G.R. No.

137686 February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,

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

PANGANIBAN, J.:

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

The Case

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

Wherefore, premises considered, the Judgment appealed from is hereby

AFFIRMED. Costs against the respondent-appellant. 3

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

WHEREFORE, in view of all the foregoing findings, decision is hereby

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

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

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

This is an action for mandamus with damages. On April 10, 1996, [herein
petitioner] was declared in default on motion of the [respondents] for failure to
file an answer within the reglementary-period after it was duly served with
summons. On April 26, 1996, [herein petitioner] filed a motion to set aside the
order of default with objection thereto filed by [herein respondents].

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

The evidence presented by the [respondents] through the testimony of Marife

O. Niño, one of the [respondents] in this case, show[s] that she is the daughter
of Francisca Ocfemia, a co-[respondent] in this case, and the late Renato
Ocfemia who died on July 23, 1994. The parents of her father, Renato Ocfemia,
were Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other co-
[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr.
and Winston Ocfemia are her brothers and sisters.1âwphi1.nêt

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

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

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

In view of the foregoing, Marife O. Niño went to the Register of Deeds of

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

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

After two (2) weeks, Marife O. Niño returned to the [petitioner] bank and she
was told that the resolution of the board would not be released because the
[petitioner] bank ha[d] no records from the old manager. Because of this,
Marife O. Niño brought the matter to her lawyer and the latter wrote a letter on
December 22, 1995 to the [petitioner] bank inquiring why no action was taken
by the board of the request for the issuance of the resolution considering that
the bank was already fully paid [for] the consideration of the sale since January
1988 as shown by the deed of sale itself (Exh. D and D-1 ).
 On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's
letter (Exh. D and D-1) informing the latter that the request for board resolution
ha[d] already been referred to the board of directors of the [petitioner] bank
with another request that the latter should be furnished with a certified machine
copy of the receipt of payment covering the sale between the [respondents] and
the [petitioner] (Exh. E). This request of the [petitioner] bank was already
complied [with] by Marife O. Niño even before she brought the matter to her
lawyer.

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

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

The [respondents] are interested in having the property described in paragraph

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

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

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

Ruling of the Court of Appeals

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

Issues

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

1. Question of Jurisdiction of the Regional Trial Court. — Has a Regional Trial

Court original jurisdiction over an action involving title to real property with a
total assessed value of less than P20,000.00?

2. Question of Law. — May the board of directors of a rural banking

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

This Court's Ruling

The present Petition has no merit.

First Issue:
Jurisdiction of the Regional Trial Court

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

We disagree. The well-settled rule is that jurisdiction is determined by the allegations

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

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

(1) in the issuance of writ of certiorari, prohibition, mandamus, quo

warranto, habeas corpus and injunction which may be enforced in any part of
their respective regions; and

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

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

Second Issue:
Authority of the Bank Manager

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

Allegations in the Petition for Mandamus Deemed Admitted

Respondents based their action before the trial court on the Deed of Sale, the
substance of which was alleged in and a copy thereof was attached to the Petition
for Mandamus. The Deed named Fe S. Tena as the representative of the bank.
Petitioner, however, failed to specifically deny under oath the allegations in that
contract. In fact, it filed no answer at all, for which reason it was declared in default.
Pertinent provisions of the Rules of Court read:
 Sec. 7. Action or defense based on document. — Whenever an action or
defense is based upon a written instrument or document, the substance of such
instrument or document shall be set forth in the pleading, and the original or a
copy thereof shall be attached to the pleading as an exhibit, which shall be
deemed to be a part of the pleading, or said copy may with like effect be set
forth in the pleading.

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

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

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

Other Acts of the Bank

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

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

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

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

. . . Thus, when, in the usual course of business of a corporation, an officer has

been allowed in his official capacity to manage its affairs, his authority to
represent the corporation may be implied from the manner in which he has
been permitted by the directors to manage its business.

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

. . . Corporate transactions would speedily come to a standstill were every

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

In passing upon the liability of a corporation in cases of this kind it is

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

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

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

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

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

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur.

Vitug, J., please see concurring opinion.

Separate Opinions

VITUG, J., concurring opinion;

I share the views expressed in the ponencia written for the Court by our esteemed
colleague Mr. Justice Artemio V. Panganiban. There is just a brief clarificatory
statement that I thought could be made.

The Civil Code, being a law of general application, can be suppletory to special laws
and certainly not preclusive of those that govern commercial transactions. Indeed, in
its generic sense, civil law can rightly be said to encompass commercial law. Jus
civile, in ancient Rome, was merely used to distinguish it from jus gentium or the law
common to all the nations within the empire and, at some time later, only in contrast
to international law. In more recent times, civil law is so referred to as private law in
distinction from public law and criminal law. Today, it may not be totally inaccurate
to consider commercial law, among some other special laws, as being a branch of civil
law.

Sec. 45 of the Corporation Code provides:

Sec. 45. Ultra vires acts of corporations. — No corporation under this Code
shall possess or exercise any corporate powers except those conferred by this
Code or by its articles of incorporation and except such as are necessary or
incidental to the exercise of the powers so conferred.

The language of the Code appears to confine the term ultra vires to an act outside or
beyond express, implied and incidental corporate powers. Nevertheless, the concept
can also include those acts that may ostensibly be within such powers but are, by
general or special laws, either proscribed or declared illegal. In general, although
perhaps loosely, ultra vires has also been used to designate those acts of the board of
directors or of corporate officers when acting beyond their respective spheres of
authority. In the context that the law has used the term in Article 45 of the
Corporation Code, an ultra vires act would be void and not susceptible to
ratification. 1 In determining whether or not a corporation may perform an act, one
considers the logical and necessary relation between the act assailed and the corporate
purpose expressed by the law or in the charter. For if the act were one which is lawful
in itself or not otherwise prohibited and done for the purpose of serving corporate
ends or reasonably contributes to the promotion of those ends in a substantial and not
merely in a remote and fanciful sense, it may be fairly considered within corporate
powers. 2

Sec. 23 of the Corporation Code states that the corporate powers are to be exercised,
all business conducted, and all property of corporations controlled and held, by the
Board of Directors. When the act of the board is within corporate powers but it is
done without the concurrence of the shareholders as and when such approval is
required by law 3 or when the act is beyond its competence to do, 4 the act has been
described as void 5 or, as unenforceable, 6 or as ineffective and not legally
binding. 7 These holdings notwithstanding, the act cannot accurately be likened to
an ultra vires act of the corporation itself defined in Section 45 of the Code. Where
the act is within corporate powers but the board has acted without being competent to
independently do so, the action is not necessarily and totally devoid of effects, and it
may generally be ratified expressly or impliedly. Thus, an acceptance of benefits
derived by the shareholders from an outside investment made by the board without the
required concurrence of the stockholders may, nonetheless, be so considered as an
effective investment. 8 It may be said, however, that when the board resolution is yet
executory, the act should aptly be deemed inoperative and specific performance
cannot be validly demanded but, if for any reason, the contemplated action is carried
out, such principles as ratification or prescription when applicable, normally unknown
in void contracts, can serve to negate a claim for the total nullity thereof.

Corporate officers, in their case, may act on such matters as may be authorized either
expressly by the By-laws or Board Resolutions or impliedly such as by general
practice or policy or as are implied by express powers. When officers are allowed to
act in certain particular cases, their acts conformably therewith can bind the company.
Hence, a corporate officer entrusted with general management and control of the
business has the implied authority to act or contract for the corporation which may be
necessary or appropriate to conduct the ordinary business. 9 If the act of corporate
officers comes within corporate powers but it is done without any express or implied
authority therefor from the by-laws, board resolutions or corporate practices, such an
act does not bind the corporation. The Board, however, acting within its competence,
may ratify the unauthorized act of the corporate officer. So, too, a corporation may be
held in estoppel from denying as against innocent third persons the authority of its
officers or agents who have been clothed by it with ostensible or apparent authority. 10

The Corporation Code itself has not been that explicit with respect to the
consequences of ultra vires acts; hence, the varied ascriptions to its effects heretofore
expressed. It may well be to consider futile any further attempt to have these
situations bear any exact equivalence to the civil law precepts of defective contracts.
Nevertheless, general statements could be made. Here reiterated, while an act of the
corporation which is either illegal or outside of express, implied or incidental powers
as so provided by law or the charter would be void under Article 5 11 of the Civil
Code, and the act is not susceptible to ratification, an unauthorized act (if within
corporate powers) of the board or a corporate officer, however, would only be
unenforceable conformably with Article 1403 12 of the Civil Code but, if the party
with whom the agent has contracted is aware of the latter's limits of powers, the
unauthorized act is declared void by Article 1898 13 of the same Code, although still
susceptible thereunder to ratification by the principal. Any person dealing with
corporate boards and officers may be said to be charged with the knowledge that the
latter can only act within their respective limits of power, and he is put to notice
accordingly. Thus, it would generally behoove such a person to look into the extent of
the authority of corporate agents since the onus would ordinarily be with
him.1âwphi1.nêt

MATLING INDUSTRIAL G.R. No. 157802

AND COMMERCIAL
CORPORATION, Present:
RICHARD K. SPENCER,
CATHERINE SPENCER, CARPIO MORALES, Chairperson,
AND ALEX MANCILLA, BRION,
Petitioners, BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
-versus -
Promulgated:
October 13, 2010
RICARDO R. COROS,
Respondent.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a complaint for
illegal dismissal is cognizable by the Labor Arbiter (LA) or by the Regional Trial
Court (RTC). The determination of whether the dismissed officer was a regular
employee or a corporate officer unravels the conundrum. In the case of the regular
employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority
to adjudicate.

In this appeal via petition for review on certiorari, the petitioners challenge
the decision dated September 13, 2002[1] and the resolution dated April 2,
2003,[2] both promulgated in C.A.-G.R. SP No. 65714 entitled Matling Industrial
and Commercial Corporation, et al. v. Ricardo R. Coros and National Labor
Relations Commission, whereby by the Court of Appeals (CA) sustained the ruling
of the National Labor Relations Commission (NLRC) to the effect that the LA had
jurisdiction because the respondent was not a corporate officer of petitioner Matling
Industrial and Commercial Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration,
the respondent filed on August 10, 2000 a complaint for illegal suspension and
illegal dismissal against Matling and some of its corporate officers (petitioners) in
the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.[3]

The petitioners moved to dismiss the complaint,[4] raising the ground, among
others, that the complaint pertained to the jurisdiction of the Securities and Exchange
Commission (SEC) due to the controversy being intra-corporate inasmuch as the
respondent was a member of Matlings Board of Directors aside from being its Vice-
President for Finance and Administration prior to his termination.
The respondent opposed the petitioners motion to dismiss,[5] insisting that his status
as a member of Matlings Board of Directors was doubtful, considering that he had
not been formally elected as such; that he did not own a single share of stock in
Matling, considering that he had been made to sign in blank an undated indorsement
of the certificate of stock he had been given in 1992; that Matling had taken back
and retained the certificate of stock in its custody; and that even assuming that he
had been a Director of Matling, he had been removed as the Vice President for
Finance and Administration, not as a Director, a fact that the notice of his termination
dated April 10, 2000 showed.

On October 16, 2000, the LA granted the petitioners motion to

dismiss,[6] ruling that the respondent was a corporate officer because he was
occupying the position of Vice President for Finance and Administration and at the
same time was a Member of the Board of Directors of Matling; and that,
consequently, his removal was a corporate act of Matling and the controversy
resulting from such removal was under the jurisdiction of the SEC, pursuant to
Section 5, paragraph (c) of Presidential Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,[7] urging that:

I
THE HONORABLE LABOR ARBITER COMMITTED GRAVE
ABUSE OF DISCRETION GRANTING APPELLEES MOTION TO
DISMISS WITHOUT GIVING THE APPELLANT
AN OPPORTUNITY TO FILE HIS OPPOSITION THERETO
THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS.

II
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN
DISMISSING THE CASE FOR LACK OF JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the
respondents complaint for illegal dismissal was properly cognizable by the LA, not
by the SEC, because he was not a corporate officer by virtue of his position in
Matling, albeit high ranking and managerial, not being among the positions listed in
Matlings Constitution and By-Laws.[8] The NLRC disposed thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is

entered declaring and holding that the case at bench does not involve any
intracorporate matter. Hence, jurisdiction to hear and act on said case is
vested with the Labor Arbiter, not the SEC, considering that the position
of Vice-President for Finance and Administration being held by
complainant-appellant is not listed as among respondent's corporate
officers.

Accordingly, let the records of this case be REMANDED to the

Arbitration Branch of origin in order that the Labor Arbiter below could
act on the case at bench, hear both parties, receive their respective
evidence and position papers fully observing the requirements of due
process, and resolve the same with reasonable dispatch.
SO ORDERED.

