after which Atty. Baizas asked for postponement, for the reason that he
did not expect Dr. Pertiera to testify and, since the subject of the testimony was
important and technical, he needed time to be able to cross-examine. The
undersigned, understanding the predicament of Atty. Baizas, did not offer any
objection.

November 3, 1965 This scheduled hearing was postponed upon motion dated
October 7, 1965, of Atty. Baizas on the ground that he was leaving on a business trip
abroad. The undersigned again did not object.

November 24, 1965 It will be recalled that the hearing of September 22,
1965, supra, was postponed to enable Atty. Baizas to prepare for his cross-
examination of Dr. Pertiera. On this date, November 24, 1965, Atty. Baizas cross-
examined briefly the doctor, but announced:
 "ATTY. BAIZAS:

May I announce, your Honor, that after I cross-examine the Doctor I

will ask for a postponement of my cross examination of Atty. Ortigas
because I will have to attend a meeting of the PAL Board of Directors
this morning. My cross examination will not be very long." (t.s.n., pp.
34, November 24, 1965)

The PAL Board of Directors' meeting was certainly not more important than the
occupation of the Court, and it was still early, but counsel was insistent. The Court
was beginning to be perturbed by the dilatory motions; yet it granted counsel's
requested postponement but "for the last time." Thus:

"ATTY. BAIZAS:

That is all. May I make that request, Your Honor, that

it is simply that I have to be present at the meeting. I
wish to finish my cross examination on Atty. Ortigas
but it is merely that the meeting is held for today at
10:00 o'clock and I would like to ask for a
postponement to continue the cross examination.

COURT:

I will grant this for the last time. On motion of Atty.

Baizas, the continuation of the hearing is postponed
for the last time to December 17, 1965, at 8:30 a.m.,
by agreement between him and Atty. Jalandoni."
(t.s.n., p. 17, November 24, 1965)

December 17, 1965 Although at the hearing of November 24, 1965 trial was
postponed for the last time to December 17, 1965, the Court's warning did not seem
to register because on December 7, 1965 defendant's counsel filed another motion
for postponement alleging that he had received a telegram to the effect that the
meeting of the Legal Committee of IATA that he was attending, originally scheduled
for December 10-15, had been deferred and would begin on December 13 and as it
was for 5 days, it would not be possible for him to return for the December 17
hearing; hence, he requested that said hearing be reset for December 27 and 29. In
his undated motion filed on December 7,1965 counsel averred that:

"There is no intention whatever to delay the case but because of the

circumstances above-stated, undersigned counsel is constrained to
ask, for the last time, for the cancellation of the hearing on December
17 and for its resetting on such dates as may be convenient to this
Honorable Court, preferably December 27 and 29." (RA p. 41)

The undersigned opposed said motion and alleged:

"That this case has been pending since December 24, 1963, or
almost two years now, and trial thereof has been repeatedly
suspended and/or postponed;

That at the hearing of November 24, 1965, this Honorable Court

precisely postponed continuation of the trial thereof for the last time
to December 17, a date which was fixed by agreement of the parties;
 That when counsel for defendant left, as alleged, on December 6,
1965 he did so with full knowledge of the intransferable character of
the trial set for December 17;

That defendant can well be represented by Atty. Baizas' associate,

Atty. Alberto, who, as a matter of fact, handled this case when trial
started on June 11, 1965 and has been actively collaborating with
Atty. Baizas since then;

That when plaintiff testified on direct examination on June 11, 1965

said Atty. Alberto appeared for defendant and that plaintiff is now
merely due for further cross-examination." (RA p. 43)

In spite of said opposition, the Trial Court once more granted defendant's request but
was more categorical this time with its admonition against further postponements and
used the word "definitely" in its order which read:

"ORDER

For the reasons stated in the defendant's motion for postponement

and in view of the fact that it seeks a deferment of the hearing for
only a few days, the continuation of the trial is postponed definitely
for the last time to December 29, 1965, at 8:30 a.m.

"SO ORDERED.

"Manila, Philippines, December 11, 1965.

(RA p. 46)

March 10, 1966 The hearing on this date lasted for only a few minutes, with the
undersigned offering the documentary evidence for the plaintiff. Thereupon,
defendant's counsel again asked for postponement so he could go over said
evidence. Since he had no witnesses to present, the Court once more postponed the
trial to April 19, 1966 without any objection on the part of the undersigned.
 April 19, 1966 The hearing for this day was cancelled upon motion of defendant's
counsel (RA p. 49) on his representation that defendant's witness Ivo Lazzari had
arrived from Italy at midnight of April 18, 1.966 and was not in a condition to take the
witness stand. The Court again accommodatingly transferred the hearing to the
following day, April 20, 1966, although it had other cases scheduled for that date and
the case at bar was not among them, just so Lazzari's trip would not be useless. The
undersigned likewise did not oppose the transfer of hearing. (Pp. 2-13 Brief, p. 132
Record.)

Defendant does not seriously deny these facts. Seemingly, the controversy between the parties
revolves around defendant's motion for postponement of the hearing set for September 28, 1966
which was denied by the trial court. It is this denial that is the subject of the first above-quoted alleged
errors assigned by Lufthansa in its brief as defendant-appellant.

At the time this incident of postponement arose, plaintiff had already closed his evidence, and so it
was the turn of the defendant to prove its defenses. The starting date for this was April 19, 1966, but,
upon motion of defendant's counsel, it was deferred to the next day, April 20, 1966, on which date
defendant's first witness, Ivo Lazzari, took the witness stand. His testimony, however, was not finished
in the morning and afternoon of that day nor during the whole day of April 22, 1966. Atty. Rodegelio
M. Jalandoni was still cross-examining him when the hearing was continued "to the first available date
in the calendar". Eventually, the next continuation of the trial was set at first for July 5, 6 and 7, 1966,
but upon motion of plaintiff's counsel, it was reset for August 25, 1966, on which date, in spite of the
presence of Lazzari who came from Rome purposely for the trial together with another expected
witness, Severino Caselli, and still another witness, C.H. Dehio, who came from Hongkong, no trial
could be held because of the absence of the judge. Hence, another date, September 28, 1966 was
fixed with notice to the parties received by them respectively the month previous.

On September 24, 1966, defendant's counsel filed a motion for postponement thus:

COMES NOW the defendant by undersigned counsel and to this Honorable Court
respectfully states:

The above-entitled case is set for hearing on September 28, 1966 at 8:30 o'clock in
the morning.

The witnesses who are scheduled to testify for the defendant at said hearing are to
come from Rome, Italy;

Word has been received from the defendant that said witn will not be able to come for
the hearing aforementioned.

WHEREFORE, it is respectfully prayed that the hearing of this case scheduled for
September 28 be postponed to some other date most convenient to this Honorable
Court, preferably on any of the following dates: October 21, 17; Novembers, 3, 8, 9 or
11, 1966.

... . (Page 53, Record on Appeal, p. 29, Rec.)

On September 27, 1966, plaintiff's counsel filed the following opposition to the above motion:
 COMES NOW plaintiff, through undersigned counsel and, in opposition to
defendant's urgent motion for postponement, dated September 24, 1966, to this
Honorable Court respectfully states:

That this case has been pending since December, 1963;

That defendant's aforesaid motion does not give any valid reason for postponing the
hearing, since it does not state why defendant's witnesses cannot come to Manila on
the scheduled dates of continuation of trial;

That the convenience and motive of defendant and its witnesses in not exerting every
effort to testify are not the concern of the plaintiff, and more so of this Honorable
Court, and that the speedy and proper administration of justice dictates that the
hearing proceed irrespective of defendant's obvious disregard of the need thereofl;

That defendant's attitude is aggravated by the fact that, being an airline company, it
has all facilities to have its employees available as witnesses at any time it desires.

WHEREFORE, it is respectfully prayed that defendant's aforesaid motion for

postponement be denied.

... . (Pp. 55-56, id.)

In view of this opposition, on the same day, His Honor issued an order of denial:

No reason whatsoever having been alleged or shown why the defendant's witnesses
will not be able to come from Rome to Manila on the day of the hearing, and this case
having been pending since December, 1963, the motion for postponement is denied.
(Pp. 56-57, id.)

On the day set for the hearing, September 28, 1966, Atty. Zaida Ruby S. Alberto appeared for
defendant and verbally moved for reconsideration of the foregoing order of denial. She argued that:

Actually, it is not intended to delay the termination of this case. As a matter of fact, on
August 15, 1966, the date set for the hearing of this case, we were ready with the
presentation of our evidence as our two witnesses from Rome were here. But
unfortunately, Your Honor was indisposed, so the hearing was postponed to this date.
I really do not know why our witness failed to come. However, I intend to make an
inquiry about the matter so that I could file the corresponding explanation for their
failure to appear in Court today. May I, therefore, reiterate my motion for
reconsideration, with the reservation that I be allowed to file my explanation for the
failure of these two witnesses coming from Rome to appear for today's hearing.
(Page 2, t.s.n., Sept. 28/66.)

But as counsel could not give the exact reason why defendant's witness scheduled to testify were
absent, the trial court denied the motion; ruling that "no ground has been alleged in support thereof."
(p. 6, t.s.n., September 28, 1966.)

This order was immediately followed by a motion of plaintiff's counsel for the striking out of the entire
testimony of the witness, Ivo Lazzari, upon the ground that counsel had not yet finished his cross-
examination of him and his absence was unexplained. No objection appears to have been made to
such motion, albeit counsel for defendant tried to point out that Atty. Jalandoni had already finished
his cross-examination of the witness. After verifying from the records that such was not the case, His
Honor issued the following order:

The witness Ivo Lazzari not having appeared at the hearing set for today, for which
reason his cross-examination cannot be continued, on motion of the plaintiff's
 counsel, his testimony is striken from the record, and this case is deemed submitted
for decision on the evidence already presented. (Pp. 57-58, Rec. on Ap., id.)

Thus the trial ended and parties were allowed to submit their respective memoranda.

On October 19, 1966, however, defendant's counsel filed the following motion for reconsideration:

MOTION FOR RECONSIDERATION .

