1
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of
CONCEPCION RALLOS, petitioner, vs.
FELIX GO CHAN & SONS REALTY CORPORATION and
COURT OF APPEALS, respondents.
Syllabi:
1. Same; Same; Art. 1930 and Art. 1931 of the Civil Code
providing that death of principal or agent extinguishing agency
is only a general rule; Rationale for the provision.+
2. Same; Same; Art. 1930 and Art. 1931 of the Civil Code
exceptions to general rule provided in Art. 1919 of the Civil
Code, that death of principal revokes ipso jure the agency.+
3. Same; Same; Contention that despite death of principal the
act of attorney-in-fact in selling his principal’s share of the
disputed property is valid and enforceable since the buyer acted
in good faith is untenable because of the established knowledge
of the attorney-in-fact of the death of his principal; Requisites of
Art. 1931 that despite death of principal and of agent is valid not
complied with.+
4. Same; Same; General rule is that an act of agent after death
of his principal is void ab initio unless the same falls under
exceptions in Arts. 1930 and 1931 of the Civil Code; Art 1931
being an exception to the general rule is to be strictly
construed.+
5. Same; Same; Revocation by an act of the principal as a
mode of terminating agency distinguished from revocation by
operation of law such as death of principal.+
6. Same; Same; Law does not impose a duty on the heirs of
principal to notify agent of death of principal; If agent dies, his
heirs must notify principal thereof.+
7. Same; Same; No parallel can be drawn between the case of
attorney-in-fact who after death of his principal sold the latter’s
share in the land pursuant to a special power of attorney which
the principal had executed in his favor and that of an innocent
purchaser for value of registered land.+
8. Same; Same; Conflict of legal opinion in American
jurisprudence does not hold true in Philippine law; Civil Code of
the Philippines expressly provides for two exceptions to general
rule that death of the principal revokes the agency; Agent’s act
of executing the sale of property despite notice of death of his
principal is unenforceable against the estate of the principal.+
MUÑOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos, who after of
his death of his principal, Concepcion Rallos, sold the latter's
undivided share in a parcel of land pursuant to a power of
attorney which the principal had executed in favor. The
administrator of the estate of the went to court to have the sale
declared uneanforceable and to recover the disposed share.
The trial court granted the relief prayed for, but upon appeal the
Court of Appeals uphold the validity of the sale and the
complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia
both surnamed Rallos were sisters and registered co-owners of
a parcel of land known as Lot No. 5983 of the Cadastral Survey
of Cebu covered by Transfer Certificate of Title No. 11116 of the
Registry of Cebu. On April 21, 1954, the sisters executed a
special power of attorney in favor of their brother, Simeon
Rallos, authorizing him to sell for and in their behalf lot 5983. On
March 3, 1955, Concepcion Rallos died. On September 12,
1955, Simeon Rallos sold the undivided shares of his sisters
Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons
Realty Corporation for the sum of P10,686.90. The deed of sale
was registered in the Registry of Deeds of Cebu, TCT No. 11118
was cancelled, and a new transfer certificate of Title No. 12989
was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate
Estate of Concepcion Rallos filed a complaint docketed as Civil
Case No. R-4530 of the Court of First Instance of Cebu, praying
(1) that the sale of the undivided share of the deceased
Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title
issued in the name of Felix Go Chan & Sons Realty Corporation
be cancelled and another title be issued in the names of the
corporation and the "Intestate estate of Concepcion Rallos" in
equal undivided and (3) that plaintiff be indemnified by way of
attorney's fees and payment of costs of suit. Named party
defendants were Felix Go Chan & Sons Realty Corporation,
Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The
complaint was amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon Rallos
while the latter filed third-party complaint against his sister,
Gerundia Rallos While the case was pending in the trial court,
both Simon and his sister Gerundia died and they were
substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following
dispositive portion:
A. On Plaintiffs Complaint —
(1) Declaring the deed of sale, Exh. "C", null and void insofar as
the one-half pro-indiviso share of Concepcion Rallos in the
property in question, — Lot 5983 of the Cadastral Survey of
Cebu — is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel
Transfer Certificate of Title No. 12989 covering Lot 5983 and to
issue in lieu thereof another in the names of FELIX GO CHAN &
SONS REALTY CORPORATION and the Estate of Concepcion
Rallos in the proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver
the possession of an undivided one-half (1/2) share of Lot 5983
to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator
of the Estate of Simeon Rallos, to pay to plaintiff in concept of
reasonable attorney's fees the sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and
severally.
B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to defendant
Felix Co Chan & Sons Realty Corporation the sum of P5,343.45,
representing the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of
the Estate of Simeon Rallos, to pay in concept of reasonable
attorney's fees to Felix Go Chan & Sons Realty Corporation the
sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo
administrator of Estate of Simeon Rallos, against Josefina
Rallos special administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing
either a complaint against the regular administrator of the Estate
of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia
Rallos, covering the same subject-matter of the third-party
complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time
to the Court of Appeals from the foregoing judgment insofar as
it set aside the sale of the one-half (1/2) share of Concepcion
Rallos. The appellate tribunal, as adverted to earlier, resolved
the appeal on November 20, 1964 in favor of the appellant
corporation sustaining the sale in question. 1 The appellee
administrator, Ramon Rallos, moved for a reconsider of the
decision but the same was denied in a resolution of March 4,
1965. 2
What is the legal effect of an act performed by an agent after the
death of his principal? Applied more particularly to the instant
case, We have the query. is the sale of the undivided share of
Concepcion Rallos in lot 5983 valid although it was executed by
the agent after the death of his principal? What is the law in this
jurisdiction as to the effect of the death of the principal on the
authority of the agent to act for and in behalf of the latter? Is the
fact of knowledge of the death of the principal a material factor
in determining the legal effect of an act performed after such
death?
Before proceedings to the issues, We shall briefly restate certain
principles of law relevant to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that
no one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to
represent him. 3 A contract entered into in the name of another
by one who has no authority or the legal representation or who
has acted beyond his powers, shall be unenforceable, unless it
is ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other
contracting party.4 Article 1403 (1) of the same Code also
provides:
ART. 1403. The following contracts are unenforceable, unless
they are justified:
(1) Those entered into in the name of another person by one
who hi - been given no authority or legal representation or who
has acted beyond his powers; ...
Out of the above given principles, sprung the creation and
acceptance of the relationship of agency whereby one party,
caged the principal (mandante), authorizes another, called the
2
agent (mandatario), to act for and in his behalf in transactions
with third persons. The essential elements of agency are: (1)
there is consent, express or implied of the parties to establish
the relationship; (2) the object is the execution of a juridical act
in relation to a third person; (3) the agents acts as a
representative and not for himself, and (4) the agent acts within
the scope of his authority. 5
Agency is basically personal representative, and derivative in
nature. The authority of the agent to act emanates from the
powers granted to him by his principal; his act is the act of the
principal if done within the scope of the authority. Qui facit per
alium facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We
are concerned only with one cause — death of the principal
Paragraph 3 of Art. 1919 of the Civil Code which was taken from
Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the
principal or of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between
Principal and agent, agency is extinguished by the death of the
principal or the agent. This is the law in this jurisdiction.8
Manresa commenting on Art. 1709 of the Spanish Civil Code
explains that the rationale for the law is found in the juridical
basis of agency which is representation Them being an in.
integration of the personality of the principal integration that of
the agent it is not possible for the representation to continue to
exist once the death of either is establish. Pothier agrees with
Manresa that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says that the juridical
tie between the principal and the agent is severed ipso jure upon
the death of either without necessity for the heirs of the fact to
notify the agent of the fact of death of the former. 9
The same rule prevails at common law — the death of the
principal effects instantaneous and absolute revocation of the
authority of the agent unless the Power be coupled with an
interest. 10 This is the prevalent rule in American Jurisprudence
where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any
attempted execution of the power afterward is not binding on the
heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death
of the principal or of the agent extinguishes the agency, subject
to any exception, and if so, is the instant case within that
exception? That is the determinative point in issue in this
litigation. It is the contention of respondent corporation which
was sustained by respondent court that notwithstanding the
death of the principal Concepcion Rallos the act of the attorney-
in-fact, Simeon Rallos in selling the former's sham in the
property is valid and enforceable inasmuch as the corporation
acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions
to the general rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even
after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the interest
of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of
the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective with
respect to third persons who may have contracted with him in
good. faith.
Article 1930 is not involved because admittedly the special
power of attorney executed in favor of Simeon Rallos was not
coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act
done by the agent after the death of his principal is valid and
effective only under two conditions, viz: (1) that the agent acted
without knowledge of the death of the principal and (2) that the
third person who contracted with the agent himself acted in good
faith. Good faith here means that the third person was not aware
of the death of the principal at the time he contracted with said
agent. These two requisites must concur the absence of one will
render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent,
Simeon Rallos, knew of the death of his principal at the time he
sold the latter's share in Lot No. 5983 to respondent corporation.
The knowledge of the death is clearly to be inferred from the
pleadings filed by Simon Rallos before the trial court. 12 That
Simeon Rallos knew of the death of his sister Concepcion is also
a finding of fact of the court a quo 13 and of respondent appellate
court when the latter stated that Simon Rallos 'must have known
of the death of his sister, and yet he proceeded with the sale of
the lot in the name of both his sisters Concepcion and Gerundia
Rallos without informing appellant (the realty corporation) of the
death of the former. 14
On the basis of the established knowledge of Simon Rallos
concerning the death of his principal Concepcion Rallos, Article
1931 of the Civil Code is inapplicable. The law expressly
requires for its application lack of knowledge on the part of the
agent of the death of his principal; it is not enough that the third
person acted in good faith. Thus in Buason & Reyes v. Panuyas,
the Court applying Article 1738 of the old Civil rode now Art.
1931 of the new Civil Code sustained the validity , of a sale made
after the death of the principal because it was not shown that the
agent knew of his principal's demise. 15 To the same effect is the
case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in
the words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936,
plaintiffs presented no proof and there is no indication in the
record, that the agent Luy Kim Guan was aware of the death of
his principal at the time he sold the property. The death 6f the
principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment of the
agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent
consideration the Court of Appeals reasoned out that there is no
provision in the Code which provides that whatever is done by
an agent having knowledge of the death of his principal is void
even with respect to third persons who may have contracted with
3
him in good faith and without knowledge of the death of the
principal. 16
We cannot see the merits of the foregoing argument as it ignores
the existence of the general rule enunciated in Article 1919 that
the death of the principal extinguishes the agency. That being
the general rule it follows a fortiorithat any act of an agent after
the death of his principal is void ab initio unless the same fags
under the exception provided for in the aforementioned Articles
1930 and 1931. Article 1931, being an exception to the general
rule, is to be strictly construed, it is not to be given an
interpretation or application beyond the clear import of its terms
for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the
vendee acting in good faith relied on the power of attorney which
was duly registered on the original certificate of title recorded in
the Register of Deeds of the province of Cebu, that no notice of
the death was aver annotated on said certificate of title by the
heirs of the principal and accordingly they must suffer the
consequences of such omission. 17
To support such argument reference is made to a portion
in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting
with certain persons, the revocation must be made known to
them. But if the agency is general iii nature, without reference to
particular person with whom the agent is to contract, it is
sufficient that the principal exercise due diligence to make the
revocation of the agency publicity known.
In case of a general power which does not specify the persons
to whom represents' on should be made, it is the general opinion
that all acts, executed with third persons who contracted in good
faith, Without knowledge of the revocation, are valid. In such
case, the principal may exercise his right against the agent, who,
knowing of the revocation, continued to assume a personality
which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp.
15-16, rollo)
The above discourse however, treats of revocation by an act of
the principal as a mode of terminating an agency which is to be
distinguished from revocation by operation of law such as death
of the principal which obtains in this case. On page six of this
Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal or
agent. Although a revocation of a power of attorney to be
effective must be communicated to the parties concerned, 18 yet
a revocation by operation of law, such as by death of the
principal is, as a rule, instantaneously effective inasmuch as "by
legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will. 19 With death, the
principal's will ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the
agent of the death of the principal What the Code provides in
Article 1932 is that, if the agent die his heirs must notify the
principal thereof, and in the meantime adopt such measures as
the circumstances may demand in the interest of the latter.
Hence, the fact that no notice of the death of the principal was
registered on the certificate of title of the property in the Office

of the Register of Deeds, is not fatal to the cause of the estate
of the principal
6. Holding that the good faith of a third person in said with an
agent affords the former sufficient protection, respondent court
drew a "parallel" between the instant case and that of an
innocent purchaser for value of a land, stating that if a person
purchases a registered land from one who acquired it in bad faith
— even to the extent of foregoing or falsifying the deed of sale
in his favor — the registered owner has no recourse against
such innocent purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its
brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61
Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61
Phil. 630, one Vallejo was a co-owner of lands with Agustin
Nano. The latter had a power of attorney supposedly executed
by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to
that Office, he found all in order including the power of attorney.
But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed.
Reversing the decision of the court a quo, the Supreme Court,
quoting the ruling in the case of Eliason v. Wilborn, 261 U.S.
457, held:
But there is a narrower ground on which the defenses of the
defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la
Canters, a member of the Philippine Bar and the husband of
Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form including the
power of attorney of Vallajo in favor of Nano. If this had not been
so and if thereafter the proper notation of the encumbrance
could not have been made, Angela Blondeau would not have
sent P12,000.00 to the defendant Vallejo.' An executed transfer
of registered lands placed by the registered owner thereof in the
hands of another operates as a representation to a third party
that the holder of the transfer is authorized to deal with the land.
As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible
by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the
case before Us because here We are confronted with one who
admittedly was an agent of his sister and who sold the property
of the latter after her death with full knowledge of such death.
The situation is expressly covered by a provision of law on
agency the terms of which are clear and unmistakable leaving
no room for an interpretation contrary to its tenor, in the same
manner that the ruling in Blondeau and the cases cited therein
found a basis in Section 55 of the Land Registration Law which
in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any
voluntary instrument is presented for registration shall be
4
conclusive authority from the registered owner to the register of
deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the registered
owner and upon all persons claiming under him in favor of every
purchaser for value and in good faith: Provided however, That in
all cases of registration provided by fraud, the owner may pursue
all his legal and equitable remedies against the parties to such
fraud without prejudice, however, to the right, of any innocent
holder for value of a certificate of title. ... (Act No. 496 as
amended)
7. One last point raised by respondent corporation in support of
the appealed decision is an 1842 ruling of the Supreme Court of
Pennsylvania in Cassiday v. McKenzie wherein payments made
to an agent after the death of the principal were held to be
"good", "the parties being ignorant of the death". Let us take note
that the Opinion of Justice Rogers was premised on the
statement that the parties were ignorant of the death of the
principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent
when the Parties are ignorant of the death is a good payment.
in addition to the case in Campbell before cited, the same judge
Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good.
Thus, a payment of sailor's wages to a person having a power
of attorney to receive them, has been held void when the
principal was dead at the time of the payment. If, by this case, it
is meant merely to decide the general proposition that by
operation of law the death of the principal is a revocation of the
powers of the attorney, no objection can be taken to it. But if it
intended to say that his principle applies where there was 110
notice of death, or opportunity of twice I must be permitted to
dissent from it.
... That a payment may be good today, or bad tomorrow, from
the accident circumstance of the death of the principal, which he
did not know, and which by no possibility could he know? It
would be unjust to the agent and unjust to the debtor. In the civil
law, the acts of the agent, done bona fide in ignorance of the
death of his principal are held valid and binding upon the heirs
of the latter. The same rule holds in the Scottish law, and I
cannot believe the common law is so unreasonable... (39 Am.
Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday
v. McKenzie may evoke, mention may be made that the above
represents the minority view in American jurisprudence. Thus
in Clayton v. Merrett, the Court said.—
There are several cases which seem to hold that although, as a
general principle, death revokes an agency and renders null
every act of the agent thereafter performed, yet that where a
payment has been made in ignorance of the death, such
payment will be good. The leading case so holding is that
of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76,
where, in an elaborate opinion, this view ii broadly announced.
It is referred to, and seems to have been followed, in the case
of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case
it appeared that the estate of the deceased principal had
received the benefit of the money paid, and therefore the
representative of the estate might well have been held to be

estopped from suing for it again. . . . These cases, in so far, at
least, as they announce the doctrine under discussion, are
exceptional. The Pennsylvania Case, supra (Cassiday v.
McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand
almost, if not quite, alone in announcing the principle in its
broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie,
and pointing out that the opinion, except so far as it related to
the particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded
more as an extrajudicial indication of his views on the general
subject, than as the adjudication of the Court upon the point in
question. But accordingly all power weight to this opinion, as the
judgment of a of great respectability, it stands alone among
common law authorities and is opposed by an array too
formidable to permit us to following it. (15 Cal. 12,17, cited in 2
C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v.
McKenzie in American jurisprudence, no such conflict exists in
our own for the simple reason that our statute, the Civil Code,
expressly provides for two exceptions to the general rule that
death of the principal revokes ipso jure the agency, to wit: (1)
that the agency is coupled with an interest (Art 1930), and (2)
that the act of the agent was executed without knowledge of the
death of the principal and the third person who contracted with
the agent acted also in good faith (Art. 1931). Exception No. 2 is
the doctrine followed in Cassiday, and again We stress the
indispensable requirement that the agent acted without
knowledge or notice of the death of the principal In the case
before Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal Accordingly,
the agent's act is unenforceable against the estate of his
principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision
of respondent appellate court, and We affirm en toto the
judgment rendered by then Hon. Amador E. Gomez of the Court
of First Instance of Cebu, quoted in pages 2 and 3 of this
Opinion, with costs against respondent realty corporation at all
instances. So Ordered.
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, petitioner, vs.
COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner, vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, INCORPORATED, respondents.
PADILLA, J.:
Syllabi:
5
1. Contracts; The various stipulation in the contract must be
read together to give effect to all.+
2. Contracts; Any ambiguity in the contract, the stipulations of
which are susceptible of various interpretations, shall be
construed against the party who drafted it.+
3. Agency; An agent-principal relationship can only be effected
with the consent of the principal, and must not, in any way be
compelled by law or by any court.+
This case is a consolidation of two (2) petitions for review
on certiorari of a decision1 of the Court of Appeals in CA-G.R.
No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." which affirmed, with
modification, the decision2 of the Regional Trial Court of Manila,
Branch IV, which dismissed the complaint and granted therein
defendant's counterclaim for agent's overriding commission and
damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter
referred to as American Air), an air carrier offering passenger
and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (hereinafter referred to as
Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former
authorized the latter to act as its exclusive general sales agent
within the Philippines for the sale of air passenger
transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the
parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive
General Sales Agent within the Philippines, including any United
States military installation therein which are not serviced by an
Air Carrier Representation Office (ACRO), for the sale of air
passenger transportation. The services to be performed by
Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of
American and, if necessary, employing staff competent and
sufficient to do so;
(b) providing and maintaining a suitable area in its place of
business to be used exclusively for the transaction of the
business of American;
(c) arranging for distribution of American's timetables, tariffs and
promotional material to sales agents and the general public in
the assigned territory;
(d) servicing and supervising of sales agents (including such
sub-agents as may be appointed by Orient Air Services with the
prior written consent of American) in the assigned territory
including if required by American the control of remittances and
commissions retained; and

(e) holding out a passenger reservation facility to sales agents
and the general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air
Services nor its sub-agents will perform services for any other
air carrier similar to those to be performed hereunder for
American without the prior written consent of American. Subject
to periodic instructions and continued consent from American,
Orient Air Services may sell air passenger transportation to be
performed within the United States by other scheduled air
carriers provided American does not provide substantially
equivalent schedules between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to
American the ticket stock or exchange orders, less commissions
to which Orient Air Services is entitled hereunder, not less
frequently than semi-monthly, on the 15th and last days of each
month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation
sold hereunder on American's ticket stock or on exchange
orders, less applicable commissions to which Orient Air Services
is entitled hereunder, are the property of American and shall be
held in trust by Orient Air Services until satisfactorily accounted
for to American.
5. Commissions
American will pay Orient Air Services commission on
transportation sold hereunder by Orient Air Services or its sub-
agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency
commission for all sales of transportation by Orient Air Services
or its sub-agents over American's services and any connecting
through air transportation, when made on American's ticket
stock, equal to the following percentages of the tariff fares and
charges:
(i) For transportation solely between points within the United
States and between such points and Canada: 7% or such other
rate(s) as may be prescribed by the Air Traffic Conference of
America.
(ii) For transportation included in a through ticket covering
transportation between points other than those described above:
8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air
Services an overriding commission of 3% of the tariff fares and
charges for all sales of transportation over American's service
by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
6
If Orient Air Services shall at any time default in observing or
performing any of the provisions of this Agreement or shall
become bankrupt or make any assignment for the benefit of or
enter into any agreement or promise with its creditors or go into
liquidation, or suffer any of its goods to be taken in execution, or
if it ceases to be in business, this Agreement may, at the option
of American, be terminated forthwith and American may, without
prejudice to any of its rights under this Agreement, take
possession of any ticket forms, exchange orders, traffic material
or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable
rules or resolutions of the International Air Transport Association
and the Air Traffic Conference of America, and such rules or
resolutions shall control in the event of any conflict with the
provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in
the event Orient Air Services is unable to transfer to the United
States the funds payable by Orient Air Services to American
under this Agreement. Either party may terminate the
Agreement without cause by giving the other 30 days' notice by
letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its
obligations under the Agreement by failing to promptly remit the
net proceeds of sales for the months of January to March 1981
in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally
by Orient Air and terminated forthwith the Agreement in
accordance with Paragraph 13 thereof (Termination). Four (4)
days later, or on 15 May 1981, American Air instituted suit
against Orient Air with the Court of First Instance of Manila,
Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining
Order4 averring the aforesaid basis for the termination of the
Agreement as well as therein defendant's previous record of
failures "to promptly settle past outstanding refunds of which
there were available funds in the possession of the defendant, .
. . to the damage and prejudice of plaintiff." 5
In its Answer6 with counterclaim dated 9 July 1981, defendant
Orient Air denied the material allegations of the complaint with
respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due
it under the Agreement, plaintiff in fact still owed Orient Air a
balance in unpaid overriding commissions. Further, the
defendant contended that the actions taken by American Air in
the course of terminating the Agreement as well as the
termination itself were untenable, Orient Air claiming that
American Air's precipitous conduct had occasioned prejudice to
its business interests.
Finding that the record and the evidence substantiated the
allegations of the defendant, the trial court ruled in its favor,

rendering a decision dated 16 July 1984, the dispositive portion
of which reads:
WHEREFORE, all the foregoing premises considered, judgment
is hereby rendered in favor of defendant and against plaintiff
dismissing the complaint and holding the termination made by
the latter as affecting the GSA agreement illegal and improper
and order the plaintiff to reinstate defendant as its general sales
agent for passenger tranportation in the Philippines in
accordance with said GSA agreement; plaintiff is ordered to pay
defendant the balance of the overriding commission on total
flown revenue covering the period from March 16, 1977 to
December 31, 1980 in the amount of US$84,821.31 plus the
additional amount of US$8,000.00 by way of proper 3%
overriding commission per month commencing from January 1,
1981 until such reinstatement or said amounts in its Philippine
peso equivalent legally prevailing at the time of payment plus
legal interest to commence from the filing of the counterclaim up
to the time of payment. Further, plaintiff is directed to pay
defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the
amount of Three Hundred Thousand (P300,000.00) pesos as
and by way of attorney's fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of
Appeals) in a decision promulgated on 27 January 1986,
affirmed the findings of the court a quo on their material points
but with some modifications with respect to the monetary awards
granted. The dispositive portion of the appellate court's decision
is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum
of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to
December 31, 1980, or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing
on July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00
as the latter's overriding commission per month starting January
1, 1981 until date of termination, May 9, 1981 or its Philippine
peso equivalent in accordance with the official rate of exchange
legally prevailing on July 10, 1981, the date the counterclaim
was filed
3) American is ordered to pay interest of 12% on said amounts
from July 10, 1981 the date the answer with counterclaim was
filed, until full payment;
4) American is ordered to pay Orient exemplary damages of
P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as
attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned
decision, assailing the substance thereof and arguing for its
7
reversal. The appellate court's decision was also the subject of
a Motion for Partial Reconsideration by Orient Air which prayed
for the restoration of the trial court's ruling with respect to the
monetary awards. The Court of Appeals, by resolution
promulgated on 17 December 1986, denied American Air's
motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it
prays for affirmance of the trial court's award of exemplary
damages and attorney's fees, but granted insofar as the rate of
exchange is concerned. The decision of January 27, 1986 is
modified in paragraphs (1) and (2) of the dispositive part so that
the payment of the sums mentioned therein shall be at their
Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on the date of actual payment.9
Both parties appealed the aforesaid resolution and decision of
the respondent court, Orient Air as petitioner in G.R. No. 76931
and American Air as petitioner in G.R. No. 76933. By
resolution10 of this Court dated 25 March 1987 both petitions
were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of
Orient Air's right to the 3% overriding commission. It is the stand
of American Air that such commission is based only on sales of
its services actually negotiated or transacted by Orient Air,
otherwise referred to as "ticketed sales." As basis thereof,
primary reliance is placed upon paragraph 5(b) of the
Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient
Air Services an overriding commission of 3% of the tariff fees
and charges for all sales of transportation over American's
services by Orient Air Services or itssub-agents. (Emphasis
supplied)
Since Orient Air was allowed to carry only the ticket stocks of
American Air, and the former not having opted to appoint any
sub-agents, it is American Air's contention that Orient Air can
claim entitlement to the disputed overriding commission based
only on ticketed sales. This is supposed to be the clear meaning
of the underscored portion of the above provision. Thus, to be
entitled to the 3% overriding commission, the sale must be made
by Orient Air and the sale must be done with the use of American
Air's ticket stocks.
On the other hand, Orient Air contends that the contractual
stipulation of a 3% overriding commission covers the total
revenue of American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The latter, in justification
of its submission, invokes its designation as
the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as,
the promotion and solicitation for the services of its principal. In
effect, by virtue of such exclusivity, "all sales of transportation
over American Air's services are necessarily by Orient Air."11
It is a well settled legal principle that in the interpretation of a
contract, the entirety thereof must be taken into consideration to
 8

ascertain the meaning of its provisions.12 The various
stipulations in the contract must be read together to give effect
to all.13 After a careful examination of the records, the Court
finds merit in the contention of Orient Air that the Agreement,
when interpreted in accordance with the foregoing principles,
entitles it to the 3% overriding commission based on total
revenue, or as referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American
Air, Orient Air was responsible for the promotion and marketing
of American Air's services for air passenger transportation, and
the solicitation of sales therefor. In return for such efforts and
services, Orient Air was to be paid commissions of two (2) kinds:
first, a sales agency commission, ranging from 7-8% of tariff
fares and charges from sales by Orient Air when made on
American Air ticket stock; and second, an overriding commission
of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately
observed that the precondition attached to the first type of
commission does not obtain for the second type of commissions.
The latter type of commissions would accrue for sales of
American Air services made not on its ticket stock but on the
ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule
otherwise, i.e., to limit the basis of such overriding commissions
to sales from American Air ticket stock would erase any
distinction between the two (2) types of commissions and would
lead to the absurd conclusion that the parties had entered into a
contract with meaningless provisions. Such an interpretation
must at all times be avoided with every effort exerted to
harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear
from the records that American Air was the party responsible for
the preparation of the Agreement. Consequently, any ambiguity
in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the
ambiguity and could have avoided it by the exercise of a little
more care. Thus, Article 1377 of the Civil Code provides that the
interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity.14 To put it
differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to
be adopted which is most favorable to the party in whose favor
the provision was made and who did not cause the
ambiguity.15 We therefore agree with the respondent appellate
court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of
different interpretations, must be read against the party who
drafted it.16
We now turn to the propriety of American Air's termination of the
Agreement. The respondent appellate court, on this issue, ruled
thus:
override. American's premise, therefore, for the cancellation of
the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As
earlier established, Orient Air was entitled to an overriding
commission based on total flown revenue. American Air's
perception that Orient Air was remiss or in default of its
obligations under the Agreement was, in fact, a situation where
the latter acted in accordance with the Agreement—that of
retaining from the sales proceeds its accrued commissions
before remitting the balance to American Air. Since the latter
was still obligated to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter's termination of the
Agreement was, therefore, without cause and basis, for which it
should be held liable to Orient Air.
On the matter of damages, the respondent appellate court
modified by reduction the trial court's award of exemplary
damages and attorney's fees. This Court sees no error in such
modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in
affirming the rest of the decision of the trial court.1âwphi1We
refer particularly to the lower court's decision ordering American
Air to "reinstate defendant as its general sales agent for
passenger transportation in the Philippines in accordance with
said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate
court, in effect, compels American Air to extend its personality
to Orient Air. Such would be violative of the principles and
essence of agency, defined by law as a contract whereby "a
person binds himself to render some service or to do something
in representation or on behalf of another, WITH THE CONSENT
OR AUTHORITY OF THE LATTER .17 (emphasis supplied) In
an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent,
by legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship can
only be effected with the consent of the principal, which must
not, in any way, be compelled by law or by any court. The
Agreement itself between the parties states that "either party
may terminate the Agreement without cause by giving the other
30 days' notice by letter, telegram or cable." (emphasis supplied)
We, therefore, set aside the portion of the ruling of the
respondent appellate court reinstating Orient Air as general
sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court
AFFIRMS the decision and resolution of the respondent Court
of Appeals, dated 27 January 1986 and 17 December 1986,
respectively. Costs against petitioner American Air. SO
ORDERED.