The petitioners sought reconsideration,[9] reiterating that the respondent, being a

member of the Board of Directors, was a corporate officer whose removal was not
within the LAs jurisdiction.
 The petitioners later submitted to the NLRC in support of the motion for
reconsideration the certified machine copies of Matlings Amended Articles of
Incorporation and By Laws to prove that the President of Matling was thereby
granted full power to create new offices and appoint the officers thereto, and
the minutes of special meeting held on June 7, 1999 by Matlings Board of Directors
to prove that the respondent was, indeed, a Member of the Board of Directors.[10]

Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion for
reconsideration.[11]

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as
C.A.-G.R. No. SP 65714, contending that the NLRC committed grave abuse of
discretion amounting to lack of jurisdiction in reversing the correct decision of the
LA.

In its assailed decision promulgated on September 13, 2002,[12] the CA dismissed

the petition for certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter,

for one to be considered as a corporate officer, the position must, if not
listed in the by-laws, have been created by the corporation's board of
directors, and the occupant thereof appointed or elected by the same board
of directors or stockholders. This is the implication of the ruling
in Tabang v. National Labor Relations Commission, which reads:
The president, vice president, secretary and treasurer are
commonly regarded as the principal or executive officers of a
corporation, and modern corporation statutes usually designate
them as the officers of the corporation. However, other offices are
sometimes created by the charter or by-laws of a corporation, or
the board of directors may be empowered under the by-laws of a
corporation to create additional offices as may be necessary.
It has been held that an 'office' is created by the charter of the
corporation and the officer is elected by the directors or
stockholders. On the other hand, an 'employee' usually occupies
no office and generally is employed not by action of the directors
or stockholders but by the managing officer of the corporation
 who also determines the compensation to be paid to such
employee.
This ruling was reiterated in the subsequent cases of Ongkingco v.
National Labor Relations Commission and De Rossi v. National Labor
Relations Commission.
The position of vice-president for administration and finance, which
Coros used to hold in the corporation, was not created by the corporations
board of directors but only by its president or executive vice-president
pursuant to the by-laws of the corporation. Moreover, Coros appointment
to said position was not made through any act of the board of directors
or stockholders of the corporation. Consequently, the position to which
Coros was appointed and later on removed from, is not a corporate office
despite its nomenclature, but an ordinary office in the corporation.
Coros alleged illegal dismissal therefrom is, therefore, within the
jurisdiction of the labor arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
SO ORDERED.
The CA denied the petitioners motion for reconsideration on April 2, 2003.[13]

Issue

Thus, the petitioners are now before the Court for a review on certiorari,
positing that the respondent was a stockholder/member of the Matlings Board of
Directors as well as its Vice President for Finance and Administration; and that the
CA consequently erred in holding that the LA had jurisdiction.

The decisive issue is whether the respondent was a corporate officer of Matling or
not. The resolution of the issue determines whether the LA or the RTC had
jurisdiction over his complaint for illegal dismissal.

Ruling

The appeal fails.

I
The Law on Jurisdiction in Dismissal Cases
 As a rule, the illegal dismissal of an officer or other employee of a private
employer is properly cognizable by the LA. This is pursuant to Article 217 (a) 2 of
the Labor Code, as amended, which provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. -

(a) Except as otherwise provided under this Code, the Labor Arbiters
shall have original and exclusive jurisdiction to hear and decide,
within thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of stenographic
notes, the following cases involving all workers, whether agricultural
or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that

workers may file involving wages, rates of pay, hours of work and other
terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of

damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code,

including questions involving the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security,

Medicare and maternity benefits, all other claims arising from employer-
employee relations, including those of persons in domestic or household
service, involving an amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction

over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of

collective bargaining agreements and those arising from the interpretation
or enforcement of company personnel policies shall be disposed of by the
Labor Arbiter by referring the same to the grievance machinery and
voluntary arbitration as may be provided in said agreements. (As amended
by Section 9, Republic Act No. 6715, March 21, 1989).
 Where the complaint for illegal dismissal concerns a corporate officer,
however, the controversy falls under the jurisdiction of the Securities and Exchange
Commission (SEC), because the controversy arises out of intra-corporate or
partnership relations between and among stockholders, members, or associates, or
between any or all of them and the corporation, partnership, or association of which
they are stockholders, members, or associates, respectively; and between such
corporation, partnership, or association and the State insofar as the controversy
concerns their individual franchise or right to exist as such entity; or because the
controversy involves the election or appointment of a director, trustee, officer, or
manager of such corporation, partnership, or association.[14] Such controversy,
among others, is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No.

[15]
8799, otherwise known as The Securities Regulation Code, the SECs jurisdiction
over all intra-corporate disputes was transferred to the RTC, pursuant to Section 5.2
of RA No. 8799, to wit:

5.2. The Commissions jurisdiction over all cases enumerated under

Section 5 of Presidential Decree No. 902-A is hereby transferred to the
Courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, that the Supreme Court in the exercise of its authority
may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for
final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June
2000 until finally disposed.

Considering that the respondents complaint for illegal dismissal was

commenced on August 10, 2000, it might come under the coverage of Section 5.2 of
RA No. 8799, supra, should it turn out that the respondent was a corporate, not a
regular, officer of Matling.
 II
Was the Respondents Position of Vice President
for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondents position as Vice President for
Finance and Administration was a corporate office. If it was, his dismissal by the
Board of Directors rendered the matter an intra-corporate dispute cognizable by the
RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and
Administration was a corporate office, having been created by Matlings President
pursuant to By-Law No. V, as amended,[16] to wit:

BY LAW NO. V

Officers

The President shall be the executive head of the corporation; shall

preside over the meetings of the stockholders and directors; shall
countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full power
to hire and discharge any or all employees of the corporation; shall have
full power to create new offices and to appoint the officers thereto as
he may deem proper and necessary in the operations of the
corporation and as the progress of the business and welfare of the
corporation may demand; shall make reports to the directors and
stockholders and perform all such other duties and functions as are
incident to his office or are properly required of him by the Board of
Directors. In case of the absence or disability of the President, the
Executive Vice President shall have the power to exercise his functions.

The petitioners argue that the power to create corporate offices and to appoint
the individuals to assume the offices was delegated by Matlings Board of Directors
to its President through By-Law No. V, as amended; and that any office the President
created, like the position of the respondent, was as valid and effective a creation as
that made by the Board of Directors, making the office a corporate office. In
justification, they cite Tabang v. National Labor Relations Commission,[17] which
held that other offices are sometimes created by the charter or by-laws of a
corporation, or the board of directors may be empowered under the by-laws of a
corporation to create additional officers as may be necessary.
The respondent counters that Matlings By-Laws did not list his position as Vice
President for Finance and Administration as one of the corporate offices; that
Matlings By-Law No. III listed only four corporate officers, namely: President,
Executive Vice President, Secretary, and Treasurer; [18] that the corporate offices
contemplated in the phrase and such other officers as may be provided for in the by-
laws found in Section 25 of the Corporation Code should be clearly and expressly
stated in the By-Laws; that the fact that Matlings By-Law No. III dealt
with Directors & Officers while its By-Law No. V dealt with Officers proved that
there was a differentiation between the officers mentioned in the two provisions,
with those classified under By-Law No. V being ordinary or non-corporateofficers;
and that the officer, to be considered as a corporate officer, must be elected by the
Board of Directors or the stockholders, for the President could only appoint an
employee to a position pursuant to By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their

election, the directors of a corporation must formally organize by the
election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in the
by-laws. Any two (2) or more positions may be held concurrently by the
same person, except that no one shall act as president and secretary or as
president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation. Unless
the articles of incorporation or the by-laws provide for a greater majority,
a majority of the number of directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of the directors
or trustees present at a meeting at which there is a quorum shall be valid
as a corporate act, except for the election of officers which shall require
the vote of a majority of all the members of the board.
 Directors or trustees cannot attend or vote by proxy at board
meetings.

Conformably with Section 25, a position must be expressly mentioned in the

By-Laws in order to be considered as a corporate office. Thus, the creation of an
office pursuant to or under a By-Law enabling provision is not enough to make a
position a corporate office. Guerrea v. Lezama,[19] the first ruling on the matter, held
that the only officers of a corporation were those given that character either by
the Corporation Code or by the By-Laws; the rest of the corporate officers could be
considered only as employees or subordinate officials. Thus, it was held in Easycall
Communications Phils., Inc. v. King:[20]

An office is created by the charter of the corporation and the officer is

elected by the directors or stockholders. On the other hand, an employee
occupies no office and generally is employed not by the action of the
directors or stockholders but by the managing officer of the corporation
who also determines the compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide

expansion by Malonzo, petitioner's general manager, not by the board of
directors of petitioner. It was also Malonzo who determined the
compensation package of respondent. Thus, respondent was an employee,
not a corporate officer. The CA was therefore correct in ruling that
jurisdiction over the case was properly with the NLRC, not the SEC (now
the RTC).

This interpretation is the correct application of Section 25 of the Corporation

Code, which plainly states that the corporate officers are the President, Secretary,
Treasurer and such other officers as may be provided for in the By-Laws.
Accordingly, the corporate officers in the context of PD No. 902-A are exclusively
those who are given that character either by the Corporation Code or by the
corporations By-Laws.

A different interpretation can easily leave the way open for the Board of
Directors to circumvent the constitutionally guaranteed security of tenure of the
employee by the expedient inclusion in the By-Laws of an enabling clause on the
creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency
administering the Corporation Code, adopted a similar interpretation of Section 25
of the Corporation Code in its Opinion dated November 25, 1993,[21] to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation

Code), whoever are the corporate officers enumerated in the by-laws
are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate
By-laws. However, the Board may create appointive positions other
than the positions of corporate Officers, but the persons occupying
such positions are not considered as corporate officers within the
meaning of Section 25 of the Corporation Code and are not
empowered to exercise the functions of the corporate Officers, except
those functions lawfully delegated to them. Their functions and duties
are to be determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the
power to create a corporate office to the President, in light of Section 25 of
the Corporation Code requiring the Board of Directors itself to elect the corporate
officers. Verily, the power to elect the corporate officers was a discretionary power
that the law exclusively vested in the Board of Directors, and could not be delegated
to subordinate officers or agents.[22] The office of Vice President for Finance and
Administration created by Matlings President pursuant to By Law No. V was an
ordinary, not a corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers
to occupy them vested by By-Law No. V merely allowed Matlings President to
create non-corporate offices to be occupied by ordinary employees of Matling. Such
powers were incidental to the Presidents duties as the executive head of Matling to
assist him in the daily operations of the business.

The petitioners reliance on Tabang, supra, is misplaced. The statement in Tabang,

to the effect that offices not expressly mentioned in the By-Laws but were created
pursuant to a By-Law enabling provision were also considered corporate offices,
was plainly obiter dictum due to the position subject of the controversy being
mentioned in the By-Laws. Thus, the Court held therein that the position was a
corporate office, and that the determination of the rights and liabilities arising from
the ouster from the position was an intra-corporate controversy within the SECs
jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation,[23] which may be the more

appropriate ruling, the position subject of the controversy was not expressly
mentioned in the By-Laws, but was created pursuant to a By-Law enabling provision
authorizing the Board of Directors to create other offices that the Board of Directors
might see fit to create. The Court held there that the position was a corporate office,
relying on the obiter dictum in Tabang.
Considering that the observations earlier made herein show that the soundness of
their dicta is not unassailable, Tabang and Nacpil should no longer be controlling.

III
Did Respondents Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of
Matling, and relying on Paguio v. National Labor Relations
Commission and Ongkingko v. National Labor Relations Commission,[25] the
[24]

NLRC had no jurisdiction over his complaint, considering that any case for illegal
dismissal brought by a stockholder/officer against the corporation was an intra-
corporate matter that must fall under the jurisdiction of the SEC conformably with
the context of PD No. 902-A.

The petitioners insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings,
the complainants were undeniably corporate officers due to their positions being
expressly mentioned in the By-Laws, aside from the fact that both of them had been
duly elected by the respective Boards of Directors. But the herein respondents
position of Vice President for Finance and Administration was not expressly
mentioned in the By-Laws; neither was the position of Vice President for Finance
and Administration created by Matlings Board of Directors. Lastly, the President,
not the Board of Directors, appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a

stockholder and the corporation. There is no distinction, qualification or
any exemption whatsoever. The provision is broad and covers all kinds of
controversies between stockholders and corporations.[26]

However, the Tabang pronouncement is not controlling because it is too sweeping

and does not accord with reason, justice, and fair play. In order to determine whether
a dispute constitutes an intra-corporate controversy or not, the Court considers two
elements instead, namely: (a) the status or relationship of the parties; and (b) the
nature of the question that is the subject of their controversy. This was our thrust
in Viray v. Court of Appeals:[27]

The establishment of any of the relationships mentioned above will not

necessarily always confer jurisdiction over the dispute on the SEC to the
exclusion of regular courts. The statement made in one case that the rule
admits of no exceptions or distinctions is not that absolute. The better
policy in determining which body has jurisdiction over a case would be to
consider not only the status or relationship of the parties but also the nature
of the question that is the subject of their controversy.