COMES NOW defendant by undersigned counsel this Honorable Court moving for a
reconsideration of the orders dated September 27 and September 28, 1966,
respectively, respectfully states:

On September 26, 1966 a motion for postponement of the hearing on September 28,
1966 was filed by undersigned counsel for the reason that word had just been
received from the defendant that the witnesses who were scheduled to testify at the
said hearing and who were to come from Rome, Italy, would not be able to come to
the Philippines for said hearing. This motion was denied in the order of September
27, 1966;

No reason could be stated in the aforesaid motion for postponement because at the
time it was prepared, counsel for defendant did not really know the specific reasons
for the inability of said witnesses to come. A simple telex message had been sent by
the Far East Manager of the defendant company to defendant's representatives in
Manila advising the latter that the witnesses in question could not come. Copy of said
telex message is attached to and made part of this motion for reconsideration as
Annex "I";

For this reason on September 28, 1966, when the case was called, counsel for the
defendant reiterated the motion for postponement and requested this Honorable
Court for time to submit an explanation on the failure of defendant's witnesses to
come as a letter elaborating on the matter would surely follow the telex' message.
This request was however denied by the Honorable Court and upon motion of
plaintiff's counsel, another order was issued striking out from the record the testimony
of defendant's only witness so far, Ivo Lazzari, whose cross-examination was to be
continued that date, for the latter's failure to appear at the hearing, and deeming the
case submitted for decision;

It is alleged by opposing counsel that the witnesses did not come for the hearing of
September 28, 1966 because it was inconvenient for them and for defendant. This
accusation is absolutely without basis and malicious;

If inconvenience were the only reason for the witnesses' failure to come, then they
would not also have come previously because it was just as inconvenient for them
then. It will be recalled that Ivo Lazzari had been here in April 1966 when he was
presented on direct examination and partly on cross-examination. On August 25,
1966, the case was also scheduled for hearing. All of defendant's witnesses came
 here from Rome, Italy for said hearing. Even Mr. C. H. Dehio was also here to testify.
Unfortunately, the Presiding (Judge) of this Honorable Court was indisposed on that
particular morning and so the hearing on said date was cancelled. We mention this
only to show that the failure of the witnesses to come for the hearing on September
28 was not caused by mere inconvenience;

Defendant had and had no intention to delay the proceedings whatsoever. The
witnesses in question could not come because of certain circumstances that rendered
their coming over virtually impossible. Both witnesses, Ivo Lazzari and Saverino
Casilli are employees of defendant company at the Rome office. The air traffic in
Rome has been particularly heavy this season. Some of the personnel of the
Lufthansa Rome office were on leave and these two employees had to assume some
of the duties of those employees who were on leave, aside from performing their own
regular duties, If they were to leave their posts to come for the hearing on September
28, there would be grave disruption to the public service and for this reason they were
not able to come. These facts are contained in a letter dated September 29, 1966
written to undersigned counsel by C. H. Dehio, IATA Agency Manager, Far East and
Australasia, Lufthansa German Air Lines, copy of which is attached to and made part
of this motion for reconsideration as Annex "2";. The envelope in which said letter
contained is likewise attached to and made part of this motion as Annex "2-A";

Witness Ivo Lazzari had first shed his testimony on direct examination and on
September 28, 1966, opposing counsel was to continue cross-examination of said
witness. The other witness Saverino Casilli was to be presented after Ivo Lazzari
would have finished testifying. Both witnesses are material for the defense and no
other person could testify on the facts that are the subject of their testimony. The
inability of said witnesses to come for the hearing on September 28 was not due to
any fault or neglect on the part of defendant who in fact had exerted every effort to
have them come, but because of the supervening circumstances above-described,
their coming over could not have been possible without seriously disrupting public
service;

There is no question that the granting or denial of a motion for postponement rests
upon the sound discretion of the court. We submit however that under the
circumstances, the ends of justice would have been better served by granting the
motion on question. The reason for defendant's motion for postponement is valid and
meritorious, and the grant of a postponement based on such ground would not have
adversely affected the substantial rights of plaintiffs.

"Continuances and postponements of trial are part and parcel of our

judicial system of justice, and where no substantial rights are affected
and the intention to delay is not manifest, it is sound judicial
discretion to allow them. (Rexwell vs. Canlas, No. L-16746, Dec. 30,
1961)

"There is even authority for the view that the right to a speedy trial is
not violated by granting a continuance on the ground of absence of
material witness. (People vs. Romero, G.R. No. L-4517-20, May 25,
1953)
 The lower court erred in denying a motion for postponement filed by
defense to await arrival of a material witness." (People vs. Narsolis,
et al. G.R. No. L-2764, March 24, 1950)

"A miscarriage of justice may result from the accidental or excusable

absence of a material witness, where presence can be secured by
the grant of a reasonable continuance." (Luna vs. Arcenas, 34 Phil.
80, 98-99)

Defendant has a valid and meritorious defense, and if given opportunity to present its
side of the case, it would certainly diminish, if not altogether disprove plaintiffs claim.

... court litigations are primarily for the search of truth. ... A trial by
which both parties are given the chance to adduce truth is the best
way to find out such truth. A denial of this chance would be too
technical. The dispensation of justice and the vindication of
grievances should not be barred by technicalities." (Ronquillo vs.
Marasigan, L-11621, May 21, 1962; Santiago vs. Joaquin, L-15237,
May 31, 1963, emphasis ours.)

"Judicial experience dictates that it is better that cases are tried on

the merits even with a little delay than that substantial rights of a
party litigant be sacrificed on the altar of technicality." (Uy vs.
Demetillo, CA-G.R. No. 32665-R, Jan. 14, 1964.)

An affidavit of merit by Clarita C. de la Riva, Manager, Rocha & Cua., Inc., General
Sales Agents, Lufthansa German Airlines is likewise attached to and made an
integral part of this motion for reconsideration as Annex "3";

10

The order dated September 27, denying defendant's motion for postponement and
the order of September 28, 1966 striking off from the records the testimony on direct
examination of the witness Ivo Lazzari and holding the case submitted for decision on
the evidence presented would unduly prejudice defendant's stand, and would amount
to a denial of due process to defendant.

"The paramount interests of justice demand such reasonable

allowances as would prevent, without doing an injustice to the
opposing party, the loss by a litigant of his chance to duly present his
side of the case before the court. With a view of avoiding a possible
miscarriage of justice, the exercise of the court's discretion ought to
lean, in a reasonable degree toward bringing about a presentation of
evidence on both sides. ..." (Gerona vs. Calada, CA-G.R. No. 23955-
R March 30, 1963, Tormes vs. Balzado, CA-G.R. No. 32019-R, April
17, 1964.)

WHEREFORE, it is respectfully prayed that the orders of the Honorable Court dated
September 27, and September 28, 1966, respectively, be reconsidered and set aside;
that the testimony of defendant's witness Ivo Lazzari be allowed to remain on record
and that a date be set for the continuation of defendant's evidence.

Manila, Philippines, October 19, 1966.

 CRI
SPI
N
D.
BAI
ZA
S&
AS
SO
CIA
TE
S

By:
s/t/
Cris
pin
D.
Bai
zas
Cou
nsel
for
the
def
end
ant
Suit
e
305
Shu
rdut
Buil
ding

Intr
am
uro
s,
Ma
nila

VERIFICATION

I, CRISPIN D. BAIZAS, after having been sworn according to law, depose and say:

I am the counsel for the defendant in the above-entitled case;

I have prepared the foregoing motion for reconsideration and all the allegations
contained therein are true and correct of my own knowledge and to the best of my
information and belief.

s/t/ CRISPIN D.
BAIZAS

SUBSCRIBED AND SWORN TO BEFORE ME this 19th day of October. 1966 in the
City of Manila, affiant exhibiting to me his Res. Cert. No. A- 5892423 issued on
January 28, 1966 at Makati, Rizal.
 s/
(Illig
ible)

NO
TA
RY
PU
BLI
C
Unti
l
Dec
em
ber
31,
196
7

Doc. No. 1377

Page No. 77
Book No. III
Series of 1966.

(Pages 58-67, Record on Appeal, id.)

to which, plaintiff's counsel filed the following opposition:

COMES NOW plaintiff, through undersigned counsel, and, in opposition to

defendant's motion for reconsideration, dated October 19, 1966, to this Honorable
Court respectfully states that:

1. This is in effect the second motion for reconsideration that defendant has filed
against the order of September 27, 1966 denying its motion for postponement of the
hearing of September 28. The first motion for reconsideration was made in open court
by Atty. Zaida S. Alberto and denied on the same date.

2. Defendant now claims that it did not intend to delay the trial of this case and seeks
to justify the failure of its witnesses, Ivo Lazzari and Saverino Casilli, to appear on
September 28 on the ground that:

"... The air traffic in Rome has been particularly heavy this season. Some of the
personnel of the Lufthansa Rome office were on leave and these two employees had
to assume some of the duties of these employees who were on leave, aside from
performing their own regular duties. If they were to leave their posts to come for the
hearing on September 28, there would be grave disruption to the public service and
for this reason they were not able to come. ..." (p. 3, Defendant's Motion for
Reconsideration.)

3. Note that the above alleged facts are contained in a mere letter that was written by
a certain Mr. C.H. Dehio, an employee of defendant in Hongkong, to its counsel on
September 29, 1966, or one day after the hearing of September 28, when
presumably defendant's aforesaid employee had already been informed that this
Honorable Court had denied the postponement and considered this case as
submitted for decision. Defendant is an airline company and has all the telex facilities
to communicate in a matter of minutes with its various agencies. The ground for
failure to appear, to wit, supposed pressure of work of said employees, is as easy to
conceive and gratuitously state as to flick one's fingers. We wish to call attention to
the significant fact that the statement of Mr. Dehio in his letter is not under oath.
Incorporating said statement in the body of the motion for reconsideration that is
sworn to by counsel merely `to the best of his information and belief, or in an affidavit
of Mrs. Clarita C. de la Riva (Annex 3) who was only referring to hearsay information
derived from Mr. Dehio's aforesaid letter, is insufficient verification of the motion for
reconsideration under Section 6, Rule 7 of the Rules of Court. Even Mr. Dehio had he
executed the affidavit himself, would have been disqualified to swear to the facts
because he is stationed in Hongkong. So that, when defendant's counsel and Mrs. de
la Riva verified the motion on "information and belief" derived from Mr. Dehio's letter,
their statements were hearsay thrice removed.

4. But assuming said facts to be true, did this justify the failure of defendant's
witnesses to appear at the scheduled hearing or constitute a valid excuse for
defendant's inability to present evidence. We respectfully submit that they do not. The
September 28 hearing was set as early as August 25, 1966, or more than one (1)
month previous, to suit the schedules not only of this Honorable Court but of the
parties as well. Surely, it was incumbent on defendant, if it has deference to this
Honorable Court and our administration of justice to see to it that its witnesses,
particularly Ivo Lazzari who was on the witness stand and due for cross-examination,
would be available, rather than granting leave to its other employees and burdening
the two needed witnesses with additional work. Defendant is not a neophyte in the
airline business. Assuming arguendo that it is true that the volume of air traffic in
Europe was high in "September and early October", it should have foreseen the
situation and taken appropriate measures to assure compliance with its obligation to
this Honorable Court. The witnesses are defendant's employees and subject to its
exclusive control. Instead, defendant allegedly rendered itself short handed by
granting leave to its other employees, and now comes to court with a lame excuse
requesting that it be extricated from a predicament that it has deliberatedly brought
upon itself. For the execuse that with the workload for Mr. Lazzari and Mr. Casilli
becoming heavier than usual "it would seriously disrupt our service to the travelling
public if, during this time, they were to leave their jobs for several days" (Please see
Mr. Dehio's letter, Annex "2") is lame, by any standard. The local newspapers are
constantly carrying news articles of how large and expanded is the Lufthansa as an
airline outfit. Surely, of its hundred (if not thousands) of available employees, two like
Lazzari and Casilli could have been dispensed from their work temporarily to defend
the company against the just grievance asserted by an injured passenger before a
court of justice. At the most, defendant was after the promotion of its own interest in
holding the two employees to their jobs, and is not avoiding "grave disruption to the
public service" as counsel exaggerates Mr. Dehio's expression "seriously disrupt our
service to the travelling public" two distinct ideas, the latter signifying self-interest as
distinguished from public necessity. This Honorable Court can take judicial notice that
there are many other airlines-operating in the same areas as doe, Lufthansa and
competing with it.

