1
BANK OF THE PHILIPPINE ISLANDS and FGU INSURANCE CORPORATION
(presently known as BPI/MS INSURANCE
CORPORATION), petitioners, vs.YOLANDA LAINGO,
This is a petition for review on certiorari 1 assailing the Decision dated 29 June 2012 2 and
Resolution dated 11 December 2012 3 of the Court of Appeals in CA-G.R. CV No. 01575.
On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo),
opened a "Platinum 2-in-1 Savings and Insurance" account with petitioner Bank of the Philippine Islands
(BPI) in its Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance account is a savings
account where depositors are automatically covered by an insurance policy against disability or death
issued by petitioner FGU Insurance Corporation (FGU Insurance), now known as BPI/MS Insurance
Corporation. BPI issued Passbook No. 50298 to Rheozel corresponding to Savings Account No. 2233-
0251-11. A Personal Accident Insurance Coverage Certificate No. 043549 was also issued by FGU
Insurance in the name of Rheozel with Laingo as his named beneficiary.
On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a
Certificate of Death issued by the Office of the Civil Registrar General of Tagum City, Davao del
Norte. Since Rheozel came from a reputable and affluent family, the Daily Mirror headlined the story in
its newspaper on 26 September 2000.
On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos
(Alice) to go to BPI, Claveria, Davao City branch and inquire about the savings account of Rheozel. Laingo
wanted to use the money in the savings account for Rheozel's burial and funeral expenses.
Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding
Laingo's request. Due to Laingo's credit standing and relationship with BPI, BPI accommodated Laingo
who was allowed to withdraw P995,000 from the account of Rheozel. A certain Ms. Laura Cabico, an
employee of BPI, went to Rheozel's wake at the Cosmopolitan Funeral Parlor to verify some information
from Alice and brought with her a number of documents for Laingo to sign for the withdrawal of the
P995,000.
More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn Laingo-
Concepcion, while arranging Rheozel's personal things in his room at their residence in Ecoland, Davao
City, found the Personal Accident Insurance Coverage Certificate No. 043549 issued by FGU Insurance.
Rhealyn immediately conveyed the information to Laingo.
Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI and FGU
Insurance requesting them to process her claim as beneficiary of Rheozel's insurance policy. On 19
February 2004, FGU Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance stated
that Laingo should have filed the claim within three calendar months from the death of Rheozel as
required under Paragraph 15 of the Personal Accident Certificate of Insurance which states:
15. Written notice of claim shall be given to and filed at FGU
Insurance Corporation within three calendar months of death or disability.
On 20 February 2004, Laingo filed a Complaint 4 for Specific Performance with Damages
and Attorney's Fees with the Regional Trial Court of Davao City, Branch 16 (trial court) against BPI and
FGU Insurance. EcTCAD
In a Decision 5 dated 21 April 2008, the trial court decided the case in favor of
respondents. The trial court ruled that the prescriptive period of 90 days shall commence from the
time of death of the insured and not from the knowledge of the beneficiary. Since the insurance claim
was filed more than 90 days from the death of the insured, the case must be dismissed. The dispositive
portion of the Decision states:
PREMISES CONSIDERED, judgment is hereby rendered dismissing
both the complaint and the counterclaims.
SO ORDERED. 6
Laingo filed an appeal with the Court of Appeals.
The Ruling of the Court of Appeals
In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of the trial
court. The Court of Appeals ruled that Laingo could not be expected to do an obligation which she did
not know existed. The appellate court added that Laingo was not a party to the insurance contract
entered into between Rheozel and petitioners. Thus, she could not be bound by the 90-day stipulation.
The dispositive portion of the Decision states:
WHEREFORE, the Appeal is hereby GRANTED. The Decision dated
April 21, 2008 of the Regional Trial Court, Branch 16, Davao City, is hereby
REVERSED and SET ASIDE.
Appellee Bank of the Philippine Islands and FGU Insurance
Corporation are DIRECTED to PAY jointly and severally appellant Yolanda Laingo
Actual Damages in the amount of P44,438.75 and Attorney's Fees in the amount
of P200,000.00.
Appellee FGU Insurance Corporation is also DIRECTED to PAY
appellant the insurance proceeds of the Personal Accident Insurance Coverage
of Rheozel Laingo with legal interest of six percent (6%) per annum reckoned
from February 20, 2004 until this Decision becomes final. Thereafter, an
interest of twelve percent (12%)per annum shall be imposed until fully paid.
SO ORDERED. 7
Petitioners filed a Motion for Reconsideration which was denied by the appellate court in a
Resolution dated 11 December 2012.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not Laingo, as named beneficiary who had no
knowledge of the existence of the insurance contract, is bound by the three calendar month deadline
for filing a written notice of claim upon the death of the insured.
The Court's Ruling
The petition lacks merit.
Petitioners contend that the words or language used in the insurance contract, particularly
under paragraph 15, is clear and plain or readily understandable by any reader which leaves no room for
construction. Petitioners also maintain that ignorance about the insurance policy does not exempt
respondent from abiding by the deadline and petitioners cannot be faulted for respondent's failure to
comply.
Respondent, on the other hand, insists that the insurance contract is ambiguous since there
is no provision indicating how the beneficiary is to be informed of the three calendar month claim
period. Since petitioners did not notify her of the insurance coverage of her son where she was named
as beneficiary in case of his death, then her lack of knowledge made it impossible for her to fulfill the
condition set forth in the insurance contract.
In the present case, the source of controversy stems from the alleged non-compliance with
the written notice of insurance claim to FGU Insurance within three calendar months from the death of
the insured as specified in the insurance contract. Laingo contends that as the named beneficiary
entitled to the benefits of the insurance claim she had no knowledge that Rheozel was covered by an

insurance policy against disability or death issued by FGU Insurance that was attached to Rheozel's
savings account with BPI. Laingo argues that she dealt with BPI after her son's death, when she was
allowed to withdraw funds from his savings account in the amount of P995,000. However, BPI did not
notify her of the attached insurance policy. Thus, Laingo attributes responsibility to BPI and FGU
Insurance for her failure to file the notice of insurance claim within three months from her son's
death.
We agree.
BPI offered a deposit savings account with life and disability insurance coverage to its
customers called the Platinum 2-in-1 Savings and Insurance account. This was a marketing strategy
promoted by BPI in order to entice customers to invest their money with the added benefit of an
insurance policy. Rheozel was one of those who availed of this account, which not only included banking
convenience but also the promise of compensation for loss or injury, to secure his family's future.
As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU
Insurance, as its partner. Any customer interested to open a deposit account under this 2-in-1 product,
after submitting all the required documents to BPI and obtaining BPI's approval, will automatically be
given insurance coverage. Thus, BPI acted as agent of FGU Insurance with respect to the insurance
feature of its own marketed product.
Under the law, an agent is one who binds himself to render some service or to do something
in representation of another. 8 In Doles v. Angeles, 9 we held that the basis of an agency is
representation. The question of whether an agency has been created is ordinarily a question which may
be established in the same way as any other fact, either by direct or circumstantial evidence. The
question is ultimately one of intention. Agency may even be implied from the words and conduct of the
parties and the circumstances of the particular case. For an agency to arise, it is not necessary that the
principal personally encounter the third person with whom the agent interacts. The law in fact
contemplates impersonal dealings where the principal need not personally know or meet the third person
with whom the agent transacts: precisely, the purpose of agency is to extend the personality of the
principal through the facility of the agent. HSAcaE
In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial
product, offering the insurance coverage for free for every deposit account opened, Rheozel directly
communicated with BPI, the agent of FGU Insurance. BPI not only facilitated the processing of the
deposit account and the collection of necessary documents but also the necessary endorsement for the
prompt approval of the insurance coverage without any other action on Rheozel's part. Rheozel did not
interact with FGU Insurance directly and every transaction was coursed through BPI.
In Eurotech Industrial Technologies, Inc. v. Cuizon, 10 we held that when an agency
relationship is established, the agent acts for the principal insofar as the world is concerned.
Consequently, the acts of the agent on behalf of the principal within the scope of the delegated
authority have the same legal effect and consequence as though the principal had been the one so
acting in the given situation.
BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1
account be reasonably carried out with full disclosure to the parties concerned, particularly the
beneficiaries. Thus, it was incumbent upon BPI to give proper notice of the existence of the insurance
coverage and the stipulation in the insurance contract for filing a claim to Laingo, as Rheozel's
beneficiary, upon the latter's death.
Articles 1884 and 1887 of the Civil Code state:
Art. 1884. The agent is bound by his acceptance to carry out the
agency and is liable for the damages which, through his non-performance, the
principal may suffer.
He must also finish the business already begun on the death of the
principal, should delay entail any danger.
2
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default, thereof, he shall do all that a good father of a family
would do, as required by the nature of the business.
The provision is clear that an agent is bound to carry out the agency. The relationship
existing between principal and agent is a fiduciary one, demanding conditions of trust and confidence. It
is the duty of the agent to act in good faith for the advancement of the interests of the principal. In
this case, BPI had the obligation to carry out the agency by informing the beneficiary, who appeared
before BPI to withdraw funds of the insured who was BPI's depositor, not only of the existence of the
insurance contract but also the accompanying terms and conditions of the insurance policy in order for
the beneficiary to be able to properly and timely claim the benefit.
Upon Rheozel's death, which was properly communicated to BPI by his mother Laingo, BPI,
in turn, should have fulfilled its duty, as agent of FGU Insurance, of advising Laingo that there was an
added benefit of insurance coverage in Rheozel's savings account. An insurance company has the duty to
communicate with the beneficiary upon receipt of notice of the death of the insured. This notification
is how a good father of a family should have acted within the scope of its business dealings with its
clients. BPI is expected not only to provide utmost customer satisfaction in terms of its own products
and services but also to give assurance that its business concerns with its partner entities are
implemented accordingly.
There is a rationale in the contract of agency, which flows from the "doctrine of
representation," that notice to the agent is notice to the principal. 11 Here, BPI had been informed of
Rheozel's death by the latter's family. Since BPI is the agent of FGU Insurance, then such notice of
death to BPI is considered as notice to FGU Insurance as well. FGU Insurance cannot now justify the
denial of a beneficiary's insurance claim for being filed out of time when notice of death had been
communicated to its agent within a few days after the death of the depositor-insured. In short, there
was timely notice of Rheozel's death given to FGU Insurance within three months from Rheozel's death
as required by the insurance company.
The records show that BPI had ample opportunity to inform Laingo, whether verbally or in
writing, regarding the existence of the insurance policy attached to the deposit account. First,
Rheozel's death was headlined in a daily major newspaper a day after his death. Second, not only was
Laingo, through her representative, able to inquire about Rheozel's deposit account with BPI two days
after his death but she was also allowed by BPI's Claveria, Davao City branch to withdraw from the
funds in order to help defray Rheozel's funeral and burial expenses. Lastly, an employee of BPI visited
Rheozel's wake and submitted documents for Laingo to sign in order to process the withdrawal request.
These circumstances show that despite being given many opportunities to communicate with Laingo
regarding the existence of the insurance contract, BPI neglected to carry out its duty.
Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the
insurance policy, Laingo had no means to ascertain that she was entitled to the insurance claim. It would
be unfair for Laingo to shoulder the burden of loss when BPI was remiss in its duty to properly notify
her that she was a beneficiary.
Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall bear the
loss and must compensate Laingo for the actual damages suffered by her family plus attorney's fees.
Likewise, FGU Insurance has the obligation to pay the insurance proceeds of Rheozel's personal
accident insurance coverage to Laingo, as Rheozel's named beneficiary.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June 2012 and
Resolution dated 11 December 2012 of the Court of Appeals in CA-G.R. CV No. 01575.
|||

||| (Cervantes v. Court of Appeals, G.R. No. 125138, [March 2, 1999], 363 PHIL 399-407)
This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals 1 in CA GR
CV No. 41407, entitled "Nicholas Y. Cervantes vs. Philippine Air Lines Inc.", affirming in toto the judgment of
the trial court dismissing petitioner's complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein
petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-Los Angeles-
Honolulu-Manila, which ticket expressly provided an expiry of date of one year from issuance, i.e., until March
27, 1990. The issuance of the said plane ticket was in compliance with a Compromise Agreement entered into
between the contending parties in two previous suits, docketed as Civil Case Nos. 3392 and 3451 before the
Regional Trial Court in Surigao City. 2
On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it.
Upon his arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket
with the PAL office, and it was confirmed for the April 2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering
that he would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight in
San Francisco instead of boarding in Los Angeles. cdrep
On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not
allowed to board. The PAL personnel concerned marked the following notation on his ticket: "TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY."
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of
carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in
Surigao City. But the said complaint was dismissed for lack of merit. 3
On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out
with a Decision, on July 25, 1995, upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming
subject ticket extended the period of validity of petitioner's ticket; (2) Whether or not the defense of lack
of authority was correctly ruled upon; and (3) Whether or not the denial of the award for damages was
proper. cdphil
To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and
findings of fact arrived at by the trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons. 4
The facts of the case as found by the lower court 5 are, as follows:
"The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not
valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the Conditions of Contract
(Exhibit 1, page 2) as follows:
"8. This ticket is good for carriage for one year from date of issue, except as otherwise provided
in this ticket, in carrier's tariffs, conditions of carriage, or related regulations. The fare for carriage
hereunder is subject to change prior to commencement of carriage. Carrier may refuse transportation if the
applicable fare has not been paid." 6
The question on the validity of subject ticket can be resolved in light of the ruling in the case
of Lufthansa vs. Court of Appeals 7 . In the said case, the Tolentinos were issued first class tickets on April
3, 1982, which will be valid until April 10, 1983. On June 10, 1982, they changed their accommodations to
economy class but the replacement tickets still contained the same restriction. On May 7, 1983, Tolentino
requested that subject tickets be extended, which request was refused by the petitioner on the ground that
3
the said tickets had already expired. The non-extension of their tickets prompted the Tolentinos to bring a
complaint for breach of contract of carriage against the petitioner. In ruling against the award of damages,
the Court held that the "ticket constitute the contract between the parties. It is axiomatic that when the
terms are clear and leave no doubt as to the intention of the contracting parties, contracts are to be
interpreted according to their literal meaning." prcd
In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by
the PAL's agents in Los Angeles and San Francisco changed the compromise agreement between the parties.
As aptly ruled by the appellate court:
". . . on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he
returned to the Philippines.' (pp. 320-321, Original Records)" 8
"The question is: 'Did these two (2) employees, in effect, extend the validity or lifetime of the
ticket in question? The answer is in the negative. Both had no authority to do so. Appellant knew this from the
very start when he called up the Legal Department of appellee in the Philippines before he left for the United
States of America. He had first hand knowledge that the ticket in question would expire on March 27, 1990
and that to secure an extension, he would have to file a written request for extension at the PAL's office in
the Philippines (TSN, Testimony of Nicholas Cervantes, August 2, 1991, pp. 20-23). Despite this knowledge,
appellant persisted to use the ticket in question." 9
From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was
a need to send a letter to the legal counsel of PAL for the extension of the period of validity of his ticket.
Since the PAL agents are not privy to the said Agreement and petitioner knew that a written
request to the legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage.
The said agents, according to the Court of Appeals, 10 acted without authority when they confirmed the
flights of the petitioner.
Under Article 1898 11 of the New Civil Code, the acts of an agent beyond the scope of his
authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore,
when the third person (herein petitioner) knows that the agent was acting beyond his power or authority, the
principal cannot be held liable for the acts of the agent. If the said third person is aware of such limits of
authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook
to secure the principal's ratification. 12
Anent the second issue, petitioner's stance that the defense of lack of authority on the part of
the PAL employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is unsustainable.
Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss is a waiver
thereof. llcd
Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in
the answer nor in the motion to dismiss. But records show that the question of whether there was authority
on the part of the PAL employees was acted upon by the trial court when Nicholas Cervantes was presented
as a witness and the depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were
presented.
The admission by Cervantes that he was told by PAL's legal counsel that he had to submit a letter
requesting for an extension of the validity of subject tickets was tantamount to knowledge on his part that
the PAL employees had no authority to extend the validity of subject tickets and only PAL's legal counsel was
authorized to do so.
However, notwithstanding PAL's failure to raise the defense of lack of authority of the said PAL
agents in its answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon,
as shown by the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of
Civil Procedure provides:

"Sec. 5. Amendment to conform or authorize presentation of evidence. — When issues not raised
by the pleadings are tried with express or implied consent of the parties, as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence
and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure
to amend does not affect the result of the trial of these issues. . . . " LLphil
Thus, "when evidence is presented by one party, with the express or implied consent of the
adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards the said
issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to the
evidence thus presented when the adverse party fails to object thereto." 13
Re: the third issue, an award of damages is improper because petitioner failed to show that PAL
acted in bad faith in refusing to allow him to board its plane in San Francisco.
In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. 14 Petitioner
knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a
back-up ticket to ensure his departure. Should there be a finding of bad faith, we are of the opinion that it
should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury resulted
on the part of petitioner because he had a back-up ticket should PAL refuse to accommodate him with the use
of subject ticket.
Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way
of example or correction for the public good, and the existence of bad faith is established. The wrongful act
must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in
a wanton, fraudulent, reckless or malevolent manner. 15 Here, there is no showing that PAL acted in such a
manner. An award for attorney's fees is also improper. LLjur
WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25,
1995 AFFIRMED in toto. No pronouncement as to costs.
BA FINANCE CORPORATION, petitioner, vs. HON. COURT OF APPEALS, Hon. Presiding
Judge of Regional Trial Court of Manila, Branch 43, MANUEL CUADY and LILIA
CUADY, respondents.|||
This is a petition for review on certiorari which seeks to reverse and set aside (1) the decision of the Court
of Appeals dated July 21, 1987 in CA-G.R. No. CV-06522 entitled "B.A. Finance Corporation, Plaintiff-
Appellant, vs. Manuel Cuady and Lilia Cuady, Defendants-Appellees," affirming the decision of the Regional
Trial Court of Manila, Branch 43, which dismissed the complaint in Civil Case No. 82-10478, and (2) the
resolution dated February 9, 1988 denying petitioner's motion for reconsideration. Cdpr
As gathered from the records, the facts are as follows:
On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained from Supercars, Inc. a credit of
P39,574.80, which amount covered the cost of one unit of Ford Escort 1300, four-door sedan. Said obligation
was evidenced by a promissory note executed by private respondents in favor of Supercars, Inc., obligating
themselves to pay the latter or order the sum of P39,574.80, inclusive of interest at 14% per annum, payable
on monthly installments of P1,098.00 starting August 16, 1977, and on the 16th day of the next 35 months
from September 16, 1977 until full payment thereof. There was also stipulated a penalty of P10.00 for every
month of late installment payment. To secure the faithful and prompt compliance of the obligation under the
said promissory note, the Cuady spouses constituted a chattel mortgage on the aforementioned motor vehicle.
On July 25, 1977, Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to B.A.
Finance Corporation. The Cuadys paid a total of P36,730.15 to the B.A. Finance Corporation, thus leaving an
unpaid balance of P2,344.65 as of July 18, 1980. In addition thereto, the Cuadys' owe B.A. Finance
Corporation P460.00 representing penalties or surcharges for tardy monthly installments (Rollo, pp. 27-29).
4
Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien, obtained the renewal of
the insurance coverage over the aforementioned motor vehicle for the year 1980 with Zenith Insurance
Corporation, when the Cuadys failed to renew said insurance coverage themselves. Under the terms and
conditions of the said insurance coverage, any loss under the policy shall be payable to the B.A. Finance
Corporation (Memorandum For Private Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor vehicle figured in an accident and was badly damaged. The
unfortunate happening was reported to the B.A. Finance Corporation and to the insurer, Zenith Insurance
Corporation. The Cuadys asked the B.A. Finance Corporation to consider the same as a total loss, and to claim
from the insurer the face value of the car insurance policy and apply the same to the payment of their
remaining account and give them the surplus thereof, if any. But instead of heeding the request of the
Cuadys, B.A. Finance Corporation prevailed upon the former to just have the car repaired. Not long
thereafter, however, the car bogged down. The Cuadys wrote B.A. Finance Corporation requesting the latter
to pursue their prior instruction of enforcing the total loss provision in the insurance coverage. When B.A.
Finance Corporation did not respond favorably to their request, the Cuadys stopped paying their monthly
installments on the promissory note (Ibid., pp. 45).
On June 29, 1982, in view of the failure of the Cuadys to pay the remaining installments on the note, B.A.
Finance Corporation sued them in the Regional Trial Court of Manila, Branch 43, for the recovery of the said
remaining installments (Memorandum for the Petitioner, p. 1).
After the termination of the pre-trial conference, the case was set for trial on the merits on April 25, 1984.
B.A. Finance Corporation's evidence was presented on even date and the presentation of Cuady's evidence was
set on August 15, 1984. On August 7, 1984, Atty. Noel Ebarle, counsel for the petitioner, filed a motion for
postponement, the reason being that the 'handling' counsel, Atty. Ferdinand Macibay was temporarily
assigned in Cebu City and would not be back until after August 15, 1984. Said motion was, however, denied by
the trial court on August 10, 1984. On August 15, 1984, the date of hearing, the trial court allowed private
respondents to adduce evidence ex parte in the form of an affidavit to be sworn to before any authorized
officer. B.A. Finance Corporation filed a motion for reconsideration of the order of the trial court denying its
motion for postponement. Said motion was granted in an order dated September 26, 1984, thus:
"The Court grants plaintiff's motion for reconsideration dated August 22, 1984, in
the sense that plaintiff is allowed to adduce evidence in the form of counter-
affidavits of its witnesses, to be sworn to before any person authorized to
administer oaths, within ten days from notice hereof." (Ibid., pp. 1-2). LibLex
B.A. Finance Corporation, however, never complied with the above-mentioned order, paving the way for the
trial court to render its decision on January 18, 1985, the dispositive portion of which reads as follows:
"IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.
SO ORDERED." (Rollo, p. 143).
On appeal, the respondent appellate court * affirmed the decision of the trial court. The decretal portion of
the said decision reads as follows:
"WHEREFORE, after consultation among the undersigned members of this Division,
in compliance with the provision of Section 13, Article VIII of the Constitution;
and finding no reversible error in the judgment appealed from, the same is hereby
AFFIRMED, without any pronouncement as to costs." (Ibid. p. 33)
B.A. Finance Corporation moved for the reconsideration of the above decision, but the motion was denied by
the respondent appellate court in a resolution dated February 9, 1988 (Ibid., p. 38).
Hence, this present recourse.