Not every conflict between a corporation and its stockholders involves

corporate matters that only the SEC can resolve in the exercise of its
adjudicatory or quasi-judicial powers. If, for example, a person leases an
apartment owned by a corporation of which he is a stockholder, there
should be no question that a complaint for his ejectment for non-payment
of rentals would still come under the jurisdiction of the regular courts and
not of the SEC. By the same token, if one person injures another in a
vehicular accident, the complaint for damages filed by the victim will not
come under the jurisdiction of the SEC simply because of the
happenstance that both parties are stockholders of the same corporation.
A contrary interpretation would dissipate the powers of the regular courts
and distort the meaning and intent of PD No. 902-A.
 In another case, Mainland Construction Co., Inc. v. Movilla,[28] the Court
reiterated these determinants thuswise:
In order that the SEC (now the regular courts) can take cognizance of a
case, the controversy must pertain to any of the following relationships:

a) between the corporation, partnership or association and the

public;

b) between the corporation, partnership or association and its

stockholders, partners, members or officers;
c) between the corporation, partnership or association and the State
as far as its franchise, permit or license to operate is concerned;
and
d) among the stockholders, partners or associates themselves.
The fact that the parties involved in the controversy are all
stockholders or that the parties involved are the stockholders and the
corporation does not necessarily place the dispute within the ambit of the
jurisdiction of SEC. The better policy to be followed in determining
jurisdiction over a case should be to consider concurrent factors such as
the status or relationship of the parties or the nature of the question that is
the subject of their controversy. In the absence of any one of these factors,
the SEC will not have jurisdiction. Furthermore, it does not necessarily
follow that every conflict between the corporation and its stockholders
would involve such corporate matters as only the SEC can resolve in the
exercise of its adjudicatory or quasi-judicial powers.[29]

The criteria for distinguishing between corporate officers who may be ousted
from office at will, on one hand, and ordinary corporate employees who may only
be terminated for just cause, on the other hand, do not depend on the nature of the
services performed, but on the manner of creation of the office. In the respondents
case, he was supposedly at once an employee, a stockholder, and a Director of
Matling. The circumstances surrounding his appointment to office must be fully
considered to determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider whether his status
as Director and stockholder had any relation at all to his appointment and subsequent
dismissal as Vice President for Finance and Administration.
Obviously enough, the respondent was not appointed as Vice President for Finance
and Administration because of his being a stockholder or Director of Matling. He
had started working for Matling on September 8, 1966, and had been employed
continuously for 33 years until his termination on April 17, 2000, first as a
bookkeeper, and his climb in 1987 to his last position as Vice President for Finance
and Administration had been gradual but steady, as the following sequence indicates:

1966 Bookkeeper
1968 Senior Accountant
1969 Chief Accountant
1972 Office Supervisor
1973 Assistant Treasurer
1978 Special Assistant for Finance
1980 Assistant Comptroller
1983 Finance and Administrative Manager
1985 Asst. Vice President for Finance and Administration
1987 to April 17, 2000 Vice President for Finance and
Administration

Even though he might have become a stockholder of Matling in 1992, his

promotion to the position of Vice President for Finance and Administration in 1987
was by virtue of the length of quality service he had rendered as an employee of
Matling. His subsequent acquisition of the status of Director/stockholder had no
relation to his promotion. Besides, his status of Director/stockholder was unaffected
by his dismissal from employment as Vice President for Finance and Administration.
In Prudential Bank and Trust Company v. Reyes,[30] a case involving a lady
bank manager who had risen from the ranks but was dismissed, the Court held that
her complaint for illegal dismissal was correctly brought to the NLRC, because she
was deemed a regular employee of the bank. The Court observed thus:

It appears that private respondent was appointed Accounting Clerk

by the Bank on July 14, 1963. From that position she rose to become
supervisor. Then in 1982, she was appointed Assistant Vice-President
which she occupied until her illegal dismissal on July 19, 1991. The
banks contention that she merely holds an elective position and that
in effect she is not a regular employee is belied by the nature of her
work and her length of service with the Bank. As earlier stated, she
rose from the ranks and has been employed with the Bank since 1963 until
 the termination of her employment in 1991. As Assistant Vice President
of the Foreign Department of the Bank, she is tasked, among others, to
collect checks drawn against overseas banks payable in foreign currency
and to ensure the collection of foreign bills or checks purchased, including
the signing of transmittal letters covering the same. It has been stated that
the primary standard of determining regular employment is the reasonable
connection between the particular activity performed by the employee in
relation to the usual trade or business of the employer. Additionally, an
employee is regular because of the nature of work and the length of
service, not because of the mode or even the reason for hiring them. As
Assistant Vice-President of the Foreign Department of the Bank she
performs tasks integral to the operations of the bank and her length of
service with the bank totaling 28 years speaks volumes of her status as a
regular employee of the bank. In fine, as a regular employee, she is
entitled to security of tenure; that is, her services may be terminated only
for a just or authorized cause. This being in truth a case of illegal dismissal,
it is no wonder then that the Bank endeavored to the very end to establish
loss of trust and confidence and serious misconduct on the part of private
respondent but, as will be discussed later, to no avail.

WHEREFORE, we deny the petition for review on certiorari, and affirm the
decision of the Court of Appeals.

Costs of suit to be paid by the petitioners.

SO ORDERED.

G.R. No.176897 December 11, 2013

ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as

President of Advance Paper Corporation, Petitioners,
vs.
ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and
BENJAMIN NG,Respondents.

x-------------------------------------------------x

ANTONIO TAN and UY SENG KEE WILLY, Respondents.

 DECISION

BRION, J.:

Before us is a Petition for Review1 seeking to set aside the Decision of the Court of
Appeals (CA) in CA-G.R. CV No. 71499 dated March 31, 2006 and the Resolution
dated March 7, 2007.2 The Decision reversed and set aside the ruling of the Regional
Trial Court (RTC) of Manila, Branch 18 in Civil Case No. 94-72526 which ordered
Arma Traders Corporation (Arma Traders) to pay Advance Paper
Corporation (Advance Paper) the sum of ₱15,321,798.25 with interest, and
₱1,500,000.00 for attorney’s fees, plus the cost of the suit.3

Factual Antecedents

Petitioner Advance Paper is a domestic corporation engaged in the business of

producing, printing, manufacturing, distributing and selling of various paper
products.4 Petitioner George Haw (Haw) is the President while his wife, Connie Haw,
is the General Manager.5

Respondent Arma Traders is also a domestic corporation engaged in the wholesale

and distribution of school and office supplies, and novelty products.6 Respondent
Antonio Tan (Tan) was formerly the President while respondent Uy Seng Kee Willy
(Uy) is the Treasurer of Arma Traders.7 They represented Arma Traders when dealing
with its supplier, Advance Paper, for about 14 years.8

On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ng worked
for Arma Traders as Vice-President, General Manager and Corporate Secretary,
respectively.9

On various dates from September to December 1994, Arma Traders purchased on

credit notebooks and other paper products amounting to ₱7,533,001.49 from Advance
Paper. 10

Upon the representation of Tan and Uy, Arma Traders also obtained three loans from
Advance Paper in November 1994 in the amounts of ₱3,380,171.82, ₱1,000,000.00,
and ₱3,408,623.94 or a total of ₱7,788,796.76.11 Arma Traders needed the loan to
settle its obligations to other suppliers because its own collectibles did not arrive on
time.12 Because of its good business relations with Arma Traders, Advance Paper
extended the loans.13

As payment for the purchases on credit and the loan transactions, Arma Traders issued
82 postdated checks14payable to cash or to Advance Paper. Tan and Uy were Arma
Traders’ authorized bank signatories who signed and issued these checks which had
the aggregate amount of ₱15,130,636.87.15

Advance Paper presented the checks to the drawee bank but these were dishonored
either for "insufficiency of funds" or "account closed." Despite repeated demands,
however, Arma Traders failed to settle its account with Advance Paper.16

On December 29, 1994, the petitioners filed a complaint17 for collection of sum of
money with application for preliminary attachment against Arma Traders, Tan, Uy,
Ting, Gui, and Ng.

Claims of the petitioners

The petitioners claimed that the respondents fraudulently issued the postdated checks
as payment for the purchases and loan transactions knowing that they did not have
sufficient funds with the drawee banks.18

To prove the purchases on credit, the petitioners presented the summary of the
transactions and their corresponding sales invoices as their documentary evidence.19

During the trial, Haw also testified that within one or two weeks upon delivery of the
paper products, Arma Traders paid the purchases in the form of postdated checks.
Thus, he personally collected these checks on Saturdays and upon receiving the
checks, he surrendered to Arma Traders the original of the sales invoices while he
retained the duplicate of the invoices.20

To prove the loan transactions, the petitioners presented the copies of the
checks21 which Advance Paper issued in favor of Arma Traders. The petitioners also
filed a manifestation22 dated June 14, 1995, submitting a bank statement from
Metrobank EDSA Kalookan Branch. This was to show that Advance Paper’s credit
line with Metrobank has been transferred to the account of Arma Traders as payee
from October 1994 to December 1994.

Moreover, Haw testified to prove the loan transactions. When asked why he
considered extending the loans without any collateral and loan agreement or
promissory note, and only on the basis of the issuance of the postdated checks, he
answered that it was because he trusted Arma Traders since it had been their customer
for a long time and that none of the previous checks ever bounced.23

Claims of the respondents

The respondents argued that the purchases on credit were spurious, simulated and
fraudulent since there was no delivery of the ₱7,000,000.00 worth of notebooks and
other paper products.24

During the trial, Ng testified that Arma Traders did not purchase notebooks and other
paper products from September to December 1994. He claimed that during this
period, Arma Traders concentrated on Christmas items, not school and office supplies.
He also narrated that upon learning about the complaint filed by the petitioners, he
immediately looked for Arma Traders’ records and found no receipts involving the
purchases of notebooks and other paper products from Advance Paper.25

As to the loan transactions, the respondents countered that these were the personal
obligations of Tan and Uy to Advance Paper. These loans were never intended to
benefit the respondents.

The respondents also claimed that the loan transactions were ultra vires because the
board of directors of Arma Traders did not issue a board resolution authorizing Tan
and Uy to obtain the loans from Advance Paper. They claimed that the borrowing of
money must be done only with the prior approval of the board of directors because
without the approval, the corporate officers are acting in excess of their authority
or ultra vires. When the acts of the corporate officers are ultra vires, the corporation is
not liable for whatever acts that these officers committed in excess of their
authority. Further, the respondents claimed that Advance Paper failed to verify Tan
and Uy’s authority to transact business with them. Hence, Advance Paper should
suffer the consequences.26

The respondents accused Tan and Uy for conspiring with the petitioners to defraud
Arma Traders through a series of transactions known as rediscounting of postdated
checks. In rediscounting, the respondents explained that Tan and Uy would issue
Arma Traders’ postdated checks to the petitioners in exchange for cash, discounted by
as much as 7% to 10% depending on how long were the terms of repayment. The
rediscounted percentage represented the interest or profit earned by the petitioners in
these transactions.27

Tan did not file his Answer and was eventually declared in default.

On the other hand, Uy filed his Answer28 dated January 20, 1995 but was
subsequently declared in default upon his failure to appear during the pre-trial. In his
Answer, he admitted that Arma Traders together with its corporate officers have been
transacting business with Advance Paper.29 He claimed that he and Tan have been
authorized by the board of directors for the past 13 years to issue checks in behalf of
Arma Traders to pay its obligations with Advance Paper.30 Furthermore, he
admitted that Arma Traders’ checks were issued to pay its contractual
obligations with Advance Paper.31 However, according to him, Advance Paper was
informed beforehand that Arma Traders’ checks were funded out of the
₱20,000,000.00 worth of collectibles coming from the provinces. Unfortunately, the
expected collectibles did not materialize for unknown reasons.32

Ng filed his Answer33 and claimed that the management of Arma Traders was left
entirely to Tan and Uy. Thus, he never participated in the company’s daily
transactions.34

Atty. Ernest S. Ang, Jr. (Atty. Ang), Arma Traders’ Vice-President for Legal Affairs
and Credit and Collection, testified that he investigated the transactions involving Tan
and Uy and discovered that they were financing their own business using Arma
Traders’ resources. He also accused Haw for conniving with Tan and Uy in
fraudulently making Arma Traders liable for their personal debts. He based this
conclusion from the following: First, basic human experience and common sense tell
us that a lender will not agree to extend additional loan to another person who already
owes a substantial sum from the lender – in this case, petitioner Advance
Paper. Second, there was no other document proving the existence of the loan other
than the postdated checks. Third, the total of the purchase and loan transactions vis-à-
vis the total amount of the postdated checks did not tally. Fourth, he found out that the
certified true copy of Advance Paper’s report with the Securities and Exchange
Commission (SEC report) did not reflect the ₱15,000,000.00 collectibles it had with
Arma Traders.35

Atty. Ang also testified that he already filed several cases of estafa and qualified
theft36 against Tan and Uy and that several warrants of arrest had been issued against
them.