5. As we explained at the September 28 hearing, the truth of the matter is that,

contrary to the unverified representations of defendant, the reason for the non-
attendance of defendant's witnesses was to avoid the inconvenience of coming to the
Philippines to testify. In other words, after Ivo Lazzari and Saverino Casilli were
unable to testify last August 25, 1966, defendant thought of avoiding having said
witnesses come again to Manila. We say this because sometime on September 20,
1966, Atty. Leonardo P. Valmonte (an assistant attorney of plaintiff who is helping in
this case) had a telephone conversation with defendant's counsel, Atty. Zaida S.
Alberto in connection with the former's request for a copy of a certain exhibit, and in
the course of their conversation Atty. Alberto informed Atty. Valmonte that the trial
scheduled for September 28, 1966 would not proceed because they were intending
"to secure the permission of the court to take the testimonies of their witnesses by
way of deposition". In short, even before the receipt of the alleged telex (Annex "1" of
Motion) by defendant's counsel on September 22, 1966, said counsel announcing
that the trial could not proceed because they were going to resort to depositions of
their witnesses in Rome, rather than have said witnesses come to Manila. The
decision to take depositions having been made on or before September 20, it was an
easy matter to have Lufthansa's Hongkong office send the telex of September 22
stating that they would be unable to provide witnesses on September 28. No reason
was given why witnesses could not be provided 6 or 7 days thence. If in truth there
was unexpected increase in air traffic, surely 6 or 7 days were more than sufficient to
make the necessary arrangements so that the work of Lazzari and Casilli could be
taken over temporarily just so these witnesses could appear before this Honorable
Court at the appointed date. Attached hereto as Annex "A" is the affidavit of Atty.
Leonardo P. Valmonte on his aforesaid conversation with Atty. Alberto.

6. At the hearing on September 28, when we made reference to the above-referred to

conversation between Attys. Valmonte and Alberto, the latter did not deny that she
had in truth spoken to Atty. Valmonte in the tenor above related. As a matter of fact,
she admitted that defendant was intending to take the depositions of its witnesses in
Rome.

7. When this honorable Court denied the motion for postponement on September 28,
1966, it did so in the exercise of its sound judicial discretion, for no valid reason was
given why the witnesses could not appear, whereas this case had been pending for
about three (3) years and had been postponed several times with repeated warnings
on defendant that said postponements were for the last time. And now, in its motion
for reconsideration, defendant has failed to effectively allege the ground for the failure
of said witnesses to come, and even if said ground be admitted as true for argument's
sake, it merely showed "inofficiousness, lack of resourcefulness and diligence, if not
total indifference" on the part of defendant to protect in court its interests and to
prevent needless delays in the discharge of judicial business.

"Postponement not based on valid reasons. Where a party seeks postponement of

the hearing of this case for reasons caused by his own inofficiousness, lack of
resourcefulness and diligence if not total indifference to his own interests or to the
interests of those he represents, thereby resulting in his failure to present his own
evidence, the court would not extend to him its mantle of protection. If it was he who
created the situation that brought about the resulting adverse consequences, he
cannot plead for his day in court nor claim that he was so denied of it." (De Leon vs.
People's Homesite and Housing Corporation, CA-G.R. No. 31169-R, Aug. 31,1963.)

8. In the case of Hap Hong Hardware Co. vs. Philippine Company, GR. No. L-16773
(May 23, 1961), the Supreme Court, in sustaining the trial court's denial of a motion
for postponement and on the ground that the defendant's witnesses, officers of the
company, had not come because it was the beginning of the milling season in the
municipality of San Jose, Mindoro Occidental and their presence in the Central was
very, necessary, held that the trial court was perfectly justified in denying said motion
for postponement because the reason adduced was "not unavoidable and one that
could not have been foreseen." Said the Supreme Court:

"The reason adduced in support of the motion for postponement is

not unavoidable and one that could not have been foreseen.
Defendant ought to have known long before the date of trial that the
milling season would start when the trial of the case would be held.
The motion should have been presented long in advance of the
hearing, so that the court could have taken steps to postpone the trial
without inconvenience to the adverse party. As it is, however, the
motion was presented on the day of the trial. Knowing as it should
have known that postponements lie in the court's discretion and there
being no apparent reason why the defendant could not have
presented the motion earlier, thus avoiding inconvenience to the
adverse party, the appellant cannot claim that the trial court erred in
denying postponement. Under all the circumstances we hold that the
Court was perfectly justified in denying the motion for postponement."
In the case at bar, the same unjustified excuse is adduced that the witnesses, who
are employees (not even officers) of defendant, had work to do, albeit date of trial
was set one month previous.

9. The cases cited by defendant are not in point, the facts involved therein being very
different from those attending the case at bar. For example, in the cited case of Lino
Luna vs. Arcenas, 34 Phil. 93, the trial judge declined to grant a continuance of a few
hours to give counsel an opportunity to secure the presence of the defendant. The
Supreme Court held that considering that it did not appear that defendant was
indulging in dilatory tactics, the denial of the motion for short Postponement was
improper. Again, in the case of People vs. Romero, G.R. No. L-4517, May 25, 1953,
the prosecution witnesses, although subpoenaed, failed to appear; whereupon the
fiscal asked that they be ordered arrested and that in the meantime the trial be
postponed. The Supreme Court likewise held that the denial of the postponement
was improper. These fact situations, however, as can immediately be seen are
completely different from that of Lufthansa whose non-presentation of its employees-
witnesses was motivated by the desire to avoid inconvenience to them, hence its
frustrated plan to have their depositions taken in Rome.

10. Complaints regarding delays in the disposition of court cases are prevalent and
have recently found expression not only in executive pronouncements but in judicial
admonitions. The unclogging of court dockets remains a pressing problem to the
despair of litigants. As the Court of Appeals put it:

"The records reveals that the trial of the case was postponed five
times at the instance of appellants themselves, and for this reason
the trial was delayed for more than one year and three months. In
granting these several postponements, the trial judge was over
liberal already, and to have allowed another postponement would
have been to jeopardize plaintiff's interest. Obviously courts cannot
unduly protect the interests of one party to the detriment of the other.
Already, there are complaints regarding delays in the disposition of
court cases. The unclogging of our court dockets still remains a
pressing problem in the despair of many a litigant. However to
eliminate, at least minimize, these delays is as much our concern
and any act of trial courts conducive towards this purposeful end will
be encouraged by appellate court's." (Rosario vs. De Leon, CA-G.R.
No. 6495-R, April 25, 1941; 40 O.G. 752.)

11. Prejudice will be occasioned plaintiff if defendant's belated motion for

reconsideration is granted. Notwithstanding defendant's counsel's receipt of Mr.
Dehio's letter, dated September 25, 1966, a few days after said date, defendant
delayed the filing of its motion for reconsideration until after about three (3) weeks
later. In the meantime, it knew as of September 28 that this Honorable Court had
striken out the testimony of Ivo Lazzari, considered the case submitted for decision
on the evidence on record, and given plaintiff's counsel 7 days to present his
memorandum. Plaintiff and his counsel exerted all efforts and worked overtime just so
to be able to submit his memorandum within the short period allowed. Said
memorandum was finished on time, and has been served on defendant's counsel and
submitted to Court. In other words, defendant purposely waited until the submission
of plaintiffs memorandum before presenting its motion for reconsideration based on
alleged information received three (3) weeks previous. To grant defendant's instant
motion for reconsideration would place plaintiff at a great disadvantage, because
defendant is now fully aware of every facet of plaintiff's cause and can simply tailor its
defenses and evidence in refutation thereof.

12. Defendant claims that plaintiff is taking undue advantage of a technicality and it
should not be deprived of its day in court on this ground. Suffice it to state that it is
never technical to invoke one's rights, and that while the Rules of Court should be
 liberally construed, their strict observance has been considered indispensable to the
prevention of needless delays and the orderly and speedy discharge of judicial
business. Thus:

"Although the Rules of Court should be liberally construed, however

their strict observance which have been considered indispensable to
the prevention of needless delays and to the orderly and speedy
discharge of judicial business, is as imperative necessity. Thus, the
rules prescribing the time within which certain act must be done, or
certain proceedings taken, are considered absolutely indispensable
to the prevention of needless delays and to the orderly and speedy
discharge of judicial business, is as imperative necessity. Thus, the
rules prescribing the time within which certain act must be done, or
certain proceedings taken, are considered absolutely indispensable
to the prevention of needless delays and to the orderly and speedy
discharge of judicial business and therefore must be strictly complied
with." (Alvero vs. De la Rosa, 76 Phil. 428, cited in Francisco on Civil
Procedure, Vol. 1, P. 89)

"Rules of Courts, promulgated by authority of law, have the force and

effect of law; and rules of court prescribing the time within which
certain acts must be done, or certain proceedings taken are
considered absolutely indispensable to the prevention of needless
delays and to the orderly and speedy discharge of judicial
business. "Conlu vs. Court of Appeals, et al., G.R. No. L-14027,
January 29, 1960, citing Shioji vs. Harvey, 43 Phil. 333; Alvero vs. De
la Rosa, et al., 42 Off. Gaz., p. 316, (Supra.)

WHEREFORE, it is respectfully prayed that defendant's motion for reconsideration,

dated October 19, 1966, be denied.

Manila, October 31, 1966. (Pages 74-88, Record on Appeal, id.)

By way of reply to the above opposition, defendant's counsel alleged:

Defendant could have from the beginning taken depositions in Rome, but so as to
avoid any inconvenience to plaintiff and that the court may see and hear the
witnesses testify to better determine the credibility of their testimony defendant had
been bringing the witnesses here. As a matter of fact, defendant even without leave
of court may take the depositions of its witness by merely giving the Court notice of its
intention to do so.