It is not denied that Orient withheld remittances but such action

finds justification from paragraph 4 of the Agreement, Exh. F,
which provides for remittances to American less commissions to
which Orient is entitled, and from paragraph 5(d) which
specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3%
 9

[G.R. No. 130148. December 15, 1997] the subject items of jewelry and, because he failed to pay for the
same, Brigida, as principal, and her spouse are solidarily liable
JOSE BORDADOR and LYDIA BORDADOR, petitioners, with him therefor.
vs. BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO
DEGANOS, respondents. On the other hand, while Deganos admitted that he had an
unpaid obligation to petitioners, he claimed that the same was
DECISION only in the sum of P382,816.00 and not P725,463.98. He further
REGALADO, J.: asserted that it was he alone who was involved in the transaction
with the petitioners; that he neither acted as agent for nor was
In this appeal by certiorari, petitioners assail the judgment of the he authorized to act as an agent by Brigida D. Luz,
Court of Appeals in CA-G.R. CV No. 49175 affirming the notwithstanding the fact that six of the receipts indicated that the
adjudication of the Regional Trial Court of Malolos, Bulacan items were received by him for the latter. He further claimed that
which found private respondent Narciso Deganos liable to he never delivered any of the items he received from petitioners
petitioners for actual damages, but absolved respondent to Brigida.
spouses Brigida D. Luz and Ernesto M. Luz of liability.
Brigida, on her part, denied that she had anything to do with the
Petitioners likewise belabor the subsequent resolution of the
transactions between petitioners and Deganos. She claimed
Court of Appeals which denied their motion for reconsideration
that she never authorized Deganos to receive any item of
of its challenged decision.
jewelry in her behalf and, for that matter, neither did she actually
Petitioners were engaged in the business of purchase and sale receive any of the articles in question.
of jewelry and respondent Brigida D. Luz, also known as Aida D.
After trial, the court below found that only Deganos was liable to
Luz, was their regular customer. On several occasions during
petitioners for the amount and damages claimed. It held that
the period from April 27, 1987 to September 4, 1987, respondent
while Brigida D. Luz did have transactions with petitioners in the
Narciso Deganos, the brother of Brigida D. Luz, received several
past, the items involved were already paid for and all that Brigida
pieces of gold and jewelry from petitioners amounting
owed petitioners was the sum of P21,483.00 representing
to P382,816.00. [1] These items and their prices were indicated
interest on the principal account which she had previously paid
in seventeen receipts covering the same. Eleven of the receipts
for.[6]
stated that they were received for a certain Evelyn Aquino, a
niece of Deganos, and the remaining six indicated that they were The trial court also found that it was petitioner Lydia Bordador
received for Brigida D. Luz. [2] who indicated in the receipts that the items were received by
Deganos for Evelyn Aquino and Brigida D. Luz. [7] Said court
Deganos was supposed to sell the items at a profit and
was persuaded that Brigida D. Luz was behind Deganos, but
thereafter remit the proceeds and return the unsold items to
because there was no memorandum to this effect, the
petitioners. Deganos remitted only the sum of P53,207.00. He
agreement between the parties was unenforceable under the
neither paid the balance of the sales proceeds, nor did he return
Statute of Frauds. [8]Absent the required memorandum or any
any unsold item to petitioners. By January 1990, the total of his
written document connecting the respondent Luz spouses with
unpaid account to petitioners, including interest, reached the
the subject receipts, or authorizing Deganos to act on their
sum of P725,463.98. [3] Petitioners eventually filed a complaint
behalf, the alleged agreement between petitioners and Brigida
in the barangay court against Deganos to recover said amount.
D. Luz was unenforceable.
In the barangay proceedings, Brigida D. Luz, who was not
Deganos was ordered to pay petitioners the amount
impleaded in the case, appeared as a witness for Deganos and
of P725,463.98, plus legal interest thereon from June 25, 1990,
ultimately, she and her husband, together with Deganos, signed
and attorneys fees. Brigida D. Luz was ordered to
a compromise agreement with petitioners. In that compromise
pay P21,483.00 representing the interest on her own personal
agreement, Deganos obligated himself to pay petitioners, on
loan. She and her co-defendant spouse were absolved from any
installment basis, the balance of his account plus interest
other or further liability. [9]
thereon.However, he failed to comply with his aforestated
undertakings. As stated at the outset, petitioners appealed the judgment of the
court a quo to the Court of Appeals which affirmed said
On June 25, 1990, petitioners instituted Civil Case No. 412-M-
judgment. [10] The motion for reconsideration filed by petitioners
90 in the Regional Trial Court of Malolos, Bulacan against
was subsequently dismissed, [11] hence the present recourse to
Deganos and Brigida D. Luz for recovery of a sum of money and
this Court.
damages, with an application for preliminary
attachment.[4] Ernesto Luz was impleaded therein as the spouse The primary issue in the instant petition is whether or not herein
of Brigida. respondent spouses are liable to petitioners for the latters claim
for money and damages in the sum of P725,463.98, plus
Four years later, or on March 29, 1994, Deganos and Brigida D.
interests and attorneys fees, despite the fact that the evidence
Luz were charged with estafa[5] in the Regional Trial Court of
does not show that they signed any of the subject receipts or
Malolos, Bulacan, which was docketed as Criminal Case No.
authorized Deganos to receive the items of jewelry on their
785-M-94. That criminal case appears to be still pending in said
behalf.
trial court.
Petitioners argue that the Court of Appeals erred in adopting the
During the trial of the civil case, petitioners claimed that
findings of the court a quo that respondent spouses are not
Deganos acted as the agent of Brigida D. Luz when he received

liable to them, as said conclusion of the trial court is contradicted
by the finding of fact of the appellate court that (Deganos) acted
as agent of his sister (Brigida Luz). [12] In support of this
contention, petitioners quoted several letters sent to them by
Brigida D. Luz wherein the latter acknowledged her obligation to
petitioners and requested for more time to fulfill the same. They
likewise aver that Brigida testified in the trial court that Deganos
took some gold articles from petitioners and delivered the same
to her.
Both the Court of Appeals and the trial court, however, found as
a fact that the aforementioned letters concerned the previous
obligations of Brigida to petitioners, and had nothing to do with
the money sought to be recovered in the instant case. Such
concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that
the letters were in the nature of acknowledgments by Brigida
that she was the principal of Deganos in the subject
transactions.
On the other hand, with regard to the testimony of Brigida
admitting delivery of the gold to her, there is no showing
whatsoever that her statement referred to the items which are
the subject matter of this case. It cannot, therefore, be validly
said that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz
as the latter clothed him with apparent authority as her agent
and held him out to the public as such, hence Brigida can not be
permitted to deny said authority to innocent third parties who
dealt with Deganos under such belief. [13] Petitioners further
represent that the Court of Appeals recognized in its decision
that Deganos was an agent of Brigida.[14]
The evidence does not support the theory of petitioners that
Deganos was an agent of Brigida D. Luz and that the latter
should consequently be held solidarily liable with Deganos in his
obligation to petitioners. While the quoted statement in the
findings of fact of the assailed appellate decision mentioned that
Deganos ostensibly acted as an agent of Brigida, the actual
conclusion and ruling of the Court of Appeals categorically
stated that, (Brigida Luz) never authorized her brother
(Deganos) to act for and in her behalf in any transaction with
Petitioners x x x. [15] It is clear, therefore, that even
assuming arguendo that Deganos acted as an agent of Brigida,
the latter never authorized him to act on her behalf with regard
to the transactions subject of this case.
The Civil Code provides:
Art. 1868. 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.
The basis for agency is representation. Here, there is no
showing that Brigida consented to the acts of Deganos or
authorized him to act on her behalf, much less with respect to
the particular transactions involved. Petitioners attempt to foist
liability on respondent spouses through the supposed agency
relation with Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners
to entrust to Deganos, not once or twice but on at least six
occasions as evidenced by six receipts, several pieces of
10
jewelry of substantial value without requiring a written
authorization from his alleged principal. A person dealing with
an agent is put upon inquiry and must discover upon his peril the
authority of the agent. [16]
The records show that neither an express nor an implied agency
was proven to have existed between Deganos and Brigida D.
Luz. Evidently, petitioners, who were negligent in their
transactions with Deganos, cannot seek relief from the effects of
their negligence by conjuring a supposed agency relation
between the two respondents where no evidence supports such
claim.
Petitioners next allege that the Court of Appeals erred in ignoring
the fact that the decision of the court below, which it affirmed, is
null and void as it contradicted its ruling in CA-G.R. SP No.
39445 holding that there is sufficient evidence/proof against
Brigida D. Luz and Deganos for estafa in the pending criminal
case. They further aver that said appellate court erred in ruling
against them in this civil action since the same would result in
an inevitable conflict of decisions should the trial court convict
the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein
respondents Brigida D. Luz and Deganos had filed a demurrer
to evidence and a motion for reconsideration in the aforestated
criminal case, both of which were denied by the trial court. They
then filed a petition for certiorari in the Court of Appeals to set
aside the denial of their demurrer and motion for reconsideration
but, as just stated, their petition therefor was dismissed.[17]
Petitioners now claim that the aforesaid dismissal by the Court
of Appeals of the petition in CA-G.R. SP No. 39445 with respect
to the criminal case is equivalent to a finding that there is
sufficient evidence in the estafa case against Brigida D. Luz and
Deganos. Hence, as already stated, petitioners theorize that the
decision and resolution of the Court of Appeals now being
impugned in the case at bar would result in a possible conflict
with the prospective decision in the criminal case. Instead of
promulgating the present decision and resolution under review,
so they suggest, the Court of Appeals should have awaited the
decision in the criminal case, so as not to render academic or
preempt the same or, worse, create two conflicting rulings. [18]
Petitioners have apparently lost sight of Article 33 of the Civil
Code which provides that in cases involving alleged fraudulent
acts, a civil action for damages, entirely separate and distinct
from the criminal action, may be brought by the injured
party. Such civil action shall proceed independently of the
criminal prosecution and shall require only a preponderance of
evidence.
It is worth noting that this civil case was instituted four years
before the criminal case for estafa was filed, and that although
there was a move to consolidate both cases, the same was
denied by the trial court. Consequently, it was the duty of the two
branches of the Regional Trial Court concerned to
independently proceed with the civil and criminal cases. It will
also be observed that a final judgment rendered in a civil action
absolving the defendant from civil liability is no bar to a criminal
action. [19]
It is clear, therefore, that this civil case may proceed
independently of the criminal case [20] especially because while

both cases are based on the same facts, the quantum of proof
required for holding the parties liable therein differ. Thus, it is
improvident of petitioners to claim that the decision and
resolution of the Court of Appeals in the present case would be
preemptive of the outcome of the criminal case. Their fancied
fear of possible conflict between the disposition of this civil case
and the outcome of the pending criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had
lost its jurisdiction to issue the denial resolution dated August 18,
1997, as the same was tainted with irregularities and badges of
fraud perpetrated by its court officers. [21] They charge that said
appellate court, through conspiracy and fraud on the part of its
officers, gravely abused its discretion in issuing that resolution
denying their motion for reconsideration. They claim that said
resolution was drafted by the ponente, then signed and issued
by the members of the Eleventh Division of said court within one
and a half days from the elevation thereof by the division clerk
of court to the office of the ponente.
It is the thesis of petitioners that there was undue haste in
issuing the resolution as the same was made without waiting for
the lapse of the ten-day period for respondents to file their
comment and for petitioners to file their reply. It was allegedly
impossible for the Court of Appeals to resolve the issue in just
one and a half days, especially because its ponente, the late
Justice Maximiano C. Asuncion, was then recuperating from
surgery and, that, additionally, hundreds of more important
cases were pending. [22]
These lamentable allegation of irregularities in the Court of
Appeals and in the conduct of its officers strikes us as a
desperate attempt of petitioners to induce this Court to give
credence to their arguments which, as already found by both the
trial and intermediate appellate courts, are devoid of factual and
legal substance. The regrettably irresponsible attempt to tarnish
the image of the intermediate appellate tribunal and its judicial
officers through ad hominem imputations could well be
contumacious, but we are inclined to let that pass with a strict
admonition that petitioners refrain from indulging in such
conduct in litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this
case affirming the trial courts decision. [23] Petitioners moved for
reconsideration and the Court of Appeals ordered respondents
to file a comment. Respondents filed the same on August 5,
1997 [24] and petitioners filed their reply to said comment on
August 15, 1997. [25] The Eleventh Division of said court issued
the questioned resolution denying petitioners motion for
reconsideration on August 18, 1997.[26]
It is ironic that while some litigants malign the judiciary for being
supposedly slothful in disposing of cases, petitioners are making
a show of calling out for justice because the Court of Appeals
issued a resolution disposing of a case sooner than expected of
it. They would even deny the exercise of discretion by the
appellate court to prioritize its action on cases in line with the
procedure it has adopted in disposing thereof and in declogging
its dockets. It is definitely not for the parties to determine and
dictate when and how a tribunal should act upon those cases
since they are not even aware of the status of the dockets and
the internal rules and policies for acting thereon.
11
The fact that a resolution was issued by said court within a
relatively short period of time after the records of the case were
elevated to the office of the ponente cannot, by itself, be
deemed irregular. There is no showing whatsoever that the
resolution was issued without considering the reply filed by
petitioners. In fact, that brief pleading filed by petitioners does
not exhibit any esoteric or ponderous argument which could not
be analyzed within an hour. It is a legal presumption, born of
wisdom and experience, that official duty has been regularly
performed; [27] that the proceedings of a judicial tribunal are
regular and valid, and that judicial acts and duties have been
and will be duly and properly performed. [28] The burden of
proving irregularity in official conduct is on the part of petitioners
and they have utterly failed to do so. It is thus reprehensible for
them to cast aspersions on a court of law on the bases of
conjectures or surmises, especially since one of the petitioners
appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial courts holding that whatever
contract of agency was established between Brigida D. Luz and
Narciso Deganos is unenforceable under the Statute of Frauds
as that aspect of this case allegedly is not covered
thereby. [29] They proceed on the premise that the Statute of
Frauds applies only to executory contracts and not to executed
or to partially executed ones. From there, they move on to claim
that the contract involved in this case was an executed contract
as the items had already been delivered by petitioners to Brigida
D. Luz, hence, such delivery resulted in the execution of the
contract and removed the same from the coverage of the Statute
of Frauds.
Petitioners claim is speciously unmeritorious. It should be
emphasized that neither the trial court nor the appellate court
categorically stated that there was such a contractual relation
between these two respondents. The trial court merely said that
if there was such an agency existing between them, the same is
unenforceable as the contract would fall under the Statute of
Frauds which requires the presentation of a note or
memorandum thereof in order to be enforceable in court. That
was merely a preparatory statement of a principle of law. What
was finally proven as a matter of fact is that there was no such
contract between Brigida D. Luz and Narciso Deganos,
executed or partially executed, and no delivery of any of the
items subject of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of
Appeals in affirming the judgment of the court a quo, its
challenged decision and resolution are hereby AFFIRMED and
the instant petition is DENIED, with double costs against
petitioners SO ORDERED.

G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P.
TUAZON, Spouses ANASTACIO and MARY T.
BUENAVENTURA, Petitioners, vs. HEIRS OF BARTOLOME
RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Syllabi:
1. Remedial Law; Appeals; Supreme Court’s role in a petition
under Rule 45 is limited to reviewing errors of law allegedly
committed by the Court of Appeals.+
2. Civil Law; Agency; In a contract of agency, one binds
oneself to render some service or to do something in
representation or on behalf of another, with the latter’s consent
or authority; Elements of Agency.+
3. Civil Law; Agency; Declarations of agents alone are
generally insufficient to establish the fact or extent of their
authority.+
4. Negotiable Instruments Law; After an instrument is
dishonored by nonpayment, indorsers cease to be merely
secondarily liable, they become principal debtors whose liability
becomes identical to that of the original obligor.+
Stripped of nonessentials, the present case involves the
collection of a sum of money. Specifically, this case arose from
the failure of petitioners to pay respondents’ predecessor-in-
interest. This fact was shown by the non-encashment of checks
issued by a third person, but indorsed by herein Petitioner Maria
Tuazon in favor of the said predecessor. Under these
circumstances, to enable respondents to collect on the
indebtedness, the check drawer need not be impleaded in the
Complaint. Thus, the suit is directed, not against the drawer, but
against the debtor who indorsed the checks in payment of the
obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of
Court, challenging the July 31, 2002 Decision 2 of the Court of
Appeals (CA) in CA-GR CV No. 46535. The decretal portion of
the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed
decision is AFFIRMED."
On the other hand, the affirmed Decision 3 of Branch 34 of the
Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as
follows:
"WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendants, ordering the defendants
spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs,
as follows:
"1. The sum of ₱1,750,050.00, with interests from the filing of
the second amended complaint;
"2. The sum of ₱50,000.00, as attorney’s fees;
12
"3. The sum of ₱20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988
and June 5, 1988, spouses Leonilo and Maria Tuazon
purchased a total of 8,326 cavans of rice from [the deceased
Bartolome] Ramos [predecessor-in-interest of respondents].
That of this [quantity,] x x x only 4,437 cavans [have been paid
for so far], leaving unpaid 3,889 cavans valued at
₱1,211,919.00. In payment therefor, the spouses Tuazon issued
x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks
bounced due to insufficiency of funds. [Respondents] advanced
that before issuing said checks[,] spouses Tuazon already knew
that they had no available fund to support the checks, and they
failed to provide for the payment of these despite repeated
demands made on them.
"[Respondents] averred that because spouses Tuazon
anticipated that they would be sued, they conspired with the
other [defendants] to defraud them as creditors by executing x x
x fictitious sales of their properties. They executed x x x
simulated sale[s] [of three lots] in favor of the x x x spouses
Buenaventura x x x[,] as well as their residential lot and the
house thereon[,] all located at Nueva Ecija, and another
simulated deed of sale dated July 12, 1988 of a Stake Toyota
registered with the Land Transportation Office of Cabanatuan
City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a
son of spouses Tuazon, registered a fictitious Deed of Sale on
July 19, 1988 x x x over a residential lot located at Nueva Ecija.
Another simulated sale of a Toyota Willys was executed on
January 25, 1988 in favor of their other son, [co-petitioner]
Alejandro Tuazon x x x. As a result of the said sales, the titles of
these properties issued in the names of spouses Tuazon were
cancelled and new ones were issued in favor of the [co-
]defendants spouses Buenaventura, Alejandro Tuazon and
Melecio Tuazon. Resultantly, by the said ante-dated and
simulated sales and the corresponding transfers there was no
more property left registered in the names of spouses Tuazon
answerable to creditors, to the damage and prejudice of
[respondents].
"For their part, defendants denied having purchased x x x rice
from [Bartolome] Ramos. They alleged that it was Magdalena
Ramos, wife of said deceased, who owned and traded the
merchandise and Maria Tuazon was merely her agent. They
argued that it was Evangeline Santos who was the buyer of the
rice and issued the checks to Maria Tuazon as payments
therefor. In good faith[,] the checks were received [by petitioner]
from Evangeline Santos and turned over to Ramos without
knowing that these were not funded. And it is for this reason that
[petitioners] have been insisting on the inclusion of Evangeline
Santos as an indispensable party, and her non-inclusion was a
fatal error. Refuting that the sale of several properties were

fictitious or simulated, spouses Tuazon contended that these
were sold because they were then meeting financial difficulties
but the disposals were made for value and in good faith and
done before the filing of the instant suit. To dispute the
contention of plaintiffs that they were the buyers of the rice, they
argued that there was no sales invoice, official receipts or like
evidence to prove this. They assert that they were merely agents
and should not be held answerable."5
The corresponding civil and criminal cases were filed by
respondents against Spouses Tuazon. Those cases were later
consolidated and amended to include Spouses Anastacio and
Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon
as additional defendants. Having passed away before the
pretrial, Bartolome Ramos was substituted by his heirs, herein
respondents.
Contending that Evangeline Santos was an indispensable party
in the case, petitioners moved to file a third-party complaint
against her. Allegedly, she was primarily liable to respondents,
because she was the one who had purchased the merchandise
from their predecessor, as evidenced by the fact that the checks
had been drawn in her name. The RTC, however, denied
petitioners’ Motion.
Since the trial court acquitted petitioners in all three of the
consolidated criminal cases, they appealed only its decision
finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to
prove the existence of an agency between respondents and
Spouses Tuazon. The appellate court disbelieved petitioners’
contention that Evangeline Santos should have been impleaded
as an indispensable party. Inasmuch as all the checks had been
indorsed by Maria Tuazon, who thereby became liable to
subsequent holders for the amounts stated in those checks,
there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling
that petitioners are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in
rendering judgment against the petitioners despite x x x the
failure of the respondents to include in their action Evangeline
Santos, an indispensable party to the suit." 7
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court’s role in a
petition under Rule 45 is limited to reviewing errors of law
allegedly committed by the Court of Appeals. Factual findings of
the trial court, especially when affirmed by the CA, are
13
conclusive on the parties and this Court. 8 Petitioners have not
given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some
service or to do something in representation or on behalf of
another, with the latter’s consent or authority.9 The following are
the elements of agency: (1) the parties’ consent, express or
implied, to establish the relationship; (2) the object, which is the
execution of a juridical act in relation to a third person; (3)
the representation, by which the one who acts as an agent does
so, not for oneself, but as a representative; (4) the limitation that
the agent acts within the scope of his or her authority. 10 As the
basis of agency is representation, there must be, on the part of
the principal, an actual intention to appoint, an intention naturally
inferable from the principal’s words or actions. In the same
manner, there must be an intention on the part of the agent to
accept the appointment and act upon it. Absent such mutual
intent, there is generally no agency.11
This Court finds no reversible error in the findings of the courts a
quo that petitioners were the rice buyers themselves; they were
not mere agents of respondents in their rice dealership. The
question of whether a contract is one of sale or of agency
depends on the intention of the parties.12
The declarations of agents alone are generally insufficient to
establish the fact or extent of their authority.13 The law makes
no presumption of agency; proving its existence, nature and
extent is incumbent upon the person alleging it. 14 In the present
case, petitioners raise the fact of agency as an affirmative
defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued
Evangeline Santos for collection of the amounts represented by
the bounced checks, in a separate civil case that they sought to
be consolidated with the current one. If, as they claim, they were
mere agents of respondents, petitioners should have brought
the suit against Santos for and on behalf of their alleged
principal, in accordance with Section 2 of Rule 3 of the Rules on
Civil Procedure.15 Their filing a suit against her in their own
names negates their claim that they acted as mere agents in
selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing
Evangeline Santos to be impleaded as an indispensable party.
They insist that respondents’ Complaint against them is based
on the bouncing checks she issued; hence, they point to her as
the person primarily liable for the obligation.
We hold that respondents’ cause of action is clearly founded on
petitioners’ failure to pay the purchase price of the rice. The trial
court held that Petitioner Maria Tuazon had indorsed the
questioned checks in favor of respondents, in accordance with
Sections 31 and 63 of the Negotiable Instruments Law.16 That
Santos was the drawer of the checks is thus immaterial to the
respondents’ cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due
presentment, the checks were to be accepted or paid, or both,
according to their tenor; and that in case they were dishonored,