On July 11, 1990, this Court gave due course to the petition and required the parties to submit their
respective memoranda. The parties having complied with the submission of their memoranda, the case was
submitted for decision.
The real issue to be resolved in the case at bar is whether or not B.A. Finance Corporation has waived its
right to collect the unpaid balance of the Cuady spouses on the promissory note for failure of the former to
enforce the total loss provision in the insurance coverage of the motor vehicle subject of the chattel
mortgage.
It is the contention of B.A. Finance Corporation that even if it failed to enforce the total loss provision in the
insurance policy of the motor vehicle subject of the chattel mortgage, said failure does not operate to
extinguish the unpaid balance on the promissory note, considering that the circumstances obtaining in the
case at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment of
obligations (Memorandum for the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to its failure to enforce the total loss provision in the
insurance policy, B.A. Finance Corporation lost not only its opportunity to collect the insurance proceeds on
the mortgaged motor vehicle in its capacity as the assignee of the said insurance proceeds pursuant to the
memorandum in the insurance policy which states that the "LOSS: IF ANY, under this policy shall be payable
to BA FINANCE CORP., as their respective rights and interest may appear." (Rollo, p. 91) but also the
remaining balance on the promissory note (Memorandum for the Respondents, pp. 16-17).
The petition is devoid of merit.
B.A. Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. when the
latter assigned the promissory note, together with the chattel mortgage constituted on the motor vehicle in
question, in favor of the former. Consequently, B.A. Finance Corporation is bound by the terms and conditions
of the chattel mortgage executed between the Cuadys and Supercars, Inc. Under the deed of chattel
mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full power and authority to file,
follow-up, prosecute, compromise or settle insurance claims; to sign, execute and deliver the corresponding
papers, receipts and documents to the Insurance Company as may be necessary to prove the claim, and to
collect from the latter the proceeds of insurance to the extent of its interests, in the event that the
mortgaged car suffers any loss or damage (Rollo, p. 89). In granting B.A. Finance Corporation the
aforementioned powers and prerogatives, the Cuady spouses created in the former's favor an agency. Thus,
under Article 1884 of the Civil Code of the Philippines, B.A. Finance Corporation is bound by its acceptance to
carry out the agency, and is liable for damages which, through its non-performance, the Cuadys, the principal
in the case at bar, may suffer. LLjur
Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle in
question, not to mention the amount equivalent to the unpaid balance on the promissory note, when B.A.
Finance Corporation steadfastly refused and refrained from proceeding against the insurer for the payment
of a clearly valid insurance claim, and continued to ignore the yearning of the Cuadys to enforce the total loss
provision in the insurance policy, despite the undeniable fact that Rea Auto Center, the auto repair shop
chosen by the insurer itself to repair the aforementioned motor vehicle, misrepaired and rendered it
completely useless and unserviceable (Ibid., p. 31).
5
the motor vehicle repaired, to which private respondents reluctantly acceded. As heretofore mentioned, the
repair shop chosen was not able to restore the aforementioned motor vehicle to its condition prior to the
accident. Thus, the said vehicle bogged down shortly thereafter. The subsequent request of the Cuadys for
the B.A. Finance Corporation to file a claim for total loss with the insurer fell on deaf ears, prompting the
Cuadys to stop paying the remaining balance on the promissory note (Memorandum for the Respondents, pp. 4-
5).
Moreover, B.A. Finance Corporation would have this Court review and reverse the factual findings of the
respondent appellate court. This, of course, the Court cannot and will not generally do. It is axiomatic that
the judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the
Supreme Court. The doctrine is, to be sure, subject to certain specific exceptions none of which, however,
obtains in the instant case (Luzon Brokerage Corporation v. Court of Appeals, 176 SCRA 483 [1989]).
Finally, B.A. Finance Corporation contends that respondent trial court committed grave abuses of discretion in
two instances: First, when it denied the petitioner's motion for reconsideration praying that the counsel be
allowed to cross-examine the affiant, and; second, when it seriously considered the evidence adduced ex-
parteby the Cuadys, and heavily relied thereon, when in truth and in fact, the same was not formally admitted
as part of the evidence for the private respondents (Memorandum for the Petitioner, p. 10). This Court does
not have to unduly dwell on this issue which was only raised by B.A. Finance Corporation for the first time on
appeal. A review of the records of the case shows that B.A. Finance Corporation failed to directly raise or
ventilate in the trial court nor in the respondent appellate court the validity of the evidence adduced ex-
parte by private respondents. It was only when the petitioner filed the instant petition with this Court that it
later raised the aforementioned issue. As ruled by this Court in a long line of cases, issues not raised and/or
ventilated in the trial court, let alone in the Court of Appeals, cannot be raised for the first time on appeal as
it would be offensive to the basic rules of fair play, justice and due process (Galicia v. Polo, 179 SCRA 375
[1989]; Ramos v. Intermediate Appellate Court, 175 SCRA 70 [1989]; Dulos Realty & Development Corporation
v. Court of Appeals, 157 SCRA 425 [1988]; Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987];
De la Santa v. Court of Appeals, et al., 140 SCRA 44 [1985]).
PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed from is
AFFIRMED. LLphil
SO ORDERED.
Br
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE
AIRLINES, respondents
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of
respondent Court of Appeals 1 promulgated on September 7, 1995, which affirmed the award of damages and
attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch 7, in favor of private
respondent GOP Mahtani as well as the dismissal of its third-party complaint against Philippine Airlines
(PAL). 2

Accordingly, there is no reason to depart from the ruling set down by the respondent appellate court. In this The material and relevant facts are as follows: prLL
connection, the Court of Appeals said:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his
". . . Under the established facts and circumstances, it is unjust, unfair inequitable visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn,
to require the chattel mortgagors, appellees herein, to still pay the unpaid balance purchased a ticket from BA where the following itinerary was indicated: 3
of their mortgage debt on the said car, the non-payment of which account was due
CARRIER FLIGHT DATE TIME STATUS
to the stubborn refusal and failure of appellant mortgagee to avail of the insurance
money which became due and demandable after the insured motor vehicle was
badly damaged in a vehicular accident covered by the insurance risk. . . ." (Ibid.)
"MANILA MNL PR 310Y 16 APR. 1730 OK
On the allegation that the respondent court's findings that B.A. Finance Corporation failed to claim for the
HONGKONG HKG BA 20M 16 APR. 2100 OK
damage to the car was not supported by evidence, the records show that instead of acting on the instruction
of the Cuadys to enforce the total loss provision in the insurance policy, the petitioner insisted on just having

BOMBAY BOM BA 19M 23 APR. 0840 OK
HONGKONG HKG PR 311Y
MANILA MNL"
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong
via PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage
containing his clothings and personal effects, confident that upon reaching Hongkong, the same would be
transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and
that upon inquiry from the BA representatives, he was told that the same might have been diverted to
London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim by
accomplishing the "Property Irregularity Report." 4
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and
attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim 6 to the complaint raising, as
special and affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on
November 9, 1990, BA filed a third-party complaint 7 against PAL alleging that the reason for the non-
transfer of the luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any time for the
proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any
liability, arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in Hongkong.
Furthermore, the transfer of the luggage to Hongkong authorities should be considered as transfer to BA. 8
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in
favor of Mahtani, 9 the dispositive portion of which reads as follows:
"WHEREFORE, premises considered, judgment is rendered for the
plaintiff and against the defendant for which defendant is ordered to pay plaintiff
the sum of Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit
cases; Four Hundred U.S. ($400.00) Dollars representing the value of the contents
of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual
damages and twenty percent (20%) of the total amount imposed against the
defendant for attorney's fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine
Airlines is DISMISSED for lack of cause of action.
SO ORDERED."
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's
findings. Thus:
"WHEREFORE, in view of all the foregoing considerations, finding the
Decision appealed from to be in accordance with law and evidence, the same is
hereby AFFIRMED in toto, with costs against defendant-appellant.
SO ORDERED." 10
BA is now before us seeking the reversal of the Court of Appeals' decision.
In essence, BA assails the award of compensatory damages and attorney's fees, as well as the
dismissal of its third-party complaint against PAL. 11
6
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the
separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis since Mahtani in
his complaint 12 stated the following as the value of his personal belongings:
"8. On said travel, plaintiff took with him the following items and its
corresponding value, to wit:
1. personal belonging P10,000.00
2. gifts for his parents and relatives $5,000.00"
Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided
for in the ticket, which reads: 13
"Liability for loss, delay, or damage to baggage is limited unless a
higher value is declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of
international journeys) the liability limit is approximately U.S. $9.07 per pound
(U.S. $20.00) per kilo for checked baggage and U.S. $400 per passenger for
unchecked baggage."
Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's
contract of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its
destination and a contract to transport passengers to their destination. A business intended to serve the
travelling public primarily, it is imbued with public interest, hence, the law governing common carriers imposes
an exacting standard. 14 Neglect or malfeasance by the carrier's employees could predictably furnish bases
for an action for damages. 15
In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.
Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of
cases 16 we have assessed the airlines' culpability in the form of damages for breach of contract involving
misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital that the
claimant satisfactorily prove during the trial the existence of the factual basis of the damages and its causal
connection to defendant's acts. 17
In this regard, the trial court granted the following award as compensatory damages:
"Since plaintiff did not declare the value of the contents in his luggage
and even failed to show receipts of the alleged gifts for the members of his family
in Bombay, the most that can be expected for compensation of his lost luggage (2
suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or a combined value of Four
Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus
Seven Thousand (P7,000.00) Pesos representing the purchase price of the two (2)
suit cases."
However, as earlier stated, it is the position of BA that there should have been no separate award
for the luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the
luggage, 18 and therefore, its liability is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is
needed to recover a greater amount. Article 22(1) of the Warsaw Convention, 19 provides as follows:
"xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of
the carrier shall be limited to a sum of 250 francs per kilogram, unless the

consignor has made, at the time the package was handed over to the carrier, a
special declaration of the value at delivery and has paid a supplementary sum if the
case so requires. In that case the carrier will be liable to pay a sum not exceeding
the declared sum, unless he proves that the sum is greater than the actual value to
the consignor at delivery."
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an
amount in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff
being binding on the passenger regardless of the passenger's lack of knowledge thereof or assent
thereto. 20 This doctrine is recognized in this jurisdiction. 21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion
contracts where the facts and circumstances justify that they should be disregarded. 22
In addition, we have held that benefits of limited liability are subject to waiver such as when the
air carrier failed to raise timely objections during the trial when questions and answers regarding the actual
claims and damages sustained by the passenger were asked. 23
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of
limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the
misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript of
stenographic notes of Mahtani's direct testimony: 24
Q: How much are you going to ask from this court?
A: P100,000.00.
Q: What else?
A: Exemplary damages.
Q: How much?
A: P100,000.00.
Q: What else?
A: The things I lost, $5,000.00 for the gifts I lost and my personal belongings,
P10,000.00.
Q: What about the filing of this case?
A: The court expenses and attorney's fees is 30%."
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel
of the adverse party to be inadmissible for any reason, the latter has the right to object. However, such
right is a mere privilege which can be waived. Necessarily, the objection must be made at the earliest
opportunity, lest silence when there is opportunity to speak may operate as a waiver of objections. 25 BA has
precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
conducted his own cross-examination as well. 26 In the early case of Abrenica v. Gonda, 27 we ruled that:
". . . (I)t has been repeatedly laid down as a rule of evidence that a
protest or objection against the admission of any evidence must be made at the
proper time, and that if not so made it will be understood to have been waived. The
proper time to make a protest or objection is when, from the question addressed
to the witness, or from the answer thereto, or from the presentation of proof, the
inadmissibility of evidence is, or may be inferred."
7
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are
entitled to great respect. 28 Since the actual value of the luggage involved appreciation of evidence, a task
within the competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of
fact, thus, a finding not reviewable by this Court. 29
As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals
justified its ruling in this wise, and we quote: 30
"Lastly, we sustain the trial court's ruling dismissing appellant's third-
party complaint against PAL. prcd
The contract of air transportation in this case pursuant to the ticket
issued by appellant to plaintiff-appellee was exclusively between the plaintiff
Mahtani and defendant-appellant BA. When plaintiff boarded the PAL plane from
Manila to Hongkong, PAL was merely acting as a subcontractor or agent of BA. This
is shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it
is specifically provided on the "Conditions of Contract," paragraph 4 thereof that:
4. . . . carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive
carriers is regarded as a single operation and that the carrier issuing the
passenger's ticket is considered the principal party and the other carrier merely
subcontractors or agent, is a settled issue."
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31 we expounded on the
nature of a third-party complaint thus:
"The third-party complaint is, therefore, a procedural device whereby
a 'third party' who is neither a party nor privy to the act or deed complained of by
the plaintiff, may be brought into the case with leave of court, by the defendant,
who acts as third-party plaintiff to enforce against such third-party defendant a
right for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim. The third-party complaint is actually independent of and separate
and distinct from the plaintiff's complaint. Were it not for this provision of the
Rules of Court, it would have to be filed independently and separately from the
original complaint by the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiff's claim against a third-party in the
original and principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular set of facts."
Undeniably, for the loss of his luggage; Mahtani is entitled to damages from BA, in view of their
contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the latter
naturally denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was
exclusively between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former's
journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of Contracts"
of the ticket 32 issued by BA to Mahtani confirms that the contract was one of continuous air transportation
from Manila to Bombay.
"4. . . . carriage to be performed hereunder by several successive
carriers is regarded as a single operation."

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from
Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an
agent is also responsible for any negligence in the performance of its function 33 and is liable for damages
which the principal may suffer by reason of its negligent act. 34 Hence, the Court of Appeals erred when it
opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air
Transport Association (IATA), wherein member airlines are regarded as agents of each other in the issuance
of the tickets and other matters pertaining to their relationship. 35 Therefore, in the instant case, the
contractual relationship between BA and PAL is one of agency, the former being the principal, since it was the
one which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German
Airlines v. Court of Appeals. 36 In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering
five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry
Antiporda to a specific destination "bumped" him off.
An action for damages was filed against Lufthansa which, however, denied any liability, contending
that its responsibility towards its passenger is limited to the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of
carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya:
In rejecting Lufthansa's argument, we ruled:
"In the very nature of their contract, Lufthansa is clearly the principal
in the contract of carriage with Antiporda and remains to be so, regardless of
those instances when actual carriage was to be performed by various carriers. The
issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire
five-leg trip aboard successive carriers concretely attest to this."
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA
alone, and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is
relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of
Appeals, 37 while not exactly in point, the case, however, illustrates the principle which governs this
particular situation. In that case, we recognized that a carrier (PAL), acting as an agent of another carrier, is
also liable for its own negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for
the purpose of ultimately determining who was primarily at fault as between them, is without legal basis.
After all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail
receiving the same or similar evidence for both cases and enforcing separate judgments therefor. It must be
borne in mind that the purpose of a third-party complaint is precisely to avoid delay and circuity of action and
to enable the controversy to be disposed of in one suit. 38 It is but logical, fair and equitable to allow BA to
sue PAL for indemnification, if it is proven that the latter's negligence was the proximate cause of Mahtani's
unfortunate experience, instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No.
43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British
Airways dated November 9, 1990 against Philippine Airlines. No costs.
||| Cosmic Lumber vs CA
COSMIC LUMBER CORPORATION, through its General Manager executed on 28 January 1985 a
Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact —
. . . to initiate, institute and file any court action for the ejectment of
third persons and/or squatters of the entire lot 9127 and 443 and covered by TCT
8
Nos. 37648 and 37649, for the said squatters to remove their houses and vacate
the premises in order that the corporation may take material possession of the
entire lot, and for this purpose, to appear at the pre-trial conference and enter
into any stipulation of facts and/or compromise agreement so far as it shall
protect the rights and interest of the corporation in the aforementioned lots. 1
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action
for the ejectment of private respondent Isidro Perez and recover the possession of a portion of Lot No. 443
before the Regional Trial Court of Dagupan, docketed as Civil Case No. D-7750. 2
On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with respondent
Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by
Engineer Rodolfo dela Cruz the area at present occupied by defendant wherein his
house is located is 333 square meters on the easternmost part of lot 443 and
which portion has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through
herein attorney-in-fact the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the
defendant by virtue of this compromise agreement over said portion of 333 square
m. of lot 443 which portion will be located on the easternmost part as indicated in
the sketch as annex A;
4. Whatever expenses of subdivision, registration, and other incidental
expenses shall be shouldered by the defendant. 3
On 27 November 1985 the "Compromise Agreement" was approved by the trial court and
judgment was rendered in accordance therewith. 4
Although the decision became final and executory it was not executed within the 5-year period
from date of its finality allegedly due to the failure of petitioner to produce the owner's duplicate copy of
Title No. 37649 needed to segregate from Lot No. 443 the portion sold by the attorney-in-fact; Paz G.
Villamil-Estrada, to private respondent under the compromise agreement. Thus on 25 January 1993
respondent filed a complaint to revive the judgment, docketed as Civil Case No. D-10459. 5
Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival of
judgment was served upon it that it came to know of the compromise agreement entered into between Paz G.
Villamil-Estrada and respondent Isidro Perez upon which the trial court based its decision of 26 July 1993 in
Civil Case No. D-7750. Forthwith, upon learning of the fraudulent transaction, petitioner sought annulment of
the decision of the trial court before respondent Court of Appeals on the ground that the compromise
agreement was void because: (a) the attorney-in-fact did not have the authority to dispose of, sell, encumber
or divest the plaintiff of its ownership over its real property or any portion thereof; (b) the authority of the
attorney-in-fact was confined to the institution and filing of an ejectment case against third
persons/squatters on the property of the plaintiff, and to cause their eviction therefrom; (c) while the
special power of attorney made mention of an authority to enter into a compromise agreement, such authority
was in connection with, and limited to, the eviction of third persons/squatters thereat, in order that "the
corporation may take material possession of the entire lot;" (d) the amount of P26,640.00 alluded to as
alleged consideration of said agreement was never received by the plaintiff; (e) the private defendant acted
in bad faith in the execution of said agreement knowing fully well the want of authority of the attorney-in-
fact to sell, encumber or dispose of the real property of plaintiff; and, (f) the disposal of a corporate
property indispensably requires a Board Resolution of its Directors, a fact which is wanting in said Civil Case
No. D-7750, and the General Manager is not the proper officer to encumber a corporate property. 6
On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that not
one of the grounds for annulment, namely, lack of jurisdiction, fraud or illegality was shown to exist. 7 It also
denied the motion for reconsideration filed by petitioner, discoursing that the alleged nullity of the

compromise judgment on the ground that petitioner's attorney-in-fact Villamil-Estrada was not authorized to
sell the subject property may be raised as a defense in the execution of the compromise judgment as it does
not bind petitioner, but not as a ground for annulment of judgment because it does not affect the jurisdiction
of the trial court over the action nor does it amount to extrinsic fraud. 8
Petitioner challenges this verdict. It argues that the decision of the trial court is void because
the compromise agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada did not possess
the authority to sell or was she armed with a Board Resolution authorizing the sale of its property. She was
merely empowered to enter into a compromise agreement in the recovery suit she was authorized to file
against persons squatting on Lot No. 443, such authority being expressly confined to the "ejectment of third
persons or squatters of . . . lot . . . (No.) 443 . . . for the said squatters to remove their houses and vacate the
premises in order that the corporation may take material possession of the entire lot . . ."
We agree with petitioner. The authority granted Villamil-Estrada under the special power of
attorney was explicit and exclusionary: for her to institute any action in court to eject all persons found on
Lots Nos. 9127 and 443 so that petitioner could take material possession thereof, and for this purpose to
appear at the pre-trial and enter into any stipulation of facts and/or compromise agreement but only insofar
as this was protective of the rights and interests of petitioner in the property. Nowhere in this authorization
was Villamil-Estrada granted expressly or impliedly any power to sell the subject property nor a portion
thereof. Neither can a conferment of the power to sell be validly inferred from the specific authority "to
enter into a compromise agreement" because of the explicit limitation fixed by the grantor that the
compromise entered into shall only be "so far as it shall protect the rights and interest of the corporation in
the aforementioned lots." In the context of the specific investiture of powers to Villamil-Estrada, alienation
by sale of an immovable certainly cannot be deemed protective of the right of petitioner to physically possess
the same, more so when the land was being sold for a price of P80.00 per square meter, very much less than
its assessed value of P250.00 per square meter, and considering further that petitioner never received the
proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void. 9 Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and must give him specific authority, either
to conduct the general business of the principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. 10 A special power of attorney is necessary to enter into
any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a
valuable consideration. 11 The express mandate required by law to enable an appointee of an agency (couched)
in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. 12 For the principal to confer the right upon an agent to sell real estate, a
power of attorney must so express the powers of the agent in clear and unmistakable language. When there is
any reasonable doubt that the language so used conveys such power, no such construction shall be given the
document. 13
It is therefore clear that by selling to respondent Perez a portion of petitioner's land through a
compromise agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso jure is
consequently void. So is the compromise agreement. This being the case, the judgment based thereon is
necessarily void. Antipodal to the opinion expressed by respondent court in resolving petitioner's motion for
reconsideration, the nullity of the settlement between Villamil-Estrada and Perez impaired the jurisdiction of
the trial court to render its decision based on the compromise agreement. In Alviar v. Court of First Instance
of La Union, 14 the Court held —
. . . this court does not hesitate to hold that the judgment in question
is null and void ab initio. It is not binding upon and cannot be executed against the
petitioners. It is evident that the compromise upon which the judgment was based
was not subscribed by them . . . . Neither could Attorney Ortega bind them validly
in the compromise because he had no special authority . . . .
As the judgment in question is null and void ab initio, it is evident that
the court acquired no jurisdiction to render it, much less to order the execution
thereof . . .
9
. . . A judgment, which is null and void ab initio, rendered by a court
without jurisdiction to do so, is without legal efficacy and may properly be
impugned in any proceeding by the party against whom it is sought to be enforced .
..
This ruling was adopted in Jacinto v. Montesa, 15 by Mr. Justice J. B. L. Reyes, a much-respected
authority on civil law, where the Court declared that a judgment based on a compromise entered into by an
attorney without specific authority from the client is void. Such judgment may be impugned and its execution
restrained in any proceeding by the party against whom it is sought to be enforced. The Court also observed
that a defendant against whom a judgment based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the compromise set aside and then appeal
from the order of denial since he was not a party to the compromise. Thus it would appear that the obiter of
the appellate court that the alleged nullity of the compromise agreement should be raised as a defense
against its enforcement is not legally feasible. Petitioner could not be in a position to question the compromise
agreement in the action to revive the compromise judgment since it was never privy to such agreement.
Villamil-Estrada who signed the compromise agreement may have been the attorney-in-fact but she could not
legally bind petitioner thereto as she was not entrusted with a special authority to sell the land, as required in
Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals
to annul and set aside judgments of Regional Trial Courts. 16"Thus, the Intermediate Appellate Court (now
Court of Appeals) shall exercise . . . (2) Exclusive original jurisdiction over action for annulment of judgments
of the Regional Trial Courts . . ." However, certain requisites must first be established before a final and
executory judgment can be the subject of an action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been obtained by fraud. 17
Conformably with law and the above-cited authorities, the petition to annul the decision of the
trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it did from a void
compromise agreement, the trial court had no jurisdiction to render a judgment based thereon. 18
It would also appear, and quite contrary to the finding of the appellate court, that the highly
reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or
collateral fraud by reason of which the judgment rendered thereon should have been struck down. Not all the
legal semantics in the world can becloud the unassailable fact that petitioner was deceived and betrayed by
its attorney-in-fact. Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of petitioner's property was sold to the
deforciant, literally for a song. Thus completely kept unaware of its agent's artifice, petitioner was not
accorded even a fighting chance to repudiate the settlement so much so that the judgment based thereon
became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits.
Fraud may assume different shapes and be committed in as many different ways and here lies the danger of
attempting to define fraud. For man in his ingenuity and fertile imagination will always contrive new schemes
to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one the
effect of which prevents a party from hearing a trial, or real contest, or from presenting all of his case to
the court, or where it operates upon matters, not pertaining to the judgment itself, but to the manner in
which it was procured so that there is not a fair submission of the controversy. In other words, extrinsic
fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the
trial of the case, whereby the defeated party has been prevented from exhibiting fully his side of the case
by fraud or deception practiced on him by his opponent. 19 Fraud is extrinsic where the unsuccessful party
has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent, as
by keeping him away from court, a false promise of a compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently
or without authority connives at his defeat; these and similar cases which show that there has never been a
real contest in the trial or hearing of the case are reasons for which a new suit may be sustained to set aside
and annul the former judgment and open the case for a new and fair hearing. 20