"After answer has been filed no leave at court is required as a

prerequisite to taking depositions ... (Marzo vs. Moore McCormick
Line, Inc. 8 Feb. Rules of Service, p. 560; cited in Moran Comments
on Rules of Court Vol. II, p. 18)

"After issue is joined, depositions may be taken without leave of

court. (Lyons vs. Bronx Towing Line, Inc., 1 Fed. Service p. 341)

"After answer is served, depositions may be taken as of course and

application should not be made to the court for leave. (Schultz vs.
State Mutual Life Assurance Company, 1 Fed. Rules of Service, p.
340, US Dist. Ct. Dist. of Oregon, Oct. 14, 1938)

"The statements made by Atty. Valmonte are false and malicious. An affidavit
executed by Atty. Zaida Ruby Alberto is attached to and made part of this Reply as
Annex "1". (Pages 92-93, Record on Appeal, id.)
On October 24, 1966, the trial court resolved the incident in a brief order holding that "(f)or the
reasons stated in the plaintiff's opposition to the motion for reconsideration, it is denied."

In its appeal, defendant reiterates insistently its position that the denial of its motion for postponement
as well as the order striking out the testimony of Ivo Lazzari were issued in grave abuse of discretion
and should be set aside. Before going any further, however, it may be mentioned that since defendant
has not assigned as error, although it discusses in its brief, the denial of its last motion for
reconsideration, plaintiff contends that such failure constitutes a bar to any further consideration of the
merits of the arguments of defendant relative to the main denial-of-postponement and striking-out
orders. To be sure, there is technical plausibility in such pose of plaintiff, but considering the
importance of the other matters involved in this case, it would serve the interests of justice more if We
passed on the merits of the substantial issues in this controversy. After all, "this Court is clothed with
ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that
their consideration is necessary in arriving at a just decision of the case." (Saura Import & Export Co.,
Inc. vs. Philippine International Surety Co., Inc., L-15184, May 31, 1963, 8 SCRA 143.) And
considering the inter-relation between the omitted assignment of error and those actually assigned
and discussed by defendant's counsel, We can apply here the ruling in Hernandez vs. Andal, 78 Phil.
196, to the effect that "an unassigned error closely related to an error properly assigned or upon
which the determination of the question raised by the error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as an error." (at pp. 209-210.)

Now, with respect to defendant's first assignment of error, We feel that the rather extended recital We
have made above of the incidents and proceedings related to the trial court's order denying
defendant's motion for postponement of the hearing set for September 28, 1966 is self-revealing. It
argues against the charge that His Honor's order of denial was improper and unjustified.

The case had been pending for about three years and had actually suffered during that period even
more than the usually permissible number of continuances, quite often to suit the convenience of
defendant's counsel. Notice of the September 28, 1966 schedule had been served on counsel the
month previous. It must be assumed that due preparations and arrangements were to be made since
the receipt of that notice to insure the presence in Manila for the expected witnesses on the date set.
Under the circumstances, the excuse given by defendant that the witnesses could not leave their
respective stations and places of work to attend the trial is plainly unacceptable. There was enough
time and opportunity for defendant to have made the corresponding adjustments in the assignments
of its personnel so as to enable its witnesses to be in court. The trouble is that defendant relied on the
assumption that the court could be made to wait until the volume and other conditions of its business
would permit it to comply with the schedule of the court. For an airline company engaged in
international transportation and presumably having all the facilities to have any of its employees
available practically anywhere in the world at a moment's notice, if it only took due care to do this,
defendant's attitude cannot be countenanced.

What is more, the motion of September 24, 1966 gave no reason at all why defendant's witnesses
supposed to come from Rome would be unable to be at the trial. Even as late as the day of the
hearing, September 28, 1966, the court could not be told the reason for such inability. All that counsel
could say was that she "intend(ed) to inquire and file the explanation" later. This was not as it should
have been, for the telex advising the Manila office that the witnesses would not be available was
received on September 22nd yet, and certainly there was enough time to investigate and find out the
reason for such unavailability. And as no justifiable reason could be advanced in support of the verbal
motion for reconsideration. We cannot say that His Honor acted improperly when he denied the same.

We reiterate, the case had been pending for more than three years, with so many postponements,
and the least that defendant should have done to merit favorable action on the part of the trial judge
was to be ready with an explanation of its inability to proceed with the trial, giving the detailed and
good reasons therefor. As it is, there was actually no basis at all for the exercise of discretion on the
part of the trial judge in a manner favorable to it. Trials may be postponed because of the absence of
evidence only when such absence is justified. Mere absence is not a justification in itself. Section 4 of
Rule 22 is sufficiently clear on this point. It provides that "A motion to postpone a trial on the ground of
absence of evidence can be granted only upon affidavit showing the materiality of evidence expected
to be obtained, and that due diligence has been used to procure it." This means that it must be shown
to the court that due diligence had been exercised in either securing the presence of the evidence
(witnesses) or preventing the absence thereof.

There is, of course, defendant's motion for reconsideration of October 19, 1966 praying for the setting
aside of the court's order of denial as well as the other order striking out the testimony of witness
Lazzari. But, as already noted, the only excuse given in said motion is that:

... The witnesses in question could not come because of certain circumstances that
rendered their coming over virtually impossible. Both witnesses, Ivo Lazzari and
Saverino Casilli are employees of defendant company at the Rome office. The air
traffic in Rome has been particularly heavy this season. Some of the personnel of the
Lufthansa Rome office were on leave and these two employees had to assume some
of the duties of those employees who were on leave aside from performing their own
regular duties. If they were to leave their posts to come for the hearing on September
28, there would be grave disruption to the public service and for this reason they were
not able to come. ... (Page 47, Rec. on Ap., p. 32, Record.)

Indeed, even if such reason were given earlier on September 24, 1966 the court would have been as
well justified in denying the requested postponement. We cannot see any reason why, despite its
having knowledge of the date of the hearing about a month before, defendant did not see to it that its
expected witnesses were not assigned to do duty on the day they were supposed to appear in court.
We cannot believe Lufthansa could be so undermanned that such a simple adjustment of its
personnel had to be "impossible."

Moreover, the Rome based witnesses were not the only possible witnesses of defendant. To begin
with, Mr. C.H. Dehio, the IATA Agency Manager, Far East and Australasia, Lufthansa German Air
Lines, who, according to the record, had already attended previous hearings as a prospective witness
could have been made to go to court. There is nothing in the record to show that he was also
rendered incapable of doing so. Then there could still be local witnesses, it is no excuse that
presenting other witnesses would have disrupted the presentation of defendant's case, for parties
may be allowed to maintain their own way of presenting their evidence only where this can be done
without injury to the expeditious disposition of the case and the best interests of the administration of
justice.

Coming now to the second assigned error regarding the striking out of the unfinished testimony of
Lazarri, the Court is also of the opinion and so holds that the trial court's action cannot be categorized
as arbitrary or oppressive or as amounting to a grave abuse of discretion. To be sure, this second
order was but a logical consequence of the previous order denying defendant's motion for
postponement. With such denial, the next thing in order was to declare the presentation of evidence
of the defendant terminated. Accordingly, it was necessary to determine what evidence could be
considered to be for the defendant. And so when counsel for plaintiff asked the court to strike out the
testimony so far given by Lazarri, there was practically no alternative for the court but to grant the
same. Indeed, defendant's counsel could not and did not offer any objection thereto.

Oral testimony may be taken into account only when it is complete, that is, if the witness has been
wholly cross-examined by the adverse party or the right to cross-examine is lost wholly or in part thru
the fault of such adverse party. But when cross-examination is not and cannot be done or completed
due to causes attributable to the party offering the witness, the uncompleted testimony is thereby
rendered incompetent.

The right of a party to cross-examine the witnesses of his adversary is invaluable as it is inviolable in
civil cases, no less than the right of the accused in criminal cases. The express recognition of such
right of the accused in the Constitution does not render the right thereto of parties in civil cases less
constitutionally based, for it is an indispensable part of the due process guaranteed by the
fundamental law. Subject to appropriate supervision by the judge in order to avoid unnecessary
delays on account of its being unduly protracted and to needed injunctions protective of the right of
the witness against self-incrimination and oppressive and unwarranted harrassment and
embarrassment, a party is absolutely entitled to a full cross-examination as prescribed in Section 8 of
Rule 132 thus: "Upon the termination of the direct examination, the witness may be cross-examined
by the adverse party as to any matters stated in the direct examination, or connected therewith, with
sufficient fullness and freedom to test his accuracy and truthfulness and freedom from interest or bias,
or the reverse, and to elicit all important facts bearing upon the issue." Until such cross-examination
has been finished, the testimony of the witness cannot be considered as complete and may not,
therefore, be allowed to form part of the evidence to be considered by the court in deciding the case.

In the case at bar, however, We have opted not to rely exclusively on the foregoing considerations. In
order to satisfy Ourselves as to whether or not defendant stands to be irreparably prejudiced by the
impugned action of the trial court relative to the testimony of Lazzari, We have just the same gone
over the transcript thereof. After considering the same, however, We are of the impression that even
his direct testimony, without taking into account anymore his answers to the cross-examination
questions of counsel for plaintiff, cannot be of much weight in establishing the defenses in defendant's
answer. But it would seem more appropriate to elaborate on this point when We come to the
discussion of the mutual accusation of the parties that the trial court erred in the portion of its
discretion awarding damages to plaintiff.

The last issue submitted for Our resolution relates to the award of damages made by the trial court in
favor of Ortigas against Lufthansa in the amounts aforestated, as to which, as already noted at the
outset, both parties have appealed taking opposite positions. In this respect, the appealed decision
made the following findings and discussion of the material facts:

In October, 1963, the Sharp Travel Service, the travel department of C. F. Sharp,
Inc., the majority interest-in-which is held by Rocha y Cia., Inc., General Agents of the
defendant, Lufthansa German Airlines issued to the plaintiff First Class Pan American
Ticket No. 026492147076 to 81 which would take him from Manila, the place of
departure, to Hongkong, various cities in the United States, Europe, Asia, the Far
East, and then back to Manila, the place of destination. Ortigas' ticket for all these
different legs of his journey was first class.

He left Manila October 12, 1963, as scheduled. In New York, he decided to leave out
some cities, included in his original itinerary, to be in Hongkong on the 19th day of
November, 1963, for several appointments he had there. He went to the Trans World
Airlines and had his Pan American ticket changed with First Class TWA Ticket No.
115-460-451- 878 to 881. His TWA ticket was also first class for the entire trip from
New York to several European cities, including Rome, and thence to the Far East,
with Manila also as the place of destination.

Ortigas arrived in due course in Rome. To be sure he could fly first class to Hongkong
on November 18, 1963, for his appointments there the next day, Ortigas repaired to
the office of the Alitalia on Saturday, November 16, 1963, to book passage. The man
at the counter of the Alitalia office told him it had no flight on Monday but the
Lufthansa had. The man thereupon called up the office of the Lufthansa and, after
talking to an employee thereof, told Ortigas that the Lufthansa had no first class, but
only economy, seats available on its Monday flight.