she would pay the corresponding amount.17 After an instrument
is dishonored by nonpayment, indorsers cease to be merely
secondarily liable; they become principal debtors whose liability
becomes identical to that of the original obligor. The holder of a
negotiable instrument need not even proceed against the maker
before suing the indorser.18 Clearly, Evangeline Santos -- as the
drawer of the checks -- is not an indispensable party in an action
against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without
whom no final determination can be had." 19 The instant case
was originally one for the collection of the purchase price of the
rice bought by Maria Tuazon from respondents’ predecessor. In
this case, it is clear that there is no privity of contract between
respondents and Santos. Hence, a final determination of the
rights and interest of the parties may be made without any need
to implead her.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioners. SO ORDERED.
[G. R. No. 129919. February 6, 2002]
DOMINION INSURANCE CORPORATION, petitioner,
vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and
FERNANDO AUSTRIA, respondents.
DECISION
PARDO, J.:
1. Civil Law; Contracts; Agency; The basis for agency is
representation; There must be an actual intention by the
principal to appoint and on the part of the agent an intention to
accept the appointment and act on it, otherwise there is
generally no agency.+
The Case
This is an appeal via certiorari[1] from the decision of the Court
of Appeals[2] affirming the decision[3] of the Regional Trial Court,
Branch 44, San Fernando, Pampanga, which ordered petitioner
Dominion Insurance Corporation (Dominion) to pay Rodolfo
S. Guevarra (Guevarra) the sum of P156,473.90 representing
the total amount advanced by Guevarra in the payment of the
claims of Dominions clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted
Civil Case No. 8855 for sum of money against defendant
Dominion Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90 which he claimed to
have advanced in his capacity as manager of defendant to
satisfy certain claims filed by defendants clients.
In its traverse, defendant denied any liability to plaintiff and
asserted a counterclaim for P249,672.53, representing
premiums that plaintiff allegedly failed to remit.
14
On August 8, 1991, defendant filed a third-party complaint
against Fernando Austria, who, at the time relevant to the case,
was its Regional Manager for Central Luzon area.
In due time, third-party defendant Austria filed his answer.
Thereafter the pre-trial conference was set on the following
dates: October 18, 1991, November 12, 1991, March 29, 1991,
December 12, 1991, January 17, 1992, January 29, 1992,
February 28, 1992, March 17, 1992 and April 6, 1992, in all of
which dates no pre-trial conference was held. The record shows
that except for the settings on October 18, 1991, January 17,
1992 and March 17, 1992 which were cancelled at the instance
of defendant, third-party defendant and plaintiff, respectively, the
rest were postponed upon joint request of the parties.
On May 22, 1992 the case was again called for pre-trial
conference. Only plaintiff and counsel were present. Despite
due notice, defendant and counsel did not appear, although a
messenger, Roy Gamboa, submitted to the trial court a
handwritten note sent to him by defendants counsel which
instructed him to request for postponement. Plaintiffs counsel
objected to the desired postponement and moved to have
defendant declared as in default. This was granted by the trial
court in the following order:
ORDER
When this case was called for pre-trial this afternoon only
plaintiff and his counsel Atty. Romeo Maglalang appeared.
When shown a note dated May 21, 1992 addressed to a certain
Roy who was requested to ask for postponement,
Atty. Maglalang vigorously objected to any postponement on the
ground that the note is but a mere scrap of paper and moved
that the defendant corporation be declared as in default for its
failure to appear in court despite due notice.
Finding the verbal motion of plaintiffs counsel to be meritorious
and considering that the pre-trial conference has been
repeatedly postponed on motion of the defendant Corporation,
the defendant Dominion Insurance Corporation is hereby
declared (as) in default and plaintiff is allowed to present his
evidence on June 16, 1992 at 9:00 oclock in the morning.
The plaintiff and his counsel are notified of this order in open
court.
SO ORDERED.
Plaintiff presented his evidence on June 16, 1992. This was
followed by a written offer of documentary exhibits on July 8 and
a supplemental offer of additional exhibits on July 13, 1992. The
exhibits were admitted in evidence in an order dated July 17,
1992.
On August 7, 1992 defendant corporation filed a MOTION TO
LIFT ORDER OF DEFAULT. It alleged therein that the failure of
counsel to attend the pre-trial conference was due to an
unavoidable circumstance and that counsel had sent his
representative on that date to inform the trial court of his inability
to appear. The Motion was vehemently opposed by plaintiff.
On August 25, 1992 the trial court denied defendants motion for
reasons, among others, that it was neither verified nor supported

by an affidavit of merit and that it further failed to allege or specify
the facts constituting his meritorious defense.
On September 28, 1992 defendant moved for reconsideration of
the aforesaid order. For the first time counsel revealed to the trial
court that the reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit executed by its
Executive Vice-President purporting to explain its meritorious
defense was attached to the said Motion. Just the same, in an
Order dated November 13, 1992, the trial court denied said
Motion.
On November 18, 1992, the court a quo rendered judgment as
follows:
WHEREFORE, premises considered, judgment is hereby
rendered ordering:
1. The defendant Dominion Insurance Corporation to pay
plaintiff the sum of P156,473.90 representing the total amount
advanced by plaintiff in the payment of the claims of defendants
clients;
2. The defendant to pay plaintiff P10,000.00 as and by way of
attorneys fees;
3. The dismissal of the counter-claim of the defendant and the
third-party complaint;
4. The defendant to pay the costs of suit.[4]
On December 14, 1992, Dominion appealed the decision to the
Court of Appeals.[5]
On July 19, 1996, the Court of Appeals promulgated a decision
affirming that of the trial court.[6] On September 3, 1996,
Dominion filed with the Court of Appeals a motion for
reconsideration.[7]On July 16, 1997, the Court of Appeals denied
the motion.[8]
Hence, this appeal.[9]
The Issues
The issues raised are: (1) whether respondent Guevarra acted
within his authority as agent for petitioner, and (2) whether
respondent Guevarra is entitled to reimbursement of amounts
he paid out of his personal money in settling the claims of
several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render
some service or to do something in representation or on behalf
of another, with the consent or authority of the latter. [10] The
basis for agency is representation.[11] On the part of the
principal, there must be an actual intention to appoint [12] or an
intention naturally inferrable from his words or actions;[13] and on
the part of the agent, there must be an intention to accept the
appointment and act on it,[14] and in the absence of such intent,
there is generally no agency.[15]
A perusal of the Special Power of Attorney[16] would show that
petitioner (represented by third-party defendant Austria) and
15
respondent Guevarra intended to enter into a principal-agent
relationship. Despite the word special in the title of the
document, the contents reveal that what was constituted was
actually a general agency. The terms of the agreement read:
That we, FIRST CONTINENTAL ASSURANCE COMPANY,
INC.,[17] a corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines, xxx
represented by the undersigned as Regional Manager, xxx
do hereby appoint RSG Guevarra Insurance Services
represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform
the following acts and things:
1. To conduct, sign, manager (sic), carry on and transact
Bonding and Insurance business as usually pertain to a Agency
Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior written
consent, to appoint agents and sub-agents.
2. To accept, underwrite and subscribed (sic) cover notes or
Policies of Insurance and Bonds for and on our behalf.
3. To demand, sue, for (sic) collect, deposit, enforce payment,
deliver and transfer for and receive and give effectual receipts
and discharge for all money to which the FIRST CONTINENTAL
ASSURANCE COMPANY, INC.,[18] may hereafter become due,
owing payable or transferable to said Corporation by reason of
or in connection with the above-mentioned appointment.
4. To receive notices, summons, and legal processes for and in
behalf of the FIRST CONTINENTAL ASSURANCE COMPANY,
INC., in connection with actions and all legal proceedings
against the said Corporation.[19] [Emphasis supplied]
The agency comprises all the business of the principal, [20] but,
couched in general terms, it is limited only to acts of
administration.[21]
A general power permits the agent to do all acts for which the
law does not require a special power.[22] Thus, the acts
enumerated in or similar to those enumerated in the Special
Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a
special power of attorney is required. The pertinent portion that
applies to this case provides that:
Article 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually considered as
acts of administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The
settlement of claims is not included among the acts enumerated
in the Special Power of Attorney, neither is it of a character
similar to the acts enumerated therein. A special power of
attorney is required before respondent Guevarra could settle the
insurance claims of the insured.

Respondent Guevarras authority to settle claims is embodied in
the Memorandum of Management
Agreement[23] dated February 18, 1987 which enumerates the
scope of respondent Guevarras duties and responsibilities as
agency manager for San Fernando, Pampanga, as follows:
xxx xxx xxx
1. You are hereby given authority to settle and dispose of all
motor car claims in the amount of P5,000.00 with prior approval
of the Regional Office.
2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]
In settling the claims mentioned above,
respondent Guevarras authority is further limited by the written
standard authority to pay,[25] which states that the payment shall
come from respondent Guevarras revolving fund or collection.
The authority to pay is worded as follows:
This is to authorize you to withdraw from your revolving
fund/collection the amount of PESOS __________________
(P ) representing the payment on the _________________
claim of assured _______________ under Policy No. ______ in
that accident of ___________ at ____________.
It is further expected, release papers will be signed and
authorized by the concerned and attached to the corresponding
claim folder after effecting payment of the claim.
(sgd.) FERNANDO C. AUSTRIA
Regional Manager[26]
[Emphasis supplied]
The instruction of petitioner as the principal could not be any
clearer. Respondent Guevarra was authorized to pay the claim
of the insured, but the payment shall come from the revolving
fund or collection in his possession.
Having deviated from the instructions of the principal, the
expenses that respondent Guevarra incurred in the settlement
of the claims of the insured may not be reimbursed from
petitioner Dominion. This conclusion is in accord with Article
1918, Civil Code, which states that:
The principal is not liable for the expenses incurred by the agent
in the following cases:
(1) If the agent acted in contravention of the principals
instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
xxx xxx xxx
However, while the law on agency prohibits
respondent Guevarra from obtaining reimbursement, his right to
recover may still be justified under the general law on obligations
and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
16
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
In this case, when the risk insured against occurred, petitioners
liability as insurer arose. This obligation was extinguished when
respondent Guevarra paid the claims and obtained Release of
Claim Loss and Subrogation Receipts from the insured who
were paid.
Thus, to the extent that the obligation of the petitioner has been
extinguished, respondent Guevarra may demand for
reimbursement from his principal. To rule otherwise would result
in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement
of the insurance claims could best be proven by the Release of
Claim Loss and Subrogation Receipts[27] which were attached to
the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1,
I-1 and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was
then in the possession of respondent Guevarra as reflected in
the statement of account dated July 11, 1990 would be
deducted from the above amount.
The outstanding balance and the production/remittance for the
period corresponding to the claims was P3,604.84. Deducting
this from P116,276.95, we get P112,672.11. This is the amount
that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we
MODIFY the decision of the Court of Appeals[28] and that of the
Regional Trial Court, Branch 44, San
Fernando, Pampanga,[29] in that petitioner is ordered to pay
respondent Guevarra the amount of P112,672.11 representing
the total amount advanced by the latter in the payment of the
claims of petitioners clients. No costs in this instance. SO
ORDERED.
G.R. No. 145817 October 19, 2011
URBAN BANK, INC, Petitioner, vs. MAGDALENO M.
PEÑA, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 145822
DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, and
ERIC L. LEE, Petitioners, vs.
MAGDALENO M. PEÑA, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 162562
MAGDALENO M. PEÑA, Petitioner, vs.
URBAN BANK, INC., TEODORO BORLONGAN, DELFIN C.
GONZALEZ, JR., BENJAMIN L. DE LEON, P. SIERVO H.
DIZON, ERIC L. LEE, BEN T. LIM, JR., CORAZON BEJASA,
and ARTURO MANUEL, JR., Respondents.
DECISION

SERENO, J.:
Syllabi:
1. Civil Law; Agency; The basis of the civil law relationship
of agency is representation, the elements of which include
the following: (a) the relationship is established by the
parties’ consent, express or implied; (b) the object is the
execution of a juridical act in relation to a third person; (c)
the agents act as representatives and not for
themselves; and (d) agents act within the scope of their
authority.+
2. Same; Same; In cases in which restitution of the prematurely
executed property is not longer possible, compensation shall be
made in favour of the judgment debtor.+
3. Same; Same; Although execution pending appeal is
sanctioned under the rules and jurisprudence, when the
executed decision is reversed, the premature execution is
considered to have lost its legal bases. The situation necessarily
requires equitable restitution to the party prejudiced thereby. As
a matter of principle, courts are authorized at any time to order
the return of property erroneously ordered to be delivered to one
party, if the order is found to have been issued without
jurisdiction.+
4. Same; Same; The rule is that, where the executed judgment
is reversed totally or partially, or annulled+
5. Same; Same; As an exception to the general rule that only
final judgments may be executed, the grant of execution pending
appeal must perforce be based on “good reasons.”+
6. Same; Same; In cases where two or more defendants are
made subsidiarily or solidarily liable by the final judgment of the
trial court, discretionary execution can be allowed if all the
defendants have been found to be insolvent.+
7. Same; Same; In Philippine Bank of Communications vs.
Court of Appeals, 279 SCRA 364 (1997), the Court ruled that
financial distress of the prevailing party in a final judgment which
was still pending appeal may not be likened to the situation of a
natural person who is ill, of advanced age or dying as to justify
execution pending appeal.+
8. Same; Same; The presence or the absence of good reasons
remains the yardstick in allowing the remedy of execution
pending appeal, which should consist of exceptional
circumstances of such urgency as to outweigh the injury or
damage that the losing party may suffer, should the appealed
judgment be reversed later.+
9. Same; Execution Pending Appeals; In Florendo v.
Paramount Insurance, Corp., 610 SCRA 377 (2010), this Court
explained that the execution pending appeal is an exception to
the general rule that execution issues as a matter of right, when
a judgment has become final and executory.+
10. Same; Same; Execution of Judgments; Execution
Pending Appeal; The pendency of a collection suit by a third
party creditor which credit was obtained by the winning judgment
creditor in another case, is not a sufficiently good reason to allow
execution pending appeal as the Rules of Court provide.
Execution pending appeal is an extraordinary remedy allowed
17
only when there are reasons to believe that judgment debtor will
not be able to satisfy the judgment debt if the appeals process
will still have to be awaited.+
11. Same; Appeals; Although discretionary execution can
proceed independently while the appeal on the merits is
pending, the outcome of the main case will greatly impact the
execution pending appeal, especially in instances where there
is a complete reversal of the trial court’s decision.+
12. Judgments; A void judgment never acquires finality. In
contemplation of law, that void decision is deemed non-
existent.+
13. Corporation Law; A corporation, as a juridical entity, may
act only through its directors, officers and employees.
Obligations incurred as a result of the acts of the directors and
officers as corporate agents are not their personal liabilities but
those of the corporation they represent.+
14. Attorneys; Quantum Meruit; Lawyering is not a
business; it is a profession in which duty to public service, not
money, is the primary consideration. The principle of quantum
meruit applies if lawyers are employed without a price ageed
upon for their services, in which case they would be entitled to
receive what they merit for their services, or as much as they
have earned.+
15. Same; Same; When an agent performs for a principal at the
latter’s request, the law will normally imply a promise on the part
of the principal to pay for the reasonable worth of those services.
The intent of the principal to compensate the agent for services
performed on behalf of the former will be inferred from the
principal’s request for the agents.+
16. Same; Same; Agency is presumed to be for compensation.
Unless the contrary is shown, a person who acts as an agent
does so with the expectation of payment according to the
agreement and to services rendered or results effected.+
These consolidated petitions began as a simple case for
payment of services rendered and for reimbursement of costs.
The case spun a web of suits and counter-suits because of: (1)
the size of the award for agent’s fee rendered in favor of Atty.
Magdaleno Peña (Peña) – PhP24,000,000 – rendered by the
trial court; (2) the controversial execution of the full judgment
award of PhP28,500,000 (agent’s fee plus reimbursement for
costs and other damages) pending appeal; and (3) the finding of
solidary liability against Urban Bank, Inc., and several of its
corporate officers and directors together with the concomitant
levying and sale in execution of the personal (even conjugal)
properties of those officers and directors; and (4) the fact that
assets with declared conservative values of at least PhP181
Million which, together with those with undeclared values could
reach very much more than such amount, 1 were levied or sold
on execution pending appeal to satisfy the PhP28.5 Million
award in favor of Atty. Peña. Incidentally, two supersedeas
bonds worth PhP80 Million (2.8 times the amount of the
judgment) were filed by Urban Bank and some of its officers and
directors to stay the execution pending appeal.
Had the four attendant circumstances not afflicted the original
case, it would have been an open-and-shut review where this
Court, applying even just the minimum equitable principle

against unjust enrichment would have easily affirmed the grant
of fair recompense to Atty. Peña for services he rendered for
Urban Bank if such had been ordered by the trial court.
That Atty. Peña should be paid something by Urban Bank is not
in dispute – the Court of Appeals (CA) and the Regional Trial
Court (RTC) of Bago City, agreed on that. What they disagreed
on is the basis and the size of the award. The trial court claims
that the basis is an oral contract of agency and the award should
be PhP28,5000,000; while, the appellate court said that Atty.
Peña can only be paid under the legal principle against unjust
enrichment, and the total award in his favor should only amount
to PhP3,000,000.
In the eyes of the trial court, the controlling finding is that Atty.
Peña should be believed when he testified that in a telephone
conversation, the president of Urban Bank, Teodoro Borlongan,
a respondent herein, agreed to pay him for his services 10% of
the value of the property then worth PhP240,000,000, or
PhP24,000,000. Costs and other awards additionally amount to
PhP4,500,000, for a total award of PhP28,500,000 according to
the trial court. To the Court of Appeals, such an award has no
basis, as in fact, no contract of agency exists between Atty. Peña
and Urban Bank. Hence, Atty. Peña should only be
recompensed according to the principle of unjust enrichment,
and that he should be awarded the amount of PhP3,000,000
only for his services and reimbursements of costs.
The disparity in the size of the award given by the trial court vis-
à-vis that of the Court of Appeals (PhP28,500,000 v.
PhP3,000,000) must be placed in the context of the service that
Atty. Peña proved that he rendered for Urban Bank. As the
records bear, Atty. Peña’s services consisted of causing the
departure of unauthorized sub-tenants in twenty-three
commercial establishments in an entertainment compound
along Roxas Boulevard. It involved the filing of ejectment suits
against them, Peña’s personal defense in the counter-suits filed
against him, his settlement with them to the tune of
PhP1,500,000, which he advanced from his own funds, and his
retention of security guards and expenditure for other costs
amounting to more or less PhP1,500,000. There is no claim by
Atty. Peña of any service beyond those. He claims damages
from the threats to his life and safety from the angry tenants, as
well as a vexatious collection suit he had to face from a creditor-
friend from whom he borrowed PhP3,000,000 to finance the
expenses for the services he rendered Urban Bank.
At the time the award of PhP28,500,000 by the trial court came
out in 1999, the net worth of Urban Bank was
PhP2,219,781,104.2 While the bank would be closed by the
Bangko Sentral ng Pilipinas (BSP) a year later for having
unilaterally declared a bank holiday contrary to banking rules,
there was no reason to believe that at the time such award came
out it could not satisfy a judgment of PhP28,500,000, a sum that
was only 1% of its net worth, and a miniscule 0.2% of its total
assets of PhP11,933,383,630.3 In fact, no allegation of
impending insolvency or attempt to abscond was ever raised by
Atty. Peña and yet, the trial court granted execution pending
appeal.
Interestingly, Peña had included as co-defendants with Urban
Bank in the RTC case, several officers and board directors of
Urban Bank. Not all board directors were sued, however. With
18
respect to those included in the complaint, other than against
Teodoro Borlongan, Corazon Bejasa, and Arturo Manuel, no
evidence was ever offered as to their individual actions that gave
rise to Atty. Peña’s cause of action – the execution of the agency
contract and its breach – and yet, these officers and directors
were made solidarily liable by the trial court with Urban Bank for
the alleged breach of the alleged corporate contract of agency.
Execution pending appeal was also granted against them for this
solidary liability resulting in the levy and sale in execution
pending appeal of not only corporate properties of Urban Bank
but also personal properties of the individual bank officers and
directors. It would have been interesting to find out what drove
Atty. Peña to sue the bank officers and directors of Urban Bank
and why he chose to sue only some, but not all of the board
directors of Urban Bank, but there is nothing on the record with
which this analysis can be pursued.
Before us are: (a) the Petitions of Urban Bank (G. R. No.
145817) and the De Leon Group (G R. No. 145822) questioning
the propriety of the grant of execution pending appeal, and (b)
the Petition of Atty. Peña (G. R. No. 162562) assailing the CA’s
decision on the substantive merits of the case with respect to his
claims of compensation based on an agency agreement.
Ordinarily, the final resolution by the Supreme Court of an
appeal from a trial court decision would have automatic,
generally-understood consequences on an order issued by the
trial court for execution pending appeal. But this is no ordinary
case, and the magnitude of the disproportions in this case is too
mind-boggling that this Court must exert extra effort to correct
whatever injustices have been occasioned in this case. Thus,
our dispositions will include detailed instructions for several
judicial officials to implement.
At core, these petitions can be resolved if we answer the
following questions:
1. What is the legal basis for an award in favor of Peña for the
services he rendered to Urban Bank? Should it be a contract of
agency the fee for which was orally agreed on as Peña claims?
Should it be the application of the Civil Code provisions on unjust
enrichment? Or is it to be based on something else or a
combination of the legal findings of both the RTC and the CA?
How much should the award be?
2. Are the officers and directors of Urban Bank liable in their
personal capacities for the amount claimed by Peña?
3. What are the effects of our answers to questions (1) and (2),
on the various results of the execution pending appeal that
happened here?
Factual Background of the Controversy
Urban Bank, Inc. (both petitioner and respondent in these two
consolidated cases),4 was a domestic Philippine corporation,
engaged in the business of banking.5 The eight individual
respondents in G. R. No. 162562 were officers and members of
Urban Bank’s board of directors, who were sued in their official
and personal capacities.6On the other hand, Benjamin L. De
Leon, Delfin C. Gonzalez, Jr., and Eric L. Lee, (hereinafter the
de Leon Group), are the petitioners in G. R. No. 145822 and are
three of the same bank officers and directors, who had
separately filed the instant Petition before the Court.

Petitioner-respondent Atty. Magdaleno M. Peña (Peña)7 is a
lawyer by profession and was formerly a stockholder, director
and corporate secretary of Isabel Sugar Company, Inc. (ISCI). 8
ISCI owned a parcel of land9 located in Pasay City (the Pasay
property).10 In 1984, ISCI leased the Pasay property for a period
of 10 years.11 Without its consent12 and in violation of the lease
contract,13 the lessee subleased the land to several tenants,
who in turn put up 23 establishments, mostly beer houses and
night clubs, inside the compound.14 In 1994, a few months
before the lease contract was to expire, ISCI informed the
lessee15 and his tenants16 that the lease would no longer be
renewed and that it intended to take over the Pasay
property17 for the purpose of selling it.18
Two weeks before the lease over the Pasay property was to
expire, ISCI and Urban Bank executed a Contract to Sell,
whereby the latter would pay ISCI the amount of
PhP241,612,000 in installments for the Pasay property. 19Both
parties agreed that the final installment of PhP25,000,000 would
be released by the bank upon ISCI’s delivery of full and actual
possession of the land, free from any tenants. 20 In the
meantime, the amount of the final installment would be held by
the bank in escrow. The escrow provision in the Contract to Sell,
thus, reads:
"The SELLER (ISCI) agrees that from the proceeds of the
purchase prices of the subject Property (Pasay property), the
BUYER (Urban Bank) shall withhold the amount of PHP
25,000,000.00 by way of escrow and shall release this amount
to the SELLER only upon its delivery to the BUYER of the full
and actual possession and control of the Subject Property, free
from tenants, occupants, squatters or other structures or from
any liens, encumbrances, easements or any other obstruction
or impediment to the free use and occupancy by the buyer of the
subject Property or its exercise of the rights to ownership over
the subject Property, within a period of sixty (60) days from the
date of payment by the BUYER of the purchase price of the
subject Property net of the amounts authorized to be deducted
or withheld under Item II (a) of this Contract. 21 (Emphasis
supplied)
ISCI then instructed Peña, who was its director and corporate
secretary, to take over possession of the Pasay
property22 against the tenants upon the expiration of the lease.
ISCI’s president, Mr. Enrique G. Montilla III (Montilla), faxed a
letter to Peña, confirming the latter’s engagement as the
corporation’s agent to handle the eviction of the tenants from the
Pasay property, to wit:23
MEMORANDUM
TO: Atty. Magdaleno M. Pena
Director
FROM: Enrique G. Montilla III
President
DATE: 26 November 1994
You are hereby directed to recover and take possession of the
property of the corporation situated at Roxas Boulevard covered
by TCT No. 5382 of the Register of Deeds for Pasay City
19
immediately upon the expiration of the contract of lease over the
said property on 29 November 1994. For this purpose you are
authorized to engage the services of security guards to protect
the property against intruders. You may also engage the
services of a lawyer in case there is a need to go to court to
protect the said property of the corporation. In addition you may
take whatever steps or measures are necessary to ensure our
continued possession of the property.
(sgd.) ENRIQUE G. MONTILLA III
President24
On 29 November 1994, the day the lease contract was to expire,
ISCI and Urban Bank executed a Deed of Absolute Sale25 over
the Pasay property for the amount agreed upon in the Contract
to Sell, but subject to the above escrow provision. 26 The title to
the land was eventually transferred to the name of Urban Bank
on 05 December 1994.27
On 30 November 1994, the lessee duly surrendered possession
of the Pasay property to ISCI,28 but the unauthorized sub-
tenants refused to leave the area.29 Pursuant to his authority
from ISCI, Peña had the gates of the property closed to keep the
sub-tenants out.30 He also posted security guards at the
property,31 services for which he advanced payments.32 Despite
the closure of the gates and the posting of the guards, the sub-
tenants would come back in the evening, force open the gates,
and proceed to carry on with their businesses.33 On three
separate occasions, the sub-tenants tried to break down the
gates of the property, threw stones, and even threatened to
return and inflict greater harm on those guarding it. 34
In the meantime, a certain Marilyn G. Ong, as representative of
ISCI, faxed a letter to Urban Bank – addressed to respondent
Corazon Bejasa, who was then the bank’s Senior Vice-President
– requesting the issuance of a formal authority for Peña.35 Two
days thereafter, Ms. Ong faxed another letter to the bank, this
time addressed to its president, respondent Teodoro
Borlongan.36 She repeated therein the earlier request for
authority for Peña, since the tenants were questioning ISCI’s
authority to take over the Pasay property.37
In response to the letters of Ms. Ong, petitioner-respondent
bank, through individual respondents Bejasa and Arturo E.
Manuel – Senior Vice-President and Vice-President,
respectively – advised Peña38 that the bank had noted the
engagement of his services by ISCI and stressed that ISCI
remained as the lawyer’s principal.39
To prevent the sub-tenants from further appropriating the Pasay
property,40 petitioner-respondent Peña, as director and
representative of ISCI, filed a complaint for injunction41 (the First
Injunction Complaint) with the RTC-Pasay City.42 Acting on
ISCI’s prayer for preliminary relief, the trial court favorably
issued a temporary restraining order (TRO),43 which was duly
implemented.44 At the time the First Injunction Complaint was
filed, a new title to the Pasay property had already been issued
in the name of Urban Bank.45
On 19 December 1994, when "information reached the judge
that the Pasay property had already been transferred by ISCI to
Urban Bank, the trial court recalled the TRO and issued a break-
open order for the property. According to Peña, it was the first
time that he was apprised of the sale of the land by ISCI and of