In their pre-trial brief,37 the respondents named Sharow Ong, the secretary of Tan and
Uy, to testify on how Tan and Uy conspired with the petitioners to defraud Arma
Traders. However, the respondents did not present her on the witness stand.

The RTC Ruling

On June 18, 2001, the RTC ruled that the purchases on credit and loans were
sufficiently proven by the petitioners. Hence, the RTC ordered Arma Traders to pay
Advance Paper the sum of ₱15,321,798.25 with interest, and ₱1,500,000.00 for
attorney’s fees, plus the cost of the suit.

The RTC held that the respondents failed to present hard, admissible and credible
evidence to prove that the sale invoices were forged or fictitious, and that the loan
transactions were personal obligations of Tan and Uy. Nonetheless, the RTC
dismissed the complaint against Tan, Uy, Ting, Gui and Ng due to the lack of
evidence showing that they bound themselves, either jointly or solidarily, with Arma
Traders for the payment of its account.38

Arma Traders appealed the RTC decision to the CA.

The CA Ruling

The CA held that the petitioners failed to prove by preponderance of evidence the
existence of the purchases on credit and loans based on the following grounds:

First, Arma Traders was not liable for the loan in the absence of a board resolution
authorizing Tan and Uy to obtain the loan from Advance Paper.39 The CA
acknowledged that Tan and Uy were Arma Traders’ authorized bank signatories.
However, the CA explained that this is not sufficient because the authority to sign the
checks is different from the required authority to contract a loan.40

Second, the CA also held that the petitioners presented incompetent and inadmissible
evidence to prove the purchases on credit since the sales invoices were hearsay.41 The
CA pointed out that Haw’s testimony as to the identification of the sales invoices was
not an exception to the hearsay rule because there was no showing that the secretaries
who prepared the sales invoices are already dead or unable to testify as required by
the Rules of Court.42 Further, the CA noted that the secretaries were not identified or
presented in court.43

Third, the CA ruling heavily relied on Ng’s Appellant’s Brief44 which made the
detailed description of the "badges of fraud." The CA averred that the petitioners
failed to satisfactorily rebut the badges of fraud45 which include the inconsistencies
in:

(1) "Exhibit E-26," a postdated check, which was allegedly issued in favor of
Advance Paper but turned out to be a check payable to Top Line, Advance
Paper’s sister company;46

(2) "Sale Invoice No. 8946," an evidence to prove the existence of the
purchases on credit, whose photocopy failed to reflect the amount stated in the
duplicate copy,47 and;

(3) The SEC report of Advance Paper for the year ended 1994 reflected its
account receivables amounting to ₱219,705.19 only – an amount far from the
claimed ₱15,321,798.25 receivables from Arma Traders.48
Hence, the CA set aside the RTC’s order for Arma Traders to pay Advance Paper the
sum of ₱15,321,798.25, ₱1,500,000.00 for attorney’s fees, plus cost of
suit.49 It affirmed the RTC decision dismissing the complaint against respondents
Tan, Uy, Ting, Gui and Ng.50 The CA also directed the petitioners to solidarily pay
each of the respondents their counterclaims of ₱250,000.00 as moral damages,
₱250,000.00 as exemplary damages, and ₱250,000.00 as attorney’s fees.51

The Petition

The petitioners raise the following arguments.

First, Arma Traders led the petitioners to believe that Tan and Uy had the authority to
obtain loans since the respondents left the active and sole management of the
company to Tan and Uy since 1984. In fact, Ng testified that Arma Traders’
stockholders and board of directors never conducted a meeting from 1984 to 1995.
Therefore, if the respondents’ position will be sustained, they will have the absurd
power to question all the business transactions of Arma Traders.52 Citing Lipat v.
Pacific Banking Corporation,53 the petitioners said that if a corporation knowingly
permits one of its officers or any other agent to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts; thus,
the corporation will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agent’s authority.

Second, the petitioners argue that Haw’s testimony is not hearsay. They emphasize
that Haw has personal knowledge of the assailed purchases and loan transactions
because he dealt with the customers, and supervised and directed the preparation of
the sales invoices and the deliveries of the goods.54 Moreover, the petitioners stress
that the respondents never objected to the admissibility of the sales invoices on the
ground that they were hearsay.55

Third, the petitioners dispute the CA’s findings on the existence of the badges of
fraud. The petitioners countered:

(1) The discrepancies between the figures in the 15 out of the 96 photocopies
and duplicate originals of the sales invoices amounting to ₱4,624.80 – an
insignificant amount compared to the total purchases of ₱7,533,001.49 –
may have been caused by the failure to put the carbon paper.56 Besides, the
remaining 81 sales invoices are uncontroverted. The petitioners also raise
the point that this discrepancy is a nonissue because the duplicate
originals were surrendered in the RTC.57
 (2) The respondents misled Haw during the cross-examination and took his
answer out of context.58 The petitioners argue that this maneuver is insufficient
to discredit Haw’s entire testimony.59

(3) Arma Traders should be faulted for indicating Top Line as the payee in
Exhibit E-26 or PBC check no. 091014. Moreover, Exhibit E-26 does not refer
to PBC check no. 091014 but to PBC check no. 091032 payable to the order of
cash.60

(4) The discrepancy in the total amount of the checks which

is ₱15,130,363.87 as against the total obligation of ₱15,321,798.25 does not
necessarily prove that the transactions are spurious.61

(5) The difference in Advance Paper’s accounts receivables in the SEC report
and in Arma Traders’ obligation with Advance Paper was based on non-
existent evidence because Exhibit 294-NG does not pertain to any balance
sheet.62 Moreover, the term "accounts receivable" is not synonymous with
"cause of action." The respondents cannot escape their liability by simply
pointing the SEC report because the petitioners have established their cause of
action – that the purchases on credit and loan transactions took place, the
respondents issued the dishonored checks to cover their debts, and they refused
to settle their obligation with Advance Paper.63

The Case for the Respondents

The respondents argue that the Petition for Review should be dismissed summarily
because of the following procedural grounds: first, for failure to comply with A.M.
No. 02-8-13-SC;64 and second, the CA decision is already final and executory since
the petitioners filed their Motion for Reconsideration out of time. They explain that
under the rules of the CA, if the last day for filing of any pleading falls on a Saturday
not a holiday, the same must be filed on said Saturday, as the Docket and Receiving
Section of the CA is open on a Saturday.65

The respondents argue that while as a general rule, a corporation is estopped from
denying the authority of its agents which it allowed to deal with the general public;
this is only true if the person dealing with the agent dealt in good faith.66 In the
present case, the respondents claim that the petitioners are in bad faith because the
petitioners connived with Tan and Uy to make Arma Traders liable for the non-
existent deliveries of notebooks and other paper products.67 They also insist that the
sales invoices are manufactured evidence.68
As to the loans, the respondents aver that these were Tan and Uy’s personal
obligations with Advance Paper.69Moreover, while the three cashier’s checks were
deposited in the account of Arma Traders, it is likewise true that Tan and Uy issued
Arma Traders’ checks in favor of Advance Paper. All these checks are evidence of
Tan, Uy and Haw’s systematic conspiracy to siphon Arma Traders corporate funds.70

The respondents also seek to discredit Haw’s testimony on the basis of the
following. First, his testimony as regards the sales invoices is hearsay because he did
not personally prepare these documentary evidence.71Second, Haw suspiciously
never had any written authority from his own Board of Directors to lend
money. Third, the respondents also questioned why Advance Paper granted the
₱7,000,000.00 loan without requiring Arma Traders to present any collateral or
guarantees.72

The Issues

The main procedural and substantive issues are:

I. Whether the petition for review should be dismissed for failure to comply
with A.M. No. 02-8-13-SC.

II. Whether the petition for review should be dismissed on the ground of failure
to file the motion for reconsideration with the CA on time.

III. Whether Arma Traders is liable to pay the loans applying the doctrine of
apparent authority.

IV. Whether the petitioners proved Arma Traders’ liability on the purchases on
credit by preponderance of evidence.

The Court's Ruling

We grant the petition.

The procedural issues.

First, the respondents correctly cited A.M. No. 02-8-13-SC dated February 19, 2008
which refer to the amendment of the 2004 Rules on Notarial Practice. It deleted the
Community Tax Certificate among the accepted proof of identity of the affiant
because of its inherent unreliability. The petitioners violated this when they used
Community Tax Certificate No. 05730869 in their Petition for
Review.73 Nevertheless, the defective jurat in the Verification/Certification of Non-
Forum Shopping is not a fatal defect because it is only a formal, not a jurisdictional,
requirement that the Court may waive.74 Furthermore, we cannot simply ignore the
millions of pesos at stake in this case. To do so might cause grave injustice to a party,
a situation that this Court intends to avoid.

Second, no less than the CA itself waived the rules on the period to file the motion for
reconsideration. A review of the CA Resolution75 dated March 7, 2007, reveals that
the petitioners’ Motion for Reconsideration was denied because the allegations were a
mere rehash of what the petitioners earlier argued – not because the motion for
reconsideration was filed out of time.

The substantive issues.

Arma Traders is liable to pay the

loans on the basis of the doctrine of
apparent authority.

The doctrine of apparent authority provides that a corporation will be estopped from
denying the agent’s authority if it knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, and it holds him out to the
public as possessing the power to do those acts.76 The doctrine of apparent authority
does not apply if the principal did not commit any acts or conduct which a third party
knew and relied upon in good faith as a result of the exercise of reasonable prudence.
Moreover, the agent’s acts or conduct must have produced a change of position to the
third party’s detriment.77

In Inter-Asia Investment Industries v. Court of Appeals,78 we explained:

Under this provision [referring to Sec. 23 of the Corporation Code], the power and
responsibility to decide whether the corporation should enter into a contract that will
bind the corporation is lodged in the board, subject to the articles of incorporation,
bylaws, or relevant provisions of law. However, just as a natural person who may
authorize another to do certain acts for and on his behalf, the board of directors
may validly delegate some of its functions and powers to officers, committees or
agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either
expressly or impliedly by habit, custom or acquiescence in the general course of
business, viz.:

A corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that [the] authority to do so has been conferred upon
him, and this includes powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused person dealing with the
officer or agent to believe that it has conferred.

[A]pparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words the apparent authority to
act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers. It requires presentation of evidence of
similar act(s) executed either in its favor or in favor of other parties. It is not the
quantity of similar acts which establishes apparent authority, but the vesting of a
corporate officer with the power to bind the corporation. [emphases and
underscores ours]

In People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals,79 we ruled that
the doctrine of apparent authority is applied when the petitioner, through its president
Antonio Punsalan Jr., entered into the First Contract without first securing board
approval. Despite such lack of board approval, petitioner did not object to or repudiate
said contract, thus "clothing" its president with the power to bind the corporation.

"Inasmuch as a corporate president is often given general supervision and control over
corporate operations, the strict rule that said officer has no inherent power to act for
the corporation is slowly giving way to the realization that such officer has certain
limited powers in the transaction of the usual and ordinary business of the
corporation."80 "In the absence of a charter or bylaw provision to the contrary,
the president is presumed to have the authority to act within the domain of the
general objectives of its business and within the scope of his or her usual
duties."81

In the present petition, we do not agree with the CA’s findings that Arma Traders is
not liable to pay the loans due to the lack of board resolution authorizing Tan and Uy
to obtain the loans. To begin with, Arma Traders’ Articles of
Incorporation82 provides that the corporation may borrow or raise money to meet
the financial requirements of its business by the issuance of bonds, promissory
notes and other evidence of indebtedness. Likewise, it states that Tan and Uy are not
just ordinary corporate officers and authorized bank signatories because they are also
Arma Traders’ incorporators along with respondents Ng and Ting, and Pedro Chao.
Furthermore, the respondents, through Ng who is Arma Traders’ corporate secretary,
incorporator, stockholder and director, testified that the sole management of Arma
Traders was left to Tan and Uy and that he and the other officers never dealt with
the business and management of Arma Traders for 14 years. He also confirmed
that since 1984 up to the filing of the complaint against Arma Traders, its
stockholders and board of directors never had its meeting.83

Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to
transact with third persons without the necessary written authority from its non-
performing board of directors. Arma Traders failed to take precautions to prevent its
own corporate officers from abusing their powers. Because of its own laxity in its
business dealings, Arma Traders is now estopped from denying Tan and Uy’s
authority to obtain loan from Advance Paper.