Ortigas answered that he was not willing to take an economy seat and requested the
employee to call up other airlines. Then the phone rang. The employee answered and
afterwards informed Ortigas that the Lufthansa had a first class seat available for its
Monday flight. Ortigas immediately asked him to get the seat and to see to it that his
ticket be confirmed and validated for the flight and a first class seat. The man
thereafter asked for Ortigas' passport and other travel papers and attached a
validating sticker (Exhibit "D-1") on flight coupon No. 4 (Exhibit "B") which
corresponded to the Rome-Hongkong leg of his TWA Ticket No. 115-460-461-878
The sticker recites:

Flight Res.

Carrier No. Date Time Status

LH 646 18 Nov. 12:35 P.M. O.K.

Wishing to be doubly sure, Ortigas again requested the Alitalia employee to call back
the Lufthansa office to recheck whether his ticket was really confirmed and validated.
The man did so, after which he told Ortigas that his ticket had been checked,
validated, and confirmed as shown by the word "O.K." on the sticker. The same
employee later wrote on the cover of the plaintiff's ticket "10.15 Terminal-36, via
Gioliti" (Exhibits "C" and "C-1") and told him to be in the air terminal on Monday,
November 18, at 10:00 A.M.

The following Monday, Ortigas checked out of his hotel and took a taxi to the
terminal, arriving there about 9:30 A.M. He unloaded his baggage and proceeded to
the counter in charge of the Lufthansa passengers. The lady at the counter told him
the Lufthansa had no space for him that day. Ortigas requested her to check with her
main office, which she did by calling it up. After calling, she apologized and said the
plaintiff's ticket was in order and would be confirmed and validated. On her request,
Ortigas had his luggage weighed and was given the free luggage allowance of a first
class passenger. He was furthermore asked to pay 800 liras for bus fare and 700 liras
as embarkation tax. Then Ortigas, along with other passengers, one of whom was
Amado Castro of the Development Bank of the Philippines, boarded a bus for the
airport.

At the airport, the plaintiff handed over his ticket to the man behind the Lufthansa
counter, who told him everything was all right. At that juncture, the plaintiff heard his
name called. He inquired if he was being called from an employee of the Lufthansa
and, on receiving an affirmative answer, said he was Ortigas. The employee asked
for his passport and other papers and, after examining his passport, where his
Filipino nationality appears, said he could not board the plane that day because his
seat would be given to a Belgian. Ortigas asked the man why he was doing that to
him when his ticket was confirmed and validated first class. The Lufthansa employee
replied he was sorry but Ortigas could not leave.

Fearing he would have a recurrence of his heart ailment, Ortigas took a nitroglycerin
pill which his doctor advised him to take on occasions of stress. The plaintiff then told
the Lufthansa man to bring the Belgian over so that his papers may be examined to
determine whether he had a preferred right to Ortigas' seat but the Lufthansa
employee turned down the request, raised his voice, and said if the plaintiff desired,
he could take an economy seat and he would be allowed a refund. Ortigas retorted
he was not interested in a refund and what he wanted was to travel first class in
accordance with his ticket.

This argument occurred in the presence of the other passengers, one of whom was
Amado Castro, and the plaintiff felt embarrassed and humiliated because the
Lufthansa employee was shouting at him and treating him the way he did. Ortigas
made another request, namely, that the employee call other airlines to inquire if they
had flights to Hongkong that day but he once more turned down the plea and insisted
that Ortigas travel economy, with the promise that he will be transferred to first class
in Cairo and onward to Hongkong.

After promising to, the man went inside a room and, after a while, came out and
assured the plaintiff he would travel first class from Cairo to Hongkong because he
sent a communication that it should be done. He then jotted down some letters on
Ortigas' ticket. The plaintiff replied he was not satisfied with the arrangement but was
constrained to agree to it because he had to be in Hongkong the next day, his
luggage was in all probability already inside the plane, he was not certain he could
still secure a hotel reservation, the manager of the hotel where he stayed having told
him it would be hard for him to get another reservation once he checks out, and he
was assured he would be given first class passage from Cairo onward.
Upon arrival in Cairo, the plaintiff requested the Lufthansa agent to transfer him to
first class but the agent said he could not and that he did not receive any
communication from Rome to that effect. Ortigas also requested the man to find out if
there were other airlines having planes leaving that day but his request was likewise
denied. The man, however, promised that at Dharham, Ortigas will be transferred to
first class. Ortigas had no alternative but to continue traveling as before but he did so
again under protest.

At Dharham, the plaintiff once more requested a transfer to first class but was also
told by the Lufthansa agent that he had not received any communication about the
change and the request could not be granted. The plaintiff had to travel perforce
economy from Dharham. In Calcutta, Ortigas once again requested a transfer or that
he be assisted in booking passage on other planes but was also refused. It was only
in Bangkok when the chief steward asked him if he wanted to move over to first class
but having been already embarrassed and humiliated and the trip to Hongkong being
only three hours, he said he would not as a sign of protest.

In Hongkong, Ortigas protested against the treatment given him but was told by the
Lufthansa office he had to file his protest in Manila, it being the point of destination.
He did so by means of a letter, dated November 25, 1963 (Exhibit "F"), followed by
another letter, dated December 20, 1963 (Exhibit "C"), and not having received any
definite answer, he brought this suit.

Although Ortigas' ticket for the flight from Rome to Hongkong was validated and
confirmed by the Alitalia, its act bound and obligated the Lufthansa. The Alitalia and
Lufthansa are members of the International Air Transport Association (IATA). It is
admitted that as such member, the Alitalia can issue tickets for other members of the
association like the Lufthansa, Pan American World Airways, and others. Par. 10,
Order of April 29, 1964, and Exhibit "H", certification of the manager of the Alitalia.
Aside from being members of the IATA, the Alitalia and Lufthansa are pool partners
and conduct a joint service with interchangeable flights for the European-Far East-
and Australia sectors. Par. 11, Order of April 29, 1964. Under the pool agreement
(Exhibit "DD") they undertake to adhere to the appropriate IATA regulations and to
take measures to provide district sales offices with every possibility for close
cooperation in the promotion of the pool services covered by the agreement,
including "reservation and booking". They furthermore, in effect confirm in the
agreement that tickets of one, other than free and reduced tickets, may be validated
by the other.

Finally, Manuel Otayza, general manager of Filital, Inc., which is the general agent of
the Alitalia in the Philippines, testified that space reservation through telephone calls
between airlines is permitted by IATA's, "Manual of Traffic Conference Resolutions"
and that telephone calls for reservation by one airline to another is in fact accepted
procedure in accordance with the official airline guide of the Air Traffic Conference
and International Air Transport Association (Exhibit "W").

The placing by the Alitalia of a sticker on the plaintiff's ticket obligated the Lufthansa
to give him a first class seat on its flight from Rome to Hongkong on November 18,
1963. The same witness, Manuel Otayza, testified that the placing of a validating
sticker on a ticket is standard airline procedure; that a sticker changes are status of a
reservation; that consequently while Ortigas' ticket was "open", that is, it had no
reservation for a particular flight between Rome and Hongkong, the moment a
validating sticker was placed thereon, stating the flight number of the airline, the day
and hour of departure, with the letters "O-K", his ticket was changed from an "open"
to a "confirmed" or "validated" ticket; and that the sticker on Ortigas' ticket meant that
first class space was confirmed for him on Lufthansa flight 646 to Hongkong on
November 18, 1963, at 12:35 P.M.
Aside from Otayza's testimony, it is admitted that in the stipulation of facts that "the
letters "O.K." (Exhibit D-2) appearing on the "Res. Status" box of the sticker (Exhibit
D-1) attached to Flight Coupon No. 4 of TWA Ticket No. 015-410:451-880 (Exhibit
"D") means space confirmed, per IATA Resolution 275, page 4, Issue 2, a photostatic
copy of which is attached hereto as Exhibit "O"; that validate means to stamp or write
on the passenger ticket an indication that the passenger ticket has been officially
issued by the carrier; that "the placing of a sticker on a flight coupon is a revalidation
thereof for the flight mentioned in said sticker and is an alteration effected on said
coupon, in accordance with the procedure laid down in IATA Resolution 275d, Page
1, Issue 1, a photostatic copy of which is attached thereto as Exhibit "S";. and that
"prior endorsement was not necessary for Alitalia to revalidate TWA Ticket No. 115-
410-880 Exhibit "D" because Alitalia is the carrier originally designated in the "Via
carrier" box of said ticket, in accordance with IATA Resolution No. 279, photostatic
copy of which is attached hereto as Exhibit 'T'."

There was, therefore, a valid and binding contract between Lufthansa and the plaintiff
to transport him as a first class passenger from Rome to Hongkong on November 18,
1963, and this agreement the defendant violated by compelling the plaintiff to travel
as an economy passenger. It cannot be said the breach was the result of an honest
mistake or excusable negligence. There is evidence the defendant acted with `bad
faith and in wilful disregard of the plaintiffs rights.

Ortigas' ticket was confirmed on the early morning of November 16, 1963, more than
48 hours before his departure on the afternoon of November 18. There was,
therefore, ample time to send a telex message from Rome to the defendant's main
office in Frankfurt, which is only about 2-1/2 flying hours away, to reserve a first class
seat for the plaintiff.

At the terminal on Via Gioliti, he was again told that he had a first class seat, his
luggage was checked in divesting him of control thereof, and transported to the
airport some 37 kilometers distant. He was in this manner deprived of the opportunity
of availing himself of the facilities of other airlines and compelled to take the
Lufthansa flight even against his will.

In the airport, although he, was found entitled to fly first class, he was told after his
Filipino passport was seen, that his seat would be given to a Belgian, without any
reason or explanation whatsoever. His simple request that the Belgian's ticket be
produced and examined to see who had a better right to a first class seat was turned
down. So was his equally simple request that other airlines be called to find out if any
of them could accept him as a first class passenger to Hongkong that day. He was
deceived into boarding the Lufthansa plane at Rome by falsely assuring him he will
be transferred to first class at Cairo, the next stop in the flight. The same false and
deceptive promise was given him at Dharham and Calcutta.

Indubitable proof of the defendant's bad faith is found in the fact that while its
employee was assuring the plaintiff he would be transferred to first class in Cairo, he
was at the same time writing on his ticket the following notation: "TRVLDY/c ROME
HEG ROME ST", which means "Travelled economy class Rome to Hongkong St",
thereby barring Ortigas from asserting any right to demand first class
accommodation. The defendant's employee, therefore, knew all along the plaintiff
would not travel first class, and yet he deliberately made him believe he would be
transferred to first class from Cairo to Hongkong.