the transfer of its title in favor of the bank." 46 It is not clear from
the records how such information reached the judge or what the
break-open order was in response to.
On the same day that the TRO was recalled, petitioner-
respondent Peña immediately contacted ISCI’s president, Mr.
Montilla, who in turn confirmed the sale of the Pasay property to
Urban Bank.47 Peña told Mr. Montilla that because of the break-
open order of the RTC-Pasay City, he (Peña) would be recalling
the security guards he had posted to secure the property. Mr.
Montilla, however, asked him to suspend the planned withdrawal
of the posted guards, so that ISCI could get in touch with
petitioner-respondent bank regarding the matter.48
Later that same day, Peña received a telephone call from
respondent Bejasa. After Peña informed her of the situation, she
allegedly told him that Urban Bank would be retaining his
services in guarding the Pasay property, and that he should
continue his efforts in retaining possession thereof. He insisted,
however, on talking to the Bank’s president. Respondent Bejasa
gave him the contact details of respondent Borlongan, then
president of Urban Bank.49
The facts regarding the following phone conversation and
correspondences are highly-controverted. Immediately after
talking to respondent Bejasa, Peña got in touch with Urban
Bank’s president, respondent Borlongan. Peña explained that
the policemen in Pasay City were sympathetic to the tenants and
were threatening to force their way into the premises. He
expressed his concern that violence might erupt between the
tenants, the city police, and the security guards posted in the
Pasay property. Respondent Borlongan supposedly assured
him that the bank was going to retain his services, and that the
latter should not give up possession of the subject land.
Nevertheless, petitioner-respondent Peña demanded a written
letter of authority from the bank. Respondent Borlongan
acceded and instructed him to see respondent Bejasa for the
letter.50
In the same telephone conversation, respondent Borlongan
allegedly asked Peña to maintain possession of the Pasay
property and to represent Urban Bank in any legal action that
might be instituted relative to the property. Peña supposedly
demanded 10% of the market value of the property as
compensation and attorney’s fees and reimbursement for all the
expenses incurred from the time he took over land until
possession was turned over to Urban Bank. Respondent
Borlongan purportedly agreed on condition that possession
would be turned over to the bank, free of tenants, not later than
four months; otherwise, Peña would lose the 10% compensation
and attorney’s fees. 51
Later that afternoon, Peña received the bank’s letter dated 19
December 1994, which was signed by respondents Bejasa and
Manuel, and is quoted below:
This is to confirm the engagement of your services as the
authorized representative of Urban Bank, specifically to hold and
maintain possession of our abovecaptioned property [Pasay
property] and to protect the same from former tenants,
occupants or any other person who are threatening to return to
the said property and/or interfere with your possession of the
said property for and in our behalf.
20
You are likewise authorized to represent Urban Bank in any
court action that you may institute to carry out the
aforementioned duties, and to prevent any intruder, squatter or
any other person not otherwise authorized in writing by Urban
[B]ank from entering or staying in the premises.52 (Emphasis
supplied)
On even date, ISCI sent Urban Bank a letter, which
acknowledged ISCI’s engagement of Peña and commitment to
pay for any expenses that may be incurred in the course of his
services. ISCI’s letter reads:
This has reference to your property located along Roxas
Boulevard, Pasay City [Pasay property] which you purchased
from Isabela Sugar Company under a Deed of Absolute Sale
executed on December 1, 1994.
In line with our warranties as the Seller of the said property and
our undertaking to deliver to you the full and actual possession
and control of said property, free from tenants, occupants or
squatters and from any obstruction or impediment to the free use
and occupancy of the property by Urban Bank, we have
engaged the services of Atty. Magdaleno M. Peña to hold and
maintain possession of the property and to prevent the former
tenants or occupants from entering or returning to the premises.
In view of the transfer of the ownership of the property to Urban
Bank, it may be necessary for Urban Bank to appoint Atty. Peña
likewise as its authorized representative for purposes of
holding/maintaining continued possession of the said property
and to represent Urban Bank in any court action that may be
instituted for the abovementioned purposes.
It is understood that any attorney’s fees, cost of litigation and
any other charges or expenses that may be incurred relative to
the exercise by Atty. Peña of his abovementioned duties shall
be for the account of Isabela Sugar Company and any loss or
damage that may be incurred to third parties shall be
answerable by Isabela Sugar Company.53 (Emphasis supplied)
The following narration of subsequent proceedings is
uncontroverted.
Peña then moved for the dismissal of ISCI’s First Injunction
Complaint, filed on behalf of ISCI, on the ground of lack of
personality to continue the action, since the Pasay property,
subject of the suit, had already been transferred to Urban
Bank.54 The RTC-Pasay City dismissed the complaint and
recalled its earlier break-open order.55
Thereafter, petitioner-respondent Peña, now in representation
of Urban Bank, filed a separate complaint56 (the Second
Injunction Complaint) with the RTC-Makati City, to enjoin the
tenants from entering the Pasay property.57Acting on Urban
Bank’s preliminary prayer, the RTC-Makati City issued a TRO.58
While the Second Injunction Complaint was pending, Peña
made efforts to settle the issue of possession of the Pasay
property with the sub-tenants. During the negotiations, he was
exposed to several civil and criminal cases they filed in
connection with the task he had assumed for Urban Bank, and
he received several threats against his life. 59 The sub-tenants
eventually agreed to stay off the property for a total
consideration of PhP1,500,000.60 Peña advanced the payment

for the full and final settlement of their claims against Urban
Bank.61
Peña claims to have borrowed PhP3,000,000 from one of his
friends in order to maintain possession thereof on behalf of
Urban Bank.62 According to him, although his creditor-friend
granted him several extensions, he failed to pay his loan when
it became due, and it later on became the subject of a separate
collection suit for payment with interest and attorney’s
fees.63 This collection suit became the basis for Atty. Peña’s
request for discretionary execution pending appeal later on.
On 07 February 1995, within the four-month period allegedly
agreed upon in the telephone conversation, Peña formally
informed Urban Bank that it could already take possession of the
Pasay property.64 There was however no mention of the
compensation due and owed to him for the services he had
rendered.
On 31 March 1995, the bank subsequently took actual
possession of the property and installed its own guards at the
premises.65
Peña thereafter made several attempts to contact respondents
Borlongan and Bejasa by telephone, but the bank officers would
not take any of his calls. On 24 January 1996, or nearly a year
after he turned over possession of the Pasay property, Peña
formally demanded from Urban Bank the payment of the 10%
compensation and attorney’s fees allegedly promised to him
during his telephone conversation with Borlongan for securing
and maintaining peaceful possession of the property. 66
Proceedings on the Complaint for Compensation
On 28 January 1996, when Urban Bank refused to pay for his
services in connection with the Pasay property, Peña filed a
complaint67 for recovery of agent’s compensation and
expenses, damages and attorney’s fees in RTC-Bago City in the
province of Negros Occidental.68 Interestingly, Peña sued only
six out of the eleven members of the Board of the Directors of
Urban Bank.69 No reason was given why the six directors were
selected and the others excluded from Peña’s complaint. In fact,
as pointed out, Atty. Peña mistakenly impleaded as a defendant,
Ben Y. Lim, Jr., who was never even a member of the Board of
Directors of Urban Bank; while, Ben T. Lim, Sr., father and
namesake of Ben Y. Lim, Jr., who had been a director of the
bank, already passed away in 1997.70
In response to the complaint of Atty. Peña, Urban Bank and
individual bank officers and directors argued that it was ISCI, the
original owners of the Pasay property, that had engaged the
services of Peña in securing the premises; and, consequently,
they could not be held liable for the expenses Peña had
incurred.71
On 28 May 1999, the RTC-Bago City72 ruled in favor of Peña,
after finding that an agency relationship had indeed been
created between him and Urban Bank. The eight directors and
bank officers were found to be solidarily liable with the bank for
the payment of agency’s fees. The trial court thus ordered Urban
Bank and all eight defendant bank directors and officers whom
Peña sued to pay the total amount of PhP28,500,000 (excluding
costs of suit):
21
WHEREFORE, premised from the foregoing, judgment is
hereby rendered ordering defendants to pay plaintiff jointly and
severally the following amounts:
1. P24,000,000 as compensation for plaintiff’s services plus the
legal rate of interest from the time of demand until fully paid;
2. P3,000,000 as reimbursement of plaintiff’s expenses;
3. P1,000,000 as and for attorney’s fees;
4. P500,000 as exemplary damages;
5. Costs of suit.
SO ORDERED.73
Urban Bank and the individual defendant bank directors and
officers filed a common Notice of Appeal,74 which was given due
course.75 In the appeal, they questioned the factual finding that
an agency relationship existed between the bank and Peña. 76
Although they put up a single defense in the proceedings in the
lower court, Urban Bank and individual defendants contracted
different counsel and filed separate Briefs on appeal in the
appellate court.
In its Brief,77 Urban Bank78 assigned as errors the trial court’s
reliance on the purported oral contract of agency and Peña’s
claims for compensation during the controverted telephone
conversation with Borlongan, which were allegedly incredible.
Meanwhile, Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric
L. Lee (the De Leon Group),79 the petitioners in the instant
Petition docketed as G. R. No. 145822, argued that, even on the
assumption that there had been an agency contract with the
bank, the trial court committed reversible error in holding them –
as bank directors – solidarily liable with the corporation.80
On the other hand, Teodoro Borlongan, Corazon M. Bejasa,
Arturo Manuel, Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon (the
Borlongan Group)81 reiterated similar arguments as those of the
De Leon Group, adding that the claimed compensation of 10%
of the purchase price of the Pasay property was not
reasonable.82
Peña refuted all of their arguments83 and prayed that the trial
court’s Decision be affirmed.84
Acting favorably on the appeal, the Court of Appeals 85 annulled
the Decision of the RTC-Bago City and ruled that no agency
relationship had been created. Nevertheless, it ordered Urban
Bank to reimburse Peña for his expenses and to give him
reasonable compensation for his efforts in clearing the Pasay
property of tenants in the amount of PhP3,000,000, but absolved
the bank directors and officers from solidary liability. The
dispositive portion of the CA decision reads as follows:
WHEREFORE, in view of the foregoing considerations, the May
28, 2000 Decision [sic] and the October 19, 2000 [sic] Special
Order of the RTC of Bago City, Branch 62,86 are hereby
ANNULLED AND SET ASIDE. However, the plaintiff-appellee
[Peña] in CA GR CV No. 65756 is awarded the amount of P3
Million as reimbursement for his expenses as well as reasonable
compensation for his efforts in clearing Urban Bank’s property
of unlawful occupants. The award of exemplary damages,

attorney’s fees and costs of suit are deleted, the same not
having been sufficiently proven. The petition for Indirect
Contempt against all the respondents is DISMISSED for utter
lack of merit. 87 (Emphasis supplied)
Peña duly filed a Motion for Reconsideration of the unfavorable
CA Decision.88 The appellate court, however, denied his
motion.89 The CA Decision and Resolution were appealed by
Peña to this Court, through one of the three consolidated Rule
45 Petitions before us (G. R. No. 162562).
Execution Pending Appeal
On 07 June 1999, prior to the filing of the notice of appeal of
Urban Bank and individual bank officers, 90 Peña moved for
execution pending appeal91 of the Decision rendered by the
RTC-Bago City,92 which had awarded him a total of
PhP28,500,000 in compensation and damages.93
In supporting his prayer for discretionary execution, Peña cited
the pending separate civil action for collection filed against him
by his creditor-friend, who was demanding payment of a
PhP3,000,000 loan.94 According to Peña, he had used the
proceeds of the loan for securing the bank’s Pasay property. No
other reason for the prayer for execution pending appeal was
given by Peña other than this collection suit. 95
In opposition to the motion, Urban Bank countered that the
collection case was not a sufficient reason for allowing execution
pending appeal.96
On 29 October 1999, the RTC-Bago City, through Judge Henry
J. Trocino,97 favorably granted Peña’s motion and issued a
Special Order authorizing execution pending appeal. 98 In
accordance with this Special Order, Atty. Josephine Mutia-
Hagad, the clerk of court and ex officio sheriff, issued a Writ of
Execution99 on the same day.100The Special Order and Writ of
Execution were directed at the properties owned by Urban Bank
as well as the properties of the eight individual bank directors
and officers.
On 04 November 1999, affected by the trial court’s grant of
execution pending appeal, Urban Bank101 filed a Rule 65
Petition with the CA to enjoin the Special Order and Writ of
Execution issued by the trial court with a prayer for a TRO. 102
On 09 November 1999, the appellate court favorably granted the
TRO and preliminarily prohibited the implementation of the
Special Order and Writ of Execution.103
On 12 January 2000, the CA eventually granted Urban Bank’s
Rule 65 Petition, and the RTC’s Special Order and Writ of
Execution, which permitted execution pending appeal, were
annulled. The appellate court ruled:104
WHEREFORE, the instant petition is GRANTED. The Special
Order and writ of execution, both dated October 29, 1999, are
ANNULLED and SET ASIDE.
Respondents are directed to desist from further implementing
the writ of execution and to lift the garnishment and levy made
pursuant thereto. 105
22
On 02 February 2000, Peña moved for the reconsideration of
the CA’s Decision;106 while petitioners filed their corresponding
Comment/Opposition
thereto.107
During the pendency of Peña’s Motion for Reconsideration,
Urban Bank declared a bank holiday on 26 April 2000 and was
placed under receivership of the Philippine Deposit Insurance
Corporation (PDIC).108
In its Amended Decision dated 18 August 2000, the
CA109 favorably granted Peña’s Motion for Reconsideration, and
reversed its earlier Decision to allow execution pending
appeal.110 The appellate court found that the bank holiday
declared by the BSP after the promulgation of its earlier
Decision, PDIC’s receivership of Urban Bank, and the imminent
insolvency thereof constituted changes in the bank’s conditions
that would justify execution pending appeal.111
On 29 August 2000, Urban Bank and its officers moved for the
reconsideration of the Amended Decision.112 The De Leon
Group subsequently filed several Supplemental Motions for
Reconsideration.113 Thereafter, respondents Teodoro
Borlongan and Corazon M. Bejasa also filed their separate
Supplemental Motion for Reconsideration,114 as did petitioner
Ben T. Lim, Jr.115
On 19 October 2000, the Court of Appeals denied the motion for
reconsideration for lack of merit and the other subsequent
Supplemental Motions for Reconsideration for being filed out of
time.116 The appellate court also ordered Peña to post an
indemnity bond.117 The Amended Decision and the Resolution
were the subjects of several Rule 45 Petitions filed by Urban
Bank and individual petitioners (G. R. Nos. 145817, 145818 and
145822).
On the same day the CA denied its Motion for Reconsideration,
the De Leon Group immediately moved for the stay of execution
pending appeal upon the filing of a supersedeas bond. 118
On 31 October 2000, the CA119 granted the stay of the execution
upon the filing by the De Leon Group of a PhP40,000,000 bond
in favor of Peña.120 Peña moved for the reconsideration of the
stay order.121
1avvphil
In its Resolution dated 08 December 2000,122 the appellate court
denied Peña’s Motion for Reconsideration and a stay order over
the execution pending appeal was issued in favor of the De Leon
Group, after they had filed their supersedeas bond. 123 The stay
of execution pending appeal, however, excluded Urban Bank.124
On 08 December 2000, Peña posted his indemnity bond as
required by the CA.125
As mentioned earlier, Urban Bank, the De Leon Group, and the
Borlongan Group filed around December 2000 separate Rule 45
Petitions in this Court, to assail the unfavorable CA Amended
Decision and Resolution that affirmed the execution pending
appeal. The details of these Rule 45 Petitions will be discussed
in detail later on.

In the meantime, Export and Industry Bank (EIB) submitted its
proposal for rehabilitation of Urban Bank to the BSP, and
requested that the troubled bank be removed from receivership
of the PDIC. On 12 July 2001, or almost a year after the Court
of Appeals amended its decision to allow execution pending
appeal, the rehabilitation plan of Urban Bank was approved by
the Monetary Board of the BSP.126 Thus, the Monetary Board
subsequently lifted PDIC’s statutory receivership of the bank.127
On 14 September 2001, Urban Bank, trying to follow the lead of
the De Leon Group, made a similar request with the Court of
Appeals for approval of its own supersedeas bond, 128 for the
same amount of PhP40,000,000, and prayed that the execution
of the RTC-Bago City’s Decision against it be stayed as well.129
Sometime in September and October 2001, Urban Bank began
receiving notices of levy and garnishment over its properties.
After it received Notice of the impending public execution sale of
its shares in the Tagaytay Highlands International Golf
Club,130 Urban Bank reiterated its request for the approval of the
supersedeas bond with the Court of Appeals and the issuance
of the corresponding stay order.131
The appellate court, however, merely noted Urban Bank’s
motion on the ground that there was no showing whether a
petition to the Supreme Court had been filed or given due course
or denied.132
After the denial by the Court of Appeals of Urban Bank’s motion
for approval of its supersedeas bond, some of the levied
properties of Urban Bank and the other bank officers were sold
on public auction. The table below lists the properties that
appear on record to have been levied and/or sold on execution
pending appeal and the approximate value of some of these
properties. They do not include properties covered by the
Petition docketed as G. R. No. 145818.
Table of Levied, Garnished and/or Executed Properties Pending
Appeal
The sum of PhP181,919,190 does not include many other
properties and it is not difficult to believe that the total value
covered reached more than that.191 In summary, the estimated
values and/or purchase prices at the auction sale of the
properties of Urban Bank and its officers amounted to no less
than PhP181,919,190 already. This amounts to almost six times
the value of the award given by the trial court. Otherwise stated,
Peña, as judgment creditor, was overly secured by the levied
and/or garnished properties for the amount of PhP28,500,000,
where the judgment award was still subject of reversal on
appeal.
On 22 October 2001, Urban Bank, with respect to its pending
Rule 45 Petition in this Court, moved for the approval of its
PhP40,000,000 supersedeas bond192 and requested that the
Court stay the execution pending appeal. 193Peña opposed the
motion on the ground that it had already been rendered moot
and academic by the sale of the properties of the bank.194
On 23 October 2002, or almost a year after some of the
condominium units were sold in a public auction, EIB, as the
successor of Urban Bank, expressed to the sheriff of RTC-Bago
23
City an intent to redeem the said condominium units.195 Thus,
EIB tendered three manager’s checks in the total amount of
PhP22,108,800196 to redeem the properties that were previously
under the name of Urban Bank.197 Although the trial court noted
the bank’s Manifestation,198 the sheriff returned the EIB’s
manager’s checks. Thus, on 29 October 2002, EIB, through a
motion, was prompted to turn over the checks to the trial court
itself.199
When Urban Bank supposedly failed to redeem the
condominium units according to the sheriff,200 final Certificates
of Sale were issued in favor of Unimega on 04 November
2002.201 Upon the latter’s motion, RTC-Bago City, in its Order
dated 13 November 2002, ordered the Register of Deeds of
Makati to transfer the Condominium Certificates of Title to the
name of Unimega.202 It has not been shown, though, whether
this Order was followed.
This Court, acting on Urban Bank’s earlier motion to approve its
supersedeas bond, granted the same in its Resolution dated 19
November 2001.203 Peña moved for reconsideration of the
approval,204 but his motion was subsequently denied by the
Court.205
Proceedings in the Supreme Court (G. R. Nos. 145817, 145818
& 145822)
On 21 December 2000, Urban Bank,206 represented by its
receiver, PDIC,207 filed a Rule 45 Petition with this Court
(docketed as G. R. No. 145817) to assail the CA’s Amended
Decision and Resolution granting execution pending
appeal.208 In response, Peña moved for the denial of the petition
on the grounds of lack merit, violation of the rule against forum
shopping, and non-payment of docket fees, among others.209 In
a separate Comment,210 Peña also argued that the appellate
court had committed no error when it considered the bank’s
"imminent insolvency" as a good reason for upholding the
validity of the execution pending appeal.
On the other hand, the Borlongan Group211 filed a separate Rule
45 Petition questioning the same Decision and Resolution,
docketed as G. R. No. 145818.212 This Court initially denied their
petition on the ground that it failed to sufficiently show that the
CA committed reversible order.213 The Borlongan Group twice
moved for the reconsideration of the denial of their petition; but
the Court nonetheless denied both motions for lack of
merit.214This denial of the petition in G. R. No. 145818 became
final and executory, with the issuance of the Entry of
Judgment.215
Meanwhile, another Rule 45 Petition (G. R. No. 145822)216 was
filed by the De Leon Group, assailing the same Decisions of the
appellate court. The Court also preliminarily denied this petition
on the ground that the De Leon Group failed to file the appeal
within the reglementary period and to pay certain fees.217
Despite the denial of the Rule 45 Petition in G. R. No. 145822
filed by the De Leon Group, the Court nonetheless ordered that
the case be consolidated with Urban Bank’s own Rule 45
Petition in G. R. No. 145817.218 The Court subsequently gave
due course to both of these petitions.219 In compliance with the
Court’s Order,220 Urban Bank221 and the De Leon Group222 filed
their respective Memoranda.

As detailed earlier, the Court granted and approved Urban
Bank’s supersedeas bond and stayed the execution pending
appeal.
Considering the favorable stay of execution pending appeal,
EIB, as the new owner and successor of Urban Bank,
immediately wrote to tell223 the corporate secretary of MSCI not
to effect the cancellation or transfer of Urban Bank’s three MSCI
stock certificates previously sold in a public auction. 224 In reply,
MSCI explained that since there was no injunction or stay order,
it had no other option but to comply with the trial court’s Order
for the transfer. Eventually, however, it could not effect the
transfer of one of the shares to Peña because a club share had
already been previously registered in his name, and the club’s
bylaws prohibited a natural person from owning more than one
share.225 Meanwhile, one of the winning bidders in the public
auction sale of the MSCI shares wrote to the latter to demand
that the club share previously owned by Urban Bank be
transferred to him.226
On 04 February 2002, considering the conflicting claims of
Urban Bank (through EIB) and the winning bidders of the club
shares, MSCI filed a Motion for Clarification of the Court’s
Resolution staying the execution pending appeal. 227
In its Motion for Clarification dated 06 August 2002, Urban Bank
likewise requested clarification of whether the stay order
suspended, as well, its right to redeem the properties sold at a
public auction.228 The copy of Urban Bank’s motion for
clarification intended for Peña was mistakenly sent to the wrong
counsel.
In its Resolution dated 13 November 2002, the Court explained
that its earlier stay order prohibited the MSCI from transferring
the shares, and that the one-year period for redemption of the
bank’s properties was likewise suspended:
WHEREFORE, the Court hereby RESOLVES to clarify that as a
consequence of its approval of the supersedeas bond, the
running of the one-year period for petitioner Urban Bank to
redeem the properties sold at the public auctions held on
October 4, 11 and 25, 2001 as well as the consolidation of the
titles in favor of the buyers, is SUSPENDED OR STAYED. MSCI
is also prohibited from transferring petitioner Urban Bank’s MSCI
club shares to the winning bidders in the execution sale held on
October 11, 2001.229 (Emphasis supplied)
On 09 December 2002, Peña moved that the Court’s Resolution
be recalled, because he was not given an opportunity to be
heard on Urban Bank’s Motion for Clarification, which was sent
to a different counsel.230Interposing its objection, the bank
argued that the error in mistakenly sending the Motion for
clarification to a different counsel was by sheer
inadvertence,231 but Peña was nonetheless aware of the motion,
and that the
Court’s clarification did not create or diminish his rights in any
case.232
The Motion for Clarification filed by Urban Bank, the Court’s
Resolution dated 13 November 2002 and Peña’s Omnibus
Motion praying for the recall of the said Resolution became the
subject of an administrative case (Administrative Case No.
6332), which was treated as a separate matter and later on de-
consolidated with the instant Petitions.233 The Court had even
24
called for an executive session234 in which Peña, among others,
appeared and was questioned by the then members of the
Court’s First Division, namely retired Chief Justice Hilario
Davide, Justices Jose Vitug, Antonio Carpio and Adolfo Azcuna.
Although the Petitions had earlier been assigned to Justice
Carpio, he has since taken no part in the proceedings of this
case and this resulted in the re-raffling of the Petitions. The
transfer and unloading of the case by the subsequently assigned
Justices as well as Peña’s numerous motions for inhibition
and/or re-raffle has likewise cause considerable delay in the
disposition of the instant Petitions and the Administrative Case.
Unimega, which was the winning bidder of some of the publicly
executed condominium units of Urban Bank, moved to intervene
in the case and to have the Court’s same Resolution suspending
the one-year period of redemption of the properties be
reconsidered.235 Unimega claimed that ownership of the bank’s
titles to the 10 condominium units had already been transferred
to the former at the time the Court issued the Resolution; and,
thus, there was no more execution to be suspended or stayed.
Only Urban Bank236 opposed the motion237 of intervenor
Unimega on the ground that the latter was not a buyer in good
faith, and that the purchase price was grossly disproportional to
the fair market value of the condominium units.238
The Court eventually granted the Motion to Intervene
considering that the intervenor’s title to the condominium units
purchased at the public auction would be affected, favorably or
otherwise, by the judgment of the Court in this case. However, it
held in abeyance the resolution of intervenor’s Motion for
Reconsideration, which might preempt the decision with respect
to the propriety of execution pending appeal.239 Thereafter, the
bank adopted its earlier Opposition to the intervention as its
answer to Unimega’s petition-in-intervention.240 Also in answer
thereto, the De Leon Group adopted its earlier Manifestation and
Comment.241
Intervenor Unimega then requested that a writ of possession be
issued in its favor covering the 10 condominium units sold during
the public auction.242 The Court required the parties to file their
comments on the request.243 The Lim244 and Borlongan
Groups245 manifested separately that they would not be affected
by a resolution of the request of intervenor Unimega, since the
latter was not among the contending parties to the incident.
Peña similarly interposed no objection to the issuance of the writ
of possession.246 In contrast, Urban Bank opposed the
application of Unimega on the ground that the latter was not
entitled to possession of the levied properties, because the rules
of extrajudicial foreclosure were not applicable to execution
sales under Rule 39, and that intervenor was also not a buyer in
good faith.247 In a similar vein, the De Leon Group opposed the
application for a writ of possession, and further argued that the
Court had already suspended the running of the one-year period
of redemption in the execution sale.248 Accordingly, intervenor
Unimega countered that the right of redemption of the levied
properties had already expired without having been exercised
by the judgment debtor.249
In summary, the Court shall resolve the substantial issues in the
following: (a) the Petition of Peña (G. R. No. 162562) assailing
the CA’s decision on the substantive merits of the case with
respect to his claims of compensation based on an agency
agreement; and (b) the Petitions of Urban Bank (G. R. No.