We also reject the respondents’ claim that Advance Paper, through Haw, connived
with Tan and Uy. The records do not contain any evidence to prove that the loan
transactions were personal to Tan and Uy. A different conclusion might have been
inferred had the cashier’s checks been issued in favor of Tan and Uy, and had the
postdated checks in favor of Advance Paper been either Tan and/or Uy’s, or had the
respondents presented convincing evidence to show how Tan and Uy conspired with
the petitioners to defraud Arma Traders.84 We note that the respondents initially
intended to present Sharow Ong, the secretary of Tan and Uy, to testify on how
Advance Paper connived with Tan and Uy. As mentioned, the respondents failed to
present her on the witness stand.

The respondents failed to object to

the admissibility of the sales invoices
on the ground that they are hearsay

The rule is that failure to object to the offered evidence renders it admissible, and the
court cannot, on its own, disregard such evidence.85 When a party desires the court to
reject the evidence offered, it must so state in the form of a timely objection and it
cannot raise the objection to the evidence for the first time on appeal. Because of a
party’s failure to timely object, the evidence becomes part of the evidence in the case.
Thereafter, all the parties are considered bound by any outcome arising from the offer
of evidence properly presented.86

In Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta,87 however, we

held:

[H]earsay evidence whether objected to or not cannot be given credence for having no
probative value.1âwphi1This principle, however, has been relaxed in cases where, in
addition to the failure to object to the admissibility of the subject evidence, there
were other pieces of evidence presented or there were other circumstances
prevailing to support the fact in issue. (emphasis and underscore ours; citation
omitted)

We agree with the respondents that with respect to the identification of the sales
invoices, Haw’s testimony was hearsay because he was not present during its
preparation88 and the secretaries who prepared them were not presented to identify
them in court. Further, these sales invoices do not fall within the exceptions to the
hearsay rule even under the "entries in the course of business" because the petitioners
failed to show that the entrant was deceased or was unable to testify.89

But even though the sales invoices are hearsay, nonetheless, they form part of the
records of the case for the respondents’ failure to object as to the admissibility of the
sales invoices on the ground that they are hearsay.90Based on the records, the
respondents through Ng objected to the offer "for the purpose [to] which they are
being offered" only – not on the ground that they were hearsay.91

The petitioners have proven their

claims for the unpaid purchases on
credit by preponderance of evidence.

We are not convinced by the respondents’ argument that the purchases are spurious
because no less than Uy admitted that all the checks issued were in payments of
the contractual obligations of the Arma Traders with Advance
Paper.92 Moreover, there are other pieces of evidence to prove the existence of the
purchases other than the sales invoices themselves. For one, Arma Traders’ postdated
checks evince the existence of the purchases on credit. Moreover, Haw testified that
within one or two weeks, Arma Traders paid the purchases in the form of postdated
checks. He personally collected these checks on Saturdays and upon receiving the
checks, he surrendered to Arma Traders the original of the sales invoices while he
retained the duplicate of the invoices.93

The respondents attempted to impugn the credibility of Haw by pointing to the

inconsistencies they can find from the transcript of stenographic notes. However, we
are not persuaded that these inconsistencies are sufficiently pervasive to affect the
totality of evidence showing the general relationship between Advance Paper and
Arma Traders.

Additionally, the issue of credibility of witnesses is to be resolved primarily by the

trial court because it is in the better position to assess the credibility of witnesses as it
heard the testimonies and observed the deportment and manner of testifying of the
witnesses. Accordingly, its findings are entitled to great respect and will not be
disturbed on appeal in the absence of any showing that the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and substance
which would have affected the result of the case.94

In the present case, the RTC judge took into consideration the substance and the
manner by which Haw answered each propounded questions to him in the witness
stand. Hence, the minor inconsistencies in Haw’s testimony notwithstanding, the RTC
held that the respondents claim that the purchase and loan transactions were spurious
is "not worthy of serious consideration." Besides, the respondents failed to convince
us that the RTC judge overlooked, misunderstood, or misapplied some facts or
circumstances of weight and substance which would have affected the result of the
case.

On the other hand, we agree with the petitioners that the discrepancies in the
photocopy of the sales invoices and its duplicate copy have been sufficiently
explained. Besides, this is already a non-issue since the duplicate copies were
surrendered in the RTC.95 Furthermore, the fact that the value of Arma Traders'
checks does not tally with the total amount of their obligation with Advance Paper is
not inconsistent with the existence of the purchases and loan transactions.

As against the case and the evidence Advance Paper presented, the respondents relied
on the core theory of an alleged conspiracy between Tan, Uy and Haw to defraud
Arma Traders. However, the records are bereft of supporting evidence to prove the
alleged conspiracy. Instead, the respondents simply dwelled on the minor
inconsistencies from the petitioners' evidence that the respondents appear to have
magnified. From these perspectives, the preponderance of evidence thus lies heavily
in the petitioners' favor as the RTC found. For this reason, we find the petition
meritorious.

WHEREFORE, premises considered, we GRANT the petition. The decision dated

March 31, 2006 and the resolution dated March 7, 2007 of the Court of Appeals in
CA-G.R. CV No. 71499 are REVERSED and SET ASIDE. The Regional Trial Court
decision in Civil Case No. 94-72526 dated June 18, 2001 is REINSTATED. No costs.

SO ORDERED.

ARTURO D. BRION
Associate Justice

ASSOCIATED BANK (now UNITED G.R. No. 148444

OVERSEAS BANK [PHILS.]),
Petitioner, Present:
 YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

SPOUSES RAFAEL and MONALIZA Promulgated:

PRONSTROLLER,
Respondents. July 14, 2008

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court filed by petitioner Associated Bank (now United Overseas Bank [Phils.])
assailing the Court of Appeals (CA) Decision[1] dated February 27, 2001, which in
turn affirmed the Regional Trial Court[2] (RTC) Decision[3] dated November 14,
1997 in Civil Case No. 94-3298 for Specific Performance. Likewise assailed is the
appellate courts Resolution[4] dated May 31, 2001 denying petitioners motion for
reconsideration.

The facts of the case are as follows:

On April 21, 1988, the spouses Eduardo and Ma. Pilar Vaca (spouses Vaca)
executed a Real Estate Mortgage (REM) in favor of the petitioner[5] over their parcel
of residential land with an area of 953 sq. m. and the house constructed thereon,
located at No. 18, Lovebird Street, Green Meadows Subdivision 1, Quezon City
(herein referred to as the subject property). For failure of the spouses Vaca to pay
their obligation, the subject property was sold at public auction with the petitioner
as the highest bidder. Transfer Certificate of Title (TCT) No. 254504, in the name
of spouses Vaca, was cancelled and a new one --TCT No. 52593-- was issued in the
name of the petitioner.[6]

The spouses Vaca, however, commenced an action for the nullification of the
real estate mortgage and the foreclosure sale. Petitioner, on the other hand, filed a
petition for the issuance of a writ of possession which was denied by the
RTC. Petitioner, thereafter, obtained a favorable judgment when the CA granted its
petition but the spouses Vaca questioned the CA decision before this Court in the
case docketed as G.R. No. 109672.[7]

During the pendency of the aforesaid cases, petitioner advertised the subject
property for sale to interested buyers for P9,700,000.00.[8] Respondents Rafael and
Monaliza Pronstroller offered to purchase the property for P7,500,000.00. Said offer
was made through Atty. Jose Soluta, Jr. (Atty. Soluta), petitioners Vice-President,
Corporate Secretary and a member of its Board of Directors.[9] Petitioner accepted
respondents offer of P7.5 million. Consequently, respondents paid
[10]
petitioner P750,000.00, or 10% of the purchase price, as down payment.

On March 18, 1993, petitioner, through Atty. Soluta, and respondents,

executed a Letter-Agreement setting forth therein the terms and conditions of the
sale, to wit:

1. Selling price shall be at P7,500,000.00 payable as follows:

a. 10% deposit and balance of P6,750,000.00 to be deposited under

escrow agreement. Said escrow deposit shall be applied as payment
upon delivery of the aforesaid property to the buyers free from
occupants.

b. The deposit shall be made within ninety (90) days from date
hereof. Any interest earned on the aforesaid investment shall be for the
buyers account. However, the 10% deposit is non-interest earning.[11]

Prior to the expiration of the 90-day period within which to make the escrow deposit,
in view of the pendency of the case between the spouses Vaca and petitioner
involving the subject property,[12] respondents requested that the balance of the
purchase price be made payable only upon service on them of a final decision or
resolution of this Court affirming petitioners right to possess the subject
property. Atty. Soluta referred respondents proposal to petitioners Asset Recovery
and Remedial Management Committee (ARRMC) but the latter deferred action
thereon.[13]

On July 14, 1993, a month after they made the request and after the payment deadline
had lapsed, respondents and Atty. Soluta, acting for the petitioner, executed another
Letter-Agreement allowing the former to pay the balance of the purchase price upon
receipt of a final order from this Court (in the Vaca case) and/or the delivery of the
property to them free from occupants.[14]

Towards the end of 1993, or in early 1994, petitioner reorganized its

management. Atty. Braulio Dayday (Atty. Dayday) became petitioners Assistant
Vice-President and Head of the Documentation Section, while Atty. Soluta was
relieved of his responsibilities. Atty. Dayday reviewed petitioners records of its
outstanding accounts and discovered that respondents failed to deposit the balance
of the purchase price of the subject property. He, likewise, found that respondents
requested for an extension of time within which to pay. The matter was then
resubmitted to the ARRMC during its meeting on March 4, 1994, and it was
disapproved. ARRMC, thus, referred the matter to petitioners Legal Department for
rescission or cancellation of the contract due to respondents breach thereof.[15]

On May 5, 1994, Atty. Dayday informed respondents that their request for extension
was disapproved by ARRMC and, in view of their breach of the contract, petitioner
was rescinding the same and forfeiting their deposit. Petitioner added that if
respondents were still interested in buying the subject property, they had to submit
their new proposal.[16] Respondents went to the petitioners office, talked to Atty.
Dayday and gave him the Letter-Agreement of July 14, 1993 to show that they were
granted an extension. However, Atty. Dayday claimed that the letter was a mistake
and that Atty. Soluta was not authorized to give such extension.[17]

On June 6, 1994, respondents proposed to pay the balance of the purchase price as
follows: P3,000,000.00 upon the approval of their proposal and the balance after six
(6) months.[18] However, the proposal was disapproved by the petitioners
President. In a letter dated June 9, 1994, petitioner advised respondents that the
former would accept the latters proposal only if they would pay interest at the rate
of 24.5% per annum on the unpaid balance. Petitioner also allowed respondents a
refund of their deposit of P750,000.00 if they would not agree to petitioners new
proposal.[19]
For failure of the parties to reach an agreement, respondents, through their counsel,
informed petitioner that they would be enforcing their agreement dated July 14,
1993.[20] Petitioner countered that it was not aware of the existence of the July 14
agreement and that Atty. Soluta was not authorized to sign for and on behalf of the
bank. It, likewise, reiterated the rescission of their previous agreement because of
the breach committed by respondents.[21]

On July 14, 1994, in the Vaca case, this Court upheld petitioners right to possess the
subject property.

On July 28, 1994, respondents commenced the instant suit by filing a Complaint
for Specific Performance before the RTC of Antipolo, Rizal.[22] The case was raffled
to Branch 72 and was docketed as Civil Case No. 94-3298. Respondents prayed that
petitioner be ordered to sell the subject property to them in accordance with their
letter-agreement of July 14, 1993. They, likewise, caused the annotation of a notice
of lis pendens at the dorsal portion of TCT No. 52593.

For its part, petitioner contended that their contract had already been rescinded
because of respondents failure to deposit in escrow the balance of the purchase price
within the stipulated period.[23]

During the pendency of the case, petitioner sold the subject property to the spouses
Vaca, who eventually registered the sale; and on the basis thereof, TCT No. 52593
was cancelled and TCT No. 158082 was issued in their names.[24] As new owners,
the spouses Vaca started demolishing the house on the subject property which,
however, was not completed by virtue of the writ of preliminary injunction issued
by the court.[25]

On November 14, 1997, the trial court finally resolved the matter in favor of
respondents, disposing, as follows:
 WHEREFORE, premises considered, the Court finds defendants
rescission of the Agreement to Sell to be null and void for being contrary
to law and public policy.

ACCORDINGLY, defendant bank is hereby ordered to accept plaintiffs

payment of the balance of the purchase price in the amount of Six Million
Seven Hundred Fifty Thousand Pesos (P6,750,000.00) and to deliver the
title and possession to subject property, free from all liens and
encumbrances upon receipt of said payment. Likewise, defendant bank is
ordered to pay plaintiffs moral damages and attorneys fees in the amount
of One Hundred Thirty Thousand Pesos (P130,000.00) and expenses of
litigation in the amount of Twenty Thousand Pesos (P20,000.00).