From the circumstances, it is clear that the defendant not only breached its duty to
the plaintiff but also did not want to release him as a passenger and wished to hold
on to him even if it would cause him inconvenience and embarrassment. (Pages 97-
109, Record on Appeal.) .
Disputing the foregoing conclusions, Lufthansa claims firstly that the Alitalia employee who validated
and confirmed Ortigas' reservation must have made a mistake because actually, he was informed by
the Lufthansa Rome office that Ortigas could only be waitlisted. Assuming, however, there was such
an error, it has been indisputably proven that under the so-called pool arrangement among different
airline companies pursuant to the International Air Transport Association (IATA) agreement of which
Alitalia and Lufthansa are signatories, both companies are constituted thereby as agents of each
other in the issuing of tickets and other matters pertaining to their relations with those who would need
their services, and since there can be no question that on its face, the annotations made by Alitalia on
the ticket here in dispute cannot have any (other meaning than that the reservation of Ortigas for the
Rome Hongkong flight was validated and confirmed, Lufthansa's disclaimer is unavailing. Besides,
it appears that when Ortigas checked in at the airport, the Lufthansa lady employee thereat told him,
after making the proper verification, that the reservation was correct. What is more, in the
unconcluded testimony of Ivo Lazzari, the striking out of which is questioned by Lufthansa, he
admitted that it was a fact that the said reservation of plaintiff for first class was confirmed, albeit he
qualified that this was done already in the morning of November 18th, the day of the flight, almost at
the last hour. What seems to have happened was that somehow the first class accommodations for
that flight were overboard and Lufthansa tried to solve the problem by downgrading Ortigas to the
economy class in favor of a Belgian, as Ortigas was told by the Lufthansa employee who paged him
over the public address system for the purpose just as he was about to go to the departure area, with
his luggage already checked and his overweight fees duly paid, so much so that they were already
loaded in the plane. Verily, such treatment given to plaintiff was completely wrong and absolutely
unjustifiable. Nobody, much less a common carrier who is under constant special obligation to give
utmost consideration to the convenience of its customers, may be permitted to relieve itself from any
difficulty situation created by its own lack of diligence in the conduct of its affairs in a manner
prejudicial to such customers. It is Our considered view that when it comes to contracts of common
carriage, inattention and lack of care on the part of the carrier resulting in the failure of the passenger
to be accommodated in the class contracted for amounts to bad faith or fraud which entitles the
passenger to the award of moral damages in accordance with Article 2220 of the Civil Code. But in
the instant case, the breach appears to be of graver nature, since the preference given to the Belgian
passenger over plaintiff was done willfully and in wanton disregard of plaintiff's rights and his dignity
as a human being and as a Filipino, who may not be discriminated against with impunity.

Lufthansa contends, however, that there could not have been any possible discrimination by reason
of race against Ortigas because from his appearance, said plaintiff can easily be taken for a European
or white more than his own witness Amado Castro and besides, there were other orientals in the
same flight on that occasion. It is argued that any such policy would be self-defeating, since it would
certainly be damaging to its own business. Again, this ratiocination cannot carry the day for
Lufthansa, for what appears from the evidence in this case is not really a case of a general policy of
discriminating against orientals or non-whites, but a specific act of Lufthansa employee at the airport
of giving preference to a Belgian after examining Ortigas passport wherein his Filipino nationality is
noted. Indeed, the fact that despite plaintiffs protestations and demand that he be shown how it could
happen that somebody else, particularly that Belgian, should be given his place when his reservation
was validated and confirmed and actually, he had already checked in and his baggage was already in
the plane, nothing was done to satisfy him, merely infused bad faith into the breach of contract
already committed of depriving plaintiff of his reserved accommodation. In other words, from the legal
standpoint, such preference given to a European surely aggravated the damage or injury suffered by
plaintiff, but the very act alone of deliberately downgrading him despite his confirmed reservation for
first class accommodation is sufficient ground for relief. And considering that there are already
recorded cases in this Court wherein Filipinos have been similarly discriminated against by foreign
airline company employees in the treatment of passengers this new instance can easily be believed
and correspondingly dealt with in fixing and assessing the liability of herein defendant.

As found by the court below what worsened the situation of Ortigas was that Lufthansa succeeded in
keeping him as its passenger by assuring him that he would be given first class accommodation at
Cairo, the next station, the proper arrangements therefor having been made already, when in truth
such was not the case. Thus, instead of complying with the request of Ortigas that other airlines be
contacted to find out it they had first class space for him, the Lufthansa employee who had
indifferently told him about his downgrading paid very little attention if ever to said request. And to
keep him from giving the business to another company, he was made to believe that he would be
given first class accommodation at Cairo. Although molested and embarrassed to the point that he
had to take nitroglycerine pills to ward off a possible heart attack, Ortigas hardly had any choice, since
his luggage was already in the plane. To his disappointment, when the plane reached Cairo, he was
told by the Lufthansa office there that no word at all had been received from Rome and they had no
space for him in first class. Worse, similar false representations were made to him at Dharham and
Calcutta. It was only at Bangkok where for the first time, Ortigas was at last informed that he could
have a first class seat in that leg of the flight, from Bangkok to Hongkong. This Ortigas rejected, if only
to make patent his displeasure and indignation at being so inconsiderately treated in the earlier part of
his journey.

Lufthansa insists in its brief that it could have proven that there was no such "entrapment of a captive
passenger" had it been allowed the postponement it sought of the September 28, 1966 hearing. It is
argued that there could have been no way by which its Rome office could have assured Ortigas about
what he would be given in Cairo, the flight being fully booked as it was without any assurance of any
first class seat being vacated by then. We are not impressed. In view of the insistence of plaintiff that
he be given the first class accommodation he had contracted and paid for, the least that the, Rome
office should have done was to communicate with Cairo and strongly urge that all possible effort be
made to comply with his well grounded request. As it happened, however, the Cairo office informed
Ortigas when he arrived there that they had not received any word at all from Rome. On the contrary,
as pointed out by the trial court, contrary to the verbal assurance given Ortigas, the Lufthansa
employee made annotations on his ticket that he was travelling economy class from Rome to
Hongkong. If, as contended by Lufthansa, Ortigas was duly advised to make arrangements for
transfer to first class as soon as he arrived at each station on the way, why was such notation made
that he was travelling up to Hongkong in economy class? All these only go to show that any evidence
of defendant tending to disprove the testimony of Ortigas would in any event have been inconclusive
or unreliable.

Likewise, Lufthansa maintains that it could have proven that Ortigas did not take offense at being
downgraded, as in fact, according to Lufthansa, he was in jovial mood throughout the trip enjoying his
conversation and exchange of amenities with his seatmate, who by strange coincidence happened to
be the Manager of Lufthansa German Airlines for the district of Australia and New Zealand holding
said position since 1962.1 Moreover, it is argued, the economy class accommodations are not much
different from first class and Ortigas was not delayed in his trip. We cannot see the point. A passenger
contracts for first class accommodations for many reasons peculiar to himself and pays a higher price
therefor, and it is certainly not for the airplane to say later, after it deprives him of his space in order to
favor another passenger, that economy class is anyway just as good as first class. That Ortigas was
rightfully indignant is not difficult to imagine. No person in his normal senses and possessed of human
dignity would have been unperturbed and unruffled by the treatment he had received. More, he was
under express admonition of his doctor taking care of his ailing coronary condition to travel only in first
class. Indeed, that he complained and made himself emphatically clear while still in Rome is
sufficiently substantiated in the record, as it was more or less admitted by defendant's witness Lazzari
when he testified that he heard about plaintiff's complaint that same day, November 18, 1963.

In the light of all the foregoing, there can be no doubt as to the right of Ortigas to damages, both
moral and exemplary. Precedents We have consistently adhered to so dictate. Beginning with
Cuenca,2 wherein the Court rejected the theory that an air carrier is liable only in the event of death or
injury suffered by a passenger, because, according to the Court, to so hold would be tantamount to
declaring the carrier "exempt from any liability for damages in the event of its absolute refusal, in bad
faith, to comply with a contract of carriage, which is absurd", We have uniformly upheld the right of a
passenger to damages in all cases wherein, after having contracted and paid for first class
accommodations duly confirmed and validated, he is transferred over his objection to economy, class,
which he has to take in order to be able to arrive at his destination on his scheduled time.

In the case of Nicolas L. Cuenca, then Commissioner of Public Highways of the Philippines, he
boarded a Northwest plane in Manila with a first class ticket to Tokyo, but upon arrival at Okinawa, an
agent of the company rudely compelled him, over his protest, to move over to the tourist class, which
he had to do, so he could reach the international conference he was attending on time. Under these
facts, the Court held that the P20,000 awarded by the lower court to Cuenca "may well be considered
as nominal and also as exemplary, the Court of Appeals having modified the trial court's designation
thereof as moral, saying it should have been nominal.
In Lopez3 , Honorable Fernando Lopez, then an incumbent senator and former Vice President of the
Philippines, together with his wife and his daughter and son-in-law, made first class reservations with
the Pan American World Airways in its Tokyo-San Francisco flight. The reservation having been
confirmed, first class tickets were subsequently issued in their favor. Mistakenly, however, defendant's
agent cancelled said reservation, but expecting some cancellations before the flight scheduled about
a month later, the reservations supervisor decided to withhold the information from them, with the
result that upon arrival in Tokyo, the Lopezes discovered they had no first class accommodations and
were thus compelled to take the tourist class, just so the senator could be on time for his pressing
engagements in the United States. In the light of these facts, the Court held there was a breach of the
contract of carriage and viewed as the element of bad faith entitling the plaintiffs to moral damages for
such contractual breach, the failure of the agents of the defendant to inform the plaintiffs on time that
their reservation for first class had long before been cancelled by mistake. According to the Court,
such omission placed plaintiffs in a predicament that enabled the company to keep the plaintiffs as
their passengers in the tourist class, thereby retaining the business and promoting the company's self-
interest at the expense of, embarrassment, discomfort and humiliation on the part of the plaintiffs.

In Air France vs. Carrascoso4 plaintiff Mr. Rafael Carrascoso, a civil engineer who was going to
Lourdes, France, as a member of a religious group of pilgrims was issued by the Philippine Air Lines,
as agent of the defendant Air France, a ticket for first class round trip from Manila to Rome. From
Manila, Carrascoso travelled first class, as per said ticket, but at Bangkok, the Manager of the
defendant airline forced him to vacate the first class seat because there was a white man who
allegedly had a better right thereto, without, however, showing him the basis for such preference.
Upon these factual premises, the Court held:

It is really correct to say that the Court of Appeals in the quoted portion first
transcribed did not use the term `bad faith'. But can it be doubted that the recital of
facts therein points to bad faith? The manager not only prevented Carrascoso from
enjoying his right to a first class seat, worse, he imposed his arbitrary will; he forcibly
ejected him from his seat, made him suffer the humiliation of having to go to the
tourist class compartment just to give way to another passenger whose right
thereto has not been established. Certainly, this is bad faith. Unless, of course, bad
faith has assumed a meaning different from what is understood in law. For, bad faith,
contemplates a "state of mind affirmatively operating with furtive design or with some
motive of self-interest or ill will or for ulterior purpose." (Words & Phrases, Perm. Ed.,
Vol. 5, p. 13, citing Warfield Natural Gas Co. vs. Allen, 59 S.W. (2d) 534, 538.)