145817) and the De Leon Group (G R. No. 145822) questioning
the propriety of the grant of execution pending appeal.
OUR RULING
I
Peña is entitled to payment for compensation for services
rendered as agent of Urban Bank, but on the basis of the
principles of unjust enrichment and quantum meruit, and not on
the purported oral contract.
The Court finds that Peña should be paid for services rendered
under the agency relationship that existed between him and
Urban Bank based on the civil law principle against unjust
enrichment, but the amount of payment he is entitled to should
be made, again, under the principle against unjust enrichment
and on the basis of quantum meruit.
In a contract of agency, agents bind themselves to render some
service or to do something in representation or on behalf of the
principal, with the consent or authority of the latter.250 The basis
of the civil law relationship of agency is representation, 251 the
elements of which include the following: (a) the relationship is
established by the parties’ consent, express or implied; (b) the
object is the execution of a juridical act in relation to a third
person; (c) agents act as representatives and not for
themselves; and (d) agents act within the scope of their
authority.252
Whether or not an agency has been created is determined by
the fact that one is representing and acting for another. 253 The
law makes no presumption of agency; proving its existence,
nature and extent is incumbent upon the person alleging it. 254
With respect to the status of Atty. Peña’s relationship with Urban
Bank, the trial and the appellate courts made conflicting findings
that shall be reconciled by the Court. On one end, the appellate
court made a definitive ruling that no agency relationship existed
at all between Peña and the bank, despite the services
performed by Peña with respect to the Pasay property
purchased by the bank. Although the Court of Appeals ruled
against an award of agent’s compensation, it still saw fit to award
Peña with Ph3,000,000 for expenses incurred for his efforts in
clearing the Pasay property of tenants.255 On the other extreme,
the trial court heavily relied on the sole telephone conversation
between Peña and Urban Bank’s President to establish that the
principal-agent relationship created between them included an
agreement to pay Peña the huge amount of PhP24,000,000. In
its defense, Urban Bank insisted that Peña was never an agent
of the bank, but an agent of ISCI, since the latter, as seller of the
Pasay property committed to transferring it free from tenants.
Meanwhile, Peña argues on the basis of his successful and
peaceful ejectment of the sub-tenants, who previously occupied
the Pasay property.
Based on the evidence on records and the proceedings below,
the Court concludes that Urban Bank constituted Atty. Peña as
its agent to secure possession of the Pasay property. This
conclusion, however, is not determinative of the basis of the
amount of payment that must be made to him by the bank. The
context in which the agency was created lays the basis for the
amount of compensation Atty. Peña is entitled to.
25
The transactional history and context of the sale between ISCI
and Urban Bank of the Pasay property, and Atty. Peña’s
participation in the transfer of possession thereof to Urban Bank
provide crucial linkages that establish the nature of the
relationship between the lawyer and the landowner-bank.
The evidence reveals that at the time that the Contract to Sell
was executed on 15 November 1994, and even when the Deed
of Absolute Sale was executed two weeks later on 29 November
1994, as far as Urban Bank was concerned, Peña was nowhere
in the picture. All discussions and correspondences were
between the President and Corporate Secretary of Urban Bank,
on one hand, and the President of ISCI, on the other. The title to
the Pasay property was transferred to Urban Bank on 5
December 1994. Interestingly, Peña testifies that it was only on
19 December 1994 that he learned that the land had already
been sold by ISCI to Urban Bank, notwithstanding the fact that
Peña was a director of ISCI. Peña was not asked to render any
service for Urban Bank, neither did he perform any service for
Urban Bank at that point.
ISCI undertook in the Contract to Sell, to physically deliver the
property to Urban Bank, within 60 days from 29 November
1994,256 under conditions of "full and actual possession and
control ..., free from tenants, occupants, squatters or other
structures or from any liens, encumbrances, easements or any
other obstruction or impediment to the free use and occupancy
by the buyer of the subject Property or its exercise of the rights
to ownership over the subject Property...."257 To guarantee this
undertaking, ISCI agreed to the escrow provision where
PhP25,000,000 (which is a little over 10% of the value of the
Pasay property) would be withheld by Urban Bank from the total
contract price until there is full compliance with this undertaking.
Apparently to ensure that ISCI is able to deliver the property
physically clean to Urban Bank, it was ISCI’s president, Enrique
Montilla who directed on 26 November 1994 one of its directors,
Peña, to immediately recover and take possession of the
property upon expiration of the contract of lease on 29
November 1994.258 Peña thus first came into the picture as a
director of ISCI who was constituted as its agent to recover the
Pasay property against the lessee as well as the sub-tenants
who were occupying the property in violation of the lease
agreement.259 He was able to obtain possession of the property
from the lessee on the following day, but the unauthorized sub-
tenants refused to vacate the property.
It was only on 7 December 1994, that Urban Bank was informed
of the services that Peña was rendering for ISCI. The faxed letter
from ISCI’s Marilyn Ong reads:
Atty. Magdaleno M. Peña, who has been assigned by
Isabela Sugar Company, Inc., to take charge of inspecting
the tenants would like to request an authority similar to this from
the Bank, as new owners. Can you please issue something like
this today as he needs this.260
Two days later, on 9 December 1994, ISCI sent Urban Bank
another letter that reads:
Dear Mr. Borlongan, I would like to request for an authorization
from Urban Bank as per attached immediately – as the tenants
are questioning the authority of the people there who are

helping us to take over possession of the property.
(Emphasis supplied)261
It is clear from the above that ISCI was asking Urban Bank for
help to comply with ISCI’s own contractual obligation with the
bank under the terms of the sale of the Pasay property. Urban
Bank could have ignored the request, since it was exclusively
the obligation of ISCI, as the seller, to deliver a clean property to
Urban Bank without any help from the latter.
A full-bodied and confident interpretation of the contracts
between ISCI and Urban Bank should have led the latter to
inform the unauthorized sub-tenants that under its obligation as
seller to Urban Bank, it was under duty and had continuing
authority to recover clean possession of the property, despite
the transfer of title. Yet, what unauthorized sub-tenant,
especially in the kind of operations being conducted within the
Pasay property, would care to listen or even understand such
argument?
Urban Bank thus chose to cooperate with ISCI without realizing
the kind of trouble that it would reap in the process. In an
apparent attempt to allow the efforts of ISCI to secure the
property to succeed, it recognized Peña’s role in helping ISCI,
but stopped short of granting him authority to act on its behalf.
In response to the two written requests of ISCI, Urban Bank sent
this letter to Peña on 15 December 1994:
This is to advise you that we have noted the engagement of your
services by Isabela Sugar Company to recover possession of
the Roxas Boulevard property formerly covered by TCT No.
5382, effective November 29, 1994. It is understood that your
services have been contracted by and your principal
remains to be the Isabela Sugar Company, which as seller of
the property and under the terms of our Contract to Sell dated
November 29, 1994, has committed to deliver the full and actual
possession of the said property to the buyer, Urban Bank, within
the stipulated period. 262 (Emphasis supplied)
Up to this point, it is unmistakable that Urban Bank was staying
clear from making any contractual commitment to Peña and
conveyed its sense that whatever responsibilities arose in
retaining Peña were to be shouldered by ISCI.
According to the RTC-Bago City, in the reversed Decision, Atty.
Peña only knew of the sale between ISCI and Urban Bank at the
time the RTC-Pasay City recalled the TRO and issued a break-
open order:
"… when information reached the (Pasay City) judge that the
Pasay property had already been transferred by ISCI to Urban
Bank, the trial court recalled the TRO and issued a break-open
order for the property. According to Peña, it was the first time
that he was apprised of the sale of the land by ISCI and of the
transfer of its title in favor of the bank."263
There is something contradictory between some of the trial
court’s factual findings and Peña’s claim that it was only on 19
December 1994 that he first learned of the sale of the property
to Urban Bank. It is difficult to believe Peña on this point
considering: (1) that he was a board director of ISCI and a sale
of this significant and valuable property of ISCI requires the
approval of the board of directors of ISCI; and (2) that ISCI twice
requested Urban Bank for authority to be issued in his favor (07
26
and 9 December 1994), 12 and 10 days before 19 December
1994, since it would be contrary to human experience for Peña
not to have been informed by an officer of ISCI beforehand that
a request for authority for him was being sent to Urban Bank.
The sequence of fast-moving developments, edged with a sense
of panic, with respect to the decision of the RTC-Pasay City to
recall the temporary restraining order and issue a break-open
order on 19 December 1994 in the First Injunction Complaint, is
highly enlightening to this Court.
First, Peña allegedly called up the president of ISCI, Montilla,
who, according to Peña, confirmed to him that the Pasay
property had indeed been sold to Urban Bank.
Second, Peña allegedly told Montilla that he (Peña) would be
withdrawing his guards from the property because of the break-
open order from the RTC-Pasay City.
Third, Montilla requested Peña to suspend the withdrawal of the
guards while ISCI gets in touch with Urban Bank.
Fourth, apparently in view of Montilla’s efforts, Bejasa, an officer
of Urban Bank called Peña and according to the latter, told him
that Urban Bank would continue retaining his services and for
him to please continue with his effort to secure the property.
Fifth, this statement of Bejasa was not enough for Peña and he
insisted that he be enabled to talk with no less than the President
of Urban Bank, Borlongan. At this point, Bejasa gave him the
phone number of Borlongan.
Sixth, immediately after the conversation with Bejasa, Peña calls
Borlongan and tells Borlongan that violence might erupt in the
property because the Pasay City policemen, who were
sympathetic to the tenants, were threatening to force their way
through the property.
At this point, if indeed this conversation took place, which
Borlongan contests, what would have been the response of
Borlongan? Any prudent president of a bank, which has just
purchased a PhP240,000,000 property plagued by unauthorized
and unruly sub-tenants of the previous owner, would have
sought to continue the possession of ISCI, thru Peña, and he
would have agreed to the reasonable requests of Peña.
Borlongan could also have said that the problem of having the
sub-tenants ejected is completely ISCI’s and ISCI should
resolve the matter on its own that without bothering the bank,
with all its other problems. But the specter of violence, especially
as night was approaching in a newly-bought property of Urban
Bank, was not something that any publicly-listed bank would
want publicized. To the extent that the violence could be
prevented by the president of Urban Bank, it is expected that he
would opt to have it prevented.
But could such response embrace the following legal
consequences as Peña claims to have arisen from the
telephone conversation with Borlongan: (1) A contract of agency
was created between Peña and Urban Bank whereby Borlongan
agreed to retain the services of Peña directly; (2) This contract
of agency was to be embodied in a written letter of authority from
Urban Bank; and (3) The agency fee of Peña was to be 10% of
the market value as "attorney’s fees and compensation" and

reimbursement of all expenses of Peña from the time he took
over the land until possession is turned over to Urban Bank.
This Court concludes that the legal consequences described in
statements (1) and (2) above indeed took place and that the
facts support them. However, the evidence does not support
Peña’s claim that Urban Bank agreed to "attorney’s fees and
compensation" of 10% of the market value of the property.
Urban Bank’s letter dated 19 December 1994 confirmed in no
uncertain terms Peña’s designation as its authorized
representative to secure and maintain possession of the Pasay
property against the tenants. Under the terms of the letter,
petitioner-respondent bank confirmed his engagement (a) "to
hold and maintain possession" of the Pasay property; (b) "to
protect the same from former tenants, occupants or any other
person who are threatening to return to the said property and/or
interfere with your possession of the said property for and in our
behalf"; and (c) to represent the bank in any instituted court
action intended to prevent any intruder from entering or staying
in the premises.264
These three express directives of petitioner-respondent bank’s
letter admits of no other construction than that a specific and
special authority was given to Peña to act on behalf of the bank
with respect to the latter’s claims of ownership over the property
against the tenants. Having stipulated on the due execution and
genuineness of the letter during pretrial,265 the bank is bound by
the terms thereof and is subject to the necessary consequences
of Peña’s reliance thereon. No amount of denial can overcome
the presumption that we give this letter – that it means what it
says.
In any case, the subsequent actions of Urban Bank resulted in
the ratification of Peña’s authority as an agent acting on its
behalf with respect to the Pasay property. By ratification, even
an unauthorized act of an agent becomes an authorized act of
the principal.266
Both sides readily admit that it was Peña who was responsible
for clearing the property of the tenants and other occupants, and
who turned over possession of the Pasay property to petitioner-
respondent bank.267 When the latter received full and actual
possession of the property from him, it did not protest or refute
his authority as an agent to do so. Neither did Urban Bank
contest Peña’s occupation of the premises, or his installation of
security guards at the site, starting from the expiry of the lease
until the property was turned over to the bank, by which time it
had already been vested with ownership thereof. Furthermore,
when Peña filed the Second Injunction Complaint in the RTC-
Makati City under the name of petitioner-respondent bank, the
latter did not interpose any objection or move to dismiss the
complaint on the basis of his lack of authority to represent its
interest as the owner of the property. When he successfully
negotiated with the tenants regarding their departure from its
Pasay property, still no protest was heard from it. After
possession was turned over to the bank, the tenants accepted
PhP1,500,000 from Peña, in "full and final settlement" of their
claims against Urban Bank, and not against ISCI.268
In all these instances, petitioner-respondent bank did not
repudiate the actions of Peña, even if it was fully aware of his
representations to third parties on its behalf as owner of the
27
Pasay property. Its tacit acquiescence to his dealings with
respect to the Pasay property and the tenants spoke of its intent
to ratify his actions, as if these were its own. Even assuming
arguendo that it issued no written authority, and that the oral
contract was not substantially established, the bank duly ratified
his acts as its agent by its acquiescence and acceptance of the
benefits, namely, the peaceful turnover of possession of the
property free from sub-tenants.
Even if, however, Peña was constituted as the agent of Urban
Bank, it does not necessarily preclude that a third party would
be liable for the payment of the agency fee of Peña. Nor does it
preclude the legal fact that Peña while an agent of Urban Bank,
was also an agent of ISCI, and that his agency from the latter
never terminated. This is because the authority given to Peña
by both ISCI and Urban Bank was common – to secure the clean
possession of the property so that it may be turned over to Urban
Bank. This is an ordinary legal phenomenon – that an agent
would be an agent for the purpose of pursuing a shared goal so
that the common objective of a transferor and a new transferee
would be met.
Indeed, the Civil Code expressly acknowledged instances when
two or more principals have granted a power of attorney to an
agent for a common transaction.269 The agency relationship
between an agent and two principals may even be considered
extinguished if the object or the purpose of the agency is
accomplished.270 In this case, Peña’s services as an agent of
both ISCI and Urban Bank were engaged for one shared
purpose or transaction, which was to deliver the property free
from unauthorized sub-tenants to the new owner – a task that
Peña was able to achieve and is entitled to receive payment for.
That the agency between ISCI and Peña continued, that ISCI is
to shoulder the agency fee and reimbursement for costs of
Peña, and that Urban Bank never agreed to pay him a 10%
agency fee is established and supported by the following:
First, the initial agency relationship between ISCI and Peña
persisted. No proof was ever offered that the letter of 26
November 1994 of Mr. Montilla of ISCI to Peña, for the latter "to
immediately recover and take possession of the property upon
expiration of the contract of lease on 29 November 1994" was
terminated. It is axiomatic that the appointment of a new agent
for the same business or transaction revokes the previous
agency from the day on which notice thereof was given to the
former agent.271 If it is true that the agency relationship was to
be borne by Urban Bank alone, Peña should have demonstrated
that his previous agency relationship with ISCI is incompatible
with his new relationship with Urban Bank, and was thus
terminated.
Second, instead, what is on the record is that ISCI confirmed the
continuation of this agency between Peña and itself and
committed to pay for the services of Peña, in its letter to Urban
Bank dated 19 December 1994 which reads:
In line with our warranties as the Seller of the said property and
our undertaking to deliver to you the full and actual possession
and control of said property, free from tenants, occupants or
squatters and from any obstruction or impediment to the free use
and occupancy of the property by Urban Bank, we have
engaged the services of Atty. Magdaleno M. Peña to hold and

maintain possession of the property and to prevent the former
tenants or occupants from entering or returning to the premises.
In view of the transfer of the ownership of the property to Urban
Bank, it may be necessary for Urban Bank to appoint Atty. Peña
likewise as its authorized representative for purposes of
holding/maintaining continued possession of the said property
and to represent Urban Bank in any court action that may be
instituted for the abovementioned purposes.
It is understood that any attorney’s fees, cost of litigation and
any other charges or expenses that may be incurred relative to
the exercise by Atty. Peña of his abovementioned duties shall
be for the account of Isabela Sugar Company and any loss or
damage that may be incurred to third parties shall be
answerable by Isabela Sugar Company.272 (Emphasis supplied)
Third, Peña has never shown any written confirmation of his
10% agency fee, whether in a note, letter, memorandum or
board resolution of Urban Bank. An agency fee amounting to
PhP24,000,000 is not a trifling amount, and corporations do not
grant their presidents unilateral authority to bind the corporation
to such an amount, especially not a banking corporation which
is closely supervised by the BSP for being a business seriously
imbued with public interest. There is nothing on record except
the self-serving testimony of Peña that Borlongan agreed to pay
him this amount in the controverted telephone conversation.
Fourth, while ordinarily, uncontradicted testimony will be
accorded its full weight, we cannot grant full probative value to
the testimony of Peña for the following reasons: (a) Peña is not
a credible witness for testifying that he only learned of the sale
of the property of 19 December 1994 when the acts of ISCI, of
Urban Bank and his own up to that point all indicated that he
must have known about the sale to Urban Bank; and (b) it is
incredible that Urban Bank will agree to add another
PhP24,000,000 to the cost of the property by agreeing to the
agency fee demanded by Peña. No prudent and reasonable
person would agree to expose his corporation to a new liability
of PhP24,000,000 even if, in this case, a refusal would lead to
the Pasay City policemen and unauthorized sub-tenants
entering the guarded property and would possibly erupt in
violence.
Peña’s account of an oral agreement with Urban Bank for the
payment of PhP24,000,000 is just too much for any court to
believe. Whatever may be the agreement between Peña and
ISCI for compensation is not before this Court. This is not to say,
however, that Urban Bank has no liability to Peña. It has.
Payment to him is required because the Civil Code demands
that no one should be unjustly enriched at the expense of
another. This payment is to be measured by the standards of
quantum meruit.
Amount of Compensation
Agency is presumed to be for compensation. But because in this
case we find no evidence that Urban Bank agreed to pay Peña
a specific amount or percentage of amount for his services, we
turn to the principle against unjust enrichment and on the basis
of quantum meruit.
Since there was no written agreement with respect to the
compensation due and owed to Atty. Peña under the letter dated
28
19 December 1994, the Court will resort to determining the
amount based on the well-established rules on quantum meruit.
Agency is presumed to be for compensation.273 Unless the
contrary intent is shown, a person who acts as an agent does so
with the expectation of payment according to the agreement and
to the services rendered or results effected.274 We find that the
agency of Peña comprised of services ordinarily performed by a
lawyer who is tasked with the job of ensuring clean possession
by the owner of a property. We thus measure what he is entitled
to for the legal services rendered.
A stipulation on a lawyer’s compensation in a written contract for
professional services ordinarily controls the amount of fees that
the contracting lawyer may be allowed to collect, unless the
court finds the amount to be unconscionable.275 In the absence
of a written contract for professional services, the attorney’s fees
are fixed on the basis of quantum meruit,276 i.e., the reasonable
worth of the attorney’s services.277 When an agent performs
services for a principal at the latter’s request, the law will
normally imply a promise on the part of the principal to pay for
the reasonable worth of those services.278 The intent of a
principal to compensate the agent for services performed on
behalf of the former will be inferred from the principal’s request
for the agents.279
In this instance, no extra-ordinary skills employing advanced
legal training nor sophisticated legal maneuvering were required
to be employed in ejecting 23 sub-tenants who have no lease
contract with the property owner, and whose only authority to
enter the premises was unlawfully given by a former tenant
whose own tenancy has clearly expired. The 23 sub-tenants
operated beer houses and nightclubs, ordinary retail
establishments for which no sophisticated structure prevented
easy entry. After Peña succeeded in locking the gate of the
compound, the sub-tenants would open the padlock and resume
their businesses at night. Indeed, it appears that only security
guards, chains and padlocks were needed to keep them out. It
was only the alleged connivance of Pasay City policemen that
Peña’s ability to retain the possession was rendered insecure.
And how much did it take Peña to enter into a settlement
agreement with them and make all these problems go away? By
Peña’s own account, PhP1,500,000 only. That means that each
tenant received an average of PhP65,217.40 only. Surely, the
legal services of Peña cannot be much more than what the sub-
tenants were willing to settle for in the first place. We therefore
award him the equivalent amount of PhP1,500,000 for the legal
and other related services he rendered to eject the illegally
staying tenants of Urban Bank’s property.
The Court of Appeals correctly reversed the trial court and found
it to have acted with grave abuse of discretion in granting
astounding monetary awards amounting to a total of
PhP28,500,000 without any basis.280 For the lower court to have
latched on to the self-serving claims of a telephone agreement
as sufficient support for extending a multi-million peso award is
highly irregular. Absent any clear basis for the amount of the
lawyer’s compensation, the trial court should have instinctively
resorted to quantum meruit, instead of insisting on a figure with
circumstantial and spurious justification.
We cannot also agree with the Decision penned by Judge
Edgardo L. Catilo characterizing Pena’s 10% fee as believable

because it is nearly congruent to the PhP25 Million retention
money held in escrow for ISCI until a clean physical and legal
turn-over of the property is effected:
We now come to the reasonableness of the compensation
prayed for by the plaintiff which is 10% of the current market
value which defendants claim to be preposterous and glaringly
excessive. Plaintiff [Peña] testified that defendant Borlongan
agreed to such an amount and this has not been denied by Ted
Borlongan. The term "current market value of the property" is
hereby interpreted by the court to mean the current market value
of the property at the time the contract was entered into. To
interpret it in accordance with the submission of the plaintiff that
it is the current market value of the property at the time payment
is made would be preposterous. The only evidence on record
where the court can determine the market value of the property
at the time the contract of agency was entered into between
plaintiff and defendant is the consideration stated in the sales
agreement between Isabela Sugar Company, Inc. and Urban
bank which is ₱241,612,000.00. Ten percent of this amount is a
reasonable compensation of the services rendered by the
plaintiff considering the "no cure, no pay" arrangement between
the parties and the risks which plaintiff had to undertake. 281
In the first place, the Decision of Judge Catilo makes Peña’s
demand of an agency fee of PhP24 Million, an additional burden
on Urban Bank. The Decision does not make the retention
money responsible for the same, or acquit Urban Bank of any
liability to ISCI if it pays the PhP24 Million directly to Pena
instead of ISCI. In the second place, the amount of money that
is retained by transferees of property transactions while the
transferor is undertaking acts to ensure a clean and peaceful
transfer to the transferee does not normally approximate a one-
to-one relationship to the services of ejecting unwanted
occupants. They may be inclusive of other costs, and not only
legal costs, with enough allowances for contingencies, and may
take into consideration other liabilities as well. The amount can
even be entirely arbitrary, and may have been caused by the
practice followed by Urban Bank as advised by its officers and
lawyers or by industry practice in cases where an expensive
property has some tenancy problems. In other words, Judge
Catilo’s statement is a non sequitur, is contrary to normal human
experience, and sounds like an argument being made to fit
Peña’s demand for a shocking pay-out.
In any case, 10% of the purchase price of the Pasay property –
a staggering PhP24,161,200 – is an unconscionable amount,
which we find reason to reduce. Neither will the Court accede to
the settlement offer of Peña to Urban Bank of at least
PhP38,000,000 for alleged legal expenses incurred during the
course of the proceedings,282 an amount that he has not
substantiated at any time.
Lawyering is not a business; it is a profession in which duty to
public service, not money, is the primary consideration. 283 The
principle of quantum meruit applies if lawyers are employed
without a price agreed upon for their services, in which case they
would be entitled to receive what they merit for their services, or
as much as they have earned.284 In fixing a reasonable
compensation for the services rendered by a lawyer on the basis
of quantum meruit, one may consider factors such as the time
spent and extent of services rendered; novelty and difficulty of
the questions involved; importance of the subject matter; skill
29
demanded; probability of losing other employment as a result of
acceptance of the proffered case; customary charges for similar
services; amount involved in the controversy and the resulting
benefits for the client; certainty of compensation; character of
employment; and professional standing of the lawyer. 285
Hence, the Court affirms the appellate court’s award of
PhP3,000,000 to Peña, for expenses incurred corresponding to
the performance of his services. An additional award of
PhP1,500,000 is granted to him for the services he performed
as a lawyer in securing the rights of Urban Bank as owner of the
Pasay property.
II
The corporate officers and directors of Urban Bank are not
solidarily or personally liable with their properties for the
corporate liability of Urban Bank to Atty. Peña.
The obligation to pay Peña’s compensation, however, falls
solely on Urban Bank. Absent any proof that individual
petitioners as bank officers acted in bad faith or with gross
negligence or assented to a patently unlawful act, they cannot
be held solidarily liable together with the corporation for services
performed by the latter’s agent to secure possession of the
Pasay property. Thus, the trial court had indeed committed
grave abuse of discretion when it issued a ruling against the
eight individual defendant bank directors and officers and its
Decision should be absolutely reversed and set aside.
A corporation, as a juridical entity, may act only through its
directors, officers and employees.286 Obligations incurred as a
result of the acts of the directors and officers as corporate agents
are not their personal liabilities but those of the corporation they
represent.287 To hold a director or an officer personally liable for
corporate obligations, two requisites must concur: (1) the
complainant must allege in the complaint that the director or
officer assented to patently unlawful acts of the corporation, or
that the officer was guilty of gross negligence or bad faith; and
(2) the complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith.288 "To hold a director, a
trustee or an officer personally liable for the debts of the
corporation and, thus, pierce the veil of corporate fiction, bad
faith or gross negligence by the director, trustee or officer in
directing the corporate affairs must be established clearly and
convincingly."289
Peña failed to allege and convincingly show that individual
defendant bank directors and officers assented to patently
unlawful acts of the bank, or that they were guilty of gross
negligence or bad faith. Contrary to his claim, the
Complaint290 in the lower court never alleged that individual
defendants acquiesced to an unlawful act or were grossly
negligent or acted in bad faith.291 Neither is there any specific
allegation of gross negligence or action in bad faith that is
attributable to the individual defendants in performance of their
official duties.
In any event, Peña did not adduce any proof that the eight
individual defendants performed unlawful acts or were grossly
negligent or in bad faith. Aside from the general allegation that
they were corporate officers or members of the board of
directors of Urban Bank, no specific acts were alleged and
proved to warrant a finding of solidary liability. At most,