SO ORDERED.[26]

Applying the rule of apparent authority,[27] the court upheld the validity of the July
14, 1993 Letter-Agreement where the respondents were given an extension within
which to make payment. Consequently, respondents did not incur in delay, and thus,
the court concluded that the rescission of the contract was without basis and contrary
to law.[28]

On appeal, the CA affirmed the RTC decision and upheld Atty. Solutas authority to
represent the petitioner. It further ruled that petitioner had no right to unilaterally
rescind the contract; otherwise, it would give the bank officers license to
continuously review and eventually rescind contracts entered into by previous
officers. As to whether respondents were estopped from enforcing the July 14,
1993 Letter-Agreement, the appellate court ruled in the negative. It found, instead,
that petitioners were estopped from questioning the efficacy of the July 14 agreement
because of its failure to repudiate the same for a period of one year. [29] Thus, the
court said in its decision:

1. The Appellant (Westmont Bank) is hereby ordered to execute a Deed

of Absolute Sale in favor of the Appellees over the property covered by
Transfer Certificate of Title No. 52593, including the improvement
thereon, and secure, from the Register of Deeds, a Torrens Title over the
said property free from all liens, claims or encumbrances upon the
payment by the Appellees of the balance of the purchase price of the
property in the amount of P6,750,000.00;
 2. The Register of Deeds is hereby ordered to cancel Transfer Certificate
of Title No. 158082 under the names of the Spouses Eduardo [and Ma.
Pilar] Vaca and to issue another under the names of the Appellees as stated
in the preceding paragraph;

3. The appellant is hereby ordered to pay to the appellee Rafael

Pronstroller the amount of P100,000.00 as and by way of moral damages
and to pay to the Appellees the amount of P30,000.00 as and by way of
attorneys fees and the amount of P20,000.00 for litigation expense.

4. The counterclaims of the Appellant are dismissed.

SO ORDERED.[30]

Petitioners motion for reconsideration was denied on May 31, 2001. Hence,
the present petition raising the following issues:

I.

THE NARRATION OR STATEMENT OF THE FACTS OF THE CASE

BY THE HONORABLE COURT OF APPEALS IS TOTALLY BEREFT
OF EVIDENTIARY SUPPORT, CONTRARY TO THE EVIDENCE ON
RECORD AND PURELY BASED ON ERRONEOUS ASSUMPTIONS,
PRESUMPTIONS, SURMISES, AND CONJECTURES.

II.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN

MERELY RELYING UPON THE MANIFESTLY ERRONEOUS
FINDING OF THE HONORABLE TRIAL COURT ON THE ALLEGED
APPARENT AUTHORITY OF ATTY. JOSE SOLUTA, JR. IN THAT
THE LATTERS FINDING IS CONTRARY TO THE UNDISPUTED
FACTS AND THE EVIDENCE ON RECORD.

III.

THE HONORABLE COURT OF APPEALS OWN FINDING THAT

ATTY. JOSE SOLUTA, JR. HAD AUTHORITY TO SELL THE
SUBJECT PROPERTY ON HIS OWN (EVEN WITHOUT THE
COMMITTEES APPROVAL) IS LIKEWISE GROSSLY
ERRONEOUS, FINDS NO EVIDENTIARY SUPPORT AND IS EVEN
CONTRARY TO THE EVIDENCE ON RECORD IN THAT

A.) AT NO TIME DID PETITIONER ADMIT THAT ATTY. JOSE

SOLUTA, JR. IS AUTHORIZED TO SELL THE SUBJECT
PROPERTY ON HIS OWN;

B.) THE AUTHORITY OF ATTY. JOSE SOLUTA, JR. CANNOT BE

PRESUMED FROM HIS DESIGNATIONS OR TITLES; AND

C.) RESPONDENTS FULLY KNEW OR HAD KNOWLEDGE OF THE

LACK OF AUTHORITY OF ATTY. JOSE SOLUTA, JR. TO SELL
THE SUBJECT PROPERTY ON HIS OWN.

IV.

THE HONORABLE TRIAL COURT AND THE HONORABLE

COURT OF APPEALS GROSSLY MISAPPLIED THE DOCTRINE OF
APPARENT AUTHORITY IN THE PRESENT CASE.

V.

THE HONORABLE TRIAL COURT AND THE HONORABLE

COURT OF APPEALS GROSSLY ERRED IN NOT HOLDING THAT
THE CONTRACT TO SELL CONTAINED IN THE MARCH 18, 1993
LETTER WAS VALIDLY RESCINDED BY PETITIONER.

VI.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN

NOT HOLDING RESPONDENTS ESTOPPED FROM DENYING THE
VALIDITY OF THE RESCISSION OF THE CONTRACT TO SELL AS
EMBODIED IN THE MARCH 18, 1993 LETTER AND THE LACK OF
AUTHORITY OF ATTY. SOLUTA, JR. TO GRANT THE
EXTENSION AS CONTAINED IN HIS LETTER OF JULY 14, 1993
AFTER THEY VOLUNTARILY SUBMITTED WITH FULL
KNOWLEDGE OF ITS IMPORT AND IMPLICATION A NEW OFFER
TO PURCHASE THE SUBJECT PROPERTY CONTAINED IN THEIR
LETTER DATED JUNE 6, 1994.
 VII.

IN ANY EVENT, THE HONORABLE COURT OF APPEALS ERRED

IN NOT HOLDING THAT THE CONTRACT TO SELL UNDER THE
LETTER OF MARCH 18, 1993 AND THE LETTER OF JULY 14, 1993
HAD BEEN VACATED WHEN RESPONDENTS VOLUNTARILY
SUBMITTED WITH FULL KNOWLEDGE OF ITS IMPORT AND
IMPLICATION THEIR NEW OFFER CONTAINED IN THEIR
LETTER OF JUNE 6, 1994 WITHOUT ANY CONDITION OR
RESERVATION WHATSOEVER.

VIII.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING

PETITIONER ESTOPPED FROM QUESTIONING THE VALIDITY
OF THE JULY 14, 1993LETTER SIGNED BY ATTY. JOSE SOLUTA,
JR.

IX.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN

HOLDING THAT PETITIONER ALLEGEDLY ACTED
FRAUDULENTLY AND IN BAD FAITH IN ITS DEALINGS WITH
RESPONDENTS.

X.

THE ORDER OF THE HONORABLE COURT OF APPEALS TO

CANCEL TCT NO. 158082 UNDER THE NAMES OF SPS. VACA IS
A COLLATERAL ATTACK AGAINST THE SAID CERTIFICATE OF
TITLE WHICH IS PROSCRIBED BY SECTION 48 OF P.D. 1529.

XI.

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

MORAL DAMAGES, ATTORNEYS FEES, AND EXPENSES OF
LITIGATION IN FAVOR OF RESPONDENTS.[31]

Reduced to bare essentials, the decision on the instant petition hinges on the
resolution of the following specific questions: 1) Is the petitioner bound by the July
14, 1993 Letter-Agreement signed by Atty. Soluta under the doctrine of apparent
authority? 2) Was there a valid rescission of the March 18, 1993 and/or July 14,
1993 Letter-Agreement? 3) Are the respondents estopped from enforcing the July
14 Letter-Agreement because of their June 6, 1994 new proposal? 4) Is the petitioner
estopped from questioning the validity of the July 14 letter because of its failure to
repudiate the same and 5) Is the instant case a collateral attack on TCT No. 158082
in the name of the spouses Vaca?

The petition is unmeritorious.

Well-settled is the rule that the findings of the RTC, as affirmed by the appellate
court, are binding on this Court. In a petition for review on certiorari under Rule 45
of the Rules of Court, as in this case, this Court may not review the findings of fact
all over again. It must be stressed that this Court is not a trier of facts, and it is not
its function to re-examine and weigh anew the respective evidence of the
parties.[32] The findings of the CA are conclusive on the parties and carry even more
weight when these coincide with the factual findings of the trial court, unless the
factual findings are not supported by the evidence on record.[33]Petitioner failed to
show why the above doctrine should not be applied to the instant case.

Contrary to petitioners contention that the CAs factual findings are not supported by
the evidence on record, the assailed decision clearly shows that the appellate court
not only relied on the RTCs findings but made its own analysis of the record of the
case. The CA decision contains specific details drawn from the contents of the
pleadings filed by both parties, from the testimonies of the witnesses and from the
documentary evidence submitted. It was from all these that the appellate court drew
its own conclusion using applicable legal principles and jurisprudential rules.
The Court notes that the March 18, 1993 Letter-Agreement was written on a paper
with petitioners letterhead. It was signed by Atty. Soluta with the conformity of
respondents. The authority of Atty. Soluta to act for and on behalf of petitioner was
not reflected in said letter or on a separate paper attached to it. Yet, petitioner
recognized Atty. Solutas authority to sign the same and, thus, acknowledged its
binding effect. On the other hand, the July 14, 1993 letter was written on the same
type of paper with the same letterhead and of the same form as the earlier letter. It
was also signed by the same person with the conformity of the same
respondents. Again, nowhere in said letter did petitioner specifically authorize Atty.
Soluta to sign it for and on its behalf. This time, however, petitioner questioned the
validity and binding effect of the agreement, arguing that Atty. Soluta was not
authorized to modify the earlier terms of the contract and could not in any way bind
the petitioner.

We beg to differ.

The general rule is that, in the absence of authority from the board of directors, no
person, not even its officers, can validly bind a corporation. The power and
responsibility to decide whether the corporation should enter into a contract that will
bind the corporation is lodged in the board of directors. However, just as a natural
person may authorize another to do certain acts for and on his behalf, the board may
validly delegate some of its functions and powers to officers, committees and
agents. The authority of such individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the board, either expressly or
impliedly, by habit, custom, or acquiescence, in the general course of business.[34]

The authority of a corporate officer or agent in dealing with third persons may be
actual or apparent. The doctrine of apparent authority, with special reference to
banks, had long been recognized in this jurisdiction.[35] Apparent authority is derived
not merely from practice. Its existence may be ascertained through 1) the general
manner in which the corporation holds out an officer or agent as having the power
to act, or in other words, the apparent authority to act in general, with which it clothes
him; or 2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, within or beyond the scope of his ordinary
powers.[36]

Accordingly, the authority to act for and to bind a corporation may be

presumed from acts of recognition in other instances, wherein the power was
exercised without any objection from its board or shareholders. Undoubtedly,
petitioner had previously allowed Atty. Soluta to enter into the first agreement
without a board resolution expressly authorizing him; thus, it had clothed him with
apparent authority to modify the same via the second letter-agreement. It is not the
quantity of similar acts which establishes apparent authority, but the vesting of a
corporate officer with the power to bind the corporation.[37]
 Naturally, the third person has little or no information as to what occurs in
corporate meetings; and he must necessarily rely upon the external manifestations
of corporate consent. The integrity of commercial transactions can only be
maintained by holding the corporation strictly to the liability fixed upon it by its
agents in accordance with law.[38] What transpires in the corporate board room is
entirely an internal matter. Hence, petitioner may not impute negligence on the part
of the respondents in failing to find out the scope of Atty. Solutas authority. Indeed,
the public has the right to rely on the trustworthiness of bank officers and their
acts.[39]
As early as June 1993, or prior to the 90-day period within which to make the full
payment, respondents already requested a modification of the earlier agreement such
that the full payment should be made upon receipt of this Courts decision confirming
petitioners right to the subject property. The matter was brought to the petitioners
attention and was in fact discussed by the members of the Board. Instead of acting
on said request (considering that the 90-day period was about to expire), the board
deferred action on the request. It was only after one year and after the banks
reorganization that the board rejected respondents request. We cannot therefore
blame the respondents in relying on the July 14, 1993 Letter-Agreement. Petitioners
inaction, coupled with the apparent authority of Atty. Soluta to act on behalf of the
corporation, validates the July 14 agreement and thus binds the corporation. All
these taken together, lead to no other conclusion than that the petitioner attempted
to defraud the respondents. This is bolstered by the fact that it forged another
contract involving the same property, with another buyer, the spouses Vaca,
notwithstanding the pendency of the instant case.
We would like to emphasize that if a corporation knowingly permits its officer, or
any other agent, to perform acts within the scope of an apparent authority, holding
him out to the public as possessing power to do those acts, the corporation will, as
against any person who has dealt in good faith with the corporation through such
agent, be estopped from denying such authority.[40]
Petitioner further insists that specific performance is not available to respondents
because the Letter-Agreements had already been rescinded --- the March 18
agreement because of the breach committed by the respondents; and the July 14 letter
because of the new offer of the respondents which was not approved by petitioner.
Again, the argument is misplaced.
 Basic is the rule that a contract constitutes the law between the
parties. Concededly, parties may validly stipulate the unilateral rescission of a
contract.[41]This is usually in the form of a stipulation granting the seller the right to
forfeit installments or deposits made by the buyer in case of the latters failure to
make full payment on the stipulated date. While the petitioner in the instant case
may have the right, under the March 18 agreement, to unilaterally rescind the
contract in case of respondents failure to comply with the terms of the
contract,[42] the execution of the July 14 Agreement prevented petitioner from
exercising the right to rescind. This is so because there was in the first place, no
breach of contract, as the date of full payment had already been modified by the later
agreement.