It may be argued that petitioner knew of the compromise agreement since the principal is
chargeable with and bound by the knowledge of or notice to his agent received while the agent was acting as
such. But the general rule is intended to protect those who exercise good faith and not as a shield for unfair
dealing. Hence there is a well-established exception to the general rule as where the conduct and dealings of
the agent are such as to raise a clear presumption that he will not communicate to the principal the facts in
controversy. 21 The logical reason for this exception is that where the agent is committing a fraud, it would
be contrary to common sense to presume or to except that he would communicate the facts to the principal.
Verily, when an agent is engaged in the perpetration of a fraud upon his principal for his own exclusive
benefit, he is not really acting for the principal but is really acting for himself, entirely outside the scope of
his agency. 22 Indeed, the basic tenets of agency rest on the highest considerations of justice, equity and
fair play, and an agent will not be permitted to pervert his authority to his own personal advantage, and his
act in secret hostility to the interests of his principal transcends the power afforded him. 23
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of
Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as the decision of the Regional Trial
Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE.
The"Compromise Agreement" entered into between Attorney-in-fact Paz G. Villamil-Estrada and respondent
Isidro Perez is declared VOID. This is without prejudice to the right of petitioner to pursue its complaint
against private respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion
of Lot No. 443.
SO ORDERED.
||| VILLAUZ VS LANDBANK
The Civil Code sets the default rule that an agent may appoint a substitute if the principal
has not prohibited him from doing so. The issue in this petition for review on certiorari, 1 which seeks
to set aside the Decision 2 dated September 22, 2009 and Resolution 3 dated May 26, 2010 of the
Court of Appeals (CA) in CA-G.R. CV No. 01307, is whether the mortgage contract executed by the
substitute is valid and binding upon the principal.
I
Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz (May),
requested the latter to provide her with collateral for a loan. At the time, Agbisit was the chairperson
of Milflores Cooperative and she needed P600,000 to P650,000 for the expansion of her backyard cut
flowers business. 4 May convinced her husband, Johnny Villaluz (collectively, the Spouses Villaluz), to
allow Agbisit to use their land, located in Calinan, Davao City and covered by Transfer Certificate of
Title (TCT) No. T-202276, as collateral. 5 On March 25, 1996, the Spouses Villaluz executed a Special
Power of Attorney 6 in favor of Agbisit authorizing her to, among others, "negotiate for the sale,
mortgage, or other forms of disposition a parcel of land covered by Transfer Certificate of Title No. T-
202276" and "sign in our behalf all documents relating to the sale, loan or mortgage, or other
disposition of the aforementioned property." 7 The one-page power of attorney neither specified the
conditions under which the special powers may be exercised nor stated the amounts for which the
subject land may be sold or mortgaged.
On June 19, 1996, Agbisit executed her own Special Power of Attorney, 8 appointing
Milflores Cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in
favor of Land Bank of the Philippines (Land Bank). On June 21, 1996, Milflores Cooperative, in a
representative capacity, executed a Real Estate Mortgage 9 in favor of Land Bank in consideration of
the P3,000,000 loan to be extended by the latter. On June 24, 1996, Milflores Cooperative also
executed a Deed of Assignment of the Produce/Inventory 10 as additional collateral for the loan. Land
Bank partially released one-third of the total loan amount, or P995,500, to Milflores Cooperative on
June 25, 1996. On the same day, Agbisit borrowed the amount of P604,750 from Milflores Cooperative.
Land Bank released the remaining loan amount of P2,000,500 to Milflores Cooperative on October 4,
1996. 11
Unfortunately, Milflores Cooperative was unable to pay its obligations to Land Bank. Thus,
Land Bank filed a petition for extra-judicial foreclosure sale with the Office of the Clerk of Court of
10
Davao City. Sometime in August, 2003, the Spouses Villaluz learned that an auction sale covering their
land had been set for October 2, 2003. Land Bank won the auction sale as the sole bidder. 12
The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of Davao City
seeking the annulment of the foreclosure sale. The sole question presented before the RTC was
whether Agbisit could have validly delegated her authority as attorney-in-fact to Milflores Cooperative.
Citing Article 1892 of the Civil Code, the RTC held that the delegation was valid since the Special Power
of Attorney executed by the Spouses Villaluz had no specific prohibition against Agbisit appointing a
substitute. Accordingly, the RTC dismissed the complaint. 13
On appeal, the CA affirmed the RTC Decision. In its Decision 14 dated September 22,
2009, the CA similarly found Article 1892 to be squarely applicable. According to the CA, the rule is
that an agent is allowed to appoint a sub-agent in the absence of an express agreement to the contrary
and that "a scrutiny of the Special Power of Attorney dated March 25, 1996 executed by appellants in
favor of [Agbisit] contained no prohibition for the latter to appoint a sub-agent. 15Therefore, Agbisit
was allowed to appoint Milflores Cooperative as her sub-agent.
After the CA denied their motion for reconsideration, the Spouses Villaluz filed this
petition for review. They argue that the Real Estate Mortgage was void because there was no loan yet
when the mortgage contract was executed and that the Special Power of Attorney was extinguished
when Milflores Cooperative assigned its produce and inventory to Land Bank as additional
collateral. 16 In response, Land Bank maintains that the CA and RTC did not err in applying Article
1892, that the Real Estate Mortgage can only be extinguished after the amount of the secured loan has
been paid, and that the additional collateral was executed because the deed of assignment was meant to
cover any deficiency in the Real Estate Mortgage. 17
II
Articles 1892 and 1893 of the Civil Code provide the rules regarding the appointment of a
substitute by an agent: aScITE
Art. 1892. The agent may appoint a substitute if the principal has
not prohibited him from doing so; but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent or
insolvent.
All acts of the substitute appointed against the prohibition of the
principal shall be void.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding
article, the principal may furthermore bring an action against the substitute
with respect to the obligations which the latter has contracted under the
substitution.
The law creates a presumption that an agent has the power to appoint a substitute. The
consequence of the presumption is that, upon valid appointment of a substitute by the agent, there ipso
jure arises an agency relationship between the principal and the substitute, i.e., the substitute becomes
the agent of the principal. As a result, the principal is bound by the acts of the substitute as if these
acts had been performed by the principal's appointed agent. Concomitantly, the substitute assumes an
agent's obligations to act within the scope of authority, 18 to act in accordance with the principal's
instructions, 19 and to carry out the agency, 20 among others. In order to make the presumption
inoperative and relieve himself from its effects, it is incumbent upon the principal to prohibit the agent
from appointing a substitute.
Although the law presumes that the agent is authorized to appoint a substitute, it also
imposes an obligation upon the agent to exercise this power conscientiously. To protect the principal,
Article 1892 allocates responsibility to the agent for the acts of the substitute when the agent was not

expressly authorized by the principal to appoint a substitute; and, if so authorized but a specific person
is not designated, the agent appoints a substitute who is notoriously incompetent or insolvent. In these
instances, the principal has a right of action against both the agent and the substitute if the latter
commits acts prejudicial to the principal.
The case of Escueta v. Lim 21 illustrates the prevailing rule. In that case, the father,
through a special power of attorney, appointed his daughter as his attorney-in-fact for the purpose of
selling real properties. The daughter then appointed a substitute or sub-agent to sell the properties.
After the properties were sold, the father sought to nullify the sale effected by the sub-agent on the
ground that he did not authorize his daughter to appoint a sub-agent. We refused to nullify the sale
because it is clear from the special power of attorney executed by the father that the daughter is not
prohibited from appointing a substitute. Applying Article 1892, we held that the daughter "merely
acted within the limits of the authority given by her father, but she will have to be 'responsible for the
acts of the sub-agent,' among which is precisely the sale of the subject properties in favor of
respondent." 22
In the present case, the Special Power of Attorney executed by the Spouses Villaluz
contains no restrictive language indicative of an intention to prohibit Agbisit from appointing a
substitute or sub-agent. Thus, we agree with the findings of the CA and the RTC that Agbisit's
appointment of Milflores Cooperative was valid. HEITAD
III
Perhaps recognizing the correctness of the CA and the RTC's legal position, the Spouses
Villaluz float a new theory in their petition before us. They now seek to invalidate the Real Estate
Mortgage for want of consideration. Citing Article 1409 (3), which provides that obligations "whose
cause or object did not exist at the time of the transaction" are void ab initio, the Spouses Villaluz
posit that the mortgage was void because the loan was not yet existent when the mortgage was
executed on June 21, 1996. Since the loan was released only on June 25, 1996, the mortgage executed
four days earlier was without valuable consideration.
Article 1347 provides that "[a]ll things which are not outside the commerce of
men, including future things, may be the object of a contract." Under Articles 1461 and 1462, things
having a potential existence and "future goods," i.e., those that are yet to be manufactured, raised, or
acquired, may be the objects of contracts of sale. The narrow interpretation advocated by the Spouses
Villaluz would create a dissonance between Articles 1347, 1461, and 1462, on the one hand, and Article
1409 (3), on the other. A literal interpretation of the phrase "did not exist at the time of the
transaction" in Article 1409 (3) would essentially defeat the clear intent and purpose of Articles 1347,
1461, and 1462 to allow future things to be the objects of contracts. To resolve this apparent conflict,
Justice J.B.L. Reyes commented that the phrase "did not exist" should be interpreted as "could not
come into existence" because the object may legally be a future thing. 23 We adopt this interpretation.
One of the basic rules in statutory interpretation is that all parts of a statute are to be
harmonized and reconciled so that effect may be given to each and every part thereof, and that
conflicting intentions in the same statute are never to be supposed or so regarded. 24 Thus, in order to
give effect to Articles 1347, 1461, and 1462, Article 1409 (3) must be interpreted as referring to
contracts whose cause or object is impossible of existing at the time of the transaction. 25
The cause of the disputed Real Estate Mortgage is the loan to be obtained by Milflores
Cooperative. This is clear from the terms of the mortgage document, which expressly provides that it is
being executed in "consideration of certain loans, advances, credit lines, and other credit facilities or
accommodations obtained from [Land Bank by Milflores Cooperative] x x x in the principal amount of
[P3,000,000]." 26 The consideration is certainly not an impossible one because Land Bank was capable of
granting the P3,000,000 loan, as it in fact released one-third of the loan a couple of days later.
Although the validity of the Real Estate Mortgage is dependent upon the validity of the
loan, 27 what is essential is that the loan contract intended to be secured is actually perfected, 28 not
at the time of the execution of the mortgage contract vis-à-vis the loan contract. In loan transactions,
it is customary for the lender to require the borrower to execute the security contracts prior to initial
drawdown. This is understandable since a prudent lender would not want to release its funds without
11
the security agreements in place. On the other hand, the borrower would not be prejudiced by mere
execution of the security contract, because unless the loan proceeds are delivered, the obligations
under the security contract will not arise. 29 In other words, the security contract — in this case, the
Real Estate Mortgage — is conditioned upon the release of the loan amount. This suspensive condition
was satisfied when Land Bank released the first tranche of the P3,000,000 loan to Milflores
Cooperative on June 25, 1996, which consequently gave rise to the Spouses Villaluz's obligations under
the Real Estate Mortgage.
IV
The Spouses Villaluz claim that the Special Power of Attorney they issued was mooted by
the execution of the Deed of Assignment of the Produce/Inventory by Milflores Cooperative in favor of
Land Bank. Their theory is that the additional security on the same loan extinguished the agency
because the Deed of Assignment "served as payment of the loan of the [Milflores] Cooperative." 30
The assignment was for the express purpose of "securing the payment of the Line/Loan,
interest and charges thereon." 31 Nowhere in the deed can it be reasonably deduced that the
collaterals assigned by Milflores Cooperative were intended to substitute the payment of sum of money
under the loan. It was an accessory obligation to secure the principal loan obligation.
The assignment, being intended to be a mere security rather than a satisfaction of
indebtedness, is not a dation in payment under Article 1245 32 and did not extinguish the loan
obligation. 33 "Dation in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement —
express or implied, or by their silence — consider the thing as equivalent to the obligation, in which case
the obligation is totally extinguished." 34 As stated in the second condition of the Deed of Assignment,
the "Assignment shall in no way release the ASSIGNOR from liability to pay the Line/Loan and other
obligations, except only up to the extent of any amount actually collected and paid to ASSIGNEE by
virtue of or under this Assignment." 35 Clearly, the assignment was not intended to substitute the
payment of sums of money. It is the delivery of cash proceeds, not the execution of the Deed of
Assignment, that is considered as payment. Absent any proof of delivery of such proceeds to Land Bank,
the Spouses Villaluz's claim of payment is without basis. ATICcS
Neither could the assignment have constituted payment by cession under Article
1255 36 for the plain and simple reason that there was only one creditor, Land Bank. Article 1255
contemplates the existence of two or more creditors and involves the assignment of all the debtor's
property. 37
The Spouses Villaluz understandably feel shorthanded because their property was
foreclosed by reason of another person's inability to pay. However, they were not coerced to grant a
special power of attorney in favor of Agbisit. Nor were they prohibited from prescribing conditions on
how such power may be exercised. Absent such express limitations, the law recognizes Land Bank's
right to rely on the terms of the power of attorney as written. 38 "Courts cannot follow one every step
of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from
one-sided contracts, or annul the effects of [unwise] acts." 39The remedy afforded by the Civil Code to
the Spouses Villaluz is to proceed against the agent and the substitute in accordance with Articles 1892
and 1893.
WHEREFORE, the petition is DENIED. The Decision dated September 22, 2009 and
Resolution dated May 26, 2010 of the Court of Appeals in CA-G.R. CV No. 01307 are AFFIRMED.
SO ORDERED.
Escueta v lim
AZCUNA, J p:

This is an appeal by certiorari 1 to annul and set aside the Decision and Resolution of the Court of
Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively, in CA-G.R. CV No. 48282, entitled
" Rufina Lim v. Corazon L. Escueta, etc., et. al."
The facts 2 appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet title
to, real property, with preliminary injunction and issuance of [a hold-departure
order] from the Philippines against Ignacio E. Rubio. Respondent amended her
complaint to include specific performance and damages.
In her amended complaint, respondent averred inter alia that she
bought the hereditary shares (consisting of 10 lots) of Ignacio Rubio [and] the
heirs of Luz Baloloy, namely: Alejandrino, Bayani, and other co-heirs; that said
vendors executed a contract of sale dated April 10, 1990 in her favor; that Ignacio
Rubio and the heirs of Luz Baloloy received [a down payment] or earnest money in
the amount of P102,169.86 and P450,000, respectively; that it was agreed in the
contract of sale that the vendors would secure certificates of title covering their
respective hereditary shares; that the balance of the purchase price would be paid
to each heir upon presentation of their individual certificate[s] of [title]; that
Ignacio Rubio refused to receive the other half of the down payment which is
P[100,000]; that Ignacio Rubio refused and still refuses to deliver to [respondent]
the certificates of title covering his share on the two lots; that with respect to
the heirs of Luz Baloloy, they also refused and still refuse to perform the delivery
of the two certificates of title covering their share in the disputed lots; that
respondent was and is ready and willing to pay Ignacio Rubio and the heirs of Luz
Baloloy upon presentation of their individual certificates of title, free from
whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge that the
disputed lots have already been sold by Ignacio Rubio to respondent, it is alleged
that a simulated deed of sale involving said lots was effected by Ignacio Rubio in
her favor; and that the simulated deed of sale by Rubio to Escueta has raised
doubts and clouds over respondent's title.
In their separate amended answers, petitioners denied the material
allegations of the complaint and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of
sale has no more force and effect as far as the Baloloys are concerned, since they
have withdrawn their offer to sell for the reason that respondent failed to pay the
balance of the purchase price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta
(Escueta for brevity):
Respondent has no cause of action, because Rubio has not entered into
a contract of sale with her; that he has appointed his daughter Patricia Llamas to
be his attorney-in-fact and not in favor of Virginia Rubio Laygo Lim (Lim for
brevity) who was the one who represented him in the sale of the disputed lots in
favor of respondent; that the P100,000 respondent claimed he received as down
payment for the lots is a simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of
respondent, the trial court declared the Baloloys in default. They then filed a
motion to lift the order declaring them in default, which was denied by the trial
court in an order dated November 27, 1991. Consequently, respondent was allowed
12
to adduce evidence ex parte. Thereafter, the trial court rendered a partial
decision dated July 23, 1993 against the Baloloys, the dispositive portion of which
reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby
rendered in favor of [respondent] and against [petitioners, heirs] of
Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The
[petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to
immediately execute an [Absolute] Deed of Sale over their hereditary
share in the properties covered by TCT No. 74392 and TCT No. 74394,
after payment to them by [respondent] the amount of P[1,050,000] or
consignation of said amount in Court. [For] failure of [petitioners]
Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed of
Sale over their hereditary share in the property covered by TCT No.
T-74392 and TCT No. T-74394 in favor of [respondent], the Clerk of
Court is ordered to execute the necessary Absolute Deed of Sale in
behalf of the Baloloys in favor of [respondent,] with a consideration of
P[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and Bayani
Baloloy are ordered to jointly and severally pay [respondent] moral
damages in the amount of P[50,000] and P[20,000] for attorney's fees.
The adverse claim annotated at the back of TCT No. T-74392 and TCT
No. T-74394[,] insofar as the shares of Alejandrino Baloloy and Bayani
Baloloy are concerned[,] [is] ordered cancelled.
With costs against [petitioners] Alejandrino Baloloy and
Bayani Baloloy.
SO ORDERED. 3
The Baloloys filed a petition for relief from judgment and order dated
July 4, 1994 and supplemental petition dated July 7, 1994. This was denied by the
trial court in an order dated September 16, 1994. Hence, appeal to the Court of
Appeals was taken challenging the order denying the petition for relief. THaDAE
Trial on the merits ensued between respondent and Rubio and Escueta.
After trial, the trial court rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and]
amended complaint are dismissed against [petitioners] Corazon L.
Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The
counterclaim of [petitioners] [is] also dismissed. However, [petitioner]
Ignacio E. Rubio is ordered to return to the [respondent], Rufina Lim[,]
the amount of P102,169.80[,] with interest at the rate of six percent
(6%) per annum from April 10, [1990] until the same is fully paid.
Without pronouncement as to costs.
SO ORDERED. 4
On appeal, the CA affirmed the trial court's order and partial decision, but reversed the later
decision. The dispositive portion of its assailed Decision reads:
WHEREFORE, upon all the foregoing premises considered, this Court
rules:
1. the appeal of the Baloloys from the Order denying the Petition for
Relief from Judgment and Orders dated July 4, 1994 and Supplemental Petition
dated July 7, 1994 is DISMISSED. The Order appealed from is AFFIRMED.

2. the Decision dismissing [respondent's] complaint
is REVERSED and SET ASIDE and a new one is entered. Accordingly,
a. the validity of the subject contract of sale in favor of [respondent]
is upheld.
b. Rubio is directed to execute a Deed of Absolute Sale conditioned
upon the payment of the balance of the purchase price by [respondent] within 30
days from the receipt of the entry of judgment of this Decision.
c. the contracts of sale between Rubio and Escueta involving Rubio's
share in the disputed properties is declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly and severally the
[respondent] the amount of P[20,000] as moral damages and P[20,000] as
attorney's fees.
3. the appeal of Rubio and Escueta on the denial of their counterclaim
is DISMISSED.
SO ORDERED. 5
Petitioners' Motion for Reconsideration of the CA Decision was denied. Hence, this petition.
The issues are:
I
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION
FOR RELIEF FROM JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE
COMPLAINT AND IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES
IN FAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN
VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF
SALE.
C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS
UNDER THE CONTRACT TO SELL THEREBY WARRANTING THE
CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING
INTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS'
COUNTERCLAIMS.
13
Briefly, the issue is whether the contract of sale between petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding petitioners' failure to appear at the
pre-trial and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect,
because petitioner Bayani was in the United States. There was no service of the notice of pre-trial or order.
Neither did the former counsel of record inform him. Consequently, the order declaring him in default is void,
and all subsequent proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf
of Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize
Virginia to transact business in his behalf pertaining to the property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not empowered to designate a substitute attorney-in-fact.
Llamas even disowned her signature appearing on the "Joint Special Power of Attorney," which constituted
Virginia as her true and lawful attorney-in-fact in selling Rubio's properties.
Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also
the nature and extent of the former's authority. Besides, Virginia exceeded the authority for failing to
comply with her obligations under the "Joint Special Power of Attorney."
The amount encashed by Rubio represented not the down payment, but the payment of
respondent's debt. His acceptance and encashment of the check was not a ratification of the contract of
sale.
Third, the contract between respondent and Virginia is a contract to sell, not a contract of sale.
The real character of the contract is not the title given, but the intention of the parties. They intended
to reserve ownership of the property to petitioners pending full payment of the purchase price. Together
with taxes and other fees due on the properties, these are conditions precedent for the perfection of the
sale. Even assuming that the contract is ambiguous, the same must be resolved against respondent, the party
who caused the same.
Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the right
to sell his properties to Escueta who exercised due diligence in ascertaining ownership of the properties sold
to her. Besides, a purchaser need not inquire beyond what appears in a Torrens title.
The petition lacks merit. The contract of sale between petitioners and respondent is valid.
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys'
answer to the original complaint and amended complaint, the allegations relating to the personal circumstances
of the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in the course of the proceedings in the same
case, does not require proof." 6 The "factual admission in the pleadings on record [dispenses] with the need . .
. to present evidence to prove the admitted fact." 7 It cannot, therefore, "be controverted by the party
making such admission, and [is] conclusive" 8 as to them. All proofs submitted by them "contrary thereto or
inconsistent therewith should be ignored whether objection is interposed by a party or not." 9 Besides, there
is no showing that a palpable mistake has been committed in their admission or that no admission has been
made by them.
Pre-trial is mandatory. 10 The notices of pre-trial had been sent to both the Baloloys and their
former counsel of record. Being served with notice, he is "charged with the duty of notifying the party
represented by him." 11 He must "see to it that his client receives such notice and attends the pre-
trial." 12 What the Baloloys and their former counsel have alleged instead in their Motion to Lift Order of As
In Default dated December 11, 1991 is the belated receipt of Bayani Baloloy's special power of attorney in
favor of their former counsel, not that they have not received the notice or been informed of the scheduled

pre-trial. Not having raised the ground of lack of a special power of attorney in their motion, they are now
deemed to have waived it. Certainly, they cannot raise it at this late stage of the proceedings. For lack of
representation, Bayani Baloloy was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and verification. — A petition
provided for in either of the preceding sections of this Rule must be verified, filed
within sixty (60) days after the petitioner learns of the judgment, final order, or
other proceeding to be set aside, and not more than six (6) months after such
judgment or final order was entered, or such proceeding was taken; and must be
accompanied with affidavits showing the fraud, accident, mistake, or excusable
negligence relied upon, and the facts constituting the petitioner's good and
substantial cause of action or defense, as the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day
period is reckoned from the time the party acquired knowledge of the order, judgment or proceedings and not
from the date he actually read the same." 13 As aptly put by the appellate court:
The evidence on record as far as this issue is concerned shows that
Atty. Arsenio Villalon, Jr., the former counsel of record of the Baloloys received a
copy of the partial decision dated June 23, 1993 on April 5, 1994. At that time,
said former counsel is still their counsel of record. The reckoning of the 60 day
period therefore is the date when the said counsel of record received a copy of
the partial decision which was on April 5, 1994. The petition for relief was filed by
the new counsel on July 4, 1994 which means that 90 days have already lapsed or
30 days beyond the 60 day period. Moreover, the records further show that the
Baloloys received the partial decision on September 13, 1993 as evidenced by
Registry return cards which bear the numbers 02597 and 02598 signed by Mr.
Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of the
aforesaid reglementary period to file a petition for relief from judgment[,]
included in its petition the two Orders dated May 6, 1994 and June 29, 1994. The
first Order denied Baloloys' motion to fix the period within which plaintiffs-
appellants pay the balance of the purchase price. The second Order refers to the
grant of partial execution, i.e. on the aspect of damages. These Orders are only
consequences of the partial decision subject of the petition for relief, and thus,
cannot be considered in the determination of the reglementary period within which
to file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the
petition for relief may be granted. 14 There is no proof of extrinsic fraud that "prevents a party from having
a trial . . . or from presenting all of his case to the court" 15 or an "accident . . . which ordinary prudence
could not have guarded against, and by reason of which the party applying has probably been impaired in his
rights." 16 There is also no proof of either a "mistake . . . of law" 17 or an excusable negligence "caused by
failure to receive notice of . . . the trial . . . that it would not be necessary for him to take an active part in
the case . . . by relying on another person to attend to the case for him, when such other person . . . was
chargeable with that duty . . . or by other circumstances not involving fault of the moving party." 18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint one . . . .
14
Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in
favor of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the limits of the authority
given by her father, but she will have to be "responsible for the acts of the sub-agent," 19 among which is
precisely the sale of the subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second paragraph of Article
1317 of the Civil Code which reads:
Art. 1317. . . .
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what he
received was a loan, not the down payment for the sale of the subject properties. His acceptance and
encashment of the check, however, constitute ratification of the contract of sale and "produce the effects
of an express power of agency." 20 "[H]is action necessarily implies that he waived his right of action to avoid
the contract, and, consequently, it also implies the tacit, if not express, confirmation of the said sale
effected" by Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its
benefits. "The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party
from assuming inconsistent positions, based on the principle of election, but that which precludes him from
repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance such
repudiation would be contrary to equity, and would put a premium on fraud or misrepresentation." 21
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to
the subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation in
the contract that states the ownership is to be reserved in or "retained by the vendor until full payment of
the price." 22
Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual
or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property
subject of the sale. 23 Even the argument that a purchaser need not inquire beyond what appears in a
Torrens title does not hold water. A perusal of the certificates of title alone will reveal that the subject
properties are registered in common, not in the individual names of the heirs.
Nothing in the contract "prevents the obligation of the vendor to convey title from becoming
effective" 24 or gives "the vendor the right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period." 25 Petitioners themselves have failed to deliver their individual certificates of
title, for which reason it is obvious that respondent cannot be expected to pay the stipulated taxes, fees, and
expenses.
"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present,
such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money
or its equivalent." 26 Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares for a price
certain to which respondent agreed to buy and pay for the subject properties. "The offer and the acceptance
are concurrent, since the minds of the contracting parties meet in the terms of the agreement." 27
In fact, earnest money has been given by respondent. "[I]t shall be considered as part of the
price and as proof of the perfection of the contract. 28 It constitutes an advance payment to "be deducted
from the total price." 29

Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be
transferred to the vendee upon actual or constructive delivery thereof."30 In the present case, there is
actual delivery as manifested by acts simultaneous with and subsequent to the contract of sale when
respondent not only took possession of the subject properties but also allowed their use as parking terminal
for jeepneys and buses. Moreover, the execution itself of the contract of sale is constructive delivery.
Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta, after
having sold them to respondent. "[I]n a contract of sale, the vendor loses ownership over the property and
cannot recover it until and unless the contract is resolved or rescinded . . . ." 31 The records do not show
that Ignacio Rubio asked for a rescission of the contract. What he adduced was a belated revocation of the
special power of attorney he executed in favor of Patricia Llamas. "In the sale of immovable property, even
though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon him either judicially or by a notarial act." 32
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-
G.R. CV No. 48282, dated October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs
against petitioners.
SO ORDERED.
Municipal court of Iloilo vs Evangelista
VILLA-REAL, J p:
This is an appeal taken by the defendant Tan Ong Sze Vda. de Tan Toco from the judgment
of the Court of First Instance of Iloilo, providing as follows:
"Wherefore, judgment is hereby rendered, declaring valid and binding
the deed of assignment of the credit executed by Tan Toco's widow, through her
attorney-in-fact Tan Buntiong, in favor of the late Antero Soriano; likewise the
assignment executed by the latter during his lifetime in favor of the defendant
Mauricio Cruz & Co., Inc., and the plaintiff is hereby ordered to pay the said
Mauricio Cruz & Co., Inc., the balance of P30,966.40; the plaintiff is also ordered
to deposit said sum in a local bank within the period of ninety days from the time
this judgment shall become final, at the disposal of the aforesaid Mauricio Cruz &
Co., Inc., and in case that the plaintiff shall not make such deposit in the manner
indicated, said amount shall bear the legal interest of six per cent per annum from
the date when the plaintiff shall fail to make the deposit within the period herein
set forth, until fully paid.
"Without special pronouncement of costs."
In support of its appeal, the appellant assigns the following alleged errors as committed by
the trial court in its decision, to wit:
"1. The lower court erred in rejecting as evidence Exhibit 4-A, Tan
Toco, and Exhibit 4-B, Tan Toco.
"2. The lower court erred in sustaining the validity of the deed of
assignment of the credit, Exhibit 2-Cruz, instead of finding that said assignment
made by Tan Buntiong to Attorney Antero Soriano was null and void.
"3. The lower court erred in upholding the assignment of that credit by
Antero Soriano to Mauricio Cruz & Co., Inc., instead of declaring it null and void.
"4. The court below erred in holding that the balance of the credit
against the municipality of Iloilo should be adjudicated to the appellant herein, Tan
Toco's widow.
15
"5. The lower court erred in denying the motion for a new trial filed by
the defendant-appellant."
The facts of the case are as follows:
On March 20, 1924, the Court of First Instance of Iloilo rendered judgment in civil case
No. 3514 thereof, wherein the appellant herein, Tan Ong Sze Vda. de Tan Toco was the plaintiff, and
the municipality of Iloilo the defendant, and the former sought to recover of the latter the value of a
strip of land belonging to said plaintiff taken by the defendant to widen a public street; the judgment
entitled the plaintiff to recover P42,966.40, representing the value of said strip of land, from the
defendant (Exhibit A). On appeal to this court (G. R. No. 22617) 1 the judgment was affirmed on
November 28, 1924 (Exhibit B).
After the case was remanded to the court of origin, and the judgment rendered therein had
become final and executory, Attorney Jose Evangelista, in his own behalf and as counsel for the
administratrix of Jose Ma. Arroyo's intestate estate, filed a claim in the same case for professional
services rendered by him, which the court, acting with the consent of the appellant widow, fixed at 15
per cent of the amount of the judgment (Exhibit 22 — Soriano).
At the hearing on said claim, the claimants appeared, as did also the Philippine National
Bank, which prayed that the amount of the judgment be turned over to it because the land taken over
had been mortgaged to it. Antero Soriano also appeared claiming the amount of the judgment as it had
been assigned to him, and by him, in turn, assigned to Mauricio Cruz & Co., Inc.
After hearing all the adverse claims on the amount of the judgment, the court ordered that
the attorney's lien in the amount of 15 per cent of the judgment, be recorded in favor of Attorney
Jose Evangelista, in his own behalf and as counsel for the administratrix of the deceased Jose Ma.
Arroyo, and directed the municipality of Iloilo to file an action of interpleading against the adverse
claimants, the Philippine National Bank, Antero Soriano, Mauricio Cruz & Co., Jose Evangelista, and Jose
Arroyo, as was done, the case being filed in the Court of First Instance of Iloilo as civil case No. 7702.
After due hearing, the court rendered the decision quoted from at the beginning.
On March 29, 1928, the municipal treasurer of Iloilo, with the approval of the auditor, of
the provincial treasurer of Iloilo, and of the Executive Bureau, paid the late Antero Soriano the amount
of P6,000 in part payment of the judgment mentioned above, assigned to him by Tan Boon Tiong, acting
as attorney-in-fact of the appellant herein, Tan Ong Sze Vda. de Tan Toco.
On December 18, 1928, the municipal treasurer of Iloilo deposited with the clerk of the
Court of First Instance of Iloilo the amount of P6,000 on account of the judgment rendered in said civil
case No. 3514. In pursuance of the resolution of the court below ordering that the attorney's lien in
the amount of 15 per cent of the judgment be recorded in favor of Attorney Jose Evangelista, in his
own behalf and as counsel for the late Jose Ma. Arroyo, the said clerk of court delivered on the same
date to said Attorney Jose Evangelista the said amount of P6,000. At the hearing of the instant case,
the codefendants of Attorney Jose Evangelista agreed not to discuss the payment made to the latter
by the clerk of the Court of First Instance of Iloilo of the amount of P6,000 mentioned above in
consideration of said lawyer's waiver of the remainder of the 15 per cent of said judgment amounting to
P444.69.
With these two payments of P6,000 each making a total of P12,000, the judgment for
P42,966.44 against the municipality of Iloilo was reduced to P30,966.40, which was adjudicated by said
court to Mauricio Cruz & Co.
This appeal, then, is confined to the claim of Mauricio Cruz & Co. as alleged assignee of the
rights of the late Attorney Antero Soriano by virtue of the said judgment in payment of professional
services rendered by him to the said widow and her coheirs.
The only question to be decided in this appeal is the legality of the assignment made by Tan
Boon Tiong, as attorney-in-fact of the appellant Tan Ong Sze Viuda de Tan Toco, to Attorney Antero
Soriano, of all the credits, rights and interests belonging to said appellant Tan Ong Sze Viuda de Tan
Toco by virtue of the judgment rendered in civil case No. 3514 of the Court of First Instance of Iloilo,
entitled Viuda de Tan Toco vs. The Municipal Council of Iloilo, adjudicating to said widow the amount of

P42,966.40, plus the costs of court, against said municipal council of Iloilo, in consideration of
professional services rendered by said attorney to said widow of Tan Toco and her coheirs, by virtue of
the deed Exhibit 2.
The appellant contends, in the first place, that said assignment was not made in
consideration of professional services by Attorney Antero Soriano, for they had already been satisfied
before the execution of said deed of assignment, but in order to facilitate the collection of the amount
of said judgment in favor of the appellant, for the reason that, being Chinese, she had encountered
many difficulties in trying to collect.
In support of her contention on this point, the appellant alleges that the payments admitted
by the court in its judgment, as made by Tan Toco's widow to Attorney Antero Soriano for professional
services rendered to her and to her coheirs, amounting to P2,900, must be added to the P700 evidenced
by Exhibits 4-A, Tan Toco, and 4-B, Tan Toco, respectively, which exhibits the court below rejected as
evidence, on the ground that they were considered as payments made for professional services
rendered, not by Antero Soriano personally, but by the firm of Soriano & Arroyo.
A glance at these receipts shows that those amounts were received by Attorney Antero
Soriano for the firm of Soriano & Arroyo, which is borne out be the stamp on said receipts reading,
"Bufete Soriano & Arroyo," and the manner in which said attorney receipted for them, "Soriano &
Arroyo, by A. Soriano."
Therefore, the appellant's contention that the amounts of P200 and P500 evidenced by said
receipts should be considered as payments made to Attorney Antero Soriano for professional services
rendered by him personally to the interests of the widow of Tan Toco, is untenable.
Besides, if at the time of the assignment to the late Antero Soriano, his professional
services to the appellant widow of Tan Toco had already been paid for, no reason can be given why it
was necessary to wire him money in payment of professional services on March 14, 1928 (Exhibit 5-G
Tan Toco) and December 15, of the same year (Exhibit 5-H Tan Toco) after the deed of assignment,
(Exhibit 2-Cruz) dated September 27, 1927, had been executed. In view of the fact that the amounts
involved in the cases prosecuted by Attorney Antero Soriano as counsel for Tan Toco's widow, some of
which cases have been appealed to this court, run into the hundreds of thousands of pesos, and
considering that said attorney had won several of those cases for his clients, the sum of P10,000 to
date paid to him for professional services is wholly inadequate, and shows, even if indirectly, that the
assignment of the appellant's rights and interests made to the late Antero Soriano and determined in
the judgment aforementioned, was made in consideration of the professional services rendered by the
latter to the aforesaid widow and her coheirs.
The defendant-appellant also contends that the deed of assignment Exhibit 2-Cruz was
drawn up in contravention of the prohibition contained in article 1459, case 5, of the Civil Code, which
reads as follows:
"ART. 1459. The following persons cannot take by purchase, even at a
public or judicial auction, either in person or through the mediation of another:
xxx xxx xxx
"5. Justices, judges, members of the department of public prosecution,
clerks of superior and inferior courts, and other officers of such courts, the
property and rights in litigation before the court within whose jurisdiction or
territory they perform their respective duties. This prohibition shall include the
acquisition of such property by assignment.
"Actions between co-heirs concerning the hereditary property,
assignments in payment of debts, or to secure the property of such persons, shall
be excluded from this rule.
"The prohibition contained in this paragraph shall include lawyers and
solicitors with respect to any property or rights involved in any litigation in which
they may take part by virtue of their profession and office."
16
It does not appear that Attorney Antero Soriano was counsel for the herein appellant in
civil case No. 3514 of the Court of First Instance of Iloilo, which she instituted against the municipality
of Iloilo, Iloilo, for the recovery of the value of a strip of land expropriated by said municipality for the
widening of a certain public street. The only lawyers who appear to have represented her in that case
were Arroyo and Evangelista, who filed a claim for their professional fees. When the appellant's credit,
right, and interests in that case were assigned by her attorney-in-fact Tan Boon Tiong, to Attorney
Antero Soriano in payment of professional services rendered by the latter to the appellant and her
coheirs in connection with other cases, that particular case had been decided, and the only thing left to
do was to collect the judgment. There was no relation of attorney and client, then, between Antero
Soriano and the appellant, in the case where that judgment was rendered; and therefore the assignment
of her credit, right and interests to said lawyer did not violate the prohibition cited above.
As to whether Tan Boon Tiong, as attorney-in-fact of the appellant, was empowered by his
principal to make an assignment of credits, rights, and interests, in payment of debts for professional
services rendered by lawyers, in paragraph VI of the power of attorney, Exhibit 5-Cruz, Tan Boon Tiong
is authorized to employ and contract for the services of lawyers upon such conditions as he may deem
convenient, to take charge of any actions necessary or expedient for the interests of his principal, and
to defend suits brought against her. This power necessarily implies the authority to pay for the
professional services thus engaged. In the present case, the assignment made by Tan Boon Tiong, as
attorney-in-fact for the appellant, in favor of Attorney Antero Soriano for professional services
rendered in other cases in the interests of the appellant and her coheirs, was that credit which she had
against the municipality of Iloilo, and such assignment was equivalent to the payment of the amount of
said credit to Antero Soriano for professional services.
With regard to the failure of the other attorney-in-fact of the appellant, Tan Montano,
authorized by Exhibit 1 — Tan Toco, to consent to the deed of assignment, the latter being also
authorized to pay, in the name and behalf of the principal, all her debts and the liens and encumbrances
of her property, the very fact that different letters of attorney were given to each of these two
representatives shows that it was not the principal's intention that they should act jointly in order to
make their acts valid. Furthermore, the appellant was aware of that assignment and she not only did not
repudiate it, but she continued employing Attorney Antero Soriano to represent her in court.
For the foregoing considerations, the court is of opinion and so holds: (1) That an agent or
attorney-in-fact empowered to pay the debts of the principal, and to employ lawyers to defend the
latter's interests, is impliedly empowered to pay the lawyer's fees for services rendered in the
interests of said principal, and may satisfy them by an assignment of a judgment rendered in favor of
said principal; (2) that when a person appoints two attorneys-in-fact independently, the consent of the
one will not be required to validate the acts of the other unless that appears positively to have been the
principal's intention; and (3) that the assignment of the amount of a judgment made by a person to his
attorney, who has not taken any part in the case wherein said judgment was rendered, made in payment
of professional services in other cases, does not contravene the prohibition of article 1459, case 5, of
the Civil Code.
By virtue whereof, and finding no error in the judgment appealed from, the same is
affirmed in its entirety, with costs against the appellant. So ordered.
NAPOCOR VS NAMERCO
AQUINO, J p:
This case is about the recovery of liquidated damages from a seller's agent that allegedly exceeded its
authority in negotiating the sale.
Plaintiff National Power Corporation appealed on questions of law from the decision of the Court of First
Instance of Manila dated October 10, 1966, ordering defendants National Merchandising Corporation and
Domestic Insurance Company of the Philippines to pay solidarily to the National Power Corporation reduced
liquidated damages in the sum of P72,114.66 plus legal, rate of interest from the filing of the complaint and
the costs (Civil Case No. 33114).

The two defendants appealed from the same decision allegedly because it is contrary to law and the evidence.
As the amount originally involved is P360,572.80 and defendants' appeal is tied up with plaintiff's appeal on
questions of law, defendants' appeal can be entertained under Republic Act No. 2613 which amended section
17 of the Judiciary Law.
On October 17, 1956, the National Power Corporation and National Merchandising Corporation (Namerco) of
3111 Nagtahan Street, Manila, as the representative of the International Commodities Corporation of 11
Mercer Street, New York City (Exh. C), executed in Manila a contract for the purchase by the NPC from the
New York firm of four thousand long tons of crude sulfur for its Maria Cristina Fertilizer Plant in Iligan City
at a total price of (450,716 (Exh. E).
On that same date, a performance bond in the sum of P90,143.20 was executed by the Domestic Insurance
Company in favor of the NPC to guarantee the seller's obligations (Exh. F).
It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City within sixty
days from notice of the establishment in its favor of a letter of credit for $212,120 and that failure to
effect delivery would subject the seller and its surety to the payment of liquidated damages at the rate of
two-fifth of one percent of the full contract price for the first thirty days of default and four-fifth of one
percent for every day thereafter until complete delivery is made (Art. 8, p. 111, Defendants' Record on
Appeal).
In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the president of Namerco, of the
opening on November 8 of a letter of credit for $212,120 in favor of International Commodities Corporation
which would expire on January 31, 1957 (Exh. I). Notice of that letter of credit was, received by cable by the
New York firm on November 15, 1956 (Exh. 80-Wallick). Thus, the deadline for the delivery of the sulfur was
January 15, 1957.
The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. During
the period from January 20 to 26, 1957 there was a shutdown of the NPC's fertilizer plant because there
was no sulfur. No fertilizer was produced (Exh. K).
In a letter dated February 27, 1957, the general manager of the NPC advised Namerco and the Domestic
Insurance Company that under Article 9 of the contract of sale "non-availability of bottom or vessel" was not
a fortuitous event that would excuse non-performance and that the NPC would resort to legal remedies to
enforce its rights (Exh. L and M).
The Government Corporate Counsel in his letter to Sycip dated May 8, 1957 rescinded the contract of sale
due to the New York supplier's non-performance of its obligations (Exh. G). The same counsel in his letter of
June 8, 1957 demanded from Namerco the payment of P360,572.80 as liquidated damages. He explained that
time was of the essence of the contract. A similar demand was made upon the surety (Exh. H and H-1).
The liquidated damages were computed on the basis of the 115-day period between January 15, 1957, the
deadline for the delivery of the sulfur at Iligan City, and May 9, 1957 when Namerco was notified of the
rescission of the contract, or P54,085.92 for the first thirty days and P306,486.88 for the remaining eighty-
five days. Total: P360,572.80.
On November 5, 1957, the NPC sued the New York firm, Namerco and the Domestic Insurance Company for
the recovery of the stipulated liquidated damages (Civil Case No. 33114).
The trial court in its order of January 17, 1958 dismissed the case as to the New York firm for lack of
jurisdiction because it was not doing business in the Philippines (p. 60, Defendants Record on Appeal).
On the other hand, Melvin Wallick, as the assignee of the New York corporation and after the latter was
dropped as a defendant in Civil Case No. 33114, sued Namerco for damages in connection with the same sulfur
transaction (Civil Case No. 37019). The two cases, both filed in the Court of First Instance of Manila, were
consolidated. A joint trial was held. The lower court rendered separate decisions in the two cases on the same
date.
17
In Civil Case No. 37019, the trial court dismissed Wallick's action for damages against Namerco because the
assignment in favor of Wallick was champertous in character. Wallick appealed to this Court. The appeal was
dismissed because the record on appeal did not disclose that the appeal was perfected on time (Res. of July
11, 1972 in L-33893).In this Civil Case No. 33114, although the records on appeal were approved in 1967,
inexplicably, they were elevated to this Court in 1971. That anomaly initially contributed to the delay in the
adjudication of this case.
Defendants' appeal L-33819. — They contend that the delivery of the sulfur was conditioned on the
availability of a vessel to carry the shipment and that Namerco acted within the scope of its authority as
agent in signing the contract of sale.
The documentary evidence belies these contentions. The invitation to bid issued by the NPC provides that
non-availability of a steamer to transport the sulfur is not a ground for non-payment of the liquidated
damages in case of non-performance by the seller.
"4. Responsibility for availability of vessel. — The availability of vessel to transport
the quantity of sulfur within the time specified in item 14 of this specification
shall be the responsibility of the bidder. In case of award of contract, failure to
ship on time allegedly due to non-availability of vessels shall not exempt the
Contractor from payment of liquidated damages provided in item 15 of this
specification."
"15. Liquidated damages. — . . .
"Availability of vessel being a responsibility of the Contractor as specified in item
4 of this specification, the terms 'unforeseeable causes beyond the control and
without the fault or negligence of the Contractor' and 'force majeure' as used
herein shall not be deemed to embrace or include lack or nonavailability of bottom
or vessel. It is agreed that prior to making his bid, a bidder shall have made
previous arrangements regarding shipments within the required time. It is clearly
understood that in no event shall the Contractor be exempt from the payment of
liquidated damages herein specified for reason of lack of bottom or vessel. Lack of
bottom or nonavailability of vessel shall, in no case, be considered as a ground for
extension of time. . . . . "
Namerco's bid or offer is even more explicit. It provides that it was "responsible for the availability of
bottom or vessel" and that it "guarantees the availability of bottom or vessel to ship the quantity of sulfur
within the time specified in this bid" (Exh. B, p. 22, Defendants' Record on Appeal).
In the contract of sale itself item 15 of the invitation to bid is reproduced in Article 9 which provides that
"it is clearly understood that in no event shall the seller be entitled to an extension of time or be exempt
from the payment of liquidated damages herein specified for reason of lack of bottom or vessel" (Exh. E, p.
36, Record on Appeal).
It is true that the New York corporation in its cable to Namerco dated August 9, 1956 stated that the sale
was subject to availability of a steamer (Exh. N). However, Namerco did not disclose that cable to the NPC
and, contrary to its principal's instruction, it agreed that nonavailability of a steamer was not a justification
for nonpayment of the liquidated damages.
The trial court rightly concluded that Namerco acted beyond the bounds of its authority because it violated
its principal's cabled instructions (1) that the delivery of the sulfur should be "C & F Manila", not "C & F Iligan
City"; (2) that the sale be subject to the availability of a steamer and (3) that the seller should be allowed to
withdraw right away the full amount of the letter of credit and not merely eighty percent thereof (pp- 123-
124, Record on Appeal).
The defendants argue that it was incumbent upon the NPC to inquire into the extent of the agent's authority
and, for its failure to do so, it could not claim any liquidated damages which, according to the defendants,
were provided for merely to make the seller more diligent in looking for a steamer to transport the sulfur.

The NPC counter-argues that Namerco should' have advised the NPC of the limitations on its authority to
negotiate the sale.
We agree with the trial court that Namerco is liable for damages because under article 1897 of the Civil Code
the agent who exceeds the limits of his authority without giving the party with whom he contracts sufficient
notice of his powers is personally liable to such party.
The truth is that even before the contract of sale was signed Namerco was already aware that its principal
was having difficulties in booking shipping space. In a cable dated October 16, 1956, or one day before the
contract of sale was signed, the New York supplier advised Namerco that the latter should not sign the
contract unless it (Namerco) wished to assume sole responsibility for the shipment (Exh. T).
Sycip, Namerco's president, replied in his letter to the seller dated also October 16, 1956, that he had no
choice but to finalize the contract of sale because the NPC would forfeit Namerco's bidder's bond in the sum
of P45,100 posted by the Domestic Insurance Company if the contract was not formalized (Exh. 14, 14-A and
Exh. V).
Three days later, or on October 19, the New York firm cabled Namerco that the firm did not consider itself
bound by the contract of sale and that Namerco signed the contract on its own responsibility (Exh. W).
In its letters dated November 8 and 19, 1956, the New York corporation informed Namerco that since the
latter acted contrary to the former's cabled instructions, the former disclaimed responsibility for the
contract and that the responsibility for the sale rested on Namerco (Exh. Y and Y-1).
The letters of the New York firm dated November 26 and December 11, 1956 were even more revealing. It
bluntly told Namerco that the latter was never authorized to enter into the contract and that it acted
contrary to the repeated instructions of the former (Exh. U and Z). Said the vice-president of the New York
firm to Namerco: cdphil
"As we have pointed out to you before, you have acted strictly contrary to our
repeated instructions and, however regretfully, you have no one but yourselves to
blame."
The rule relied upon by the defendants-appellants that every person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent would apply in this case if the principal is sought
to be held liable on the contract entered into by the agent.
That is not so in this case. Here, it is the agent that it sought to be held liable on a contract of sale which was
expressly repudiated by the principal because the agent took chances, it exceeded its authority, and, in
effect, it acted in its own name.
As observed by Castan Tobeñas, an agent "que haya traspasado los limites dew mandato, lo que equivale a
obrar sin mandato" (4 Derecho Civil Español, 8th Ed., 1956, p. 520).
As opined by Olivieri, "si el mandante contesta o impugna el negocio juridico concluido por el mandatario con el
tercero, aduciendo el exceso de los limites impuestos, es justo que el mandatario, que ha tratado con engaño al
tercero, sea responsable personalmente respecto de el des las consecuencias de tal falta de aceptacion por
parte del mandate. Tal responsabilidad del mandatario se informa en el principio de la falta de garantia de la
existencia del mandato y de la cualidad de mandatario, garantia impuesta coactivamente por la ley, que quire
que aquel que contrata como mandatario este obligado a garantizar al tercero la efectiva existencia de los
poderes que afirma se halla investido, siempre que el tercero mismo sea de buena fe. Efecto de tal garantia es
el resarcimiento de los daños causados al tercero como consecuencia de la negativa del mandante a reconocer
lo actuado por el mandatario." (26, part II, Scaveola, Codigo Civil, 1951, pp. 358-9).
Manresa says that the agent who exceeds the limits of his authority is personally liable "porque realmente
obra sin poderes" and the third person who contracts with the agent in such a case would be defrauded if he
would not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p. 725).
18
The defendants also contend that the trial court erred in holding as enforceable the stipulation for liquidated
damages despite its finding that the contract was executed by the agent in excess of its authority and is,
therefore, allegedly unenforceable.
In support of that contention, the defendants cite article 1403 of the Civil Code which provides that a
contract entered into in the name of another person by one who has acted beyond his powers is
unenforceable.
We hold that defendants' contention is untenable because article 1403 refers to the unenforceability of the
contract against the principal. In the instant case, the contract containing the stipulation for liquidated
damages is not being enforced against it principal but against the agent and its surety.
It is being enforced against the agent because article 1807 implies that the agent who acts in excess of his
authority is personally liable to the party with whom he contracted.
And that rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts in
the name of the principal, exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers
granted by the principal".
It is being enforced against the agent because article 1897 implies that the agent who acts in excess of his
authority is personally liable to the party with whom he contracted.
And the rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts in
the name of the principal, exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers
granted by the principal".
As priorly discussed, namerco, as agent, exceeded the limits of its authority in contracting with the NPC in
the name of its principal. The NPC was unaware of the limitations on the powers granted by the New York
firm to Namerco. LLjur
The New York corporation in its letter of April 26, 1956 said:
"We hereby certify that National Merchandising Corporation . . . are our exclusive
representatives in the Philippines for the sale of our products.
"Furthermore, we certify that they are empowered to present our offers in our
behalf in accordance with our cabled or written instructions." (Exh. C).
Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and
because Namerco exceeded the limits of its authority, it virtually acted in its own name and not as agent and
it is, therefore, bound by the contract of sale which, however, is not enforceable against its principal.
If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of sale, then it follows
that it is bound by the stipulation for liquidated damages in that contract.
Defendants' contention that Namerco's liability should be based on tort or quasi-delict, as held in some
American cases, like Mendelsohn vs. Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken. As correctly argued
by the NPC, it would be unjust and inequitable for Namerco to escape liability after it had deceived the NPC.
Another contention of the defendants is that the Domestic Insurance Company is not liable to the NPC
because its bond was posted, not for Namerco, the agent, but for the New York firm which is not liable on the
contract of sale.
That contention cannot be sustained because it was Namerco that actually solicited the bond from the
Domestic Insurance Company and, as explained already, Namerco is being held liable under the contract of
sale because it virtually acted in its own name. It became the principal in the performance bond. In the last
analysis, the Domestic Insurance Company acted as surety for Namerco.