petitioners Borlongan, Bejasa and Manuel were identified as
those who had processed the agency agreement with Peña
through their telephone conversations with him and/or written
authorization letter.
Aside from Borlongan, Bejasa and Manuel, Atty. Peña in the
complaint pointed to no specific act or circumstance to justify the
inclusion of Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P.
Siervo H. Dizon, Eric L. Lee, and Ben T. Lim, Jr., except for the
fact that they were members of the Board of Directors of Urban
Bank at that time. That the five other members of the Board of
Directors were excluded from Peña’s complaint highlights the
peculiarity of their inclusion. What is more, the complaint
mistakenly included Ben Y. Lim, Jr., who had not even been a
member of the Board of Directors of Urban Bank. In any case,
his father and namesake, Ben T. Lim, Sr., who had been a
director of the bank at that time, had already passed away in
1997.
In ruling for the solidary liability of the other bank directors, the
decision of the trial court hinged solely on the purported
admission of Arturo Manuel, Jr., that the transactions with Atty.
Peña were approved by the Board of Directors:
In this case, plaintiff testified as to the personal participation of
defendants Ted Borlongan and Corazon Bejasa in the subject
transaction. On the other hand, with respect to the other
defendants, it was the defendants themselves, through witness
Arturo Manuel, Jr., who admitted that all the transactions
involved in this case were approved by the board of directors.
Thus, the court has sufficient basis to hold the directors jointly
and severally liable with defendant Urban Bank,
Inc.292 (Emphasis supplied)
The Decision of the RTC-Bago City must be utterly rejected on
this point because its conclusion of any cause of action, much
less actual legal liability on the part of Urban Bank’s corporate
officers and directors are shorn of any factual finding. That they
assented to the transactions of the bank with respect to Atty.
Peña’s services without any showing that these corporate
actions were patently unlawful or that the officers were guilty of
gross negligence or bad faith is insufficient to hold them
solidarily liable with Urban Bank. It seems absurd that the trial
court will hold the impleaded selected members of the Board of
Directors only, but not the others who also purportedly approved
the transactions. Neither is the reason behind the finding of
"solidariness" with Urban Bank in such liability explained at all.
It is void for completely being devoid of facts and the law on
which the finding of liability is based.
The Court of Appeals correctly rejected the claim of personal
liability against the individual petitioners when it held as follows:
The plaintiff-appellee’s complaint before the court a quo does
not point to any particular act of either one or all of the
defendants-appellants that will subject them to personal liability.
His complaint merely asserts that defendant Borlongan and Atty.
Bejasa acted for and in behalf of Urban Bank in securing his
services in protecting the bank’s newly acquired property.
Hence, We cannot allow the same.293
Peña had argued that individual defendant bank directors and
officers should be held personally and solidarily liable with
petitioner-respondent bank, since they failed to argue for limited
30
corporate liability.294 The trial court subscribed to his reasoning
and held that the failure to resort to the said defense constituted
a waiver on the part of individual defendants.295 The Court is not
persuaded.
As the complainant on the trial court level, Peña carried the
burden of proving that the eight individual defendants performed
specific acts that would make them personally liable for the
obligations of the corporation. This he failed to do. He cannot
capitalize on their alleged failure to offer a defense, when he had
not discharged his responsibility of establishing their personal
liabilities in the first place. This Court cannot sustain the
individual liabilities of the bank officers when Peña, at the onset,
has not persuasively demonstrated their assent to patently
unlawful acts of the bank, or that they were guilty of gross
negligence or bad faith, regardless of the weaknesses of the
defenses raised. This is too basic a requirement that this Court
must demand sufficient proof before we can disregard the
separate legal personality of the corporation from its offices.
Hence, only Urban Bank, not individual defendants, is liable to
pay Peña’s compensation for services he rendered in securing
possession of the Pasay property. Its liability in this case is,
however, without prejudice to its possible claim against ISCI for
reimbursement under their separate agreements.
III
Considering the absolute nullification of the trial court’s Decision,
the proceedings arising from the execution pending appeal
based on the said Decision is likewise completely vacated.
Since the trial court’s main Decision awarding PhP28,500,000 in
favor of Peña has been nullified above, the execution pending
appeal attendant thereto, as a result, no longer has any leg to
stand on and is thus completely vacated.
To recall, prior to the filing of Urban Bank of its notice of appeal
in the main case,296 Peña moved on 07 June 1999 for execution
pending appeal297 of the Decision,298 which had awarded him a
total of PhP28,500,000 in compensation and damages.299 In
supporting his prayer for discretionary execution, Peña cited no
other reason than the pending separate civil action for collection
filed against him by a creditor, who was demanding payment of
a PhP3,000,000 loan.300 According to him, he had used the
proceeds of the loan for securing the bank’s Pasay
property.301 In opposition to the motion, Urban Bank countered
that the collection case was not a sufficient reason for allowing
execution pending appeal.302
Favorably acting on Peña’s motion, the RTC-Bago City, through
Judge Henry J. Trocino,303 issued a Special Order authorizing
execution pending appeal on the basis of Peña’s indebtedness
to his creditor-friend.304 In accordance with this Special Order,
Atty. Josephine Mutia-Hagad, the clerk of court and ex officio
sheriff, expeditiously issued a Writ of Execution on the same
day.305 The trial court’s Special Order and Writ of Execution
were the subjects of a Rule 65 Petition filed by Urban Bank with
the CA.306
Both the Special Order and Writ of Execution are nullified for two
reasons:

(1) Since the Decision of the RTC-Bago City is completely
vacated, all its issuances pursuant to the Decision, including the
Special Order and the Writ of Execution are likewise vacated;
and
(2) The Special Order authorizing execution pending appeal
based on the collection suit filed against Atty. Peña had no basis
under the Rules of Court, and the same infirmity thus afflicts the
Writ of Execution issued pursuant thereto.
Since the Decision of the RTC-Bago City is vacated, all orders
and writs pursuant thereto are likewise vacated.
Considering that the Special Order and Writ of Execution was a
result of the trial court’s earlier award of PhP28,500,000, the
nullification or complete reversal of the said award necessarily
translates to the vacation as well of the processes arising
therefrom, including all the proceedings for the execution
pending appeal.
Considering the unconscionable award given by the trial court
and the unjustified imposition of solidary liability against the eight
bank officers, the Court is vacating the Decision of the RTC-
Bago City Decision. The trial court erroneously made solidarily
liable Urban Bank’s directors and officers without even any
allegations, much less proof, of any acts of bad faith, negligence
or malice in the performance of their duties. In addition, the trial
court mistakenly anchored its astounding award of damages
amounting PhP28,500,000 on the basis of the mere account of
Atty. Peña of a telephone conversation, without even
considering the surrounding circumstances and the sheer
disproportion to the legal services rendered to the bank.
A void judgment never acquires finality.307 In contemplation of
law, that void decision is deemed non-existent.308Quod nullum
est, nullum producit effectum.309 Hence, the validity of the
execution pending appeal will ultimately hinge on the court’s
findings with respect to the decision in which the execution is
based.
Although discretionary execution can proceed independently
while the appeal on the merits is pending, the outcome of the
main case will greatly impact the execution pending appeal,
especially in instances where as in this case, there is a complete
reversal of the trial court’s decision. Thus, if the decision on the
merits is completely nullified, then the concomitant execution
pending appeal is likewise without any effect. In fact, the Rules
of Court expressly provide for the possibility of reversal,
complete or partial, of a final judgment which has been executed
on appeal.310Precisely, the execution pending appeal does not
bar the continuance of the appeal on the merits, for the Rules of
Court explicitly provide for restitution according to equity and
justice in case the executed judgment is reversed on appeal.311
Considering that the Decision of the RTC-Bago City has been
completely vacated and declared null and void, it produces no
effect whatsoever. Thus, the Special Order and its concomitant
Writ of Execution pending appeal is likewise annulled and is also
without effect. Consequently, all levies, garnishment and sales
executed pending appeal are declared null and void, with the
concomitant duty of restitution under the Rules of Court, as will
be discussed later on.
31
In any case, the trial court’s grant of execution pending appeal
lacks sufficient basis under the law and jurisprudence.
We rule that the pendency of a collection suit by a third party
creditor which credit was obtained by the winning judgment
creditor in another case, is not a sufficiently good reason to allow
execution pending appeal as the Rules of Court provide.
Execution pending appeal is an extraordinary remedy allowed
only when there are reasons to believe that the judgment debtor
will not be able to satisfy the judgment debt if the appeals
process will still have to be awaited. It requires proof of
circumstances such as insolvency or attempts to escape,
abscond or evade a just debt.
In Florendo v. Paramount Insurance, Corp.,312 the Court
explained that the execution pending appeal is an exception to
the general rule that execution issues as a matter of right, when
a judgment has become final and executory:
As such exception, the court’s discretion in allowing it must be
strictly construed and firmly grounded on the existence of good
reasons. "Good reasons," it has been held, consist of compelling
circumstances that justify immediate execution lest the judgment
becomes illusory. The circumstances must be superior,
outweighing the injury or damages that might result should the
losing party secure a reversal of the judgment. Lesser reasons
would make of execution pending appeal, instead of an
instrument of solicitude and justice, a tool of oppression and
inequity. (Emphasis supplied)
Indeed, the presence or the absence of good reasons remains
the yardstick in allowing the remedy of execution pending
appeal, which should consist of exceptional circumstances of
such urgency as to outweigh the injury or damage that the losing
party may suffer, should the appealed judgment be reversed
later.313 Thus, the Court held that even the financial distress of
the prevailing company is not sufficient reason to call for
execution pending appeal:
In addressing this issue, the Court must stress that the execution
of a judgment before its finality must be founded upon good
reasons. The yardstick remains the presence or the absence of
good reasons consisting of exceptional circumstances of such
urgency as to outweigh the injury or damage that the losing party
may suffer, should the appealed judgment be reversed later.
Good reason imports a superior circumstance that will outweigh
injury or damage to the adverse party. In the case at bar,
petitioner failed to show "paramount and compelling reasons of
urgency and justice." Petitioner cites as good reason merely the
fact that "it is a small-time building contractor that could ill-afford
the protracted delay in the reimbursement of the advances it
made for the aforesaid increased costs of . . . construction of the
[respondent's] buildings."
Petitioner's allegedly precarious financial condition, however, is
not by itself a jurisprudentially compelling circumstance
warranting immediate execution. The financial distress of a
juridical entity is not comparable to a case involving a natural
person — such as a very old and sickly one without any means
of livelihood, an heir seeking an order for support and monthly
allowance for subsistence, or one who dies.
Indeed, the alleged financial distress of a corporation does not
outweigh the long standing general policy of enforcing only final

and executory judgments. Certainly, a juridical entity like
petitioner corporation has, other than extraordinary execution,
alternative remedies like loans, advances, internal cash
generation and the like to address its precarious financial
condition. (Emphasis supplied)
In Philippine Bank of Communications v. Court of
Appeals,314 the Court denied execution pending appeal to a
juridical entity which allegedly was in financial distress and was
facing civil and criminal suits with respect to the collection of a
sum of money. It ruled that the financial distress of the prevailing
party in a final judgment which was still pending appeal may not
be likened to the situation of a natural person who is ill, of
advanced age or dying as to justify execution pending appeal:
It is significant to stress that private respondent Falcon is a
juridical entity and not a natural person. Even assuming that it
was indeed in financial distress and on the verge of facing civil
or even criminal suits, the immediate execution of a judgment in
its favor pending appeal cannot be justified as Falcon’s situation
may not be likened to a case of a natural person who may be ill
or may be of advanced age. Even the danger of extinction of the
corporation will not per se justify a discretionary execution
unless there are showings of other good reasons, such as for
instance, impending insolvency of the adverse party or the
appeal being patently dilatory. But even as to the latter reason,
it was noted in Aquino vs. Santiago (161 SCRA 570 [1988]), that
it is not for the trial judge to determine the merit of a decision he
rendered as this is the role of the appellate court. Hence, it is not
within competence of the trial court, in resolving a motion for
execution pending appeal, to rule that the appeal is patently
dilatory and rely on the same as its basis for finding good reason
to grant the motion. Only an appellate court can appreciate the
dilatory intent of an appeal as an additional good reason in
upholding an order for execution pending appeal which may
have been issued by the trial court for other good reasons, or in
cases where the motion for execution pending appeal is filed
with the appellate court in accordance with Section 2, paragraph
(a), Rule 39 of the 1997 Rules of Court.
What is worse, only one case was actually filed against Falcon
and this is the complaint for collection filed by Solidbank. The
other cases are "impending", so it is said. Other than said
Solidbank case, Falcon’s survival as a body corporate cannot be
threatened by anticipated litigation. This notwithstanding, and
even assuming that there was a serious threat to Falcon’s
continued corporate existence, we hold that it is not tantamount
nor even similar to an impending death of a natural person. The
material existence of a juridical person is not on the same plane
as that of human life. The survival of a juridical personality is
clearly outweighed by the long standing general policy of
enforcing only final and executory judgments. (Emphasis
supplied)
In this case, the trial court supported its discretionary grant of
execution based on the alleged collection suit filed against Peña
by his creditor friend for PhP3,000,000:
It has been established that the plaintiff secured the loan for the
purpose of using the money to comply with the mandate of
defendant bank to hold and maintain possession of the parcel of
land in Pasay City and to prevent intruders and former tenants
from occupying the said property. The purpose of the loan was
32
very specific and the same was made known to defendant bank
through defendant Teodoro Borlongan. The loan was not
secured for some other purpose. Truth to tell, the plaintiff
accomplished his mission in clearing the property of tenants,
intruders and squatters, long before the deadline given him by
the defendant bank. The plaintiff was assured by no less than
the President of defendant bank of the availability of funds for
his compensation and reimbursement of his expenses. Had he
been paid by defendant bank soon after he had fulfilled his
obligation, he could have settled his loan obligation with his
creditor.
Defendants were benefitted by the services rendered by the
plaintiff. While plaintiff has complied with the undertaking, the
defendants, however, failed to perform their obligation to the
plaintiff.
The plaintiff stands to suffer greatly if the collection case against
him is not addressed. Firstly, as shown in Exhibit "C", plaintiff’s
total obligation with Roberto Ignacio as of May 1999 is
PhP24,192,000.00. This amount, if left unpaid, will continue to
increase due to interest charges being imposed by the creditor
to the prejudice of plaintiff. Secondly, a preliminary attachment
has already been issued and this would restrict the plaintiff from
freely exercising his rights over his property during the pendency
of the case.
In their opposition, defendants claim that plaintiff’s indebtedness
is a ruse, however, defendants failed to adduce evidence to
support its claim.
The court finds that the pendency of the case for collection of
money against plaintiff is a good reason for immediate
execution. 315
The mere fact that Atty. Peña was already subjected to a
collection suit for payment of the loan proceeds he used to
perform his services for Urban Bank is not an acceptable reason
to order the execution pending appeal against the bank.
Financial distress arising from a lone collection suit and not due
to the advanced age of the party is not an urgent or compelling
reason that would justify the immediate levy on the properties of
Urban Bank pending appeal. That Peña would made liable in the
collection suit filed by his creditor-friend would not reasonably
result in rendering illusory the final judgment in the instant action
for agent’s compensation.
Peña’s purported difficulty in paying the loan proceeds used to
perform his services does not outweigh the injury or damages
that might result should Urban Bank obtain a reversal of the
judgment, as it did in this case. Urban Bank even asserts that
the collection suit filed against Peña was a mere ruse to provide
justification for the execution pending appeal, no matter how
flimsy.316 As quoted above, the trial court noted Atty. Peña’s total
obligation to his creditor-friend as of May 1999 was already the
incredible amount of PhP24,192,000.00, even when the
Complaint dated 03 April 1999 itself, which spawned the
collection suit included only a prayer for payment of
PhP3,500,000 with attorney’s fees of PhP100,000.317 It seems
absurd that Atty. Peña would agree to obtaining a loan from his
own friend, when the Promissory Notes provided for a penalty of
5% interest per month or 60% per annum for delay in the
payment.318 It sounds more like a creative justification of the

immediate execution of the PhP28.5 Million judgment
notwithstanding the appeal.
In fact, the Court of Appeals noted Atty. Peña’s admission of
sufficient properties to answer for any liability arising from the
collection suit arising from his creditor-friend. In initially denying
the execution pending appeal, the appellate court held that:
On the other hand, private respondent’s claim that the only way
he could pay his indebtedness to Roberto Ignacio is through the
money that he expects to receive from petitioners in payment of
his services is belied by his testimony at the hearing conducted
by the trial court on the motion for execution pending appeal
wherein petitioners were able to secure an admission from him
that he has some assets which could be attached by Roberto
Ignacio and that he would probably have other assets left even
after the attachment.319
Hence, to rule that a pending collection suit against Atty. Peña,
which has not been shown to result in his insolvency, would be
to encourage judgment creditors to indirectly and
indiscriminately instigate collection suits or cite pending actions,
related or not, as a "good reason" to routinely avail of the remedy
of discretionary execution.320 As an exception to the general rule
on execution after final and executory judgment, the reasons
offered by Atty. Peña to justify execution pending appeal must
be strictly construed.
Neither will the Court accept the trial court’s unfounded
assumption that Urban Bank’s appeal was merely dilatory, as in
fact, the PhP28,500,000 award given by the trial court was
overturned by the appellate court and eventually by this Court.
Moreover, at the time the Special Order of Judge Henry Trociño
of the RTC-Bago City came out in 1999, Urban Bank had assets
worth more than PhP11 Billion and had a net worth of more than
PhP2 Billion. There was no reason then to believe that Urban
Bank could not satisfy a judgment of PhP28,500,000, a sum that
was only 1% of its net worth, and 1/5 of 1% of its total assets of
PhP11,933,383,630.321 Urban Bank was even given a Solvency,
Liquidity and Management Rating of 82.89 over 100 by no less
than the BSP322 and reportedly had liquid assets amounting to
PhP2,036,878.323 In fact, no allegation of impending insolvency
or attempt to abscond was ever raised by Atty. Peña and yet,
the trial court granted execution pending appeal.
Since the original order granting execution pending appeal was
completely void for containing no justifiable reason, it follows
that any affirmance of the same by the Court of Appeals is
likewise void.
The Decision of the Court of Appeals in the case docketed as
CA-G.R. SP No. 55667, finding a new reason for granting
execution pending appeal, i.e., the receivership of Urban Bank,
is likewise erroneous, notwithstanding this Court’s ruling in Lee
v. Trocino.324 In accordance with the subsequent Resolution of
the Court in abovementioned case of Lee v. Trocino, 325 we
directly resolve the issue of the insufficiency of the reasons that
led to the grant of execution pending appeal.
In cases where the two or more defendants are made
subsidiarily or solidarily liable by the final judgment of the trial
court, discretionary execution can be allowed if all the
defendants have been found to be insolvent. Considering that
33
only Urban Bank, and not the other eight individual defendants,
was later on considered by the Court of Appeals to have been
"in danger of insolvency," is not sufficient reason to allow
execution pending appeal, since the liability for the award to
Peña was made (albeit, mistakenly) solidarily liable together with
the bank officers.
In Flexo Manufacturing Corp. v. Columbus Food, Inc., and
Pacific Meat Company, Inc.,326 both Columbus Food, Inc.,
(Columbus Food) and Pacific Meat Company, Inc., (Pacific
Meat) were found by the trial court therein to be solidarily liable
to Flexo Manufacturing, Inc., (Flexo Manufacturing) for the
principal obligation of PhP2,957,270.00. The lower court also
granted execution pending appeal on the basis of the insolvency
of Columbus Food, even if Pacific Meat was not found to be
insolvent. Affirming the reversal ordered by the Court of
Appeals, this Court ruled that since there was another party who
was solidarily liable to pay for the judgment debt, aside from the
insolvent Columbus Food, there was no good reason to allow
the execution pending appeal:
Regarding the state of insolvency of Columbus, the case of
Philippine National Bank v. Puno, held:
"While this Court in several cases has held that insolvency of the
judgment debtor or imminent danger thereof is a good reason
for discretionary execution, otherwise to await a final and
executory judgment may not only diminish but may nullify all
chances for recovery on execution from said judgment debtor,
We are constrained to rule otherwise in this particular case. In
the aforecited cases, there was either only one defeated party
or judgment debtor who was, however, insolvent or there were
several such parties but all were insolvent, hence the aforesaid
rationale for discretionary execution was present. In the case at
bar, it is undisputed that, assuming MMIC is insolvent, its co-
defendant PNB is not. It cannot, therefore, be plausibly assumed
that the judgment might become illusory; if MMIC cannot satisfy
the judgment, PNB will answer for it. It will be observed that,
under the dispositive portion of the judgment hereinbefore
quoted, the liability of PNB is either subsidiary or solidary.
Thus, when there are two or more defendants and one is not
insolvent, the insolvency of a co-defendant is not a good reason
to justify execution pending appeal if their liability under the
judgment is either subsidiary or solidary. In this case, Pacific
was adjudged to be solidarily liable with Columbus. Therefore,
the latter is not the only party that may be answerable to Flexo.
Its insolvency does not amount to a good reason to grant
execution pending appeal. (Emphasis supplied)
Similarly, the trial court in this case found Urban Bank and all
eight individual bank officers solidarily liable to Atty. Peña for the
payment of the PhP28,500,000 award. Hence, had the judgment
been upheld on appeal, Atty. Peña could have demanded
payment from any of the nine defendants. Thus, it was a mistake
for the Court of Appeals to have affirmed execution pending
appeal based solely on the receivership of Urban Bank, when
there were eight other individual defendants, who were solidarily
liable but were not shown to have been insolvent. Since Urban
Bank’s co-defendants were not found to have been insolvent,
there was no good reason for the Court of Appeals to
immediately order execution pending appeal, since Atty. Peña’s

award could have been satisfied by the eight other defendants,
especially when the de Leon Group filed its supersedeas bond.
It seems incongruous for Atty. Peña to be accorded the benefit
of erroneously impleading several bank directors, who had no
direct hand in the transaction, but at the same time,
concentrating solely on Urban Bank’s inability to pay to justify
execution pending appeal, regardless of the financial capacity of
its other co-defendants. Worse, he capitalized on the insolvency
and/or receivership of Urban Bank to levy or garnish properties
of the eight other individual defendants, who were never shown
to have been incapable of paying the judgment debt in the first
place. The disposition on the execution pending appeal may
have been different had Atty. Peña filed suit against Urban Bank
alone minus the bank officers and the same bank was found
solely liable for the award and later on declared under
receivership.
In addition, a judgment creditor of a bank, which has been
ordered by the BSP to be subject of receivership, has to fall in
line like every other creditor of the bank and file its claim under
the proper procedures for banks that have been taken over by
the PDIC. Under Section 30 of Republic Act No. 7653, otherwise
known as the New Central Bank Act, which prevailed at that
time, once a bank is under receivership, the receiver shall
immediately gather and take charge of all the assets and
liabilities of the bank and administer the same for the benefit of
its creditors and all of the bank’s assets shall be considered as
under custodial legis and exempt from any order of garnishment,
levy, attachment or execution.327 In the Minute Resolution of the
Monetary Board of the BSP, Urban Bank was not only prevented
from doing business in the Philippines but its asset and affairs
were placed under receivership as provided for under the same
law.328 In fact, even Peña himself assured the PDIC, as receiver
of Urban Bank, that he would not schedule or undertake
execution sales of the bank’s assets for as long as the bank
remains in receivership.329 Until the approval of the rehabilitation
or the initiation of the liquidation proceedings, all creditors of the
bank under receivership shall stand on equal footing with
respect to demanding satisfaction of their debts, and cannot be
extended preferred status by an execution pending appeal with
respect to the bank’s assets:
… [t]o execute the judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other creditors.
After the Monetary Board has declared that a bank is insolvent
and has ordered it to cease operations, the Board becomes the
trustee of its assets for the equal benefit of all the depositors and
creditors. After its insolvency, one creditor cannot obtain an
advantage or preference over another by an attachment,
execution or otherwise. Until there is an approved rehabilitation
or the initiation of the liquidation proceedings, creditors of the
bank stand on equal footing with respect to demanding
satisfaction of their debts, and cannot be afforded special
treatment by an execution pending appeal with respect to the
bank’s assets.330 (Emphasis supplied)
Moreover, assuming that the CA was correct in finding a reason
to justify the execution pending appeal because of the
supervening event of Urban Bank’s closure, the assumption by
the EIB of the liabilities of Urban Bank meant that any execution
pending appeal can be granted only if EIB itself is shown to be
unable to satisfy Peña’s judgment award of PhP28,500,000.
34
That is not at all the case. In just one particular sale on execution
herein, EIB offered to answer in cash for a substantial part of
Peña’s claims, as evidenced by EIB’s capacity and willingness
to redeem the executed properties (condominium units sold to
intervenor Unimega) by tendering manager’s checks for more
than PhP22 Million331 which is already 77.57% of Peña’s total
award from the trial court.332 The fact that EIB’s offer to take over
Urban Bank means it was able to satisfy the BSP’s concern that
all legitimate liabilities of Urban Bank be duly discharged.
As an exception to the general rule that only final judgments may
be executed,333 the grant of execution pending appeal must
perforce be based on "good reasons." These reasons must
consist of compelling or superior circumstances demanding
urgency which will outweigh the injury or damages suffered,
should the losing party secure a reversal of the judgment or final
order.334 The circumstances that would reasonably justify
superior urgency, demanding interim execution of Peña’s claims
for compensation and/or damages, have already been settled by
the financial capacity of the eight other co-defendants, the
approval of the supersedeas bonds, the subsequent takeover by
EIB, and the successor bank’s stable financial
condition,335 which can answer for the judgment debt. Thus,
Peña’s interest as a judgment creditor is already well-protected.
While there is a general rule that a final and executory judgment
in the main case will render moot and academic a petition
questioning the exercise of the trial court’s discretion in allowing
execution pending appeal, we find it necessary to rule
categorically on this question because of the magnitude of the
aberrations that attended the execution pending appeal in the
Decision of the RTC-Bago City.
Irregularities in the Levy and Sale on Execution Pending Appeal
Assuming that the Special Order granting execution pending
appeal were valid, issues have been raised on alleged
irregularities that mar the levy and sale on execution of the
properties of Urban Bank and its officers and directors. Many of
the facts have not been sufficiently litigated before the trial and
appellate courts for us to fully rule on the issue, nevertheless,
from what is on record, the following are the observations of this
Court:
First, contrary to the general rules on execution, no opportunity
was given to Urban Bank or the other co-defendants to pay the
judgment debt in cash or certified check.336 Before proceeding
on the levying and garnishing personal and real properties,
demand must be made by the sheriff against the judgment
debtors, Urban Bank and the eight other individual bank officers,
for the immediate payment of the award subject of the execution
pending appeal. It has not been shown whether Urban Bank and
its officers and directors were afforded such an opportunity.
Instead of garnishing personal properties of the bank, the sheriff
inexplicably proceeded to levy substantial real properties of the
bank and its officers at the onset.
Second, assuming that Urban Bank and its officers did not
possess sufficient cash or funds to pay for the judgment debt
pending appeal, they should have been given the option to
choose which of their properties to be garnished and/or levied.
In this case, Urban Bank exercised its option by presenting to
the sheriff various parcels of land, whose values amount to more