Neither can the July 14, 1993 agreement be considered abandoned by

respondents act of making a new offer, which was unfortunately rejected by
petitioner. A careful reading of the June 6, 1994 letter of respondents impels this
Court to believe that such offer was made only to demonstrate their capacity to
purchase the subject property.[43] Besides, even if it was a valid new offer, they did
so only due to the fraudulent misrepresentation made by petitioner that their earlier
contracts had already been rescinded. Considering respondents capacity to pay and
their continuing interest in the subject property,[44] to abandon their right to the
contract and to the property, absent any form of protection, is contrary to human
nature. The presumption that a person takes ordinary care of his concerns applies
and remains unrebutted.[45] Obviously therefore, respondents made the new offer
without abandoning the previous contract. Since there was never a perfected new
contract, the July 14, 1993 agreement was still in effect and there was no
abandonment to speak of.

In its final attempt to prevent respondents from attaining a favorable result,

petitioner argues that the instant case should not prosper because the cancellation of
TCT No. 158082 is a collateral attack on the title which is proscribed by law.

Such contention is baseless.

Admittedly, during the pendency of the case, respondents timely registered a

notice of lis pendens to warn the whole world that the property was the subject of a
pending litigation.
 Lis pendens, which literally means pending suit, refers to the jurisdiction,
power or control which a court acquires over property involved in a suit, pending
the continuance of the action, and until final judgment. Founded upon public policy
and necessity, lis pendens is intended to keep the properties in litigation within the
power of the court until the litigation is terminated, and to prevent the defeat of the
judgment or decree by subsequent alienation. Its notice is an announcement to the
whole world that a particular property is in litigation and serves as a warning that
one who acquires an interest over said property does so at his own risk or that he
gambles on the result of the litigation over said property.[46]

The filing of a notice of lis pendens has a twofold effect: (1) to keep the
subject matter of the litigation within the power of the court until the entry of the
final judgment to prevent the defeat of the final judgment by successive alienations;
and (2) to bind a purchaser, bona fide or not, of the land subject of the litigation to
the judgment or decree that the court will promulgate subsequently.[47]

This registration, therefore, gives the court clear authority to cancel the title
of the spouses Vaca, since the sale of the subject property was made after the notice
of lis pendens. Settled is the rule that the notice is not considered a collateral attack
on the title,[48] for the indefeasibility of the title shall not be used to defraud another
especially if the latter performs acts to protect his rights such as the timely
registration of a notice of lis pendens.

As to the liability for moral damages, attorneys fees and expenses of litigation,
we affirm in toto the appellate courts conclusion. Article 2220[49] of the New Civil
Code allows the recovery of moral damages in breaches of contract where the party
acted fraudulently and in bad faith. As found by the CA, petitioner undoubtedly
acted fraudulently and in bad faith in breaching the letter-agreements. Despite the
pendency of the case in the RTC, it sold the subject property to the spouses Vaca
and allowed the demolition of the house even if there was already a writ of
preliminary injunction lawfully issued by the court. This is apart from its act of
unilaterally rescinding the subject contract. Clearly, petitioners acts are brazen
attempts to frustrate the decision that the court may render in favor of
respondents.[50] It is, likewise, apparent that because of petitioners acts, respondents
were compelled to litigate justifying the award of attorneys fees and expenses of
litigation.

WHEREFORE, premises considered, the petition is DENIED. The Decision

of the Court of Appeals dated February 27, 2001 and its Resolution dated May 31,
2001 in CA-G.R. CV No. 60315 are AFFIRMED.

SO ORDERED.

WOODCHILD HOLDINGS, INC., G.R. No. 140667

Petitioner,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

ROXAS ELECTRIC AND Promulgated:

CONSTRUCTION COMPANY, INC.,
Respondent. August 12, 2004
x--------------------------------------------------x
DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals
in CA-G.R. CV No. 56125 reversing the Decision[2] of the Regional Trial Court of
Makati, Branch 57, which ruled in favor of the petitioner.

The Antecedents
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly
the Roxas Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer
Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No.
78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a
dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondents Board of Directors

approved a resolution authorizing the corporation, through its president, Roberto
B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of
7,213 square meters, at a price and under such terms and conditions which he
deemed most reasonable and advantageous to the corporation; and to execute,
sign and deliver the pertinent sales documents and receive the proceeds of the sale
for and on behalf of the company.[3]

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-
2 covered by TCT No. 78086 on which it planned to construct its warehouse
building, and a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot
container van would be able to readily enter or leave the property. In a Letter to
Roxas dated June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No.
491-A-3-B-2 under stated terms and conditions for P1,000 per square meter or at
the price of P7,213,000.[4] One of the terms incorporated in Dys offer was the
following provision:

5. This Offer to Purchase is made on the representation and warranty of the

OWNER/SELLER, that he holds a good and registrable title to the property, which
shall be conveyed CLEAR and FREE of all liens and encumbrances, and that the area
of 7,213 square meters of the subject property already includes the area on which
the right of way traverses from the main lot (area) towards the exit to the Sumulong
Highway as shown in the location plan furnished by the Owner/Seller to the
 buyer.Furthermore, in the event that the right of way is insufficient for the buyers
purposes (example: entry of a 45-foot container), the seller agrees to sell additional
square meter from his current adjacent property to allow the buyer to full access and
full use of the property.[5]

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a
month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as
President of WHI, as vendee, executed a contract to sell in which RECCI bound and
obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086
for P7,213,000.[6] On September 5, 1991, a Deed of Absolute Sale[7] in favor of WHI
was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold
for P5,000,000, receipt of which was acknowledged by Roxas under the following
terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial
use of and a right of way from Sumulong Highway to the property herein conveyed
consists of 25 square meters wide to be used as the latters egress from and ingress to and
an additional 25 square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or
maneuvering area for Vendees vehicles.

The Vendor agrees that in the event that the right of way is insufficient for the Vendees
use (ex entry of a 45-foot container) the Vendor agrees to sell additional square meters
from its current adjacent property to allow the Vendee full access and full use of the
property.

The Vendor hereby undertakes and agrees, at its account, to defend the title of the
Vendee to the parcel of land and improvements herein conveyed, against all claims of any
and all persons or entities, and that the Vendor hereby warrants the right of the Vendee
to possess and own the said parcel of land and improvements thereon and will defend
the Vendee against all present and future claims and/or action in relation thereto, judicial
and/or administrative. In particular, the Vendor shall eject all existing squatters and
occupants of the premises within two (2) weeks from the signing hereof. In case of failure
on the part of the Vendor to eject all occupants and squatters within the two-week period
or breach of any of the stipulations, covenants and terms and conditions herein provided
and that of contract to sell dated 1 July 1991, the Vendee shall have the right to cancel
 the sale and demand reimbursement for all payments made to the Vendor with interest
thereon at 36% per annum.[8]

On September 10, 1991, the Wimbeco Builders, Inc. (WBI) submitted its quotation
for P8,649,000 to WHI for the construction of the warehouse building on a portion
of the property with an area of 5,088 square meters.[9] WBI proposed to start the
project on October 1, 1991 and to turn over the building to WHI on February 29,
1992.[10]

In a Letter dated September 16, 1991, Ponderosa Leather Goods Company,

Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of
the warehouse yet to be constructed at the rental rate of P65 per square
meter. Ponderosa emphasized the need for the warehouse to be ready for
occupancy before April 1, 1992.[11] WHI accepted the offer. However, WBI failed to
commence the construction of the warehouse in October 1, 1991 as planned
because of the presence of squatters in the property and suggested a renegotiation
of the contract after the squatters shall have been evicted.[12] Subsequently, the
squatters were evicted from the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the
construction of the warehouse building for P11,804,160.[13] The contractor started
construction in April 1992 even before the building officials of Antipolo City issued
a building permit on May 28, 1992. After the warehouse was finished, WHI issued
on March 21, 1993 a certificate of occupancy by the building official. Earlier, or on
March 18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of
lease over a portion of the property for a monthly rental of P300,000 for a period
of three years from March 1, 1993 up to February 28, 1996.[14]
 In the meantime, WHI complained to Roberto Roxas that the vehicles of
RECCI were parked on a portion of the property over which WHI had been granted
a right of way. Roxas promised to look into the matter. Dy and Roxas discussed the
need of the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085 as provided for in the deed of absolute sale. However, Roxas died
soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal
requests to purchase a portion of the said lot as provided for in the deed of absolute
sale, and complained about the latters failure to eject the squatters within the
three-month period agreed upon in the said deed.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof,
otherwise the appropriate action would be filed against it. RECCI rejected the
demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There
was no response from RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the
Regional Trial Court of Makati, for specific performance and damages, and
alleged, inter alia, the following in its complaint:

5. The current adjacent property referred to in the aforequoted paragraph of the Deed of
Absolute Sale pertains to the property covered by Transfer Certificate of Title No. N-78085
of the Registry of Deeds of Antipolo, Rizal, registered in the name of herein defendant
Roxas Electric.

6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed
of Absolute Sale unjustifiably refused to deliver to Woodchild Holdings the stipulated
beneficial use and right of way consisting of 25 square meters and 55 square meters to
the prejudice of the plaintiff.
7. Similarly, in as much as the 25 square meters and 55 square meters alloted to
Woodchild Holdings for its beneficial use is inadequate as turning and/or maneuvering
area of its 45-foot container van, Woodchild Holdings manifested its intention pursuant
to para. 5 of the Deed of Sale to purchase additional square meters from Roxas Electric
to allow it full access and use of the purchased property, however, Roxas Electric refused
and failed to merit Woodchild Holdings request contrary to defendant Roxas Electrics
obligation under the Deed of Absolute Sale (Annex A).

8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of
the premises within the stipulated time frame and as a consequence thereof, plaintiffs
planned construction has been considerably delayed for seven (7) months due to the
squatters who continue to trespass and obstruct the subject property, thereby Woodchild
Holdings incurred substantial losses amounting to P3,560,000.00 occasioned by the
increased cost of construction materials and labor.

9. Owing further to Roxas Electrics deliberate refusal to comply with its obligation under
Annex A, Woodchild Holdings suffered unrealized income of P300,000.00 a month
or P2,100,000.00 supposed income from rentals of the subject property for seven (7)
months.

10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to
comply with its obligations and warranties under the Deed of Absolute Sale but
notwithstanding such demand, defendant Roxas Electric refused and failed and continue
to refuse and fail to heed plaintiffs demand for compliance.

Copy of the demand letter dated April 15, 1992 is hereto attached as Annex B and made
an integral part hereof.

11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to
Roxas Electric to particularly annotate on Transfer Certificate of Title No. N-78085 the
agreement under Annex A with respect to the beneficial use and right of way, however,
Roxas Electric unjustifiably ignored and disregarded the same.

Copy of the letter request dated 29 May 1992 is hereto attached as Annex C and made an
integral part hereof.
 12. By reason of Roxas Electrics continuous refusal and failure to comply with Woodchild
Holdings valid demand for compliance under Annex A, the latter was constrained to
litigate, thereby incurring damages as and by way of attorneys fees in the amount
of P100,000.00 plus costs of suit and expenses of litigation.[15]

The WHI prayed that, after due proceedings, judgment be rendered in its
favor, thus:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild

Holdings and ordering Roxas Electric the following:

a) to deliver to Woodchild Holdings the beneficial use of the stipulated

25 square meters and 55 square meters;

b) to sell to Woodchild Holdings additional 25 and 100 square meters to

allow it full access and use of the purchased property pursuant to
para. 5 of the Deed of Absolute Sale;

c) to cause annotation on Transfer Certificate of Title No. N-78085 the

beneficial use and right of way granted to Woodchild Holdings under
the Deed of Absolute Sale;

d) to pay Woodchild Holdings the amount of P5,660,000.00, representing

actual damages and unrealized income;

e) to pay attorneys fees in the amount of P100,000.00; and

f) to pay the costs of suit.