And if the foregoing were not yet sufficient, there is the express finding of bad faith in
the judgment of the Court of First Instance, thus:

"The evidence shows that defendant violated its contract of

transportation with plaintiff in bad faith, with the aggravating
circumstances that defendant's Manager in Bangkok went to the
extent of threatening the plaintiff in the presence of many passengers
to have him thrown out of the airplane to give the "first class" seat
that he was occupying to, again using the words of the witness
Ernesto G. Cuento, a "white man" whom he (defendant's Manager)
wished to accommodate, and the defendant has not proven that this
"white man" had any "better right" to occupy the "first class" seat that
the plaintiff was occupying, duly paid for, and for which the
corresponding "first class" ticket was issued by the defendant to him."
(R.A., p. 74; emphasis supplied.) (at pp. 166-167.)

These precedents, as may be seen, apply four-square to herein plaintiffs case. Defendant's liability for
willful and wanton breach of its contract of carriage with plaintiff is, therefore, indubitable.

Coming now to the amount that should be awarded by way of damages to the plaintiff, it is also the
teaching of the cases aforecited that defendant is liable not only for moral but also for exemplary
damages. As earlier stated, the court below fixed the compensation for moral damages at P100,000
and the exemplary at P30,000. The Court believes that these amounts are not enough.
According to the lower court:

Although the plaintiff has not held any elective public office, he has however, a
distinguished record as a private citizen, a lawyer, businessman, a civic and religious
leader, a member of numerous government boards and organizations as well as of
local and international bodies, and is the recipient of awards and citations for
outstanding services and achievements.

He was, and still is, moreover suffering from a heart ailment and has been advised by
his physician to travel first class because it is more relaxing and comfortable. His
position as chairman of the boards of directors of the corporation he represented also
required that he travel in that manner. He was, furthermore, carrying a special
passport issued by the Philippine Government to represent it and business
corporations abroad.

His sickness and the need for him to travel in the most comfortable manner possible
were made known to the defendant's employee, but he paid no heed to them.
Instead, he engaged Ortigas in a heated discussion, summarily brushed off his
protests and pleas, humiliated him, and tricked him into boarding his employer's
plane, endangering thereby his health and obliging him to take medicine to forestall
an attack.

There is, finally, evidence that he was discriminated against because of his nationality
for he was told to yield his first class seat to a Belgian only after his passport was
examined and his Filipino citizenship must have been noted. .

Under the circumstances and measured by the criterion, jurisprudence has followed,
the compensation the plaintiff should be entitled to receive must be fixed at
P100,000.00 as moral damages, P30,000.00 as exemplary damages or corrective
damages, and P20,000.00 as attorney's fees. (Pp. 111-113, Record on Appeal.)

We have reviewed the evidence and We are convinced there is more than ample basis for these
findings. But under the circumstances revealed in the record, it is Our considered opinion that the
award of moral damages should be increased to P150,000.

We cannot go along with defendant's pose that in Cuenca the amount awarded was only P20,000, for
the very obvious reason that in that case what was involved was only one leg of the flight contracted
for, namely, that from Okinawa to Tokyo, whereas in the case not at bar, the offense was repeated
four times, at Rome, Cairo, Dharham and Calcutta, with apparent cold indifference of defendant's
agents to plaintiff's plight. Besides, it appears that Cuenca did not appeal from the trial court's
decision fixing said amount, hence there was no occasion for the Supreme Court to award more. This
was also what happened in the Carrascoso case, where the plaintiff did not complain against the
award of only P25,000-moral-and P10,000-exemplary damages made by the trial court. It was Air
France who claimed that these were even excessive. Verily, however, such, discriminatory acts of the
defendants in those cases which were not only violative of their contractual obligations but also
offensive to human dignity and national or racial pride constitute about the most justifiable ground for
the award of moral damages, for the resulting injury therefrom cannot but cause immense mental
anguish, besmirched reputation, wounded feelings, moral shock and social humiliation. (See Article
2217 of the Civil Code.) We reiterate, they are to be considered as infecting with bad faith the breach
of contract committed, under Article 2220 of the same Code. (Lopez vs. Pan Am., supra.)

Lufthansa suggests that compared to the P100,000 awarded to Vice President Lopez in the case
aforementioned, the P100,000 given by the trial court to Ortigas are "grossly excessive". It does not
appear to Us to be so. As pointed out by His Honor, "although plaintiff has not held any elective public
office, he has, however, a distinguished record as a private citizen, a lawyer, businessman, a civic
and religious leader, a member of numerous boards and organizations as well as local and
international bodies, and is the recipient of awards and citations for outstanding services and
achievements." Indeed, under the proven facts in the record, We cannot regard plaintiff in any inferior
position vis-a-vis Vice President Lopez in the highest circles of Philippine society and in the business
and religious world, not to speak of his standing in government officialdom.

Beside there is again the disparity between then Lopez case and this one that here the offense,
which, as in Cuenca, is aggravated by the Lufthansa employee at Rome having falsely noted on the
ticket that Ortigas was travelling in economy from Rome to Hongkong,5 was repeated four times in the
same trip, namely in Rome, Cairo, Dharham and Calcutta. More importantly, unlike in the case of
Lopez, Ortigas was suffering from a weak heart and under doctor's advice to travel only in first class,
hence, his being compelled to stay in economy or tourist class during the major part of his trip, must
have given him added apprehensive feelings about his safety. And, moreover, it is to benoted that in
the Lopez case, which was decided in 1966, aside from taking into account the personal
circumstances of the plaintiff, the Court considered "the present rate of exchange and the terms at
which amount of damages awarded would approximately be in U.S. dollars", hence, We may not
justifiably do differently here..

Furthermore, it may not be amiss to mention here that in Zulueta vs. Pan American Airways Inc., 43
SCRA 397, the Court awarded the plaintiffs: Zulueta, the husband, his wife and a minor daughter, a
total of P775,000 as damages consisting of P500,000 as moral, P200,000 as exemplary and P75,000
as attorney's fees, apart from actual damages. In that case, the Zulueta's were coming home to
Manila from Honolulu in a Pan-American plane. At Wake, however, where the plane arrived at 4:00
o'clock in the morning, Zulueta could not be found at flight time because, without letting anyone know,
not even his wife or daughter, he had relieved himself, according to him, at the beach behind the
terminal. When at last, he was found, the Pan-Am employee who first met him while walking back
from the beach remonstrated him thus: "What in the hell do you think you are! Get on that plane." This
angered Zulueta who engaged the said employee in an exchange of angry words. In the meanwhile,
the pilot who had been tipped by a "man from the State Department", also a passenger in that flight,
that there might be a bomb in the plane and expressed apprehension for the safety of the flight unless
Zulueta could be found, ordered the unloading of the bags of the Zuluetas, and when three of the four
of them had already been unloaded, he ordered Zulueta to open them, but the latter refused. Another
exchange of angry words followed, in the course of which, according to Zulueta's evidence, the pilot
went to the extent of referring to him and his family as "those monkeys". Ultimately, the plane left
without Zulueta, albeit his wife and daughter were on board, because the captain refused to allow
Zulueta to board until after his bags were opened and inspected, which Zulueta refused entirely to do.
Although, said decision is not yet final, because of the pendency of a second motion for
reconsideration the Court has not yet resolved, the Court has already allowed the partial execution of
the judgment, thus enabling Zuluetas to collect already one-half of the amount or over P335,000,
which amount, according to the concurring and dissenting opinion there of the writer of the instant
decision could be the least that should anyway be allowed. Of course, the Court did not itemize the
award but granted the same to the family as a whole, but it is evident that in the final distribution,
Zulueta would get for himself from at least P150,000 to not more than P200,00. 6

We hold that the foregoing considerations justify the increase of the award of moral damages from
P100,000 to P150,000.

Finally, We have the dispute regarding the amount of exemplary damages awarded. In this respect, it
is Our considered opinion that defendant should Pay P100,000 instead of the P30,000 awarded by
the trial court. The record of this case taken together with what are revealed in the other similar cases
decided by this Court, those aforediscussed, convinces Us that defendant, as an airline, should be
made to pay an amount that can really serve as a deterrent against a seeming pattern of indifference
and unconcern, and what is worse, of discrimination for racial reasons, discernible in the treatment of
air passengers. This is not the first case, and unless the proper sanctions are applied, it does not
appear it is going to be the last yet, of instances wherein Filipino passengers having validated and
confirmed tickets for first class would be shoved to the economy class, over their valid objections and
without any regard at all to their feelings and convenience, only to favor other passengers presumed
by the airlines to be of superior race, hence, deserving preference. It is high time everyone concerned
were made to realize that the laws of the Philippines do not permit any act of discrimination against its
citizens, specially when this accompanies a clear breach of contractual obligations of common
carriers whose business is affected with public interest and must be directed to serve the convenience
and comfort of the passengers. When any disregard of such laws is committed, the Supreme Court,
as the interpreter of such laws, must exact the commensurate liability which they contemplate.

"Exemplary damages are required by public policy, for wanton acts must be repressed. They are an
antidote so that the poison of wickedness may not run through the body politic." (Report of Code
Commission, pp. 75-76) by authority of the decided cases aforediscussed,7 acts of similar nature as
those herein involved fall within the category of those justifying the imposition of exemplary damages
pursuant to the codal concept just stated.

The rationale behind exemplary or corrective damages is, as the name implies, to provide an example
or correction for public good. ... In view of its nature, it should be imposed in such an amount as to
sufficiently and effectively deter similar breach of contracts by defendant or other airlines." (Lopez v.
Pan-American World Airways, supra; see also Rotea vs. Halili, 109 Phil. 495; People vs. Medroso, Jr.,
G.R. No. L-37633, Jan. 31, 1975, 62 SCRA 245; Cotabato Timberland Co. Inc. vs. Plaridel Lumber
Co., Inc., 13 SCRA 235) Thus, all relevant matters considered, P100,000 of exemplary damages,
which practically amounts only to not more than $15,000 U.S. under the present rate of exchange,
would serve the ends for which the liability has been conceived.

WHEREFORE, the judgment appealed from is modified by raising the award of moral and exemplary
damages to plaintiff Ortigas to P150,000.00 and P100,000.00, respectively. In all other respects,
including as to the payment of interests on the said amounts, the same is affirmed.

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,

vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL CASUALTY
INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE COURT OF APPEALS
(First Division),respondents.

Ross, Selph, Carrascoso & Janda for petitioner.

J. A. Wolfson and Manuel Y. Macias for respondents.

PADILLA, J.:

Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which reversed that
of the Court of First Instance of Manila and sentenced ". . . the defendants-appellees to pay, jointly
and severally, the plaintiffs-appellants the sum of P1,651.38, with legal interest from December 6,
1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the costs in both instances."

The Court of Appeals found the following:

Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell Company of
the Philippine Islands, Ltd. accept the statement of facts made by the trial court in its decision
and appearing on pages 23 to 37 of the Record on Appeal, we quote hereunder such
statement:

This is an action for recovery of sum of money, based on alleged negligence of the
defendants.