than PhP76,882,925 and were sufficient to satisfy the judgment
debt.337 Among those presented by the bank, only the property
located in Tagaytay was levied upon by the sheriff.338 No
sufficient reason was raised why the bank’s chosen properties
were rejected or inadequate for purposes of securing the
judgment debt pending appeal. Worse, the Sheriff proceeded
with garnishing and levying on as many properties of Urban
Bank and its officers, in disregard of their right to choose under
the rules.
Third, the public auction sales conducted in the execution
pending appeal sold more properties of Urban Bank and the
directors than what was sufficient to satisfy the debt. Indeed, the
conservative value of the properties levied herein by the sheriff
amounting to more than PhP181,919,190, consisting of prime
condominium units in the heart of the Makati Business district, a
lot in Tagaytay City, shares in exclusive clubs, and shares of
stock, among others, was more than sufficient to answer for the
PhP28,500,000 judgment debt six times over. Rather than stop
when the properties sold had approximated the monetary award,
the execution sale pending appeal continued and unduly
benefitted Atty. Peña, who, as judgment creditor and, at times,
the winning bidder, purchased most of the properties sold.
Fourth, it was supremely disconcerting how Urban Bank,
through its successor EIB, was unduly deprived of the
opportunity to redeem the properties, even after presenting
manager’s checks339 equal to the purchase price of the
condominium units sold at the execution sale. No reason was
offered by the trial court340 or the sheriff341 for rejecting the
redemption price tendered by EIB in order to recover the
properties executed and sold in public auction pending appeal.
Finally, the Court cannot turn a blind eye to the fact that there
was already a sufficient supersedeas bond given to answer for
whatever monetary award will be given in the end. To recall, the
De Leon Group had already tendered a supersedeas bond of
PhP40,000,000 in the Court of Appeals to prevent execution
pending appeal over their properties. In fact, even Urban Bank
tendered a separate supersedeas bond of equal amount with
this Court, for a total of PhP80,000,000 to secure any judgment
to be awarded to Atty. Peña. That execution sales over the
properties of judgment debtors proceeded despite the three-fold
value of securities compared to the amount of the award
indicates bad faith, if not malice, with respect to the conduct of
the execution pending appeal.
Inasmuch as the RTC Decision has already been vacated and
an independent finding has been made by this Court of the
complete nullity of the order granting execution pending appeal,
it follows that all acts pursuant to such order and its writ are also
void. It does not follow however, that the Court’s Decision in Co
v. Sillador,342 is nullified, inasmuch as an equally-important legal
doctrine – the immutability of Supreme Court final decisions – is
also to be considered. In any case, the factual circumstances
and the ruling on that case were limited to the actions of Sheriff
Allan Sillador with respect to properties levied under the same
Special Order and Writ of Execution, which were subject of third
party claims made by the spouses of Teodoro Borlongan,
Corazon Bejasa and Arturo Manuel, Jr.343It does not encompass
other specific events and acts committed in the course of the
execution pending appeal that may warrant administrative or
35
disciplinary actions. Having said that, this Court leaves it to the
parties to explore avenues for redress in such a situation.
The observation on the irregularities above-enumerated are
made for the purpose of correcting the injustice that has been
committed herein, by allowing the Court to pursue the question
of who was responsible for such gross violation of the rules on
execution, and for the Court to find measures to improve the
safeguards against abuse of court processes. It is for this reason
that the Office of the Court Administrator will be given a special
task by the Court on this matter. Judge Henry Trocino of RTC-
Bago City, who issued the Special Order and had supervisory
authority over the proceedings of the execution pending appeal,
would have been included under such administrative
investigation by the Office of the Court Administrator, were it not
for his retirement from the judicial service.
The Court’s Suspension Order of Execution Pending Appeal
Acting on Atty. Peña’s Omnibus Motion dated 09 December
2002344 and Unimega’s Motion for Reconsideration dated 10
December 2002345 with respect to the Court’s Order dated 13
November 2002346 that clarified the earlier stay order against the
execution pending appeal,347 the Court hereby denies both
motions. The Court is fully correct in suspending the period for
the running of the redemption period of the properties of Urban
Bank and its officers and directors that were levied and subject
of execution sale to satisfy the judgment debt in favor of Atty.
Peña, the Court having conclusively determined that the
supersedeas bond filed was sufficient and considering the
subsequent finding that the said execution pending appeal lacks
any sufficient ground for the grant thereof.
As to the theory of Atty. Peña that the actuations of Justice
Carpio, the then ponente of this case, in drafting the questioned
Order should positively impact his motion for reconsideration of
the same, the Court finds this argument utterly devoid of merit.
In the first place, that questioned Order was not the decision of
only a single member of the Court, Justice Carpio, but of the
entire division to which he belonged, then composed of retired
Chief Justice Hilario Davide, Justices Jose Vitug, Consuelo
Ynares-Santiago and Adolfo Azcuna. This Order was affirmed
by the same Division as its duly-promulgated order. In relation
to this, the affirmation by the Division of this Order demonstrates
that there is no truth to Atty. Peña’s claim that Justice Carpio
fabricated the Order.
In the second place, Atty. Peña’s claim of undue interest against
Justice Carpio specifically with respect to the latter having the
instant case transferred to his new Division, is based on
ignorance of the system of assignment of cases in the Supreme
Court. When a reorganization of the Court takes place in the
form of a change in the composition of Divisions, due to the
retirement or loss of a member, the Justices do not thereby lose
their case assignments but bring the latter with them to their new
Divisions.348 The cases are then transferred to the Justices’ new
Divisions, by way of the corresponding request from each
justice. Each justice is in fact, required to make this request,
otherwise the rollo of the cases of which he is Member-in-
Charge will be retained by a Division in which he is no longer a
member. Indeed, Atty. Peña’s imagination has gotten the better
of him.

Thirdly, his insinuation (which he denies) that Justice Carpio
may have been bribed because the latter has a new Mercedes
Benz349 is highly offensive and has no place where his points
should have been confined to legal reasons and arguments.
Incidentally, Atty. Peña has voiced the fear in the Letter of
Complaint filed in the Court’s Committee on Ethics and Ethical
Standards,350 which he brought against the ponente of this
Decision, that she will suppress material information regarding
the issuance of the Order suspending the redemption period
because of her close relationship to Justice Carpio. Contrary to
this fear, this Decision is frontally disposing of this claim by
stating that there is no basis to believe that the questioned Order
was anything than the joint decision of the five members of the
then First Division, and that his arguments in his motion to
reconsider does not persuade this Court to vary in any form the
questioned order. Moreover, our disposition of this case renders
moot his motion to reconsider the order.
It must be emphasized that the prolonged resolution of the
procedural issue in the Petitions in G. R. Nos. 145817 and
145822 on the execution pending appeal is due in no small part
to the delays arising from Peña’s peculiar penchant for filing
successive motions for inhibition and re-raffle.351 The Court
cannot sanction Peña’s repeated requests for voluntary
inhibition of members of the Court based on the sole ground of
his own self-serving allegations of lack of faith and trust, and
would like to reiterate, at this point, the policy of the Court not to
tolerate acts of litigants who, for just about any conceivable
reason, seek to disqualify a judge (or justice) for their own
purpose, under a plea of bias, hostility, prejudice or
prejudgment.352 The Court cannot allow the unnecessary and
successive requests for inhibition, lest it opens the floodgates to
forum-shopping where litigants look for a judge more friendly
and sympathetic to their cause than previous ones. 353
Restitution of the Bank’s Executed Properties
The Court is still confronted with the supervening acts related to
the execution pending appeal and the reversal of the award of
damages, which affect the rights of the parties as well as of the
intervenors to the case, specifically, intervenor Unimega. In
completely resolving the differing claims and performing its
educational function, the Court shall briefly encapsulate and
restate the operational rules governing execution pending
appeal when there has been a reversal of the trial court’s
Decision on the award of damages in order to guide the parties
as well as the bench and bar in general. The necessity of making
these detailed instructions is prompted by the most natural
question an ordinary person with a sense of justice will ask after
reading the facts: How can an obligation to pay for the services
of a lawyer so that 23 unwanted tenants leave a corporation's
property lead to the loss or the impairment of use of more than
PhP181 Million worth of properties of that corporation and of its
officers and directors? Obviously, this Court must undertake
corrective actions swiftly.
The rule is that, where the executed judgment is reversed totally
or partially, or annulled – on appeal or otherwise – the trial court
may, on motion, issue such orders of restitution or reparation of
damages as equity and justice may warrant under the
circumstances.354 The Rules of Court precisely provides for
restitution according to equity, in case the executed judgment is
36
reversed on appeal.355 "In an execution pending appeal, funds
are advanced by the losing party to the prevailing party with the
implied obligation of the latter to repay the former, in case the
appellate court cancels or reduces the monetary award."356
In disposing of the main case subject of these Petitions, the
Court totally reversed the staggering amount of damages given
by the trial court, and limited on a quantum meruit basis the
agent’s compensation to PhP4,500,000 only. However,
properties of Urban Bank and individual petitioners have been
garnished and levied upon in the amount of supposedly more
than PhP85,399,350.357
Applying the foregoing rules, petitioner-respondent bank is
entitled to complete and full restitution of its levied properties,
subject to the payment of the PhP4,500,000. Meanwhile,
petitioners bank officers, all of whom have not been found
individually or solidarily liable, are entitled to full restitution of all
their properties levied upon and garnished, since they have
been exonerated from corporate liability with respect to the
bank’s agency relationship with Peña.
Considering the monetary award to Peña and the levy on and
execution of some of its properties pending appeal, Urban Bank,
now EIB, may satisfy the judgment in the main case and at the
same time fully recover all the properties executed owing to the
complete reversal of the trial court’s awarded damages. It must
immediately and fully pay the judgment debt before the entire lot
of levied properties, subject of the execution pending appeal, is
restored to it.358
Due to the complete reversal of the trial court’s award for
damages, which was the basis of the Special Order and Writ of
Execution allowing execution pending appeal, intervenor
Unimega and other bidders who participated in the public
auction sales are liable to completely restore to petitioner-
respondent bank all of the properties sold and purchased
therein. Although execution pending appeal is sanctioned under
the rules and jurisprudence, when the executed decision is
reversed, the premature execution is considered to have lost its
legal bases. The situation necessarily requires equitable
restitution to the party prejudiced thereby.359 As a matter of
principle, courts are authorized at any time to order the return of
property erroneously ordered to be delivered to one party, if the
order is found to have been issued without jurisdiction. 360
As a purchaser of properties under an execution sale, with an
appeal on the main case still pending, intervenor Unimega knew
or was bound to know that its title to the properties, purchased
in the premature public auction sale, was contingent on the
outcome of the appeal and could possibly be reversed. Until the
judgment on the main case on which the execution pending
appeal hinges is rendered final and executory in favor of the
prevailing judgment creditor, it is incumbent on the purchasers
in the execution sale to preserve the levied properties. They
shall be personally liable for their failure to do so, especially if
the judgment is reversed, as in this case.361 In fact, if specific
restitution becomes impracticable – such as when the properties
pass on to innocent third parties – the losing party in the
execution even becomes liable for the full value of the property
at the time of its seizure, with interest. The Court has ruled:

When a judgment is executed pending appeal and subsequently
overturned in the appellate court, the party who moved for
immediate execution should, upon return of the case to the lower
court, be required to make specific restitution of such property
of the prevailing party as he or any person acting in his behalf
may have acquired at the execution sale. If specific restitution
becomes impracticable, the losing party in the execution
becomes liable for the full value of the property at the time of its
seizure, with interest.
While the trial court may have acted judiciously under the
premises, its action resulted in grave injustice to the private
respondents. It cannot be gainsaid that it is incumbent upon the
plaintiffs in execution (Arandas) to return whatever they got by
means of the judgment prior to its reversal. And if perchance
some of the properties might have passed on to innocent third
parties as happened in the case at bar, the Arandas are duty
bound nonetheless to return the corresponding value of said
properties as mandated by the Rules. (Emphasis supplied) 362
In this case, the rights of intervenor Unimega to the 10
condominium units bought during the public auction sale under
the Special Order are rendered nugatory by the reversal of the
award of unconscionable damages by the trial court. It cannot
claim to be an innocent third-party purchaser of the levied
condominium units, since the execution sale was precisely
made pending appeal. It cannot simply assume that whatever
inaction or delay was incurred in the process of the appeal of the
main Decision would automatically render the remedy dilatory in
character.363Whatever rights were acquired by intervenor
Unimega from the execution sale under the trial court’s Special
Orders are conditional on the final outcome of the appeal in the
main case. Unlike in auction sales arising from final and
executory judgments, both the judgment creditor and the third
parties who participate in auction sales pending appeal are
deemed to knowingly assume and voluntarily accept the risks of
a possible reversal of the decision in the main case by the
appellate court.
Therefore, intervenor Unimega is required to restore the
condominium units to Urban Bank. Although the intervenor has
caused the annotation of the sale and levied on the titles to those
units, the titles have remained under the name of the bank,
owing to the supersedeas bond it had filed and the Court’s own
orders that timely suspended the transfer of the titles and further
execution pending appeal.
The obligation to restore the properties to petitioner-respondent
bank is, however, without prejudice to the concurrent right of
intervenor Unimega to the return of the PhP10,000,000 the latter
paid for the condominium units, which Peña received as
judgment creditor in satisfaction of the trial court’s earlier
Decision.364 Consequently, intervenor’s earlier request for the
issuance of a writ of possession365 over those units no longer
has any leg to stand on. Not being entitled to a writ of possession
under the present circumstances, Unimega’s ex parte petition is
consequently denied.
Upon the reversal of the main Decision, the levied properties
itself, subject of execution pending appeal must be returned to
the judgment debtor, if those properties are still in the
possession of the judgment creditor, plus compensation to the
former for the deprivation and the use thereof.366 The obligation
37
to return the property itself is likewise imposed on a third-party
purchaser, like intervenor Unimega, in cases wherein it directly
participated in the public auction sale, and the title to the
executed property has not yet been transferred. The third-party
purchaser shall, however, be entitled to reimbursement from the
judgment creditor, with interest.
Considering the foregoing points, the Court adopts with
modification the rules of restitution expounded by retired Justice
Florenz D. Regalado in his seminal work on civil
procedure,367 which the appellate court itself cited earlier. 368 In
cases in which restitution of the prematurely executed property
is no longer possible, compensation shall be made in favor of
the judgment debtor in the following manner:
a. If the purchaser at the public auction is the judgment creditor,
he must pay the full value of the property at the time of its
seizure, with interest.
b. If the purchaser at the public auction is a third party, and title
to the property has already been validly and timely transferred
to the name of that party, the judgment creditor must pay the
amount realized from the sheriff’s sale of that property, with
interest.
c. If the judgment award is reduced on appeal, the judgment
creditor must return to the judgment debtor only the excess
received over and above that to which the former is entitled
under the final judgment, with interest.
In summary, Urban Bank is entitled to complete restoration and
return of the properties levied on execution considering the
absolute reversal of the award of damages, upon the payment
of the judgment debt herein amounting to PhP4,500,000, with
interest as indicated in the dispositive portion. With respect to
individual petitioners, they are entitled to the absolute restitution
of their executed properties, except when restitution has
become impossible, in which case Peña shall be liable for the
full value of the property at the time of its seizure, with interest.
Whether Urban Bank and the bank officers and directors are
entitled to any claim for damages against Peña and his
indemnity bond is best ventilated before the trial court, as
prescribed under the procedural rules on execution pending
appeal.
WHEREFORE, the Court DENIES Atty. Magdaleno Peña’s
Petition for Review dated 23 April 2004 (G. R. No. 162562) and
AFFIRMS WITH MODIFICATION the Court of Appeals’ Decision
dated 06 November 2003 having correctly found that the
Regional Trial Court of Bago City gravely abused its discretion
in awarding unconscionable damages against Urban Bank, Inc.,
and its officers. The Decision of the Regional Trial Court of Bago
City dated 28 May 1999 is hence VACATED.
Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Peña
the amount of PhP3,000,000 as reimbursement for his expenses
and an additional PhP1,500,000 as compensation for his
services, with interest at 6% per annum from 28 May 1999,
without prejudice to the right of Urban Bank to invoke payment
of this sum under a right of set-off against the amount of
PhP25,000,000 that has been placed in escrow for the benefit
of Isabela Sugar Company, Inc. The Complaint against the eight
other individual petitioners, namely Teodoro Borlongan (+),
Delfin C. Gonzales, Jr., Benjamin L. de Leon, P. Siervo G. Dizon,

Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel,
Jr., is hereby DISMISSED.
The Petitions for Review on Certiorari filed by petitioners
Urban Bank (G. R. No. 145817) and Benjamin L. de Leon, Delfin
Gonzalez, Jr., and Eric L. Lee (G. R. No. 145822) are
hereby GRANTED under the following conditions:
a. Urban Bank, Teodoro Borlongan, Delfin C. Gonzalez, Jr.,
Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, Ben Y.
Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., (respondent
bank officers) shall be restored to full ownership and possession
of all properties executed pending appeal;
b. If the property levied or garnished has been sold on execution
pending appeal and Atty. Magdaleno Peña is the winning bidder
or purchaser, he must fully restore the property to Urban Bank
or respondent bank officers, and if actual restitution of the
property is impossible, then he shall pay the full value of the
property at the time of its seizure, with interest;
c. If the property levied or garnished has been sold to a third
party purchaser at the public auction, and title to the property
has not been validly and timely transferred to the name of the
third party, the ownership and possession of the property shall
be returned to Urban Bank or respondent bank officers, subject
to the third party’s right to claim restitution for the purchase price
paid at the execution sale against the judgment creditor;
d. If the purchaser at the public auction is a third party, and title
to the property has already been validly and timely transferred
to the name of that party, Atty. Peña must pay Urban Bank or
respondent bank officers the amount realized from the sheriff’s
sale of that property, with interest from the time the property was
seized.
The Omnibus Motion dated 09 December 2002 filed by Atty.
Peña and Motion for Reconsideration dated 10 December 2002
filed by Unimega with respect to the Court’s Order dated 13
November 2002 is hereby DENIED.
The Office of the Court Administrator is ordered to conduct an
investigation into the possible administrative liabilities of Atty.
Josephine Mutia-Hagad, the then RTC-Bago City’s Clerk of
Court, and Allan D. Sillador, the then Deputy Sheriff of Bago
City, for the irregularities attending the execution pending appeal
in this case, including all judicial officers or sheriffs in the various
places in which execution was implemented, and to submit a
report thereon within 120 days from receipt of this Decision.
The Office of the Court Administrator is also directed to make
recommendations for the prevention of abuses of judicial
processes in relation to executions, especially those pending
appeal, whether thru administrative circulars from this Court or
thru a revision of the Rules of Court, within 30 days from
submission of the report on administrative liabilities adverted to
above. Let a copy of the Court’s Decision in this case be sent to
the Office of the Court Administrator.
The Presiding Judge of RTC Bago City shall make a full report
on all incidents related to the execution in this case, including all
returns on the writ of execution herein.
Because so much suspicious circumstances have attended the
execution in this case by the Regional Trial Court of Bago City,
38
the proceedings with respect to any restitution due and owing
under the circumstances shall be transferred to the Regional
Trial Court in the National Capital Region, Makati City, a court
with venue to hear cases involving Urban Bank/Export and
Industry Bank whose headquarters is located in Makati City. The
Executive Judge of the Regional Trial Court of Makati City is
ordered to include the execution of the Decision and the
proceedings for the restitution of the case in the next available
raffle.
The Regional Trial Court of Makati City, to which the case shall
be raffled, is hereby designated as the court that will fully
implement the restorative directives of this Decision with respect
to the execution of the final judgment, return of properties
wrongfully executed, or the payment of the value of properties
that can no longer be restored, in accordance with Section 5,
Rule 39 of the Rules of Court. The parties are directed to
address the implementation of this part of the Decision to the
sala to which the case will be raffled.
No pronouncement as to costs. SO ORDERED.
[G.R. No. 117356. June 19, 2000]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF
APPEALS and CONSOLIDATED SUGAR
CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Syllabi:
1. Appeals; Pleadings and Practice; It is settled that an issue
which was not raised during the trial in the court below could not
be raised for the first time on appeal as to do so would be
offensive to the basic rules of fair play, justice, and due
process.+
2. Agency; The basis of agency is representation—on the
part of the principal, there must be an actual intention to
appoint or an intention naturally inferable from his words or
actions, while on the part of the agent, there must be an
intention to accept the appointment and act on it; One factor
which most clearly distinguishes agency from other legal
concepts is control—one person (the agent) agreeing to act
under the control or direction of another (the principal).+
3. Agency; An authorization given to another containing the
phrase “for and in our behalf” does not necessarily establish an
agency, as ultimately, what is decisive is the intention of the
parties, and the use of the words “sold and endorsed” means
that the parties intended a contract of sale, and not an agency.+
4. Compensation; Where the articles had been fully paid for,
the vendor and the assignee of vendee are not mutually
creditors and debtors of each other and compensation could not
take place pursuant to Article 1279 of the Civil Code.+
5. Sale; Words and Phrases; Where the terms and conditions
clearly show that the vendor transferred title to the articles to the

buyer or his assignee upon payment of the purchase price, the
same clearly establish a contract of sale, not a contract to sell.+
Before us is a petition for review on certiorari under Rule 45 of
the Rules of Court assailing the decision of the Court of Appeals
dated February 24, 1994, in CA-G.R. CV No. 31717, as well as
the respondent court's resolution of September 30, 1994
modifying said decision. Both decision and resolution amended
the judgment dated February 13, 1991, of the Regional Trial
Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate
courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought
sugar from petitioner Victorias Milling Co., Inc., (VMC). In the
course of their dealings, petitioner issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of purchases.
Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers
25,000 bags of sugar. Each bag contained 50 kilograms and
priced at P638.00 per bag as "per sales order VMC Marketing
No. 042 dated October 16, 1989."[1] The transaction it covered
was a "direct sale."[2] The SLDR also contains an additional note
which reads: "subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent
Consolidated Sugar Corporation (CSC) its rights in SLDR No.
1214M for P 14,750,000.00. CSC issued one check dated
October 25, 1989 and three checks postdated November 13,
1989 in payment. That same day, CSC wrote petitioner that it
had been authorized by STM to withdraw the sugar covered by
SLDR No. 1214M. Enclosed in the letter were a copy of SLDR
No. 1214M and a letter of authority from STM authorizing CSC
"to withdraw for and in our behalf the refined sugar covered by
Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25,000 bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount
of P31,900,000.00 with petitioner as payee. The latter, in turn,
issued Official Receipt No. 33743 dated October 27, 1989
acknowledging receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks also covered
SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the
petitioner's NAWACO warehouse and was allowed to withdraw
sugar. However, after 2,000 bags had been released, petitioner
refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990
informing it that SLDR No. 1214M had been "sold and endorsed"
to it but that it had been refused further withdrawals of sugar
from petitioner's warehouse despite the fact that only 2,000 bags
had been withdrawn.[5] CSC thus inquired when it would be
allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow
any further withdrawals of sugar against SLDR No. 1214M
because STM had already dwithdrawn all the sugar covered by
the cleared checks.[6]
On March 2, 1990, CSC sent petitioner a letter demanding the
release of the balance of 23,000 bags.
39
Seven days later, petitioner reiterated that all the sugar
corresponding to the amount of STM's cleared checks had been
fully withdrawn and hence, there would be no more deliveries of
the commodity to STM's account. Petitioner also noted that CSC
had represented itself to be STM's agent as it had withdrawn the
2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific
performance, docketed as Civil Case No. 90-1118. Defendants
were Teresita Ng Sy (doing business under the name of St.
Therese Merchandising) and herein petitioner. Since the former
could not be served with summons, the case proceeded only
against the latter. During the trial, it was discovered that Teresita
Ng Go who testified for CSC was the same Teresita Ng Sy who
could not be reached through summons.[7] CSC, however, did
not bother to pursue its case against her, but instead used her
as its witness.
CSC's complaint alleged that STM had fully paid petitioner for
the sugar covered by SLDR No. 1214M. Therefore, the latter
had no justification for refusing delivery of the sugar. CSC
prayed that petitioner be ordered to deliver the 23,000 bags
covered by SLDR No. 1214M and sought the award of
P1,104,000.00 in unrealized profits, P3,000,000.00 as
exemplary damages, P2,200,000.00 as attorney's fees and
litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid
seller for the 23,000 bags.[8] Since STM had already drawn in
full all the sugar corresponding to the amount of its cleared
checks, it could no longer authorize further delivery of sugar to
CSC. Petitioner also contended that it had no privity of contract
with CSC.
Petitioner explained that the SLDRs, which it had issued, were
not documents of title, but mere delivery receipts issued
pursuant to a series of transactions entered into between it and
STM. The SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of said party's
rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and
was actually STM's co-conspirator to defraud it through a
misrepresentation that CSC was an innocent purchaser for
value and in good faith. Petitioner then prayed that CSC be
ordered to pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages; and
P1,500,000.00 as attorney's fees. Petitioner also prayed that
cross-defendant STM be ordered to pay it P10,000,000.00 in
exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard
the case on the merits.
As earlier stated, the trial court rendered its judgment favoring
private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against defendant
Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to
the plaintiff 23,000 bags of refined sugar due under SLDR No.
1214;

"2) Ordering defendant Victorias Milling Company to pay the
amount of P920,000.00 as unrealized profits, the amount of
P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the
undelivered bags of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she
had fully paid the purchase price of P15,950,000.00 of the
25,000 bags of sugar bought by her covered by SLDR No. 1214
as well as the purchase price of P15,950,000.00 for the 25,000
bags of sugar bought by her covered by SLDR No. 1213 on the
same date, October 16, 1989 (date of the two SLDRs) is duly
supported by Exhibits C to C-15 inclusive which are post-dated
checks dated October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling Company at the time
it purchased the 50,000 bags of sugar covered by SLDR No.
1213 and 1214. Said checks appear to have been honored and
duly credited to the account of Victorias Milling Company
because on October 27, 1989 Victorias Milling Company issued
official receipt no. 34734 in favor of St. Therese Merchandising
for the amount of P31,900,000.00 (Exhibits B and B-1). The
testimony of Teresita Ng Go is further supported by Exhibit F,
which is a computer printout of defendant Victorias Milling
Company showing the quantity and value of the purchases
made by St. Therese Merchandising, the SLDR no. issued to
cover the purchase, the official reciept no. and the status of
payment. It is clear in Exhibit 'F' that with respect to the sugar
covered by SLDR No. 1214 the same has been fully paid as
indicated by the word 'cleared' appearing under the column of
'status of payment.'
"On the other hand, the claim of defendant Victorias Milling
Company that the purchase price of the 25,000 bags of sugar
purchased by St. Therese Merchandising covered by SLDR No.
1214 has not been fully paid is supported only by the testimony
of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic
is merely a sweeping barren assertion that the purchase price
has not been fully paid and is not corroborated by any positive
evidence. There is an insinuation by Arnulfo Caintic in his
testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said
witness failed to present in Court any dishonored check or any
replacement check. Said witness likewise failed to present any
bank record showing that the checks issued by the buyer,
Teresita Ng Go, in payment of the purchase price of the sugar
covered by SLDR No. 1214 were dishonored." [10]
Petitioner appealed the trial courts decision to the Court of
Appeals.
On appeal, petitioner averred that the dealings between it and
STM were part of a series of transactions involving only one
account or one general contract of sale. Pursuant to this
contract, STM or any of its authorized agents could withdraw
bags of sugar only against cleared checks of STM. SLDR No.
21214M was only one of 22 SLDRs issued to STM and since the
latter had already withdrawn its full quota of sugar under the said
40
SLDR, CSC was already precluded from seeking delivery of the
23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases
involving SLDR No. 1214M were separate and independent
transactions and that the details of the series of purchases were
contained in a single statement with a consolidated summary of
cleared check payments and sugar stock withdrawals because
this a more convenient system than issuing separate statements
for each purchase.
The appellate court considered the following issues: (a) Whether
or not the transaction between petitioner and STM involving
SLDR No. 1214M was a separate, independent, and single
transaction; (b) Whether or not CSC had the capacity to sue on
its own on SLDR No. 1214M; and (c) Whether or not CSC as
buyer from STM of the rights to 25,000 bags of sugar coveredby
SLDR No. 1214M could compel petitioner to deliver 23,000
bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its
decision modifying the trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed
judgment and orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by
SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the
value of the undelivered bags of refined sugar, as attorneys
fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for
reconsideration.
In its resolution dated September 30, 1994, the appellate court
modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed
judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar
under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the modification
as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of bags of sugar
which remained undelivered as 12,586 cannot be made the
basis for such a finding. The rule is explicit that courts should
consider the evidence only for the purpose for which it was
offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale
for this is to afford the party against whom the evidence is
presented to object thereto if he deems it necessary. Plaintiff-
appellee is, therefore, correct in its argument that Exhibit F'
which was offered to prove that checks in the total amount of