The rule is that "want of authority of the person who executes an obligation as the agent or representative
of the principal will not, as a general rule, affect the surety's liability thereon, especially in the absence of
fraud, even though the obligation is not binding on the principal" (72 C.J.S. 525).
Defendants' other contentions are that they should be held liable only for nominal damages, that interest
should not be collected on the amount of damages and that the damages should be computed on the basis of a
forty-five day period and not for a period of one hundred fifteen days.
With respect to the imposition of the legal rate of interest on the damages from the filing of the complaint
in 1957, or a quarter of a century ago, defendants' contention is meritorious. It would be manifestly
inequitable to collect interest on the damages especially considering that the disposition of this case has been
considerably delayed due to no fault of the defendants.
The contention that only nominal damages should be adjudged is contrary to the intention of the parties (NPC,
Namerco and its surety) because it is clearly provided that liquidated damages are recoverable for delay in
the delivery of the sulfur and, with more reason, for nondelivery.
No proof of pecuniary loss is required for the recovery of liquidated damages. the stipulation for liquidated
damages is intended to obviate controversy on the amount of damages. There can be no question that the NPC
suffered damages because its production of fertilizer was disrupted or diminished by reason of the
nondelivery of the sulfur. prLL
The parties foresaw that it might be difficult to ascertain the exact amount of damages for nondelivery of
the sulfur. So, they fixed the liquidated damages to be paid as indemnity to the NPC.
On the other hand, nominal damages are damages in name only or are in fact the same as no damages (25
C.J.S. 466). It would not be correct to hold in this case that the NPC suffered damages in name only or that
the breach of contract was merely technical in character.
As to the contention that the damages should be computed on the basis of forty-five days, the period
required by a vessel leaving Galveston, Texas to reach Iligan City, that point need not be resolved in view of
our conclusion that the liquidated damages should be equivalent to the amount of the bidder's bond posted by
Namerco.
NPC's appeal, L-33897. — The trial court reduced the liquidated damages to twenty percent of the stipulated
amount. the NPC contends the it is entitled to the full amount of liquidated damages in the sum of
P360,572.80.
In reducing the liquidated damages, the trial court relied on article 2227 of the Civil Code which provides
that "liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable".
Apparently, the trial court regarded as an equitable consideration the persistent efforts of Namerco and its
principal to charter a steamer and that the failure of the New York firm to secure shipping space was not
attributable to its fault or negligence.
The trial court also took into account the fact that the selling price of the sulfur was P450,716 and that to
award as liquidated damages more than eighty percent of the price would not be altogether reasonable.
The NPC contends that Namerco was an obligor in bad faith and, therefore, it should be responsible for all
damages which could be reasonably attributed to its nonperformance of the obligation as provided in article
2201 of the Civil Code.
On the other hand, the defendants argue that Namerco having acted as a mere agent, was not liable for the
liquidated damages stipulated in the alleged unenforceable contract of sale; that, as already noted,
Namerco's liability should be based on tort or quasi-delict and not on the contract of sale; that if Namerco is
not liable, then the insurance company, its surety, is likewise not liable; that the NPC is entitled only to
nominal damages because it was able to secure the sulfur from another source (58-59 tsn November 10, 1960)
and that the reduced award of stipulated damages is highly iniquitous, considering that Namerco acted in
good faith and that the NPC did not suffer any actual damages. LLpr
19
These contentions have already been resolved in the preceding discussion. We find no sanction or justification
for NPC's claim that it is entitled to the full payment of the liquidated damages computed by its official.
Ruling on the amount of damages. — A painstaking evaluation of the equities of the case in the light of the
arguments of the parties as expounded in their five briefs leads to the conclusion that the damages due from
the defendants should be further reduced to P45,100 which is equivalent to their bidder's bond or to about
ten percent of the selling price of the sulfur.
WHEREFORE, the lower court's judgment is modified and defendants National Merchandising Corporation
and Domestic Insurance Company of the Philippines are ordered to pay solidarily to the National Power
Corporation the sum of P45,100.00 as liquidated damages. No costs.
SO ORDERED.
DBP VS CA
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse
and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying
reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied
for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal
mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI)
with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and
released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application
for Insurance" and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was
credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of
the credit. Cdpr
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not
eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application. LibLex
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI
application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida
Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to
the loan. She, likewise, refused to accept anex gratia settlement of P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a
complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection
of Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool
when DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI, and
later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of
P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the
deceased be declared fully paid; and (3) that damages be awarded. LexLib
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-
claim against the latter.

At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by
respondent Estate. As a result of these admissions, the trial court narrowed down the issues and, without
opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered
the parties to submit their respective position papers and documentary evidence, which may serve as basis
for the judgment. cdrep
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against
DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of
contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into
applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age
ineligibility. The dispositive portion of the decision read as follows:
"WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the plaintiff and
against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of
P139,500.00 plus legal rate of interest as amortization payment paid
under protest;
2. To consider the mortgage loan of P300,000.00 including
all interest accumulated or otherwise to have been settled, satisfied or
set-off by virtue of the insurance coverage of the late Juan B. Dans; .
3. To pay plaintiff the amount of P10,000.00 as attorney's
fees;
4. To pay plaintiff the amount of P10,000.00 as costs of
litigation and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP-MRI POOL are hereby
dismissed. The Cross-claim of defendant DBP is likewise dismissed" (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate
court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a
resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP Pool"
(Exh. "5-Bank") with the following declaration:
"I hereby declare and agree that all the statements and answers
contained herein are true, complete and correct to the best of my knowledge and
belief and form part of my application for insurance. It is understood and agreed
that no insurance coverage shall be effected unless and until this application is
approved and the full premium is paid during my continued good health" (Records, p.
40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the
application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued
good health of the applicant. These two conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool,
however, did not approve the application of Dans. There is also no showing that it accepted the sum of
P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium.
There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a
contract that does not exist.
The liability of DBP is another matter. prcd
20
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI
coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance
policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on
August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP
made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted
both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro
Manila. As service fee, DBP deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance,
thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI
and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's
application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and
specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the
insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not
personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits
of his authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years
of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced
age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on
DBP's authority to solicit applications for MRI. LLphil
If the third person dealing with an agent is unaware of the limits of the authority conferred by
the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the
agent is liable when he acts without authority is founded upon the supposition that there has been some
wrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under
which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75).
Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception was
perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the
Philippines come into play.
Article 19 provides:
"Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due and observe
honesty and good faith."LexLib
Article 20 provides:
"Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same."
Article 21 provides:
"Any person, who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage."
 21
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume "As a distributor; Green Valley Poultry & Allied Products, Inc. will be entitled to a
that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from discount as follows:
another insurance company, and therefore would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance Feed Store Price (Catalogue)
coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the Less 10%
nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his ————————————
loan. LLphil Wholesale Price
Less10%
One is entitles to an adequate compensation only for such pecuniary loss suffered by him as he ————————————
has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be Distributor Price
capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories
"There are exceptions to the above price structure. At present, these are:
Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co.,
34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages
1. Afsillin Improved — 40 lbs. bag.
(Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
The distributor commission for this product size is 8% off P120.00.
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of
pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The 2. Narrow-Spectrum Injectible Antibiotics
same may be recovered in acts referred to in Article 2219 of the Civil Code.
These products are subject to price fluctuations. Therefore, they are invoiced at
The assessment of moral damages is left to the discretion of the court according to the net price per vial.
circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay
P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the 3. Deals and Special Offers are not subject to the above distributor price
limits of its authority amounted to a deception to its client, an award of moral damages in the amount of structure. A 5% distributor commission is allowed when the distributor furnishes
P50,000.00 would be reasonable. copies for each sale of a complete deal or special offer to a feedstore, drugstore
or other type of account.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]). LLphil "Deals and Special Offers purchased for resale at regular price invoiced at net
deal or special offer price.
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV No. 26434 is MODIFIED and
petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 "Prices are subject to change without notice, Squibb will endeavor to advise you
with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the promptly of any price changes. However, prices in effect at the time orders are
amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos received by Squibb Order Department will apply in all instances.
(P10,000.00) as attorney's fees. With costs against petitioner.
"Green Valley Poultry & Allied Products, Inc. will distribute only for the Central
SO ORDERED. Luzon and Northern Luzon including Cagayan Valley areas. We will not allow any
transfer or stocks from Central Luzon and Northern Luzon including Cagayan Valley
to other parts of Luzon, Visayas or Mindanao which are covered by our other
appointed Distributors. In line with this, you will follow strictly our stipulations
GREEN VALLEY VS IAC
that the maximum discount you can give to your direct and turnover accounts will
not go beyond 10%.

"It is understood that Green Valley Poultry and Allied Products, Inc. will accept
This is a petition to review a decision of the defunct Court of Appeals which affirmed the judgment of the
turn-over orders from Squibb representatives for delivery to customers in your
trial court whereby:
area. If for credit or other valid reasons a turn-over order is not served, the
" . . . , judgment is hereby rendered in favor of the plaintiff [E.R., Squibb & Sons Squibb representative will be notified within 48 hours and hold why the order will
Philippine Corporation], ordering the defendant [Green Valley Poultry & Allied not be served.
Products, Inc.] to pay the sum of P48,374.74 plus P96.00 with interest at 6% per
"It is understood that Green Valley Poultry & Allied Products, Inc. will put up a
annum from the filing of this action; plus attorney's fees in the amount of
bond of P20,000.00 from a mutually acceptable bonding company.
P5,000.00 and to pay the costs."
"Payment for Purchases of Squibb Products will be due 60 days from date of
On November 3, 1969, Squibb and Green Valley entered into a letter agreement the text of which reads as
invoice or the nearest business day thereto. No payment will be accepted in the
follows:
form of post-dated checks. Payment by check must be on current dating.
"E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green Valley
"It is mutually agreed that this non-exclusive distribution agreement can be
Poultry & Allied Products, Inc. as a non-exclusive distributor for Squibb Veterinary
terminated by either Green Valley Poultry & Allied Products, Inc. or Squibb
Products, as recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal
Philippines on 30 days notice.
Health Division Sales Supervisor.

"I trust that the above terms and conditions will be met with your approval and
that the distributor arrangement will be one of mutual satisfaction.
"If you are agreeable, please sign the enclosed three (3) extra copies of this letter
and return them to this Office at your earliest convenience.
"Thank you for your interest and support of the products of E.R. Squibb & Sons
Philippines Corporation." (Rollo, pp. 12-13.)
For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court as aforesaid gave
judgment in favor of Squibb which was affirmed by the Court of Appeals.
In both the trial court and the Court of Appeals, the parties advanced their respective theories. prLL
Green Valley claimed that the contract with Squibb was a mere agency to sell; that it never purchased goods
from Squibb; that the goods received were on consignment only with the obligation to turn over the proceeds,
less its commission, or to return the goods if not sold, and since it had sold the goods but had not been able
to collect from the purchasers thereof, the action was premature.
Upon the other hand. Squibb claimed that the contract was one of sale so that Green Valley was obligated to
pay for the goods received upon the expiration of the 60-day credit period.
Both courts below upheld the claim of Squibb that the agreement between the parties was a sales contract.
We do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of sale, the
liability of Green Valley is indubitable. Adopting Green Valley's theory that the contract is an agency to sell,
it is liable because it sold on credit without authority from its principal. The Civil Code has a provision exactly
in point. It reads:
"Art. 1905. The commission agent cannot, without the express or implied consent
of the principal, sell on credit. Should he do so, the principal may demand from him
payment in cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale."
WHEREFORE, the petition is hereby dismissed; the judgment of the defunct Court of Appeals is affirmed
with costs against the petitioner.
SO ORDERED.
MANILA MEMORIAL VS LINSANGAN
For resolution in this case is a classic and interesting textbook question in the law on agency.
This is a petition for review assailing the Decision 1 of the Court of Appeals dated 22 June 2001,
and its Resolution 2 dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila
Memorial Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally
liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at
the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a
memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his
rights subject to reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot
reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract would be
transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be
reimbursed to the original buyer and to complete the down payment to MMPCI. 3 Baluyot issued handwritten
and typewritten receipts for these payments. 4
22
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No.
28660, a new contract covering the subject lot in the name of the latter instead of old Contract No. 25012.
Atty. Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00
with P19,838.00 credited as full down payment leaving a balance of about P75,000.00. 5
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83,
Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985
for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan
objected to the new contract price, as the same was not the amount previously agreed upon. To convince Atty.
Linsangan, Baluyot executed a document 6 confirming that while the contract price is P132,250.00, Atty.
Linsangan would pay only the original price of P95,000.00. AaCcST
The document reads in part:
The monthly installment will start April 6, 1985; the amount of
P1,800.00 and the difference will be issued as discounted to conform to the
previous price as previously agreed upon. — P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C.
BALUYOT
Agency Manager
Holy Cross Memorial
Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under
Contract No. 28660 states that the total price of P132,250.00 your undertaking is
to pay only the total sum of P95,000.00 under the old price. Further the total sum
of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has
been credited in the total purchase price thereby leaving a balance of P75,162.00
on a monthly installment of P1,800.00 including interests (sic) charges for a period
of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt
No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each
in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated
checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled
for reasons the latter could not explain, and presented to him another proposal for the purchase of an
equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their
undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan
filed a Complaint 7 for Breach of Contract and Damages against the former. CAcDTI
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was
cancelled conformably with the terms of the contract 8 because of non-payment of arrearages. 9 MMPCI
stated that Baluyot was not an agent but an independent contractor, and as such was not authorized to
represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager

Agreement. 10 Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and
Baluyot, as it in fact received a down payment and monthly installments as indicated in the
contract. 11 Official receipts showing the application of payment were turned over to Baluyot whom Atty.
Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore, whatever
misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating
Arrangement signed by Atty. Linsangan which states that he "expressly admits that Contract No. 28660 'on
account of serious delinquency . . . is now due for cancellation under its terms and conditions.'" 12
The trial court held MMPCI and Baluyot jointly and severally liable. 13 It found that Baluyot was
an agent of MMPCI and that the latter was estopped from denying this agency, having received and encashed
the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was
authorized to receive only the down payment, it allowed her to continue to receive postdated checks from
Atty. Linsangan, which it in turn consistently encashed. 14
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby
rendered in favor of plaintiff declaring Contract No. 28660 as valid and subsisting
and ordering defendants to perform their undertakings thereof which covers
burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park
located at Novaliches, Quezon City. All payments made by plaintiff to defendants
should be credited for his accounts. NO DAMAGES, NO ATTORNEY'S FEES but
with costs against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated
as against defendant Baluyot is GRANTED up to the extent of the costs.
SO ORDERED. 15
MMPCI appealed the trial court's decision to the Court of Appeals. 16 It claimed that Atty.
Linsangan is bound by the written contract with MMPCI, the terms of which were clearly set forth therein
and read, understood, and signed by the former. 17 It also alleged that Atty. Linsangan, a practicing lawyer
for over thirteen (13) years at the time he entered into the contract, is presumed to know his contractual
obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the contract
without the consent, much less the knowledge of the other contracting party, which was MMPCI. And in this
case, MMPCI did not agree to a change in the contract and in fact implemented the same pursuant to its clear
terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the
latter exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot
be charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had full
powers as the written contract expressly stated the terms and conditions which Atty. Linsangan accepted and
understood. In canceling the contract, MMPCI merely enforced the terms and conditions imposed therein. 18
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's
obligation, as a party knowingly dealing with an alleged agent, to determine the limitations of such agent's
authority, particularly when such alleged agent's actions were patently questionable. According to MMPCI,
Atty. Linsangan did not even bother to verify Baluyot's authority or ask copies of official receipts for his
payments. 19
The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding
that Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having represented
MMPCI's interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is
considered estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority. 20 The
appellate court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to
act for and in its behalf and stead. While Baluyot's authority "may not have been expressly conferred upon
her, the same may have been derived impliedly by habit or custom, which may have been an accepted practice
in the company for a long period of time." 21 Thus, the Court of Appeals noted, innocent third persons such
as Atty. Linsangan should not be prejudiced where the principal failed to adopt the needed measures to
23
prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts
the benefits of such misrepresentation, he cannot at the same time deny responsibility for such
misrepresentation. 22 Finally, the Court of Appeals declared:
There being absolutely nothing on the record that would show that the
court a quo overlooked, disregarded, or misinterpreted facts of weight and
significance, its factual findings and conclusions must be given great weight and
should not be disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED
and the appealed decision in Civil Case No. 88-1253 of the Regional Trial Court,
National Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto.
SO ORDERED. 23
MMPCI filed its Motion for Reconsideration, 24 but the same was denied for lack of merit. 25
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract and Atty. Linsangan's failure to abide by the terms
thereof, which justified its cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she
clearly exceeded her authority and Atty. Linsangan knew or should have known about this considering his
status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to
consider that the facts and the applicable law do not support a judgment against Baluyot only "up to the
extent of costs." 26
Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in
fact faithfully performed his contractual obligations and complied with them in good faith for at least two
years. 27 He claims that contrary to MMPCI's position, his profession as a lawyer is immaterial to the validity
of the subject contract and the case at bar. 28 According to him, MMPCI had practically admitted in
its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI allowed
Baluyot to act as though she had full powers to be held solidarily liable with the latter. 29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court
is limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is based on misapprehension of facts. 30 In BPI
Investment Corporation v. D.G. Carreon Commercial Corporation, 31 this Court ruled:
There are instances when the findings of fact of the trial court and/or
Court of Appeals may be reviewed by the Supreme Court, such as (1) when the
conclusion is a finding grounded entirely on speculation, surmises and conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3)
where there is a grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when
the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (7) when
the findings are contrary to those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioners' main and
reply briefs are not disputed by the respondents; and (10) the findings of fact of
the Court of Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record. 32
In the case at bar, the Court of Appeals committed several errors in the apprehension of the
facts of the case, as well as made conclusions devoid of evidentiary support, hence we review its findings of
fact. DEHcTI

By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. 33 Thus, the elements of
agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the
execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for
himself; and (iv) the agent acts within the scope of his authority. 34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and not an
agent. 35 However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to
MMPCI offers to purchase interment spaces belonging to and sold by the latter. 36 Notwithstanding the
claim of MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to
solicit solely for and in behalf of MMPCI. As properly found both by the trial court and the Court of Appeals,
Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been allowed by
MMPCI to represent it in her dealings with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the
contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces
obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such
forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI
showed a total list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that
he has read or has had read to him this agreement, that he understands its terms and conditions, and that
there are no covenants, conditions, warranties or representations other than those contained herein." 37 By
signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot
had an agreement different from that contained in the Offer to Purchase is of no moment, and should not
affect MMPCI, as it was obviously made outside Baluyot's authority. To repeat, Baluyot's authority was
limited only to soliciting purchasers. She had no authority to alter the terms of the written contract provided
by MMPCI. The document/letter "confirming" the agreement that Atty. Linsangan would have to pay the old
price was executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any
of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold
the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and
in case either is controverted, the burden of proof is upon them to establish it. 38 The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. 39 If he does not make such an inquiry, he is chargeable with knowledge of the
agent's authority and his ignorance of that authority will not be any excuse. 40
As noted by one author, the ignorance of a person dealing with an agent as to the scope of the
latter's authority is no excuse to such person and the fault cannot be thrown upon the principal. 41 A person
dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by
relying upon the agent's assumption of authority that proves to be unfounded. The principal, on the other
hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to
ascertain the extent of his authority as well as the existence of his agency. 42
In the instant case, it has not been established that Atty. Linsangan even bothered to inquire
whether Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much
less bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangan's
friend and known to be an agent of MMPCI, her declarations and actions alone are not sufficient to establish
the fact or extent of her authority. 43 Atty. Linsangan as a practicing lawyer for a relatively long period of
time when he signed the contract should have been put on guard when their agreement was not reflected in
the contract. More importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to
effect the transfer of rights earlier promised, and was unable to make good her written commitment, nor
convince MMPCI to assent thereto, as evidenced by several attempts to induce him to enter into other
contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of
caution should be expected of Atty. Linsangan especially in dealings involving legal documents. He did not even
24
bother to ask for official receipts of his payments, nor inquire from MMPCI directly to ascertain the real
status of the contract, blindly relying on the representations of Baluyot. A lawyer by profession, he knew
what he was doing when he signed the written contract, knew the meaning and value of every word or phrase
used in the contract, and more importantly, knew the legal effects which said document produced. He is bound
to accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial
court, MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing
Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the
other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation,
and declared that in view of MMPCI's acceptance of the benefits of Baluyot's misrepresentation, it can no
longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware of
the limits of the powers granted by the principal. In this case, however, the agent
is liable if he undertook to secure the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the
agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he
ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify. 44
Ratification in agency is the adoption or confirmation by one person of an act performed on his
behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting
to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to the unauthorized act of the person who
assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the
parties between whom the question of ratification may arise. 45 Nevertheless, this principle does not apply if
the principal's ignorance of the material facts and circumstances was willful, or that the principal chooses to
act in ignorance of the facts. 46 However, in the absence of circumstances putting a reasonably prudent man
on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts. 47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer 48 reveals that the real arrangement between her and Atty.
Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the
counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract.
Thus, every time an installment falls due, payment was to be made through a check from Atty. Linsangan for
P1,800.00 and a cash component of P1,455.00 from Baluyot. 49 However, it appears that while Atty. Linsangan
issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This was supported by
Baluyot's statements in her letter 50 to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after
she received the copy of the Complaint. In the letter, she admitted that she was remiss in her duties when
she consented to Atty. Linsangan's proposal that he will pay the old price while the difference will be