It is a fact that a Plymounth car owned by Salvador R. Sison was brought, on September 3,
1947 to the Shell Gasoline and Service Station, located at the corner of Marques de Comillas
and Isaac Peral Streets, Manila, for washing, greasing and spraying. The operator of the
station, having agreed to do service upon payment of P8.00, the car was placed on a
hydraulic lifter under the direction of the personnel of the station.

What happened to the car is recounted by Perlito Sison, as follows:

 Q. Will you please describe how they proceeded to do the work?

A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the lifter.
Then by the aid of the two grease men they raised up my car up to six feet high, and
then washing was done. After washing, the next step was greasing. Before greasing
was finished, there is a part near the shelf of the right fender, right front fender, of my
car to be greased, but the the grease men cannot reached that part, so the next thing
to be done was to loosen the lifter just a few feet lower. Then upon releasing the
valve to make the car lower, a little bit lower . . .

Q. Who released the valve?

A. The greasemen, for the escape of the air. As the escape of the air is too strong for
my ear I faced backward. I faced toward Isaac Peral Street, and covered my ear.
After the escaped of the air has been finished, the air coming out from the valve, I
turned to face the car and I saw the car swaying at that time, and just for a few
second the car fell., (t.s.n. pp. 22-23.)

The case was immediately reported to the Manila Adjustor Company, the adjustor of the firemen's
Insurance Company and the Commercial Casualty Insurance Company, as the car was insured with
these insurance companies. After having been inspected by one Mr. Baylon, representative of the
Manila Adjustor Company, the damaged car was taken to the shops of the Philippine Motors,
Incorporated, for repair upon order of the Firemen's Insurance Company and the Commercial
Casualty Company, with the consent of Salvador R. Sison. The car was restored to running condition
after repairs amounting to P1,651.38, and was delivered to Salvador R. Sison, who, in turn made
assignments of his rights to recover damages in favor of the Firemen's Insurance Company and the
Commercial Casualty Insurance Company.

On the other hand, the fall of the car from the hydraulic lifter has been explained by Alfonso
M. Adriano, a greaseman in the Shell Gasoline and Service Station, as follows:

Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3,
1947?

A. Yes, sir.

Q. To what height did you raise more or less?

A. More or less five feet, sir.

Q. After lifting that car that height, what did you do with the car?

A. I also washed it, sir.

Q. And after washing?

A. I greased it.

Q. On that occasion, have you been able to finish greasing and washing the car?

A. There is one point which I could not reach.

Q. And what did you do then?

A. I lowered the lifter in order to reach that point.

 Q. After lowering it a little, what did you do then?

A. I pushed and pressed the valve in its gradual pressure.

Q. Were you able to reach the portion which you were not able to reach while it was
lower?

A. No more, sir.

Q. Why?

A. Because when I was lowering the lifter I saw that the car was swinging and it fell.

THE COURT. Why did the car swing and fall?

WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)

The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts which is
hereunder also reproduced:

In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador

Sison was brought by his son, Perlito Sison, to the gasoline and service station at the corner
of Marques de Comillas and Isaac Peral Streets, City of Manila, Philippines, owned by the
defendant The Shell Company of the Philippine Islands, Limited, but operated by the
defendant Porfirio de la Fuente, for the purpose of having said car washed and greased for a
consideration of P8.00 (t.s.n., pp. 19-20.) Said car was insured against loss or damage by
Firemen's Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance
Company jointly for the sum of P10,000 (Exhibits "A', "B", and "D").

The job of washing and greasing was undertaken by defendant Porfirio de la Fuente through
his two employees, Alfonso M. Adriano, as greaseman and one surnamed de los Reyes, a
helper and washer (t.s.n., pp. 65-67). To perform the job the car was carefully and centrally
placed on the platform of the lifter in the gasoline and service station aforementioned before
raising up said platform to a height of about 5 feet and then the servicing job was started.
After more than one hour of washing and greasing, the job was about to be completed except
for an ungreased portion underneath the vehicle which could not be reached by the
greasemen. So, the lifter was lowered a little by Alfonso M. Adriano and while doing so, the
car for unknown reason accidentally fell and suffered damage to the value of P1, 651.38
(t.s.n., pp. 65-67).

The insurance companies after paying the sum of P1,651.38 for the damage and charging the
balance of P100.00 to Salvador Sison in accordance with the terms of the insurance contract,
have filed this action together with said Salvador Sison for the recovery of the total amount of
the damage from the defendants on the ground of negligence (Record on Appeal, pp. 1-6).

The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in his
separate answer and contended further that the accidental fall of the car was caused by
unforseen event (Record on Appeal, pp. 17-19).

The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila Adjustor
Company, to investigate the incident and after such investigation the damaged car, upon order of the
insures and with the consent of the owner, was brought to the shop of the Philippine Motors, Inc. The
car was restored to running condition after thereon which amounted to P1,651.38 and returned to the
owner who assigned his right to collect the aforesaid amount to the Firemen's Insurance Company
and the Commercial Casualty Insurance Company.
On 6 December 1947 the insures and the owner of the car brought an action in the Court of First
Instance of Manila against the Shell Company of the Philippines, Ltd. and Porfirio de la Fuente to
recover from them, jointly and severally, the sum of P1,651.38, interest thereon at the legal rate from
the filing of the complaint until fully paid, the costs. After trial the Court dismissed the complaint. The
plaintiffs appealed. The Court of Appeals reversed the judgment and sentenced the defendant to pay
the amount sought to be recovered, legal interest and costs, as stated at the beginning of this opinion.

In arriving at the conclusion that on 3 September 1947 when the car was brought to the station for
servicing Profirio de la Fuente, the operator of the gasoline and service station, was an agent of the
Shell Company of the Philippines, Ltd., the Court of Appeals found that

. . . De la Fuente owned his position to the Shell Company which could remove him terminate
his services at any time from the said Company, and he undertook to sell the Shell
Company's products exculusively at the said Station. For this purpose, De la Fuente was
placed in possession of the gasoline and service station under consideration, and was
provided with all the equipments needed to operate it, by the said Company, such as the tools
and articles listed on Exhibit 2 which the hydraulic lifter (hoist) and accessories, from which
Sison's automobile fell on the date in question (Exhibit 1 and 2). These equipments were
delivered to De la Fuente on a so-called loan basis. The Shell Company took charge of its
care and maintenance and rendered to the public or its customers at that station for the
proper functioning of the equipment. Witness Antonio Tiongson, who was sales
superintendent of the Shell Company, and witness Augusto Sawyer, foreman of the same
Company, supervised the operators and conducted periodic inspection of the Company's
gasoline and service station, the service station in question inclusive. Explaining his duties
and responsibilities and the reason for the loan, Tiongson said: "mainly of the supervision of
sales or (of) our dealers and rountinary inspection of the equipment loaned by the Company"
(t.s.n., 107); "we merely inquire about how the equipments are, whether they have
complaints, and whether if said equipments are in proper order . . .", (t.s.n., 110); station
equipments are "loaned for the exclusive use of the dealer on condition that all supplies to be
sold by said dealer should be exclusively Shell, so as a concession we loan equipments for
their use . . .," "for the proper functioning of the equipments, we answer and see to it that the
equipments are in good running order usable condition . . .," "with respect to the public."
(t.s.n., 111-112). De la Fuente, as operator, was given special prices by the Company for the
gasoline products sold therein. Exhibit 1 Shell, which was a receipt by Antonio Tiongson
and signed by the De la Fuente, acknowledging the delivery of equipments of the gasoline
and service station in question was subsequently replaced by Exhibit 2 Shell, an official
from of the inventory of the equipment which De la Fuente signed above the words: "Agent's
signature" And the service station in question had been marked "SHELL", and all
advertisements therein bore the same sign. . . .

. . . De la Fuente was the operator of the station "by grace" of the Defendant Company which
could and did remove him as it pleased; that all the equipments needed to operate the station
was owned by the Defendant Company which took charge of their proper care and
maintenance, despite the fact that they were loaned to him; that the Defendant company did
not leave the fixing of price for gasoline to De la Fuente; on the other hand, the Defendant
company had complete control thereof; and that Tiongson, the sales representative of the
Defendant Company, had supervision over De la Fuente in the operation of the station, and in
the sale of Defendant Company's products therein. . . .

Taking into consideration the fact that the operator owed his position to the company and the latter
could remove him or terminate his services at will; that the service station belonged to the company
and bore its tradename and the operator sold only the products of the company; that the equipment
used by the operator belonged to the company and were just loaned to the operator and the company
took charge of their repair and maintenance; that an employee of the company supervised the
operator and conducted periodic inspection of the company's gasoline and service station; that the
price of the products sold by the operator was fixed by the company and not by the operator; and that
the receipt signed by the operator indicated that he was a mere agent, the finding of the Court of
Appeals that the operator was an agent of the company and not an independent contractor should not
be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon the name or
title given it by the contracting parties, should there be a controversy as to what they really had
intended to enter into, but the way the contracting parties do or perform their respective obligation
stipulated or agreed upon may be shown and inquired into, and should such performance conflict with
the name or title given the contract by the parties, the former must prevail over the latter.

It was admitted by the operator of the gasoline and service station that "the car was carefully and
centrally placed on the platform of the lifter . . ." and the Court of Appeals found that

. . . the fall of Appellant Sison's car from the hydraulic lift and the damage caused therefor,
were the result of the jerking and swaying of the lift when the valve was released, and that the
jerking was due to some accident and unforeseen shortcoming of the mechanism itself, which
caused its faulty or defective operation or functioning,

. . . the servicing job on Appellant Sison's automobile was accepted by De la Fuente in the
normal and ordinary conduct of his business as operator of his co-appellee's service station,
and that the jerking and swaying of the hydraulic lift which caused the fall of the subject car
were due to its defective condition, resulting in its faulty operation. . . .

As the act of the agent or his employees acting within the scope of his authority is the act of the
principal, the breach of the undertaking by the agent is one for which the principal is answerable.
Moreover, the company undertook to "answer and see to it that the equipments are in good running
order and usable condition;" and the Court of Appeals found that the Company's mechanic failed to
make a thorough check up of the hydraulic lifter and the check up made by its mechanic was "merely
routine" by raising "the lifter once or twice and after observing that the operator was satisfactory, he
(the mechanic) left the place." The latter was negligent and the company must answer for the
negligent act of its mechanic which was the cause of the fall of the car from the hydraulic lifter.

The judgment under review is affirmed, with costs against the petitioner.

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.

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:

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For Juan
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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 judgment.1 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. 2

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.

This Court has said that the Rules3 "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."4

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 property."5 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."6 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.7 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.

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 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 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.

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 connected with the transaction to which it relates. 9 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." 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 latter did not ratify, on the contrary it
repudiated and disowned the same ...", 12 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.

WHEREFORE, the petitions in these two cases are hereby dismissed