P15,950,000.00 had been cleared. (Formal Offer of Evidence for
Plaintiff, Records p. 58) cannot be used to prove the proposition
that 12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10
October 1990, p. 33] and Marianito L. Santos [TSN, 17 October
1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to
the effect that it had withdrawn only 2,000 bags of sugar from
SLDR after which it was not allowed to withdraw anymore.
Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p.
80) show that plaintiff-appellee had sent demand letters to
defendant-appellant asking the latter to allow it to withdraw the
remaining 23,000 bags of sugar from SLDR 1214M. Defendant-
appellant, on the other hand, alleged that sugar delivery to the
STM corresponded only to the value of cleared checks; and that
all sugar corresponded to cleared checks had been withdrawn.
Defendant-appellant did not rebut plaintiff-appellee's assertions.
It did not present evidence to show how many bags of sugar had
been withdrawn against SLDR No. 1214M, precisely because of
its theory that all sales in question were a series of one single
transaction and withdrawal of sugar depended on the clearing of
checks paid therefor.
"After a second look at the evidence, We see no reason to
overturn the findings of the trial court on this point."[13]
Hence, the instant petition, positing the following errors as
grounds for review:
"1. The Court of Appeals erred in not holding that STM's and
private respondent's specially informing petitioner that
respondent was authorized by buyer STM to withdraw sugar
against SLDR No. 1214M "for and in our (STM) behalf,"
(emphasis in the original) private respondent's withdrawing
2,000 bags of sugar for STM, and STM's empowering other
persons as its agents to withdraw sugar against the same SLDR
No. 1214M, rendered respondent like the other persons, an
agent of STM as held in Rallos v. Felix Go Chan & Realty
Corp., 81 SCRA 252, and precluded it from subsequently
claiming and proving being an assignee of SLDR No. 1214M
and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules
of Court) and estopped from doing so. (Art. 1431, Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily
ignoring and disregarding certain relevant and undisputed facts
which, had they been considered, would have shown that
petitioner was not liable, except for 69 bags of sugar, and which
would justify review of its conclusion of facts by this Honorable
Court.
" 3. The Court of Appeals misapplied the law on compensation
under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled
that compensation applied only to credits from one SLDR or
contract and not to those from two or more distinct
contracts between the same parties; and erred in denying
petitioner's right to setoff all its credits arising prior to notice of
assignment from other sales or SLDRs against private
respondent's claim as assignee under SLDR No. 1214M, so as
to extinguish or reduce its liability to 69 bags, because the law
on compensation applies precisely to two or more distinct
contracts between the same parties (emphasis in the original).
41
"4. The Court of Appeals erred in concluding that the settlement
or liquidation of accounts in Exh. F between petitioner and STM,
respondent's admission of its balance, and STM's acquiescence
thereto by silence for almost one year did not render Exh. `F' an
account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions
of the assigned SLDR No. 1214, namely, (a) its subject matter
being generic, and (b) the sale of sugar being subject to its
availability at the Nawaco warehouse, made the sale conditional
and prevented STM or private respondent from acquiring title to
the sugar; and the non-availability of sugar freed petitioner from
further obligation.
"6. The Court of Appeals erred in not holding that the "clean
hands" doctrine precluded respondent from seeking judicial
reliefs (sic) from petitioner, its only remedy being against its
assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that
CSC was an agent of STM and hence, estopped to sue upon
SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the
law on compensation to the transaction under SLDR No. 1214M
so as to preclude petitioner from offsetting its credits on the other
SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that
the sale of sugar under SLDR No. 1214M was a conditional sale
or a contract to sell and hence freed petitioner from further
obligations.
(4)....Whether or not the Court of Appeals committed an error of
law in not applying the "clean hands doctrine" to preclude CSC
from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner
raised this issue for the first time on appeal. It is settled that an
issue which was not raised during the trial in the court below
could not be raised for the first time on appeal as to do so would
be offensive to the basic rules of fair play, justice, and due
process.[15] Nonetheless, the Court of Appeals opted to address
this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing
CSC to withdraw sugar against SLDR No. 1214M to show that
the latter was STM's agent. The pertinent portion of said letter
reads:
"This is to authorize Consolidated Sugar Corporation or its
representative to withdraw for and in our behalf (stress supplied)
the refined sugar covered by Shipping List/Delivery Receipt =
Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the
total quantity of 25, 000 bags."[16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. 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."
 42

It is clear from Article 1868 that the basis of agency is
representation.[17] On the part of the principal, there must be an
actual intention to appoint[18] or an intention naturally inferable
from his words or actions;[19] and on the part of the agent, there
must be an intention to accept the appointment and act on
it,[20] and in the absence of such intent, there is generally no
agency.[21] One factor which most clearly distinguishes agency
from other legal concepts is control; one person - the agent -
agrees to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come to connote
control by the principal.[22] The control factor, more than any
other, has caused the courts to put contracts between principal
and agent in a separate category.[23] The Court of Appeals, in
finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is
dependent upon the acts of the parties, the law makes no
presumption of agency, and it is always a fact to be proved, with
the burden of proof resting upon the persons alleging the
agency, to show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536].
Here, defendant-appellant failed to sufficiently establish the
existence of an agency relation between plaintiff-appellee and
STM. The fact alone that it (STM) had authorized withdrawal of
sugar by plaintiff-appellee "for and in our (STM's) behalf" should
not be eyed as pointing to the existence of an agency relation
...It should be viewed in the context of all the circumstances
obtaining. Although it would seem STM represented plaintiff-
appellee as being its agent by the use of the phrase "for and in
our (STM's) behalf" the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-appellant that
SLDFR No. 1214M had been "sold and endorsed" to it by STM
(Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown
that the 25, 000 bags of sugar covered by the SLDR No. 1214M
were sold and transferred by STM to it ...A conclusion that there
was a valid sale and transfer to plaintiff-appellee may, therefore,
be made thus capacitating plaintiff-appellee to sue in its own
name, without need of joining its imputed principal STM as co-
plaintiff."[24]
In the instant case, it appears plain to us that private respondent
CSC was a buyer of the SLDFR form, and not an agent of STM.
Private respondent CSC was not subject to STM's control. The
question of whether a contract is one of sale or agency depends
on the intention of the parties as gathered from the whole scope
and effect of the language employed.[25] That the authorization
given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency. Ultimately, what is
decisive is the intention of the parties.[26] That no agency was
meant to be established by the CSC and STM is clearly shown
by CSC's communication to petitioner that SLDR No. 1214M had
been "sold and endorsed" to it.[27] The use of the words "sold
and endorsed" means that STM and CSC intended a contract of
sale, and not an agency. Hence, on this score, no error was
committed by the respondent appellate court when it held that
CSC was not STM's agent and could independently sue
petitioner.
and the Court of Appeals concurred, that the purchase of sugar
covered by SLDR No. 1214M was a separate and independent
transaction; it was not a serial part of a single transaction or of
one account contrary to petitioner's insistence. Evidence on
record shows, without being rebutted, that petitioner had been
paid for the sugar purchased under SLDR No. 1214M. Petitioner
clearly had the obligation to deliver said commodity to STM or
its assignee. Since said sugar had been fully paid for, petitioner
and CSC, as assignee of STM, were not mutually creditors and
debtors of each other. No reversible error could thereby be
imputed to respondent appellate court when, it refused to apply
Article 1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of
sugar under SLDR No. 1214M is a conditional sale or a contract
to sell, with title to the sugar still remaining with the vendor.
Noteworthy, SLDR No. 1214M contains the following terms and
conditions:
"It is understood and agreed that by payment by buyer/trader of
refined sugar and/or receipt of this document by the buyer/trader
personally or through a representative, title to refined sugar is
transferred to buyer/trader and delivery to him/it is deemed
effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"[29]
The aforequoted terms and conditions clearly show that
petitioner transferred title to the sugar to the buyer or his
assignee upon payment of the purchase price. Said terms
clearly establish a contract of sale, not a contract to sell.
Petitioner is now estopped from alleging the contrary. The
contract is the law between the contracting parties.[30] And
where the terms and conditions so stipulated are not contrary to
law, morals, good customs, public policy or public order, the
contract is valid and must be upheld.[31] Having transferred title
to the sugar in question, petitioner is now obliged to deliver it to
the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private
respondent CSC have entered into a conspiracy to defraud it of
its sugar. This conspiracy is allegedly evidenced by: (a) the fact
that STM's selling price to CSC was below its purchasing price;
(b) CSC's refusal to pursue its case against Teresita Ng Go; and
(c) the authority given by the latter to other persons to withdraw
sugar against SLDR No. 1214M after she had sold her rights
under said SLDR to CSC. Petitioner prays that the doctrine of
"clean hands" should be applied to preclude CSC from seeking
judicial relief. However, despite careful scrutiny, we find here the
records bare of convincing evidence whatsoever to support the
petitioner's allegations of fraud. We are now constrained to
deem this matter purely speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit.
Costs against petitioner. SO ORDERED.

On the second issue, proceeding from the theory that the

transactions entered into between petitioner and STM are but
serial parts of one account, petitioner insists that its debt has
been offset by its claim for STM's unpaid purchases, pursuant to
Article 1279 of the Civil Code.[28] However, the trial court found,

G.R. No. 179446 January 10, 2011
LOADMASTERS CUSTOMS SERVICES, INC., Petitioner, vs.
GLODEL BROKERAGE CORPORATION and R&B
INSURANCE CORPORATION, Respondents.
DECISION
MENDOZA, J.:
Syllabi:
1. Subrogation; Words and Phrases; Subrogation is the
substitution of one person in the place of another with reference
to a lawful claim or right, so that he who is substituted succeeds
to the rights of the other in relation to a debt or claim, including
its remedies or securities.+
2. Actions; Negligence; The Court cannot be a lawyer and
take the cudgels for a party who has been at fault or negligent.+
3. Same; Same; Where several causes producing an injury are
concurrent and each is an efficient cause without which the
injury would not have happened, the injury may be attributed to
all or any of the causes and recovery may be had against any or
all of the responsible persons although under the circumstances
of the case, it may appear that one of them was more culpable,
and that the duty owed by them to the injured person was not
the same.+
4. Same; Same; Agency; Elements; It is a settled rule that the
basis for agency is representation, that is, the agent acts for and
on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were
personally executed by the principal.+
5. Same; Same; Whenever an employee’s negligence causes
damage or injury to another, there instantly arises a presumption
juris tantum that the employer failed to exercise diligentissimi
patris families in the selection (culpa in eligiendo) or supervision
(culpa in vigilando) of its employees.+
6. Same; Quasi-Delicts; The responsibility of two or more
persons who are liable for a quasi-delict is solidary.+
7. Same; Extraordinary Diligence; Words and
Phrases; When the Court speaks of extraordinary diligence, it
is that extreme measure of care and caution which persons of
unusual prudence and circumspection observe for securing and
preserving their own property or rights+
8. Same; Customs Brokers; A customs broker is also
regarded as a common carrier, the transportation of goods being
an integral part of its business.+
9. Common Carriers; Private Carriers; Words and
Phrases; One engaged in the business of transporting goods
by land, through its trucking service, is a common carrier, as
distinguished from a private carrier wherein the carriage is
generally undertaken by special agreement and it does not hold
itself out to carry goods for the general public.
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court assailing the August 24, 2007
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
82822, entitled "R&B Insurance Corporation v. Glodel
43
Brokerage Corporation and Loadmasters Customs Services,
Inc.," which held petitioner Loadmasters Customs Services,
Inc. (Loadmasters) liable to respondent Glodel Brokerage
Corporation (Glodel) in the amount of ₱1,896,789.62
representing the insurance indemnity which R&B Insurance
Corporation (R&B Insurance) paid to the insured-consignee,
Columbia Wire and Cable Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No.
MN-00105/2001 in favor of Columbia to insure the shipment of
132 bundles of electric copper cathodes against All Risks. On
August 28, 2001, the cargoes were shipped on board the vessel
"Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor,
Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and
withdrawal of the cargoes from the pier and the subsequent
delivery to its warehouses/plants. Glodel, in turn, engaged the
services of Loadmasters for the use of its delivery trucks to
transport the cargoes to Columbia’s warehouses/plants in
Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by
Loadmasters, driven by its employed drivers and accompanied
by its employed truck helpers. Six (6) truckloads of copper
cathodes were to be delivered to Balagtas, Bulacan, while the
other six (6) truckloads were destined for Lawang Bato,
Valenzuela City. The cargoes in six truckloads for Lawang Bato
were duly delivered in Columbia’s warehouses there. Of the six
(6) trucks en route to Balagtas, Bulacan, however, only five (5)
reached the destination. One (1) truck, loaded with 11 bundles
or 232 pieces of copper cathodes, failed to deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was
recovered but without the copper cathodes. Because of this
incident, Columbia filed with R&B Insurance a claim for
insurance indemnity in the amount of ₱1,903,335.39. After the
requisite investigation and adjustment, R&B Insurance paid
Columbia the amount of ₱1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages
against both Loadmasters and Glodel before the Regional Trial
Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-
103040. It sought reimbursement of the amount it had paid to
Columbia for the loss of the subject cargo. It claimed that it had
been subrogated "to the right of the consignee to recover from
the party/parties who may be held legally liable for the loss."2
On November 19, 2003, the RTC rendered a decision3 holding
Glodel liable for damages for the loss of the subject cargo and
dismissing Loadmasters’ counterclaim for damages and
attorney’s fees against R&B Insurance. The dispositive portion
of the decision reads:
WHEREFORE, all premises considered, the plaintiff having
established by preponderance of evidence its claims against
defendant Glodel Brokerage Corporation, judgment is hereby
rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of
₱1,896,789.62 as actual and compensatory damages, with
interest from the date of complaint until fully paid;

2. To pay plaintiff R&B Insurance Corporation the amount
equivalent to 10% of the principal amount recovered as and for
attorney’s fees plus ₱1,500.00 per appearance in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of
₱22,427.18 as litigation expenses.
WHEREAS, the defendant Loadmasters Customs Services,
Inc.’s counterclaim for damages and attorney’s fees against
plaintiff are hereby dismissed.
With costs against defendant Glodel Brokerage Corporation.
SO ORDERED.4
Both R&B Insurance and Glodel appealed the RTC decision to
the CA.
On August 24, 2007, the CA rendered the assailed decision
which reads in part:
Considering that appellee is an agent of appellant Glodel,
whatever liability the latter owes to appellant R&B Insurance
Corporation as insurance indemnity must likewise be the
amount it shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY
GRANTED in that the appellee Loadmasters is likewise held
liable to appellant Glodel in the amount of ₱1,896,789.62
representing the insurance indemnity appellant Glodel has been
held liable to appellant R&B Insurance Corporation.
Appellant Glodel’s appeal to absolve it from any liability is herein
DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on
certiorari before this Court presenting the following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent
Glodel in spite of the fact that the latter respondent Glodel
did not file a cross-claim against it (Loadmasters)?
2. Under the set of facts established and undisputed in the
case, can petitioner Loadmasters be legally considered as
an Agent of respondent Glodel?6
To totally exculpate itself from responsibility for the lost goods,
Loadmasters argues that it cannot be considered an agent of
Glodel because it never represented the latter in its dealings with
the consignee. At any rate, it further contends that Glodel has
no recourse against it for its (Glodel’s) failure to file a cross-claim
pursuant to Section 2, Rule 9 of the 1997 Rules of Civil
Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to
it under its cross-claim because the latter was grossly negligent
in the transportation of the subject cargo. With respect to
Loadmasters’ claim that it is already estopped from filing a
cross-claim, Glodel insists that it can still do so even for the first
time on appeal because there is no rule that provides otherwise.
Finally, Glodel argues that its relationship with Loadmasters is
that of Charter wherein the transporter (Loadmasters) is only
44
hired for the specific job of delivering the merchandise. Thus, the
diligence required in this case is merely ordinary diligence or that
of a good father of the family, not the extraordinary diligence
required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have
interposed a cross-claim against Loadmasters because it was
not prevented from presenting evidence to prove its position
even without amending its Answer. As to the relationship
between Loadmasters and Glodel, it contends that a contract of
agency existed between the two corporations.8
Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he who
is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. 9 Doubtless,
R&B Insurance is subrogated to the rights of the insured to the
extent of the amount it paid the consignee under the marine
insurance, as provided under Article 2207 of the Civil Code,
which reads:
ART. 2207. If the plaintiff’s property has been insured, and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrong-doer or the person
who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B
Insurance has the right to seek reimbursement from either
Loadmasters or Glodel or both for breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is
liable to pay R&B Insurance for the amount of the indemnity it
paid Columbia.
At the outset, it is well to resolve the issue of whether
Loadmasters and Glodel are common carriers to determine their
liability for the loss of the subject cargo. Under Article 1732 of
the Civil Code, common carriers are persons, corporations,
firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air
for compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common
carrier because it is engaged in the business of transporting
goods by land, through its trucking service. It is a common
carrier as distinguished from a private carrier wherein the
carriage is generally undertaken by special agreement and it
does not hold itself out to carry goods for the general
public.10 The distinction is significant in the sense that "the rights
and obligations of the parties to a contract of private carriage are
governed principally by their stipulations, not by the law on
common carriers."11
In the present case, there is no indication that the undertaking in
the contract between Loadmasters and Glodel was private in
character. There is no showing that Loadmasters solely and
exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12

In the same vein, Glodel is also considered a common carrier
within the context of Article 1732. In its Memorandum, 13 it states
that it "is a corporation duly organized and existing under the
laws of the Republic of the Philippines and is engaged in the
business of customs brokering." It cannot be considered
otherwise because as held by this Court in Schmitz Transport &
Brokerage Corporation v. Transport Venture, Inc., 14 a customs
broker is also regarded as a common carrier, the transportation
of goods being an integral part of its business.
Loadmasters and Glodel, being both common carriers, are
mandated from the nature of their business and for reasons of
public policy, to observe the extraordinary diligence in the
vigilance over the goods transported by them according to all the
circumstances of such case, as required by Article 1733 of the
Civil Code. When the Court speaks of extraordinary diligence, it
is that extreme measure of care and caution which persons of
unusual prudence and circumspection observe for securing and
preserving their own property or rights.15 This exacting standard
imposed on common carriers in a contract of carriage of goods
is intended to tilt the scales in favor of the shipper who is at the
mercy of the common carrier once the goods have been lodged
for shipment.16 Thus, in case of loss of the goods, the common
carrier is presumed to have been at fault or to have acted
negligently.17 This presumption of fault or negligence, however,
may be rebutted by proof that the common carrier has observed
extraordinary diligence over the goods.
With respect to the time frame of this extraordinary
responsibility, the Civil Code provides that the exercise of
extraordinary diligence lasts from the time the goods are
unconditionally placed in the possession of, and received by, the
carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person
who has a right to receive them.18
Premises considered, the Court is of the view that both
Loadmasters and Glodel are jointly and severally liable to R & B
Insurance for the loss of the subject cargo. Under Article 2194
of the New Civil Code, "the responsibility of two or more persons
who are liable for a quasi-delict is solidary."
Loadmasters’ claim that it was never privy to the contract
entered into by Glodel with the consignee Columbia or R&B
Insurance as subrogee, is not a valid defense. It may not have
a direct contractual relation with Columbia, but it is liable for tort
under the provisions of Article 2176 of the Civil Code on quasi-
delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao
Terminal and Brokerage Service, Inc. v. Phoenix Assurance
Company of New York,/McGee & Co., Inc.19 where this Court
held that a tort may arise despite the absence of a contractual
relationship, to wit:
We agree with the Court of Appeals that the complaint filed by
Phoenix and McGee against Mindanao Terminal, from which the
present case has arisen, states a cause of action. The present
45
action is based on quasi-delict, arising from the negligent and
careless loading and stowing of the cargoes belonging to Del
Monte Produce. Even assuming that both Phoenix and McGee
have only been subrogated in the rights of Del Monte Produce,
who is not a party to the contract of service between Mindanao
Terminal and Del Monte, still the insurance carriers may have a
cause of action in light of the Court’s consistent ruling that the
act that breaks the contract may be also a tort. In fine, a liability
for tort may arise even under a contract, where tort is that which
breaches the contract. In the present case, Phoenix and McGee
are not suing for damages for injuries arising from the
breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the absence
of contractual relationship between Del Monte Produce and
Mindanao Terminal, the allegation of negligence on the part of
the defendant should be sufficient to establish a cause of action
arising from quasi-delict. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is
demandable not only for one’s own acts or omissions, but also
for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in
any business or industry.
It is not disputed that the subject cargo was lost while in the
custody of Loadmasters whose employees (truck driver and
helper) were instrumental in the hijacking or robbery of the
shipment. As employer, Loadmasters should be made
answerable for the damages caused by its employees who
acted within the scope of their assigned task of delivering the
goods safely to the warehouse.
Whenever an employee’s negligence causes damage or injury
to another, there instantly arises a presumption juris tantum that
the employer failed to exercise diligentissimi patris families in the
selection (culpa in eligiendo) or supervision (culpa in vigilando)
of its employees.20 To avoid liability for a quasi-delict committed
by its employee, an employer must overcome the presumption
by presenting convincing proof that he exercised the care and
diligence of a good father of a family in the selection and
supervision of his employee.21 In this regard, Loadmasters
failed.
Glodel is also liable because of its failure to exercise
extraordinary diligence. It failed to ensure that Loadmasters
would fully comply with the undertaking to safely transport the
subject cargo to the designated destination. It should have been
more prudent in entrusting the goods to Loadmasters by taking
precautionary measures, such as providing escorts to
accompany the trucks in delivering the cargoes. Glodel should,
therefore, be held liable with Loadmasters. Its defense of force
majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-
agent relationship between Glodel and Loadmasters, as
erroneously found by the CA. Article 1868 of the Civil Code
 46

provides: "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." The
elements of a contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object
is the execution of a juridical act in relation to a third person; (3)
the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority.22
Accordingly, there can be no contract of agency between the
parties. Loadmasters never represented Glodel. Neither was it
ever authorized to make such representation. It is a settled rule
that the basis for agency is representation, that is, the agent acts
for and on behalf of the principal on matters within the scope of
his authority and said acts have the same legal effect as if they
were personally executed by the principal. On the part of the
principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions, while on
the part of the agent, there must be an intention to accept the
appointment and act on it.23 Such mutual intent is not obtaining
in this case.
What then is the extent of the respective liabilities of
Loadmasters and Glodel? Each wrongdoer is liable for the total
damage suffered by R&B Insurance. Where there are several
causes for the resulting damages, a party is not relieved from
liability, even partially. It is sufficient that the negligence of a
party is an efficient cause without which the damage would not
have resulted. It is no defense to one of the concurrent
tortfeasors that the damage would not have resulted from his
negligence alone, without the negligence or wrongful acts of the
other concurrent tortfeasor. As stated in the case of Far Eastern
Shipping v. Court of Appeals,24
X x x. Where several causes producing an injury are concurrent
and each is an efficient cause without which the injury would not
have happened, the injury may be attributed to all or any of the
causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the
case, it may appear that one of them was more culpable, and
that the duty owed by them to the injured person was not the
same. No actor's negligence ceases to be a proximate cause
merely because it does not exceed the negligence of other
actors. Each wrongdoer is responsible for the entire result and
is liable as though his acts were the sole cause of the injury.
Undoubtedly, Glodel has a definite cause of action against
Loadmasters for breach of contract of service as the latter is
primarily liable for the loss of the subject cargo. In this case,
however, it cannot succeed in seeking judicial sanction against
Loadmasters because the records disclose that it did not
properly interpose a cross-claim against the latter. Glodel did not
even pray that Loadmasters be liable for any and all claims that
it may be adjudged liable in favor of R&B Insurance. Under the
Rules, a compulsory counterclaim, or a cross-claim, not set up
shall be barred.25Thus, a cross-claim cannot be set up for the
first time on appeal.
For the consequence, Glodel has no one to blame but itself. The
Court cannot come to its aid on equitable grounds. "Equity,
which has been aptly described as ‘a justice outside legality,’ is
applied only in the absence of, and never against, statutory law
or judicial rules of procedure."26 The Court cannot be a lawyer
and take the cudgels for a party who has been at fault or
negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The
August 24, 2007 Decision of the Court of Appeals
is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner
Loadmasters Customs Services, Inc. and respondent Glodel
Brokerage Corporation jointly and severally liable to respondent
R&B Insurance Corporation for the insurance indemnity it paid
to consignee Columbia Wire & Cable Corporation and ordering
both parties to pay, jointly and severally, R&B Insurance
Corporation a] the amount of ₱1,896,789.62 representing the
insurance indemnity; b] the amount equivalent to ten (10%)
percent thereof for attorney’s fees; and c] the amount of
₱22,427.18 for litigation expenses.
The cross-claim belatedly prayed for by respondent Glodel
Brokerage Corporation against petitioner Loadmasters Customs
Services, Inc. is DENIED.
SO ORDERED.

There is no contribution between joint tortfeasors whose liability

is solidary since both of them are liable for the total damage.
Where the concurrent or successive negligent acts or omissions
of two or more persons, although acting independently, are in
combination the direct and proximate cause of a single injury to
a third person, it is impossible to determine in what proportion
each contributed to the injury and either of them is
responsible for the whole injury. Where their concurring
negligence resulted in injury or damage to a third party, they
become joint tortfeasors and are solidarily liable for the resulting
damage under Article 2194 of the Civil Code. [Emphasis
supplied]

The Court now resolves the issue of whether Glodel can collect
from Loadmasters, it having failed to file a cross-claim against
the latter.1avvphi1