shouldered by her. She likewise admitted that the contract suffered arrearages because while Atty.
Linsangan issued the agreed checks, she was unable to give her share of P1,455.00 due to her own financial
difficulties. Baluyot even asked for compassion from MMPCI for the error she committed. aECTcA
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI
is concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCI's authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in
accordance with the contract as well. Payments of P3,235.00 for at least two installments were likewise in
accord with the contract, albeit made through a check and partly in cash. In view of Baluyot's failure to give
her share in the payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment. In
fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier cancellation of the
contract, if not for MMPCI's application of some of the checks to his account. However, the checks alone
were not sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check payments for
being insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that
Baluyot had to practically explain to MMPCI's Sales Manager the details of her "arrangement" with Atty.
Linsangan and admit to having made an error in entering such arrangement confirm that MMCPI had no
knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI
was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct
of a party amounting to false representation or concealment of material facts or at least calculated to convey
the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and (iii) knowledge, actual or constructive, of the real facts. 51
While there is no more question as to the agency relationship between Baluyot and MMPCI, there
is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the
authority to alter the standard contracts of the company. Neither is there any showing that prior to signing
Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to Atty. Linsangan. One who claims
the benefit of an estoppel on the ground that he has been misled by the representations of another must not
have been misled through his own want of reasonable care and circumspection. 52 Even assuming that Atty.
Linsangan was misled by MMPCI's actuations, he still cannot invoke the principle of estoppel, as he was clearly
negligent in his dealings with Baluyot, and could have easily determined, had he only been cautious and
prudent, whether said agent was clothed with the authority to change the terms of the principal's written
contract. Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a most
convenient and effective means of injustice. 53 In view of the lack of sufficient proof showing estoppel, we
refuse to hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of
defendant Baluyot may not have been expressly conferred upon her; however, the same may have been
derived impliedly by habit or custom which may have been an accepted practice in their company in a long
period of time." A perusal of the records of the case fails to show any indication that there was such a habit
or custom in MMPCI that allows its agents to enter into agreements for lower prices of its interment spaces,
nor to assume a portion of the purchase price of the interment spaces sold at such lower price. No evidence
was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's cemetery.
The other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount
P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the actual contract
price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the principal
unless the latter ratifies the same. It also bears emphasis that when the third person knows that the agent
was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the
said third person was aware of such limits of authority, he is to blame and is not entitled to recover damages
from the agent, unless the latter undertook to secure the principal's ratification.54
25
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty.
Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions
thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under
the said contract by canceling the same. HTSaEC
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims
to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is
concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages
under the same contract, since there is no evidence showing that Baluyot undertook to secure MMPCI's
ratification. At best, the "agreement" between Baluyot and Atty. Linsangan bound only the two of them. As
far as MMPCI is concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00
under Contract No. 28660, and had in fact received several payments in accordance with the same contract.
If the contract was cancelled due to arrearages, Atty. Linsangan's recourse should only be against Baluyot
who personally undertook to pay the difference between the true contract price of P132,250.00 and the
original proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she
promised to shoulder the said difference would be to conclude that MMPCI undertook to pay itself the
difference, a conclusion that is very illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to recover
damages from Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate
agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to
complete the monthly installment payment under the contract, which, by her own admission, she was unable to
do due to personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed
upon, and were it not for Baluyot's failure to provide the balance, Contract No. 28660 would not have been
cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22
June 2001 and its Resolution dated 12 December 2001 in CA-G.R. CV No. 49802, as well as the Decision in Civil
Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET ASIDE.
The Complaintin Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No pronouncement as to
costs.
SO ORDERED.
||| HARRY KELLER VS RODRIGUEZ
The plaintiff is domestic corporation with its principal office in the city of Manila and
engaged in the electrical business, and among other things in the sale of what is know, as the
"Matthews" electric plant, and the defendant is a resident of Talisay, Occidental Negros, and A. C.
Montelibano was a resident of Iloilo.
Having this information, Montelibano approached plaintiff at its Manila office, claiming that
he was from Iloilo and lived with Governor Yulo; that he was from Iloilo and lived with Governor Yulo;
that he could find purchasers for the "Matthews" plant, and was told by the plaintiff that for any plant
that he could sell or any customer that he could find he would be paid a commission of 10 percent for
his services, if the sale was consummated. Among other persons, Montelibano interviewed the
defendant, and, through his efforts, one of the "Matthews" plants was sold by the plaintiff to the
defendant, and was shipped from Manila to Iloilo, and later installed on defendant's premises after
which, without the knowledge of the plaintiff, the defendant paid the purchase price to Montelibano. As
a result, plaintiff commenced this action against the defendant, alleging that about August 18, 1920 it
sold and delivered to the defendant the electric plant at the agreed price of P2,513.55 no part of which
has been paid, and demands judgment for the amount with interest from October 20, 1920.
For answer, the defendant admits the corporation of the plaintiff, and denies all other
material allegations of the complaint, and, as an affirmative defense, alleges "that on or about the 18th
of August, 1920, the plaintiff sold and delivered to the defendant a certain electric plant and that the
defendant paid the plaintiff the value of said electric plant, to writ: P2,513.55."

Upon such issues the testimony was taken, and the lower court rendered the judgment for
the defendant, from which the plaintiff appeals, claiming that the court erred in holding that the
payment to A. C. Montelibano would discharge the debt of defendant, and in holding that the bill was
given to Montelibano for collection purposes, and that the plaintiff had held out Montelibano to the
defendant as an agent authorized to collect, and in rendering judgment for the defendant, and in not
rendering judgment for the plaintiff.
JOHNS, J p:
The testimony is conclusive that the defendant paid the amount of plaintiff's claim to
Montelibano, and that no part of the money was paid to the plaintiff. The defendant, having alleged that
the plaintiff sold and delivered the plant to him, and that he paid the plaintiff the purchase price, it
devolved upon the defendant to prove the payment to the plaintiff by a preponderance of the evidence.
It appears from the testimony of H. E. Keeler that he was president of the plaintiff and
that the plant in question was shipped from Manila to Iloilo and consigned to the plaintiff itself, and
that at the time of the shipment the plaintiff it sent Juan Cenar, one of its employees, with the
shipment, for the purpose of installing the plant on defendant's premises. That plaintiff gave Cenar a
statement of the account, including some extras and the expenses of the mechanic, making a total of
P2,563.95. That Montelibano had no authority from the plaintiff to receive or receipt for money. That
in truth and in fact his services were limited and confined to the finding of purchasers for the
"Matthews" plant to whom the plaintiff would later make and consummate the sale. That Montelibano
was not an electrician, could not install the plant and did not know anything about its mechanism.
Cenar, as a witness for the plaintiff, testified that he went with the shipment of the plant
from Manila to Iloilo, for the purpose of installing, testing it, and to see that everything was
satisfactory. That he was there about nine days, and that he installed the plant, and that it was tested
and approved by the defendant. He also says that he personally took with him the statement of account
of the plaintiff against the defendant, and that after he was there a few day, the defendant asked to
see the statement of account, and that he gave to him , and the defendant said, "he was going to keep
it." I said that was all right "if your want." "I made no effort at all to collect the amount from him
because Mr. Rodriguez told me he was going to pay for the plant here in Manila." That after the was
installed and approved, he delivered it to the defendant and returned to Manila.
The only testimony on the part of the defendant is that of himself in the form of a
deposition in which he says that Montelibano sold and delivered the plant to him, and "was the one who
ordered the installation of that electrical plant," and he introduced as part of his deposition a
statement and receipt which Montelibano signed to whom he paid the money. When asked why he paid
the money to Montelibano, the witness says:
"Because he was the one who sold, delivered, and installed the
electrical plant, and he presented to me the account, Exhibits A and A-1, and he
assured me that he was duly authorized to collect the value to collect the value of
the electrical plant."
The receipt offered in evidence is headed:
"STATEMENT Folio No. 2494
"Mr. DOMINGO RODRIGUEZ,
"Iloilo, Iloilo, P. I.
"In account with
"HARRY E. KEELER ELECTRIC COMPANY, Inc.
"221 Calle Echague, Quiapo, Manila, P. I.
"Manila, P. I., August 18,
1920."
26
The answer alleges and the receipt shows upon its face that the plaintiff sold the plant to
the defendant, and that be bought it from the plaintiff. The receipt is signed as follows:
"Received payment
"HARRY E. KEELER ELECTRIC CO. Inc.,
"Recibi
(Sgd.) "A. C. MONTELIBANO."
There is nothing of the face of this receipt to show that Montelibano was the agent of, or
that he was acting for, the plaintiff. It is his own personal receipt and his own personal signature.
Outside of the fact that Montelibano received the money and signed this receipt, there is no evidence
that he had any authority, real or apparent, to receive or receipt for the money. Neither is there any
evidence that the plaintiff ever delivered the statement to Montelibano, or authorized anyone to
deliver it to him, and it is very apparent that the statement in question is the one which was delivered
by the plaintiff to Cenar, and is the one which Cenar delivered to the defendant at the request of the
defendant.
The evidence of the defendant that Montelibano was the one who sold him the plant is in
direct conflict with his own pleading and the receipted statement which he offered in evidence. This
statement also shows upon its face that P81.60 of the bill is for:
"To Passage round trip, 1st Class @
P40.80 a trip P81.60."
and
"Plus Labor @ P5.00 per day —
"Machine's transportation P9.85."
This claim must be for the expenses of Cenar in going to Iloilo from Manila and return, to
install the plant, and is strong evidence that it was Cenar and not Montelibano who installed the plant. If
Montelibano installed the plant, as defendant claims, there would not have been any necessity for Cenar
to make this trip at the expenses of the defendant. After Cenar's return to Manila, the plaintiff wrote
a letter to the defendant requesting the payment of its account, in answer to which the defendant on
September 24 sent the following telegram:
"Electric plant accessories and installation are paid to Montelibano
about weeks Keeler Company did not present bill."
This is in direct conflict with the receipted statement, which the defendant offered in
evidence, signed by Montelibano. That shows upon its face that it was an itemized statement of the
account of plaintiff with the defendant. Again, it will be noted that the receipt which Montelibano
signed is not dated, and it does not show when the money was paid: Speaking of Montelibano, the
defendant also testified: "and he assured me that he was duly authorized to collect the value of the
electrical plant." This shows upon its face that the question of Montelibano's authority to receive the
money must have been discussed between them, and that, in making the payment, defendant relied upon
Montelibano's own statement and representations, as to his authority, to receipt for the money.
In the final analysis, the plant was sold by the plaintiff to the defendant, and was consigned
by the plaintiff to the plaintiff at Iloilo where it was installed by Cenar, acting for, and representing,
the plaintiff, whose expense for the trip is included in, and made a part of, the which was receipted by
Montelibano.
There is no evidence that the plaintiff ever delivered any statement to Montelibano, or that
he was authorized to receive or receipt for the money, and defendant's own telegram shows that the
plaintiff "did not present bill" to defendant. He now claims that at the very time this telegram was sent,

he had the receipt of Montelibano for the money upon the identical statement of account which it is
admitted the plaintiff did render to the defendant.
Article 1162 of the Civil Code provides:
"Payment must be made to the person in whose favor the obligation is
constituted, or to another authorized to receive to in his name."
And article 1727 provides:
"The principal shall be liable as to matters with respect to which the
agent has exceeded his authority only when he ratifies the same expressly or by
implication."
In the case of Ormachea Tin-Congco vs. Trillana (13 Phil., 194), this court held:
"The repayment of a debt must be made to the person in whose favor
the obligation is constituted, or to another expressly authorized to receive the
payment to his name."
Mechem on Agency, volume I, section 743 says:
"In approaching the consideration of the inquiry whether an assumed
authority exists in a given case, there are certain fundamental principles which
must not be overlooked. Among these are, as has been seen, (1) that the law
indulges in no bare presumptions that an agency exists: it must be proved or
presumed from facts; (2) that the agent cannot establish his own authority, either
by the representations or by assuming to exercise it; (3) that an authority cannot
be established by mere rumor or general reputation; (4) that even a general
authority is not an unlimited one; and (5) that every authority must find its
ultimate source in some act or omission of the principal. An assumption of authority
to act as agent to act as agent for another of itself challenges inquiry. Like a
railroad crossing, it should be in itself a sign of danger and suggest the duty to
'stop, look, and listen.' It is therefore declared to be a fundamental rule, never to
be lost sight of and not easily to be overestimated, that persons dealing with an
assumed agent, whether the assumed be a general or special one, are bound at
their peril, if they hold the principal, to ascertain not only the fact of the agency
but the nature and extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it."
". . . It is, moreover, in any case entirely within the power of the person
dealing with the agent to satisfy himself that the agent has authority he assumes
to exercise, or to decline to its relations with him." ( Mechem on Agency, vol. I,
sec. 746.)
"The person dealing with the agent must also act with ordinary
prudence and reasonable diligence. Obviously, if he know or has good reason to
believe that the agent is exceeding his authority, he cannot claim protection. So if
the suggestions of probable limitations be of such a clear and reasonable quality, or
if the character assumed by the agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks to exercise is of such an unusual or
improbable character, as would suffice to put an ordinarily prudent man upon his
guard, the party dealing with him may not shut his eyes to the real state of the
case, but should either refuse to deal with the agent at all, or should ascertain
either refuse to deal with the agent at all, or should ascertain from the principal
the true condition of affairs." (Mechem on Agency, vol. I, sec. 752.)
"And not only must the person dealing with the agent ascertain the
existence of the conditions, but he must also, as in other cases, be able to trace
the source of his reliance to some word or act of the principal himself if the latter
is to be held responsible. As has often been pointed out, the agent alone cannot
enlarge or extend his authority by his own acts or statements, nor can he alone
27
remove limitations or waive condition imposed by his principal's consent or
concurrence must be shown." (Mechem on Agency, vol. I, section 757.)
This was a single transaction between the plaintiff and the defendant.
Applying the above rules, the testimony is conclusive that the plaintiff never authorized
Montelibano to receive or receipt for money in its behalf, and that the defendant had no right to
assume by any act or deed of the plaintiff that Montelibano was authorized to receive the money, and
that the defendant made the payment at his own risk and on the sole representations of Montelibano
that he was authorized to receipt for the money.
The judgment of the lower court is reversed, and one will be entered here in favor of the
plaintiff and against the defendant for the sum of P2,513.55, with interest at the legal rate from
January 10, 1921, with costs in favor of the appellant. So ordered.
FILIPINAS LIFE ASSURANCE VS CA
This petition for review on certiorari seeks the reversal of the Decision 1 and
Resolution, 2 dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in
CA-G.R. CV No. 33568. The appellate court had affirmed the Decision 3 dated October 10, 1989 of the
Regional Trial Court (RTC) of Manila, Branch 3, finding petitioner as defendant and the co-defendants
below jointly and severally liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance
issued by petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was
her insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January
1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment program
for policyholders. It was offering 8% prepaid interest a month for certain amounts deposited on a
monthly basis. Enticed, she initially invested and issued a post-dated check dated January 7, 1977 for
P10,000. 4 In return, Valle issued Pedroso his personal check for P800 for the 8% 5 prepaid interest
and a Filipinas Life "Agent's Receipt" No. 807838. 6
Subsequently, she called the Escolta office and talked to Francisco Alcantara, the
administrative assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired
about the promotional investment and Apetrior confirmed that there was such a promotion. She was
even told she could "push through with the check" she issued. From the records, the check, with the
endorsement of Alcantara at the back, was deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioner's duly authorized representatives
Apetrior and Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the
maturity of her initial investment. A month after, her investment of P10,000 was returned to her after
she made a written request for its refund. The formal written request, dated February 3, 1977, was
written on an inter-office memorandum form of Filipinas Life prepared by Alcantara. 7 To collect the
amount, Pedroso personally went to the Escolta branch where Alcantara gave her the P10,000 in cash.
After a second investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but
at a lower rate of 5% 8 prepaid interest a month. Upon maturity of Pedroso's subsequent investments,
Valle would take back from Pedroso the corresponding yellow-colored agent's receipt he issued to the
latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder,
about the investment plan. Palacio made a total investment of P49,5509 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her investment, Valle did not want to return some P17,000
worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to return
her money. With the assistance of their lawyer, they went to Filipinas Life Escolta Office to collect
their respective investments, and to inquire why they had not seen Valle for quite some time. But their
attempts were futile. Hence, respondents filed an action for the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle,
Apetrior and Alcantara jointly and solidarily liable to the respondents.

On appeal, the Court of Appeals affirmed the trial court's ruling and subsequently denied
the motion for reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE
DECISION OF THE LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE
JOINTLY AND SEVERALLY LIABLE WITH ITS CO-DEFENDANTS ON THE
CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO
VALLE, SOLELY LIABLE TO THE RESPONDENTS. 10
Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly
and severally liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life
insurance company and was not engaged in the business of collecting investment money. It contends that
the investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope
of their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents. 11
On the other hand, respondents contend that Filipinas Life authorized Valle to solicit
investments from them. In fact, Filipinas Life's official documents and facilities were used in
consummating the transactions. These transactions, according to respondents, were confirmed by its
officers Apetrior and Alcantara. Respondents assert they exercised all the diligence required of them
in ascertaining the authority of petitioner's agents; and it is Filipinas Life that failed in its duty to
ensure that its agents act within the scope of their authority.
Considering the issue raised in the light of the submissions of the parties, we find that the
petition lacks merit. The Court of Appeals committed no reversible error nor abused gravely its
discretion in rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and
P49,550, respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Life's
official receipts, whose authenticity were not disputed. Valle's authority to solicit and receive
investments was also established by the parties. When respondents sought confirmation, Alcantara,
holding a supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority.
While it is true that a person dealing with an agent is put upon inquiry and must discover at his own peril
the agent's authority, in this case, respondents did exercise due diligence in removing all doubts and in
confirming the validity of the representations made by Valle.
Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By the
contract of agency, a person binds himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter. 12 The general rule is that the
principal is responsible for the acts of its agent done within the scope of its authority, and should bear
the damage caused to third persons. 13 When the agent exceeds his authority, the agent becomes
personally liable for the damage. 14 But even when the agent exceeds his authority, the principal is still
solidarily liable together with the agent if the principal allowed the agent to act as though the agent
had full powers. 15 In other words, the acts of an agent beyond the scope of his authority do not bind
the principal, unless the principal ratifies them, expressly or impliedly. 16 Ratification in agency is the
adoption or confirmation by one person of an act performed on his behalf by another without
authority. 17
Filipinas Life cannot profess ignorance of Valle's acts. Even if Valle's representations were
beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly
and knowingly ratified Valle's acts. It cannot even be denied that Filipinas Life benefited from the
investments deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas Life had
clothed Valle with apparent authority; hence, it is now estopped to deny said authority. Innocent third
persons should not be prejudiced if the principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his agent's acts beyond the latter's authority.
28
The act of the agent is considered that of the principal itself. Qui per alium facit per seipsum facere
videtur. "He who does a thing by an agent is considered as doing it himself." 18
WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated
November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568
are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
BITTE VS JONAS
In this petition for review on certiorari 1 under Rule 45 of the Rules of Court,the
petitioners, Farida Yap Bitte and Heirs of Benjamin Bitte (the petitioners), seek the review of the
September 26, 2013 Decision 2 and February 26, 2014 Resolution 3 of the Court of Appeals (CA) in CA-
G.R. CV No. 01596-MIN, which reversed the January 18, 2007 Joint Decision 4 of the Regional Trial
Court, Branch 13, Davao (RTC-Branch 13), arrived at in favor of respondents, Spouses Fred and Rosa
Elsa Serrano Jonas (Spouses Jonas).
Factual Antecedents
This controversy stemmed from two civil cases filed by the parties against each other
relative to a purported contract of sale involving a piece of property situated at 820 corner Jacinto
Street and Quezon Boulevard, Davao City (subject property). It was initially covered by TCT No. T-
112717 in the name of Rosa Elsa Serrano Jonas (Rosa Elsa) and presently by TCT No. T-315273 under
the name of Ganzon Yap, married to Haima Yap (Spouses Yap).
On July 19, 1985, before Rosa Elsa went to Australia, she had executed a Special Power of
Attorney (SPA) authorizing her mother, Andrea C. Serrano (Andrea), to sell the property.
Sometime in May 1996, Cipriano Serrano (Cipriano), son of Andrea and brother of Rosa Elsa,
offered the property for sale to Spouses Benjamin and Farida Yap Bitte (Spouses Bitte) showing them
the authority of Andrea. On September 3, 1996, Cipriano received from Spouses Bitte the amount of
P200,000.00 as advance payment for the property. Later on, on September 10, 1996, he received the
additional amount of P400,000.00. CAIHTE
Spouses Bitte sought a meeting for final negotiation with Rosa Elsa, the registered owner of
the subject property. At that time, Rosa Elsa was in Australia and had no funds to spare for her travel
to the Philippines. To enable her to come to the country, Spouses Bitte paid for her round trip ticket.
On October 10, 1996, shortly after her arrival here in the Philippines, Rosa Elsa revoked the
SPA, through an instrument of even date, and handed a copy thereof to Andrea.
The next day, on October 11, 1996, the parties met at Farida Bitte's office, but no final
agreement was reached. The next day, Rosa Elsa withdrew from the transaction.
On October 17, 1996, Spouses Bitte filed before the RTC a Complaint for Specific
Performance with Damages seeking to compel Rosa Elsa, Andrea and Cipriano to transfer to their names
the title over the subject property. The case was docketed as Civil Case No. 24,771-96 and raffled
to RTC-Branch 13.
While the case was pending, Andrea sold the subject property to Spouses Bitte, through a
deed of absolute sale, dated February 25, 1997, and notarized by one Atty. Bernardino Bolcan, Jr.
Immediately thereafter, Rosa Elsa asked Andrea about the sale. Her questions about the
sale, however, were ignored and her pleas for the cancellation of the sale and restoration of the
property to her possession were disregarded.
Undisputed by the parties is the fact that Rosa Elsa earlier mortgaged the subject
property to Mindanao Development Bank. Upon failure to pay the loan on maturity, the mortgage was
 29
foreclosed and sold at a public auction on December 14, 1998 as evidenced by the annotation on the Bitte, Andrea C. Serrano, Reg.
title, Entry No. 1173153. 5 of Deeds and the Clerk of
Court, RTC, Davao City)
Armed with the deed of absolute sale executed by Andrea, Spouses Bitte were able to
redeem the property on September 14, 1998 from the highest bidder, Thelma Jean Salvana, for P1.6 On November 16, 1999, Spouses Jonas filed before the RTC Civil Case No. 27,667-99, a
Million Pesos. complaint for Annulment of Deed of Absolute Sale, Cancellation of TCT and Recovery of Possession,
Injunction, and Damages against Spouses Bitte.
Thereafter, Spouses Bitte sold the property to Ganzon Yap (Ganzon), married to Haima
Yap. 6 In the Complaint, Spouses Jonas alleged that Rosa Elsa acquired the property before
marriage; that on July 19, 1985, when she decided to leave for Australia to reside there, she executed
Civil Case No. 24,771-96 an SPA of even date, granting her mother, Andrea, the authority to sell the subject property; that
(Spouses Bitte v. Rosa Elsa while in Australia, she decided that she would no longer sell the property; that she instructed her
Serrano Jonas, Andrea C.
mother to stop offering the property to prospective buyers; that upon arrival here in the Philippines in
Serrano and Cipriano Serrano, 1996, she revoked the SPA, through an instrument, dated October 10, 1996, and handed a copy thereof
Jr.)
to Andrea; that later, she received information that the property was subsequently sold to Spouses
As earlier recited, on October 17, 1996, Spouses Bitte filed before the RTC Civil Case No. Bitte, through a Deed of Absolute Sale, dated February 25, 1997, signed by her mother, Andrea; and
24,771-96, a Complaint for Specific Performance with Damages seeking to compel Rosa Elsa, Andrea that she then pleaded for the return of the property, but Andrea repeatedly ignored her.
and Cipriano to transfer the title of the subject property to their names. DETACa Spouses Jonas eventually sought judicial recourse through the filing of a complaint for the
In their Complaint, Spouses Bitte alleged that sometime in May 1996, the property was Annulment of the Deed of Absolute Sale and Reconveyance of the Property which was raffled to RTC-
offered to them for sale by Cipriano, who showed them the SPA in favor of Andrea; that on September Branch 9.
3, 1996 and September 10, 1996, Cipriano received from them the respective amounts of P200,000.00 On November 17, 1999, Branch 9 issued a 20-day TRO restraining Spouses Bitte from
and then P400,000.00 as advance payments for the property; that they sought a meeting for final selling or disposing the subject property. On December 6, 1999, after hearing, it issued a WPI for the
negotiation with Rosa Elsa, then the registered owner of the subject property; that at that time, Rosa same purpose.
Elsa was in Australia and had no funds to spare in order to return to the Philippines; that to enable her
to come to the country, they paid for her round trip ticket; that on October 11, 1996, they and Rosa On July 11, 2000, Rosa Elsa moved for the admission of an Amended Complaint in order to
Elsa met at Farida Bitte's office; that an agreement of sale of the subject property for the total implead Spouses Yap because the title over the subject property had been subsequently registered in
purchase price of P6.2 Million Pesos was reached; that P5 Million thereof would be paid on October 18, their names. ETHIDa
1996 and the balance, thirty (30) days thereafter; that on the following day, Rosa Elsa withdrew from
the transaction; and that on the same date, they demanded, through a letter, the execution of the Consolidation of the
Two Cases
necessary documents to effect the transfer of the property to their names, but to no avail.