Other reliefs just and equitable are prayed for.[16]

 In its answer to the complaint, the RECCI alleged that it never authorized its
former president, Roberto Roxas, to grant the beneficial use of any portion of Lot
No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden
thereon. It alleged that, under the Resolution approved on May 17, 1991, it merely
authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such,
the grant of a right of way and the agreement to sell a portion of Lot No. 491-A-3-
B-1 covered by TCT No. 78085 in the said deed are ultra vires. The RECCI further
alleged that the provision therein that it would sell a portion of Lot No. 491-A-3-B-
1 to the WHI lacked the essential elements of a binding contract.[17]

In its amended answer to the complaint, the RECCI alleged that the delay in
the construction of its warehouse building was due to the failure of the WHIs
contractor to secure a building permit thereon.[18]

During the trial, Dy testified that he told Roxas that the petitioner was buying
a portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the
price of P1,000 per square meter.

On November 11, 1996, the trial court rendered judgment in favor of the
WHI, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered directing defendant:

(1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25
sq. m. and 55 sq. m.;
 (2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow
said plaintiff full access and use of the purchased property pursuant to Par. 5 of their Deed
of Absolute Sale;

(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted
by their Deed of Absolute Sale;

(4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiffs
unrealized income;

(5) To pay plaintiff P100,000 representing attorneys fees; and

To pay the costs of suit.

SO ORDERED.[19]

The trial court ruled that the RECCI was estopped from disowning the
apparent authority of Roxas under the May 17, 1991 Resolution of its Board of
Directors. The court reasoned that to do so would prejudice the WHI which
transacted with Roxas in good faith, believing that he had the authority to bind the
WHI relating to the easement of right of way, as well as the right to purchase a
portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085.

The RECCI appealed the decision to the CA, which rendered a decision on
November 9, 1999 reversing that of the trial court, and ordering the dismissal of
the complaint. The CA ruled that, under the resolution of the Board of Directors of
the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT
No. 78086, but not to grant right of way in favor of the WHI over a portion of Lot
No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion
thereof. The appellate court also ruled that the grant of a right of way and an option
to the respondent were so lopsided in favor of the respondent because the latter
was authorized to fix the location as well as the price of the portion of its property
to be sold to the respondent. Hence, such provisions contained in the deed of
absolute sale were not binding on the RECCI. The appellate court ruled that the
delay in the construction of WHIs warehouse was due to its fault.

The Present Petition

The petitioner now comes to this Court asserting that:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. C)
IS ULTRA VIRES.

II.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A
QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE EXISTING RIGHT
OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE
THESE ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE
SALE (EXH. C).

III.

THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO RULE THAT
THE STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. C) WERE DISADVANTAGEOUS
TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE
PROCESS.

IV.

IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE

PROCESS BY THE ASSAILED DECISION.
 V.

THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT TO
EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE DEED OF ABSOLUTE SALE (EXH.
C).

VI.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A
QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF P5,568,000.00
REPRESENTING ACTUAL DAMAGES AND PLAINTIFFS UNREALIZED INCOME AS WELL AS
ATTORNEYS FEES.[20]

The threshold issues for resolution are the following: (a) whether the respondent
is bound by the provisions in the deed of absolute sale granting to the petitioner
beneficial use and a right of way over a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the
petitioner to buy a portion thereof, and, if so, whether such agreement is
enforceable against the respondent; (b) whether the respondent failed to eject the
squatters on its property within two weeks from the execution of the deed of
absolute sale; and, (c) whether the respondent is liable to the petitioner for
damages.

On the first issue, the petitioner avers that, under its Resolution of May 17, 1991,
the respondent authorized Roxas, then its president, to grant a right of way over a
portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the
respondent to buy a portion of the said property. The petitioner contends that
when the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it
(respondent) was well aware of its obligation to provide the petitioner with a
means of ingress to or egress from the property to the Sumulong Highway, since
the latter had no adequate outlet to the public highway. The petitioner asserts that
it agreed to buy the property covered by TCT No. 78085 because of the grant by
the respondent of a right of way and an option in its favor to buy a portion of the
property covered by TCT No. 78085. It contends that the respondent never
objected to Roxas acceptance of its offer to purchase the property and the terms
and conditions therein; the respondent even allowed Roxas to execute the deed of
absolute sale in its behalf. The petitioner asserts that the respondent even received
the purchase price of the property without any objection to the terms and
conditions of the said deed of sale. The petitioner claims that it acted in good faith,
and contends that after having been benefited by the said sale, the respondent is
estopped from assailing its terms and conditions. The petitioner notes that the
respondents Board of Directors never approved any resolution rejecting the deed
of absolute sale executed by Roxas for and in its behalf. As such, the respondent is
obliged to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an
area of 500 square meters at the price of P1,000 per square meter, based on its
evidence and Articles 649 and 651 of the New Civil Code.

For its part, the respondent posits that Roxas was not so authorized under the May
17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right
of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion
thereof to the petitioner. Hence, the respondent was not bound by such provisions
contained in the deed of absolute sale. Besides, the respondent contends, the
petitioner cannot enforce its right to buy a portion of the said property since there
was no agreement in the deed of absolute sale on the price thereof as well as the
specific portion and area to be purchased by the petitioner.

We agree with the respondent.

In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,[21] we held
that:
 A corporation is a juridical person separate and distinct from its stockholders or
members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members without
express authorization from the corporations board of directors. Section 23 of BP 68,
otherwise known as the Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in

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

Indubitably, a corporation may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents
in the normal course of business. The general principles of agency govern the relation
between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law. [22]

Generally, the acts of the corporate officers within the scope of their authority are
binding on the corporation. However, under Article 1910 of the New Civil Code,
acts done by such officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or tacitly, or is estopped from
denying them:

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
 Thus, contracts entered into by corporate officers beyond the scope of
authority are unenforceable against the corporation unless ratified by the
corporation.[23]

In BA Finance Corporation v. Court of Appeals,[24] we also ruled that persons

dealing with an assumed agency, whether the assumed agency be a general or
special one, are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to establish it.
In this case, the respondent denied authorizing its then president Roberto B. Roxas
to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a
lien or burden thereon. The petitioner was thus burdened to prove that the
respondent so authorized Roxas to sell the same and to create a lien thereon.

Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors
of the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any
interested buyer, its 7,213-sq.-meter property at the Sumulong Highway, Antipolo, Rizal,
covered by Transfer Certificate of Title No. N-78086, at a price and on terms and
conditions which he deems most reasonable and advantageous to the corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation, be, as he
is hereby authorized to execute, sign and deliver the pertinent sales documents and
receive the proceeds of sale for and on behalf of the company.[25]

Evidently, Roxas was not specifically authorized under the said resolution to grant
a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to
agree to sell to the petitioner a portion thereof. The authority of Roxas, under the
resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include
the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create
or convey real rights thereon. Neither may such authority be implied from the
authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner on such
terms and conditions which he deems most reasonable and advantageous. Under
paragraph 12, Article 1878 of the New Civil Code, a special power of attorney is
required to convey real rights over immovable property.[26] Article 1358 of the New
Civil Code requires that contracts which have for their object the creation of real
rights over immovable property must appear in a public document.[27] The
petitioner cannot feign ignorance of the need for Roxas to have been specifically
authorized in writing by the Board of Directors to be able to validly grant a right of
way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of
the agent is one which requires authority in writing, those dealing with him are
charged with notice of that fact.[28]

Powers of attorney are generally construed strictly and courts will not infer
or presume broad powers from deeds which do not sufficiently include property or
subject under which the agent is to deal.[29] The general rule is
that the power of attorney must be pursued within legal strictures, and the agent
can neither go beyond it; nor beside it. The act done must be legally identical with
that authorized to be done.[30] In sum, then, the consent of the respondent to the
assailed provisions in the deed of absolute sale was not obtained; hence, the
assailed provisions are not binding on it.

We reject the petitioners submission that, in allowing Roxas to execute the

contract to sell and the deed of absolute sale and failing to reject or disapprove the
same, the respondent thereby gave him apparent authority to grant a right of way
over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion
thereof to the petitioner. Absent estoppel or ratification, apparent authority
cannot remedy the lack of the written power required under the statement of
frauds.[31] In addition, the petitioners fallacy is its wrong assumption of the
unproved premise that the respondent had full knowledge of all the terms and
conditions contained in the deed of absolute sale when Roxas executed it.

It bears stressing that apparent authority is based on estoppel and can arise
from two instances: first, the principal may knowingly permit the agent to so hold
himself out as having such authority, and in this way, the principal becomes
estopped to claim that the agent does not have such authority; second, the
principal may so clothe the agent with the indicia of authority as to lead a
reasonably prudent person to believe that he actually has such authority.[32] There
can be no apparent authority of an agent without acts or conduct on the part of
the principal and such acts or conduct of the principal must have been known and
relied upon in good faith and as a result of the exercise of reasonable prudence by
a third person as claimant and such must have produced a change of position to its
detriment. The apparent power of an agent is to be determined by the acts of the
principal and not by the acts of the agent.[33]

For the principle of apparent authority to apply, the petitioner was burdened
to prove the following: (a) the acts of the respondent justifying belief in the agency
by the petitioner; (b) knowledge thereof by the respondent which is sought to be
held; and, (c) reliance thereon by the petitioner consistent with ordinary care and
prudence.[34] In this case, there is no evidence on record of specific acts made by
the respondent[35] showing or indicating that it had full knowledge of any
representations made by Roxas to the petitioner that the respondent had
authorized him to grant to the respondent an option to buy a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085, or to create a burden or lien thereon, or
that the respondent allowed him to do so.

The petitioners contention that by receiving and retaining the P5,000,000

purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly
ratified the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to
grant to the petitioner an option to sell a portion thereof, is barren of merit. It bears
stressing that the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the
latter had taken possession of the property. As such, the respondent had the right
to retain the P5,000,000, the purchase price of the property it had sold to the
petitioner. For an act of the principal to be considered as an implied ratification of
an unauthorized act of an agent, such act must be inconsistent with any other
hypothesis than that he approved and intended to adopt what had been done in
his name.[36] Ratification is based on waiver the intentional relinquishment of a
known right. Ratification cannot be inferred from acts that a principal has a right to
do independently of the unauthorized act of the agent. Moreover, if a writing is
required to grant an authority to do a particular act, ratification of that act must
also be in writing.[37] Since the respondent had not ratified the unauthorized acts
of Roxas, the same are unenforceable.[38] Hence, by the respondents retention of
the amount, it cannot thereby be implied that it had ratified the unauthorized acts
of its agent, Roberto Roxas.

On the last issue, the petitioner contends that the CA erred in dismissing its
complaint for damages against the respondent on its finding that the delay in the
construction of its warehouse was due to its (petitioners) fault. The petitioner
asserts that the CA should have affirmed the ruling of the trial court that the
respondent failed to cause the eviction of the squatters from the property on or
before September 29, 1991; hence, was liable for P5,660,000. The respondent, for
its part, asserts that the delay in the construction of the petitioners warehouse was
due to its late filing of an application for a building permit, only on May 28, 1992.

The petitioners contention is meritorious. The respondent does not deny

that it failed to cause the eviction of the squatters on or before September 29,
1991. Indeed, the respondent does not deny the fact that when the petitioner
wrote the respondent demanding that the latter cause the eviction of the squatters
on April 15, 1992, the latter were still in the premises. It was only after receiving
the said letter in April 1992 that the respondent caused the eviction of the
squatters, which thus cleared the way for the petitioners contractor to commence
the construction of its warehouse and secure the appropriate building permit
therefor.

The petitioner could not be expected to file its application for a building
permit before April 1992 because the squatters were still occupying the
property.Because of the respondents failure to cause their eviction as agreed upon,
the petitioners contractor failed to commence the construction of the warehouse
in October 1991 for the agreed price of P8,649,000. In the meantime, costs of
construction materials spiraled. Under the construction contract entered into
between the petitioner and the contractor, the petitioner was obliged to
pay P11,804,160,[39] including the additional work costing P1,441,500, or a net
increase of P1,712,980.[40] The respondent is liable for the difference between the
original cost of construction and the increase thereon, conformably to Article 1170
of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof, are
liable for damages.

The petitioner, likewise, lost the amount of P3,900,000 by way of unearned

income from the lease of the property to the Ponderosa Leather Goods
Company. The respondent is, thus, liable to the petitioner for the said amount,
under Articles 2200 and 2201 of the New Civil Code:

Art. 2200. Indemnification for damages shall comprehend not only the value of
the loss suffered, but also that of the profits which the obligee failed to obtain.
 Art. 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen or
could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-performance
of the obligation.

In sum, we affirm the trial courts award of damages and attorneys fees to
the petitioner.

IN LIGHT OF ALL THE FOREGOING, judgment is hereby

rendered AFFIRMING the assailed Decision of the Court of Appeals WITH
MODIFICATION. The respondent is ordered to pay to the petitioner the amount
of P5,612,980 by way of actual damages and P100,000 by way of attorneys fees. No
costs.

SO ORDERED.