On October 18, 1996, RTC-Branch 13 granted the prayer for the issuance of a Temporary As earlier recited, RTC-Branch 13 dismissed the complaint of Spouses Bitte and set the
Restraining Order (TRO) preventing Rosa Elsa and her agents from disposing the subject property. reception of Rosa Elsa's counterclaim for hearing. Later on, RTC-Branch 13 cancelled the reception of
Subsequently, on November 8, 1996, a Writ of Preliminary Injunction (WPI) was issued in favor of Rosa Elsa's evidence without reconsidering the dismissal of the complaint.
Spouses Bitte. Nonetheless, on May 26, 2000, RTC-Branch 13 reconsidered its earlier ruling after seeing
In response, Rosa Elsa countered that despite her appointment of her mother, Andrea, as the need to consolidate Civil Case No. 27,667-99 with Civil Case No. 24,771-99 pending before the
her attorney-in-fact/agent, she later gave her instructions not to sell the property; that her revocation RTC, Branch 9, Davao (RTC-Branch 99). In the October 4, 2001 Order, the cases were
barred the consummation of the contract to sell; that it was her belief that her return to the ordered consolidated and were thereafter scheduled to be jointly heard before Branch 13.
Philippines was in connection with the sale of another property situated in Cawag, San Isidro, Davao On April 17, 2002, Spouses Bitte were again declared in default by RTC-Branch 13 for their
Oriental; that it was a surprise to her when she learned that Cipriano was still negotiating for the sale failure to attend the pre-trial.
of the subject property; that for said reason, she asked for a meeting with Spouses Bitte to discuss
the issue; that in the meeting, upon learning of the source of her air fare, she offered to refund it and On January 4, 2003, the counsel of Spouses Bitte withdrew and a new one entered his
to return the unused ticket for her return trip, but Spouses Bitte refused her offer; that no authority appearance and then filed a verified motion for reconsideration.
was given to Cipriano to receive any advance payment for the property; and that Andrea's authority was
revoked through a Deed of Revocation of the Special Power of Attorney (SPA), dated October 10, 1996. On August 21, 2003, Spouses Bitte once again failed to appear in the pre-trial and were,
thus, declared non-suited. Rosa Elsa then presented her evidence ex parte.
During the pre-trial conference held on July 30, 1999, Spouses Bitte failed to appear.
Joint Decision of the RTC-Branch 13
Consequently, RTC-Branch 13 dismissed their complaint and set the reception of Rosa Elsa's
counterclaim for hearing. On January 18, 2007, RTC-Branch 13 rendered a Joint Decision, 7 confirming the dismissal
Later on, Benjamin Bitte manifested the withdrawal of their counsel. RTC-Branch 13 then of Civil Case No. 24,771-96 and directing Spouses Bitte to pay Rosa Elsa the amount of P1,546,752.80,
cancelled the reception of Rosa Elsa's evidence without reconsidering the dismissal of the representing the balance of the sale of the subject. The dispositive portion of the Joint Decision reads:
complaint. aDSIHc WHEREFORE, judgment is hereby rendered in these cases as
follows: cSEDTC
Civil Case No. 27,667-99
(Spouses Fred Jonas and Rosa a. Reiterating the dismissal of Civil Case No. 24,771-96;
Elsa Serrano Jonas v. Sps.
Benjamin Bitte and Farida Yap

b. Directing spouses Benjamin and Farida Bitte to pay Rosa Elsa Serrano Jonas the
amount of P1,546,752.80 (one million five hundred forty-six thousand
seven hundred fifty two and 80/100 pesos) representing the balance of
the sale of the property subject of this case to them;
c. Directing spouses Benjamin and Farida Bitte to pay interest on the balance at
the rate of 12% per annum from the date of this decision until fully
paid.
SO ORDERED. 8
Ruling of the CA
Aggrieved, Spouses Jonas appealed to the CA. On September 26, 2013, the CA reversed the
RTC-Branch 13 Joint Decision. In so ruling, the CA focused on the validity and enforceability of the
deed of absolute sale executed by Andrea in the name of Rosa Elsa. The CA explained:
1. Andrea's execution on behalf of Rosa Elsa of the deed of absolute sale in favor of
Spouses Bitte was void and unenforceable as the authority to represent Rosa Elsa had already been
revoked as early as October 10, 1996. Without the authority to effect the conveyance, the contract
was without effect to Rosa Elsa, who was a stranger to the conveyance in favor of Spouses Bitte. Rosa
Elsa did not consent to the transaction either.
2. Considering that no valid conveyance was effected, Spouses Bitte had no right to redeem
the foreclosed property because they were not among those persons who could redeem a property
under Sec. 6 of Act No. 3135 and Section 27 of Rule 39 of the Rules of Court. They could not be
considered successors-in-interest or transferees because no right was conveyed by Rosa Elsa on
account of the revocation of the authority given to Andrea.
3. Ganzon, the one who subsequently purchased the property from Spouses Bitte, was not an
innocent purchaser of the property as the conveyance was attended with circumstances which should
have alerted him of the fallibility of the title over the property. Ganzon transacted with Spouses Bitte,
who were then not yet the registered owners of the property. He should have made inquiries first as to
how Spouses Bitte acquired the rights over the property. SDAaTC
Thus, the CA disposed as follows:
WHEREFORE, premises considered, the instant appeal is
hereby GRANTED and the Joint Decision, dated 18 January 2007 of the RTC,
Eleventh Judicial Region, Branch 13, Davao City, insofar as it pertains to Civil
Case No. 27,667-99 is hereby REVERSED and SET ASIDE. Accordingly,
a) The Deed of Absolute Sale dated 25 February 1997 is hereby
declared NULL and VOID.
b) Transfer Certificate of Title (TCT) No. T-315273 in the name of
Ganzon Yap, married to Haima Yap, is
declared NULL and VOID, and the Registry of Deeds of
Davao City is hereby DIRECTED to cancel TCT No. T-
315273, and to issue a new title reinstating TCT No. T-
112717 in the name of Rosa Elsa S. Serrano; and
c) Ganzon and Haima Yap and/or whoever is in possession of the
subject property, or their agents and those acting for in
their behalf are hereby DIRECTEDto VACATE the subject
property and surrender the possession of the same to
plaintiff-appellant Rosa Elsa Serrano-Jonas.
SO ORDERED. 9
Aggrieved, Spouses Bitte moved for reconsideration, but their motion was denied by the CA
on February 26, 2014. 10
30
Hence, this petition by the petitioners, Farida Yap Bitte and the Heirs of Benjamin
Bitte: 11 acEHCD
ISSUES
I
WHETHER OR NOT THE COURT OF APPEALS-MINDANAO STATION
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS WHEN IT ALLOWED THE APPELLANTS BRIEF FILED BY
RESPONDENTS IN VIOLATION OF SECTION 7, RULE 44 OF THE RULES
OF COURT
II
WHETHER OR NOT THE RULING OF THE COURT OF APPEALS FINDING
THE REVOCATION OF THE SPA, DESPITE LACK OF BASIS,
ENFORCEABLE AGAINST THIRD PERSONS IS IN ACCORD WITH LAW.
III
WHETHER OR NOT THE RULING OF THE COURT OF APPEALS FINDING
THE DEED OF SALE INVALID IS SUPPORTED BY STRONG AND
CONCLUSIVE EVIDENCE AS REQUIRED BY LAW.
IV
WHETHER OR NOT THE RULING OF THE COURT OF APPEALS
DISREGARDING THE LEGAL EFFECTS OF THE FORECLOSURE SALE IS A
DEPARTURE FROM THE ESTABLISHED JURIDICIAL PRONOUNCEMENTS.
V
WHETHER OR NOT THE RULING OF THE COURT OF APPEALS NOT
FINDING GANZON YAP AS INNOCENT PURCHASER FOR VALUE IS
CONSISTENT WITH THE PRINCIPLE OF INDEFEASIBILITY OF
TITLE. 12
In advocacy of their positions, the petitioners submit the following arguments:
1. The deed of absolute sale executed by Andrea was valid and legal because the SPA was
not validly revoked as the revocation was not registered in the Office of the
Register of Deeds of Davao City. Thus, Andrea's authority to transact with
them on behalf of Rosa Elsa subsisted. SDHTEC
2. The CA decision, declaring the deed of absolute sale null and void, directing the
cancellation of TCT No. T-315273, and reinstating TCT No. T-112717, without
attacking the auction sale and redemption made by Spouses Bitte was a highly
questionable act.
3. Considering that the deed of absolute sale was valid, they could redeem the property
pursuant to Act No. 3135, as amended, and Sec. 27 of Rule 39 of the Rules of
Court.
4. No evidence was presented showing that Ganzon indeed bought the property in bad faith
considering that the TCT No. T-112717 did not bear any annotation that should
have alarmed him before buying the property. Ganzon could not have been
expected to go beyond the title and look for vices or defects that could have
rendered him not a purchaser in good faith and for value.
In their Comment, 13 Spouses Jonas called the attention of the Court to the fact that
Spouses Bitte had been declared in default by the RTC. Spouses Jonas contended that, being in default,
Spouses already lost the legal personality to resort to this petition. They also averred that the

questions presented in this petition are one of facts and not of law. Not being a trier of facts, this
Court must deny the petition.
On the merits, they argued that the SPA was not enforceable; that the deed of absolute
sale executed by Andrea was a nullity because it was made with knowledge on the part of Spouses Bitte
of the revocation of Andrea's authority; and that Spouses Yap could not be considered purchasers in
good faith as they failed to verify the authority of the vendors, Spouses Bitte, considering that the
certificate of title was still under Rosa Elsa's name. AScHCD
In their Reply, 14 Spouses Bitte reiterated their positions as set out in their petition.
Ruling of the Court
The Court denies the petition.
Procedural Issues
Before tackling the substantive issues, a few procedural matters must first be threshed
out.
The first is on the issue of the personality of the petitioners to file this petition. Spouses
Jonas claim that the door to any reliefs for Spouses Bitte, be it through a motion for reconsideration
or this subject petition, was closed by the finality and immutability of the RTC declaration of their
default. In other words, it is their stand that the petitioners do not have the right to obtain recourse
from this Court.
Spouses Jonas are mistaken.
The rule is that "right to appeal from the judgment by default is not lost and can be done on
grounds that the amount of the judgment is excessive or is different in kind from that prayed for, or
that the plaintiff failed to prove the material allegations of his complaint, or that the decision is
contrary to law." 15 If a party who has been declared in default has in his arsenal the remedy of appeal
from the judgment of default on the basis of the decision having been issued against the evidence or
the law, that person cannot be denied the remedy and opportunity to assail the judgment in the
appellate court. Despite being burdened by the circumstances of default, the petitioners may still use
all other remedies available to question not only the judgment of default but also the judgment on
appeal before this Court. Those remedies necessarily include an appeal by certiorari under Rule 45 of
the Rules of Court.
The second is on the propriety of the questions raised in the petition. Spouses Jonas claims
that that the issues raised here, being factual, are inappropriate for being beyond the inquiry of this
Court; that the factual findings of the CA could no longer be modified or even reviewed citing the long
standing rule that they are final and conclusive. Although the rule admits of exceptions, they insist that
none of them obtains in this case. AcICHD
Indeed, the questions forwarded by Spouses Bitte are without doubt factual issues. This
Court, being not a trier of facts, has no recourse but to give credence to the findings of the CA.
Although it is true that there are exceptions as enumerated in Development Bank of the Philippines v.
Traders Royal Bank, 16 none of these were invoked or cited in the petition.
On that score alone, this petition should be denied outright.
Substantive Issues
The Genuineness and Due Execution
of the Deed of Sale in favor of
Spouses Bitte were not proven
The Court agrees with the CA that the genuineness and due execution of the deed of sale in
favor Spouses Bitte were not established. Indeed, a notarized document has in its favor the
presumption of regularity. Nonetheless, it can be impugned by strong, complete and conclusive proof of
its falsity or nullity on account of some flaws or defects on the document. 17
31
In the case at bench, it is on record that the National Archives, Records Management and
Archives Office, Regional Archives Division, Davao City, certified that it had no copy on file of the
Deed of Absolute Sale, dated February 25, 1997, sworn before Atty. Bernardino N. Bolcan, Jr.,
denominated as Doc. No. 988, Page No. 198, Book No. 30, Series of 1997. Their record shows that,
instead, the document executed on said date with exactly the same notarial entries pertained to a Deed
of Assignment of Foreign Letter of Credit in favor of Allied Banking Corporation. 18 Such irrefutable
fact rendered doubtful that the subject deed of absolute sale was notarized.
Article 1358 of the New Civil Code requires that the form of a contract transmitting or
extinguishing real rights over immovable property should be in a public document. Pertinently, Section
19, Rule 132 of the Rules of Court reads:
Section 19. Classes of documents. — For the purposes of their
presentation in evidence, documents are either public or private.
Public documents are: TAIaHE
(a) The written official acts, or records of the official acts of the
sovereign authority, official bodies and tribunals, and public
officers, whether of the Philippines, or of a foreign
country;
(b) Documents acknowledged before a notary public except last wills
and testaments; and
(c) Public records, kept in the Philippines, of private documents
required by law to be entered therein.
All other writings are private.
Not having been properly and validly notarized, the deed of sale cannot be considered a
public document. It is an accepted rule, however, that the failure to observe the proper form does not
render the transaction invalid. It has been settled that a sale of real property, though not consigned in
a public instrument or formal writing is, nevertheless, valid and binding among the parties, for the time-
honored rule is that even a verbal contract of sale or real estate produces legal effects between the
parties. 19
Not being considered a public document, the deed is subject to the requirement of proof
under Section 20, Rule 132, which reads:
Section 20. Proof of private document. — Before any private
document offered as authentic is received in evidence its due execution and
authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of
the maker.
Any other private document need only be identified as that which it
is claimed to be.
Accordingly, the party invoking the validity of the deed of absolute sale had the burden of
proving its authenticity and due execution. Unfortunately, Spouses Bitte were declared as in default
and, for said reason, they failed to discharge such burden in the court below. Thus, the Court agrees
with the CA that the RTC erred in applying the presumption of regularity that attaches only to duly
notarized documents as distinguished from private documents. cDHAES
Without the presumption of regularity accorded to the deed coupled with the default of
the party relying much on the same, the purported sale cannot be considered. It is as if there was no
deed of sale between Spouses Bitte and Spouses Jonas.

The genuineness and due execution of the deed of sale in favor of Spouses Bitte not having
been established, the said deed can be considered non-existent.
Spouses Bitte, however, are questioning the "non-existent" deed of sale.
Granting that its genuineness and
due of execution were proven, the
deed of sale is still unenforceable;
Doctrine of Apparent Authority
Granting arguendo that the deed of sale may still be considered, the transaction is,
nevertheless, unenforceable.
In this regard, petitioners posit that the deed must be recognized and enforced for the
reason that, despite the revocation of the authority of Andrea prior to the execution of the deed, they
should not be bound by that revocation for lack of notice. Consequently, they contend that as far as
they are concerned, the contract of sale should be given effect for having been executed by someone
appearing to them as authorized to sell.
They further argue that the failure of Rosa Elsa to register, file and enter the deed of
revocation in the Registry of Deeds did not bind Spouses Bitte under Section 52 of the Property
Registration Decree. Said section provides that "[e]very conveyance, mortgage, lease, lien, attachment,
order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in
the Office of the Register of Deeds for the province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering, filing or entering." It is their
position that without the registration of the revocation, they cannot be bound by it and the Court must
respect the sale executed by her agent, Andrea. ASEcHI
The Court is not persuaded.
Basic is the rule that the revocation of an agency becomes operative, as to the agent, from
the time it is made known to him. Third parties dealing bona fidewith one who has been accredited to
them as an agent, however, are not affected by the revocation of the agency, unless notified of such
revocation. 20 This refers to the doctrine of apparent authority. Under the said doctrine, acts and
contracts of the agent within the apparent scope of the authority conferred on him, although no actual
authority to do such acts or has been beforehand withdrawn, revoked or terminated, bind the
principal. 21 Thus, as to a third person, "apparent authority, when present, trumps restrictions that the
principal has privately imposed on the agent. The relevant appearance is that the principal has
conferred authority on an agent. An actor may continue to possess apparent authority although the
principal has terminated the actor's actual authority or the agency relationship between them. This is
so because a third party may reasonably believe that the actor continues to act as an agent and within
the scope of actual authority on the basis of manifestations previously made by the principal. Such a
manifestation, once made, remains operative until the third party has notice of circumstances that
make it unreasonable to believe that the actor continues to have actual authority." 22 Hence, apparent
authority may survive the termination of actual authority or of an agency relationship. 23
To persons who relied in good faith on the appearance of authority, no prejudice must be
had by virtue of such reliance on what appeared to them as perfectly in accordance with the observable
authority of an agent. It must not be disturbed unless it can be shown that they had been notified or
became aware of the termination of the agency. Stated differently, a third party cannot be bound by a
revocation unless he had notice or knowledge of such revocation.
The notice or knowledge may be actual or implied. In either case, there is no apparent
authority to speak of and all contracts entered into by the former agent with a third person cannot
bind the principal. The reason behind this is that a third person cannot feign ignorance of facts which
should have put him on guard and which he had a means of knowing. "Apparent authority ends when it is
no longer reasonable for the third party with whom an agent deals to believe that the agent continues
to act with actual authority." 24 In Cervantes v. Court of Appeals, 25 the Court wrote that "when the
third person, knows that the agent was acting beyond his power or authority, the principal cannot be
held liable for the acts of the agent." ITAaHc
32
Generally, implied notice, also known as constructive notice, is attributed to third persons
through the registration of the termination in the Registry of Deeds.
Under Article 1924 of the New Civil Code, "an agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly with third persons." Logic dictates that
when a principal disregards or bypasses the agent and directly deals with such person in an incompatible
or exclusionary manner, said third person is deemed to have knowledge of the revocation of the agency.
They are expected to know circumstances that should have put them on guard as to the continuing
authority of that agent. The mere fact of the principal dealing directly with the third person, after the
latter had dealt with an agent, should be enough to excite the third person's inquiring mind on the
continuation of his authority.
In the case at bench, records show that Spouses Bitte initially transacted with Andrea as
Rosa Elsa's agent on the basis of the SPA, dated July 19, 1985. Thereafter, however, Rosa Elsa
returned to the Philippines and directly negotiated with them on October 11, 1996. Rosa Elsa's act of
taking over in the actual negotiation for the sale of the property only shows that Andrea's authority to
act has been revoked pursuant to Article 1924. At that point, Spouses Bitte had information sufficient
enough to make them believe that Andrea was no longer an agent or should have compelled them to make
further inquiries. No attempt was shown that Spouses Bitte took the necessary steps to inquire if
Andrea was still authorized to act at that time. Despite their direct negotiation with Rosa Elsa, they
still entered into a contract with Andrea on February 25, 1997. CHTAIc
Persons dealing with an agent are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of the agents authority, and in case either is controverted,
the burden of proof is upon them to establish it. 26
Legal Consequence
"It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the
name of another without being authorized by the latter, or unless he has by law a right to represent
him. A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the
other contracting party." 27 Considering that the sale was executed by an agent whose authority, be it
actual or apparent, had been revoked, the transaction isunenforceable pursuant to Article 1317 and
1403 (1) of the Civil Code which read: cHDAIS
Article 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers, shall
beunenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party. (1259a)
ART. 1403. The following contracts are unenforceable, unless they
are ratified:
(1) Those entered into the name of another person by one who has
been given no authority or legal representation, or who has acted beyond his
powers;
xxx xxx xxx. [Emphases Supplied]
Considering that the deed of absolute sale was executed at a time when Spouses Bitte were
deemed notified of the termination of the agency, the sale must be treated as having been entered into
by Andrea in her personal capacity. One can sell only what one owns or is authorized to sell, and the
buyer can acquire no more right than what the seller can transfer legally. 28 Accordingly, Spouses Bitte
acquired no better title than what Andrea had over the property, which was nil.

In sum, the deed of absolute sale executed by Andrea in favor of Spouses Bitte is
unenforceable against Rosa Elsa because of their notice of the revocation of the agency.
Spouses Bitte did not possess
the required personality
redeem the subject property
Obviously, Spouses Bitte acquired no interest in the subject property because the deed
that they were anchoring their claims on did not bind Rosa Elsa. Hence, they did not have the
personality to redeem the foreclosed property as provided under Act No. 3135, as amended by Act No.
4118, and of Section 27, Rule 39 of theRules of Court. ISHCcT
Act No. 3135, as amended, provides:
SEC. 6. In all cases in which an extrajudicial sale is made under the
special power hereinbefore referred to, the debtor, his successors in
interest or anyjudicial creditor or judgment creditor of said debtor, or
any person having a lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at any time within
the term of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to
four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as
these are not inconsistent with the provisions of this Act.
[Emphases Supplied]
Section 27 of Rule 39 of the Rules of Court enumerates the persons who may exercise the
right of redemption of a foreclosed property: DHITCc
Section 27. Who may redeem real property so sold. — Real property
sold as provided in the last preceding section, or any part thereof sold
separately, may be redeemed in the manner hereinafter provided, by the
following persons:
(a) The judgment obligor; or his successor in interest in the whole or
any part of the property; and
(c) A creditor having a lien by virtue of an attachment, judgment or
mortgage on the property sold, or on some part thereof,
subsequent to the lien under which the property was sold.
Such redeeming creditor is termed a redemptioner.
In Castro v. IAC, 29 as correctly cited by the CA, "only such persons as are authorized to
do so by statute can redeem from an execution sale." Spouses Bitte were not so authorized considering
that they were not among those enumerated in Act No. 3135 and Section 27 of Rule 39.
Spouses Yap were also
Purchasers in Good Faith
for Value
After the purported "transfer" to Spouses Yap, the subject property was registered and a
new title was issued in their names. Despite being impleaded in the case, however, they were silent
and did not even join Spouses Bitte in the subject petition. It is Spouses Bitte who have been taking
the cudgels for them.
On the issue, Spouses Bitte contend that Spouses Yap were purchasers in good faith and
for value, and, for that reason, should have been recognized to have good title over the subject
property.
Settled is the rule that the burden of proving the status of a purchaser in good faith and
for value lies upon one who asserts that status. 30 This onus probandicannot be discharged by mere
invocation of the ordinary presumption of good faith. 31 Considering that the title was still registered
33
in the name of Rosa Elsa when Spouses Yap bought it from Spouses Bitte, the burden was on them to
prove that they were purchasers in good faith. In this regard, they failed. Not an iota of evidence was
adduced by them to prove their ignorance of the true situation. cEaSHC
to Through Spouses Bitte, Spouses Yap are invoking good faith for want of notice on their part
that Andrea's authority had already been revoked. They point out that Ganzon, being a layman, could
not have been expected to know the intricacies of the law for which reason that he could not attribute
any fault in the deed of sale executed by a person with a SPA.
The Court is not persuaded.
Spouses Yap were not purchasers in good faith and for value. Significantly, Ganzon
transacted with someone who was not even the registered owner of the property. At the time of the
transfer, the property was still registered in the name of Rosa Elsa.
The rule is that a person who buys from one who is not the registered owner is expected to
"examine not only the certificate of title but all factual circumstances necessary for [one] to determine
if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land. A higher
degree of prudence is thus expected from that person even if the land object of the transaction is
registered." 32
Here, no evidence was presented to show that Spouses Yap exerted that required diligence
in determining the factual circumstances relating to the title and authority of Spouses Bitte as sellers
of the property. The records are bereft of any proof that Spouses Yap showed eagerness to air their
side despite being impleaded.
Hence, the protection the law accords to purchasers in good faith and for value cannot be
extended to them. They have failed to show the required diligence needed in protecting their rights as
buyers of property despite knowledge of facts that should have led them to inquire and investigate the
possible defects in the title of the seller. Thus, in the same way that Spouses Bitte cannot claim valid
title over the property, Spouses Yap cannot also do the same. CTIEac
A purchaser cannot close his eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. 33
In sum, the transfer to Spouses Yap was null and void as Spouses Bitte had nothing to sell
or transfer to them.
HAHN VS CA
This is a petition for review of the decision 1 of the Court of Appeals dismissing a complaint for
specific performance which petitioner had filed against private respondent on the ground that the Regional
Trial Court of Quezon City did not acquire jurisdiction over private respondent, a nonresident foreign
not corporation, and of the appellate court's order denying petitioner's motion for reconsideration.
and
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila".
On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a
nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with
principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with
Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the
BMW trademark and device in the Philippines which ASSIGNOR uses and has been
using on the products manufactured by ASSIGNEE, and for which ASSIGNOR is
the authorized exclusive Dealer of the ASSIGNEE in the Philippines, the same

being evidenced by certificate of registration issued by the Director of Patents on
12 December 1963 and is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently
record said transfer of the said BMW trademark and device in favor of the
ASSIGNEE herein with the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the
stipulations hereunder stated, the ASSIGNOR hereby affirms the said assignment
and transfer in favor of the ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other
than ASSIGNOR or infringer of the BMW trademark in the Philippines, for such
purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of all such use
or infringement of the said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility to
prosecute unilaterally or in concert with ASSIGNEE, any such infringer of the
subject mark and for purposes hereof the ASSIGNOR is hereby named and
constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without
ASSIGNEE's consent will exclusively be the responsibility and for the account of
the ASSIGNOR;
2. That the ASSIGNOR and the ASSIGNEE shall continue business
relations as has been usual in the past without a formal contract, and for that
purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE s complete
production program with the only limitation that, for the present. in view of
ASSIGNEE's limited production, the latter shall not be able to supply automobiles
to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual in the past
without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the
president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was
arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed interest
in acquiring the same. On February 24, 1993, petitioner received confirmation of the information from BMW
which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among
other things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and
petitioner's alleged failure to comply with the standards for an exclusive BMW dealer. 2Nonetheless, BMW
expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW
importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no
alternative but to terminate petitioner's exclusive dealership effective June 30, 1993. cdasia
Petitioner protested, claiming that the termination of his exclusive dealership would be a breach
of the Deed of Assignment. 3 Hahn insisted that as long as the assignment of its trademark and device
subsisted, he remained BMW's exclusive dealer in the Philippines because the assignment was made in
consideration of the exclusive dealership. In the same letter petitioner explained that the decline in sales
was due to lower prices offered for BMW cars in the United States and the fact that few customers
returned for repairs and servicing because of the durability of BMW parts and the efficiency of petitioner's
service.
Because of Hahn's insistence on the former business relations, BMW withdrew on March 26, 1993
its offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June
30, 1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn was
surprised to find Alvarez among those invited from the Asian region. On April 29, 1993, BMW proposed that
Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific
performance and damages against BMW to compel it to continue the exclusive dealership. Later he filed an
amended complaint to include an application for temporary restraining order and for writs of preliminary,
34
mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive dealership. Hahn's
amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the
Philippines with principal offices at Munich, Germany. It may be served with
summons and other court processes through the Secretary of the Department of
Trade and Industry of the Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
Assignment with Special Power of Attorney covering the trademark and in consideration
thereof, under its first whereas clause, Plaintiff was duly acknowledged as the "exclusive
Dealer of the Assignee in the Philippines" . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the
Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN
MANILA" and without any monetary contribution from defendant BMW, established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has invested a
lot of money and resources in order to single-handedly compete against other motorcycle
and car companies .... Moreover, Plaintiff has built buildings and other infrastructures such
as service centers and showrooms to maintain and promote the car and products of
defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that
it was willing to maintain with Plaintiff a relationship but only "on the basis of a standard
BMW importer contract as adjusted to reflect the particular situation in the Philippines"
subject to certain conditions, otherwise, defendant BMW would terminate Plaintiff's
exclusive dealership and any relationship for cause effective June 30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment
agreement between itself and plaintiff since the consideration for the assignment of the
BMW trademark is the continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as defendant BMW enjoys the use
and ownership of the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon
City Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and copies
of the complaint and amended complaint were thereafter served on the private respondent through the
Department of Trade and Industry, pursuant to Rule 14, §14 of the Rules of Court. The order, summons and
copies of the complaint and amended complaint were later sent by the DTI to BMW via registered mail on
June 15, 1993 5 and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of
preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial court
issued an order granting the writ of preliminary injunction upon the filing of a bond of P100,000.00. On July
13, 1993, following the posting of the required bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire
jurisdiction over it through the service of summons on the Department of Trade and Industry, because it
(BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the
execution of the Deed of Assignment was an isolated transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and products without the participation of BMW and sold

other products; and that Hahn was an indentor or middleman transacting business in his own name and for his
own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the
Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were used to
document his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically
inspected standards of service rendered by him; and that he was described in service booklets and
international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines.
The trial court 6 deferred resolution of the Motion to dismiss until after trial on the merits for
the reason that the grounds advanced by BMW in its motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a petition for
certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR
OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE
ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND IN
PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF
JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY DISMISS THE
CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ
of preliminary injunction to enjoin the trial court from proceeding further in Civil Case No. Q-93-15933.
Private respondent pointed out that, unless the trial court's order was set aside, it would be forced to
submit to the jurisdiction of the court by filing its answer or to accept judgment in default, when the
very question was whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December
20, 1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring
resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before
it came out with its questioned order of July 26, 1993, we rule and so hold that
petitioner's (BMW) motion to dismiss could be resolved then and there, and that
the respondent judge's deferment of his action thereon until after trial on the
merit constitutes to our mind grave abuse of discretion.
. . . [T]here is not much appreciable disagreement as regards the
factual matters relating to the motion to dismiss. What truly divide (sic) the
parties and to which they greatly differ is the legal conclusions they respectively
draw from such facts, (sic) with Hahn maintaining that on the basis thereof, BMW
is doing business in the Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the motion to dismiss
would anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that BMW
was not doing business in the country and, therefore, jurisdiction over it could not be acquired through
service of summons on the DTI pursuant to Rule 14, Section 14. The court upheld private respondent's
contention that Hahn acted in his own name and for his own account and independently of BMW, based on
Alfred Hahn's allegations that he had invested his own money and resources in establishing BMW's goodwill in
the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It held that
petitioner was a mere indentor or broker and not an agent through whom private respondent BMW transacted
business in the Philippines. Consequently, the Court of Appeals dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the
trial court gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding that
35
private respondent BMW is not doing business in the Philippines and, for this reason, dismissing petitioner's
case.
Petitioner's appeal is well taken. Rule 14, §14 provides:
§14. Service upon foreign corporations. — If the defendant is a foreign
corporation, or a nonresident joint stock company or association, doing business in
the Philippines, service may be made on its resident agent designated in accordance
with law for that purpose, or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents within the
Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are enumerated in §3(d) of the
Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or branches, appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eighty (180)
days or more; participating in the management, supervision or control of any
domestic business. firm, entity or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or arrangements and
contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase "doing business" shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor. nor having, a nominee director or officer to represent its interests in
such corporation. nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account.
(Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not
when the representative or distributor "transacts business in its name and for its own account." In
addition, Section 1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of
1987 (E.O. No. 226) provided:
(f) "doing business" shall be any act or combination of acts, enumerated
in Article 44 of the Code. In particular, "doing business" includes:
(1) . . . A foreign firm which does business through middlemen acting in
their own names, such as indentors, commercial brokers or commission merchants,
shall not be deemed doing business in the Philippines. But such indentors,
commercial brokers or commission merchants shall be the ones deemed to be doing
business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of
private respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial
court acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade
and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW cars and
products, BMW, a foreign corporation, is not considered doing business in the Philippines within the meaning
of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction over it
(BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own
account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts
with individuals or entities interested in acquiring BMW vehicles. Independence characterizes Hahn's

undertakings for which reason he is to be considered, under governing statutes, as doing business." (p. 13) In
support of this conclusion, the appellate court cited the following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by
the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name
"HAHN MANILA" and without any monetary contributions from defendant BMW,
established BMW's goodwill and market presence in the Philippines. Pursuant
thereto, Plaintiff invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies . . . Moreover, Plaintiff has
built buildings and other infrastructures such as service centers and showrooms to
maintain and promote the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there is nothing to
support the appellate court's finding that Hahn solicited orders alone and for his own account and without
"interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for
BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the down payment and
pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed the orders
by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars
sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the
invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in
the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn
performed after-sale services, including, warranty services. for which he received reimbursement from BMW.
All orders were on invoices and forms of BMW. 8
These allegations were substantially admitted by BMW which, in its petition for certiorari before
the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment of
the purchase prices are made, the vehicles are shipped to the Philippines. (The
payments may be made by the purchasers or third-persons or even by Hahn.) The
bills of lading are made up in the name of the purchasers, but Hahn-Manila is
therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for
purposes of conducting pre-delivery inspections. Thereafter, he delivers the
vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited
with a commission of fourteen percent (14%) of the full purchase price thereof,
and as soon as he confirms in writing, that the vehicles have been registered in the
Philippines and have been serviced by him, he will receive an additional three
percent (3%) of the full purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives
a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by
bringing the buyer and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own expense, Hahn
said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to
Hahn, BMW periodically inspected the service centers to see to it that BMW standards were maintained.
Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW
standards that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and showrooms does
not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record
which suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of
Hahn's premises to enforce compliance with BMW standards and specifications. 10 For example, in its letter
to Hahn dated February 23, 1996, BMW stated:
36
In the last years we have pointed out to you in several discussions and
letters that we have to tackle the Philippine market more professionally and that
we are through your present activities not adequately prepared to cope with the
forthcoming, challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of Appeals 12 in which
the foreign corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a
domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the Philippines
for a stipulated commission. Pursuant to these contracts, the domestic corporation sold products exported by
the foreign corporation and put up a service center for the products sold locally. This Court held that these
acts constituted doing business in the Philippines. The arrangement showed that the foreign corporation's
purpose was to penetrate the Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines.
even as it announced in the Asian region that Hahn was the "official BMW agent" in the Philippines. 13
The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not
exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding
is based entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition for
certiorari before the Court of Appeals. 14 But this allegation was denied by Hahn 15 and therefore the Court
of Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the Court of
Appeals the necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss.
Petitioner alleged that whether or not he is considered an agent of BMW, the fact is that BMW did business
in the Philippines because it sold cars directly to Philippine buyers. 16 This was denied by BMW, which claimed
that Hahn was not its agent and that, while it was true that it had sold cars to Philippine buyers, this was
done without solicitation on its part. 17
It is not true then that the question whether BMW is doing business could have been resolved
simply by considering the parties' pleadings. There are genuine issues of facts which can only be determined
on the basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it
to go to trial would be to deny its right not to submit to the jurisdiction of the trial court which precisely it
denies. Rule 16, §3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if the
ground on which the motion is based does not appear to be indubitable. Here the record of the case bristles
with factual issues and it is not at all clear whether some allegations correspond to the proof. lexlib
Anyway, private respondent need not apprehend that by responding to the summons it would be
waiving its objection to the trial court's jurisdiction. It is now settled that for purposes of having summons
served on a foreign corporation in accordance with Rule 14, §14, it is sufficient that it be alleged in the
complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the
allegations of the complaint in order to determine whether it has jurisdiction.18 A determination that the
foreign corporation is doing business is only tentative and is made only for the purpose of enabling the local
court to acquire jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, §4.
Such determination does not foreclose a contrary finding should evidence later show that it is not transacting
business in the country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the
jurisdiction of the court over its person is now to be deemed a foreclosed matter.
If it is true, as Signetics claims, that its only involvement in the Philippines was
through a passive investment in Sigfil, which it even later disposed of, and that
TEAM Pacific is not its agent, then it cannot really be said to be doing business in
the Philippines. It is a defense, however, that requires the contravention of the
allegations of the complaint, as well as a full ventilation, in effect, of the main
merits of the case, which should not thus be within the province of a mere motion
to dismiss. So, also, the issue posed by the petitioner as to whether a foreign
corporation which has done business in the country, but which has ceased to do

business at the time of the filing, of a complaint, can still be made to answer for a
cause of action which accrued while it was doing, business, is another matter that
would yet have to await the reception and admission of evidence. Since these points
have seasonably been raised by the petitioner, there should be no real cause for
what may understandably be its apprehension, i.e., that by its participation during,
the trial on the merits, it may, absent an invocation of separate or independent
reliefs of its own, be considered to have voluntarily submitted itself to the court's
jurisdiction. 19
Far from committing an abuse of discretion, the trial court properly deferred resolution of the
motion to dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the
same result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of Appeals
which, by ruling that BMW is not doing business on the basis merely of uncertain allegations in the pleadings,
disposed of the whole case with finality and thereby deprived petitioner of his right to be heard on his cause
of action. Nor was there justification for nullifying the writ of preliminary injunction issued by the trial
court. Although the injunction was issued ex parte, the fact is that BMW was subsequently heard on its
defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to
the trial court for further proceedings.
SO ORDERED.
DOMINION INSURANCE VS CA
This is an appeal via certiorari 1 from the decision of the Court of Appeals 2 affirming the
decision 3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion
Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing
the total amount advanced by Guevarra in the payment of the claims of Dominion's clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil
Case No. 8855 for sum of money against defendant Dominion Insurance
Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which
he claimed to have advanced in his capacity as manager of defendant to satisfy
certain claims filed by defendant's clients.
"In its traverse, defendant denied any liability to plaintiff and
asserted a counterclaim for P249,672.53, representing premiums that plaintiff
allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against
Fernando Austria, who, at the time relevant to the case, was its Regional Manager
for Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates:
October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January
17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992,
in all of which dates no pre-trial conference was held. The record shows that
except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992
which were cancelled at the instance of defendant, third-party defendant and
plaintiff, respectively, the rest were postponed upon joint request of the parties.
37
"On May 22, 1992 the case was again called for pre-trial conference.
Only plaintiff and counsel were present. Despite due notice, defendant and counsel
did not appear, although a messenger, Roy Gamboa, submitted to the trial court a
handwritten note sent to him by defendant's counsel which instructed him to
request for postponement. Plaintiff's counsel objected to the desired
postponement and moved to have defendant declared as in default. This was
granted by the trial court in the following order:
"ORDER
"When this case was called for pre-trial this afternoon only
plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown
a note dated May 21, 1992 addressed to a certain Roy who was
requested to ask for postponement, Atty. Maglalang vigorously
objected to any postponement on the ground that the note is but a
mere scrap of paper and moved that the defendant corporation be
declared as in default for its failure to appear in court despite due
notice.
"Finding the verbal motion of plaintiff's counsel to be
meritorious and considering that the pre-trial conference has been
repeatedly postponed on motion of the defendant Corporation, the
defendant Dominion Insurance Corporation is hereby declared (as) in
default and plaintiff is allowed to present his evidence on June 16,
1992 at 9:00 o'clock in the morning.
"The plaintiff and his counsel are notified of this order in
open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed
by a written offer of documentary exhibits on July 8 and a supplemental offer of
additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an
order dated July 17, 1992.
"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT
ORDER OF DEFAULT.’ It alleged therein that the failure of counsel to attend the
pre-trial conference was ‘due to an unavoidable circumstance’ and that counsel had
sent his representative on that date to inform the trial court of his inability to
appear. The Motion was vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant's motion for
reasons, among others, that it was neither verified nor supported by an affidavit
of merit and that it further failed to allege or specify the facts constituting his
meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the
aforesaid order. For the first time counsel revealed to the trial court that the
reason for his nonappearance at the pre-trial conference was his illness. An
Affidavit of Merit executed by its Executive Vice-President purporting to explain
its meritorious defense was attached to the said Motion. Just the same, in an
Order dated November 13, 1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:
"WHEREFORE, premises considered, judgment is hereby
rendered ordering:

"1. The defendant Dominion Insurance Corporation to pay
plaintiff the sum of P156,473.90 representing the total amount
advanced by plaintiff in the payment of the claims of defendant's
clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way
of attorney's fees;
"3. The dismissal of the counter-claim of the defendant
and the third-party complaint;
"4. The defendant to pay the costs of suit." 4
On December 14, 1992, Dominion appealed the decision to the Court of Appeals. 5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial
court. 6 On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration. 7 On
July 16, 1997, the Court of Appeals denied the motion. 8
Hence, this appeal. 9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for
petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his
personal money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. 10 The basis for agency
is representation. 11 On the part of the principal, there must be an actual intention to appoint 12 or an
intention naturally inferrable from his words or actions; 13 and on the part of the agent, there must be an
intention to accept the appointment and act on it, 14 and in the absence of such intent, there is generally no
agency. 15
A perusal of the Special Power of Attorney 16 would show that petitioner (represented by third-
party defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship.
Despite the word "special" in the title of the document, the contents reveal that what was constituted was
actually a general agency. The terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., 17 a
corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, . . . represented by the undersigned as Regional
Manager, . . . do hereby appoint RSG Guevarra Insurance Services represented by
Mr. Rodolfo Guevarra . . . to be our Agency Manager in San Fdo., for our place and
instead, to do and perform the following acts and things:
"1. To conduct, sign, manager (sic), carry on and transact Bonding and
Insurance business as usually pertain to a Agency Office,
or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT,
and BONDING with the right, upon our prior written
consent, to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or
Policies of Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver
and transfer for and receive and give effectual receipts
38
and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., 18 may
hereafter become due, owing payable or transferable to
said Corporation by reason of or in connection with the
above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and in behalf
of the FIRST CONTINENTAL ASSURANCE COMPANY,
INC., in connection with actions and all legal proceedings
against the said Corporation." 19 [Italics supplied]
The agency comprises all the business of the principal, 20 but, couched in general terms, it is
limited only to acts of administration. 21
A general power permits the agent to do all acts for which the law does not require a special
power. 22 Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do
not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is required.
The pertinent portion that applies to this case provides that:
"Article 1878. Special powers of attorney are necessary in the
following cases:
"(1) To make such payments as are not usually considered as acts of
administration;
xxx xxx xxx
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement of claims is not included
among the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts
enumerated therein. A special power of attorney is required before respondent Guevarra could settle the
insurance claims of the insured.
Respondent Guevarra's authority to settle claims is embodied in the Memorandum of Management
Agreement 23 dated February 18, 1987 which enumerates the scope of respondent Guevarra's duties and
responsibilities as agency manager for San Fernando, Pampanga, as follows:
"xxx xxx xxx
"1. You are hereby given authority to settle and dispose of all motor car
claims in the amount of P5,000.00 with prior approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx xxx" 24
In settling the claims mentioned above, respondent Guevarra's authority is further limited by the
written standard authority to pay, 25 which states that the payment shall come from respondent Guevarra's
revolving fund or collection. The authority to pay is worded as follows:
"This is to authorize you to withdraw from your revolving
fund/collection the amount of PESOS __________________(P _______)
representing the payment on the _______________ claim of assured
________________ under Policy No. ________ in that accident of __________
at __________________________.

"It is further expected, release papers will be signed and authorized
by the concerned and attached to the corresponding claim folder after effecting
payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager" 26
[Italics supplied]
The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was
authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection
in his possession.
Having deviated from the instructions of the principal, the expenses that respondent Guevarra
incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This
conclusion is in accord with Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent in
the following cases:
"(1) If the agent acted in contravention of the principal's instructions,
unless the latter should wish to avail himself of the benefits derived from the
contract;
"xxx xxx xxx"
However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement,
his right to recover may still be justified under the general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the
debtor."
In this case, when the risk insured against occurred, petitioner's liability as insurer arose. This
obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and
Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust
enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims could
best be proven by the Release of Claim Loss and Subrogation Receipts 27 which were attached to the original
complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from
the above amount.
The outstanding balance and the production/remittance for the period corresponding to the
claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be
reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the petition. However, we MODIFY the decision of the Court of
Appeals 28 and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga, 29 in that
39
petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing the total
amount advanced by the latter in the payment of the claims of petitioner's clients. EATcHD
No costs in this instance.
SO ORDERED.
CMS LOGGING VS CA
This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of Appeals in
CA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of Manila, Branch
VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity)
against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the former to pay
the latter attorney's fees in the amount of P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the logging
business, while private respondent DRACOR is engaged in the business of exporting and selling logs and
lumber. On August 28, 1957, CMS and DRACOR entered into a contract of agency 1 whereby the former
appointed the latter as its exclusive export and sales agent for all logs that the former may produce, for a
period of five (5) years. The pertinent portions of the agreement, which was drawn up by DRACOR, 2 are as
follows:
"1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales
agent with full authority, subject to the conditions and limitations hereinafter set
forth, to sell and export under a firm sales contract acceptable to SISON, all logs
produced by SISON for a period of five (5) years commencing upon the execution
of the agreement and upon the terms and conditions hereinafter provided and
DRACOR hereby accepts such appointment;
xxx xxx xxx
"3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of
all export sales of SISON with the buyers and arrange the procurement and
schedules of the vessel or vessels for the shipment of SISON's logs in accordance
with SISON's written requests, but DRACOR shall not in anyway [sic] be liable or
responsible for any delay, default or failure of the vessel or vessels to comply with
the schedules agreed upon; cdphil
xxx xxx xxx
"9. It is expressly agreed by the parties hereto that DRACOR shall receive five
(5%) per cent commission of the gross sales of logs of SISON based on F.O.B.
invoice value which commission shall be deducted from the proceeds of any and/or
all moneys received by DRACOR for and in behalf and for the account of SISON;"
By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672 board
feet of logs in Japan, from September 20, 1957 to April 4, 1962.
About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's president,
Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R. Dominguez, discovered that
DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison officer in
selling CMS's logs in Japan for which Shinko earned a commission of U.S. $1.00 per 1,000 board feet from
the buyer of the logs. Under this arrangement, Shinko was able to collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) is
entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that since DRACOR
had been paid the 5% commission under the agreement, it is no longer entitled to the additional commission
paid to Shinko as this is tantamount to DRACOR receiving double compensation for the services it rendered.

After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90, 4 directly to
several firms in Japan without the aid or intervention of DRACOR.
CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages, while
DRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made by CMS of logs to
Japanese firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR had retained the
sum of P101,167.59 as part of its commission for the sales made by CMS. 5 Thus, as its counterclaim to
DRACOR's counterclaim, CMS demanded DRACOR return the amount it unlawfully retained. DRACOR later
filed an amended counterclaim, alleging that the balance of its commission on the sales made by CMS was
P42,630.82, 6 thus impliedly admitting that it retained the amount alleged by CMS. LLphil
In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko
received the commission of U.S. $77,264.67 arising from the sale of CMS's logs in Japan, though the trial
court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M and M-
1)." 7 The counterclaim was likewise dismissed, as it was shown that DRACOR had waived its rights to the
balance of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president of
CMS. 8 From said decision, only CMS appealed to the Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint since "[t]he trial court
could not have made a categorical finding that Shinko collected commissions from the buyers of Sison's logs
in Japan, and could not have held that Sison is entitled to recover from Dracor the amount collected by
Shinko as commissions, plaintiff-appellant having failed to prove by competent evidence its claims." 10
Moreover, the appellate court held:
"There is reason to believe that Shinko Trading Co. Ltd., was paid by defendant-
appellee out of its own commission of 5%, as indicated in the letter of its president
to the president of Sison, dated February 2, 1963 (Exhibit "N"), and in the
Agreement between Aguinaldo Development Corporation (ADECOR) and Shinko
Trading Co., Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter:
"'. . ., I informed you that if you wanted to pay me for the
service, then it would be no more than at the standard rate of 5%
commission because in our own case, we pay our Japanese agents 2-
1/2%. Accordingly, we would only add a similar amount of 2-1/2% for
the service which we would render you in the Philippines.'" 11
Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that the
Court of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty. Teodoro R.
Dominguez, regarding the admission by Shinko's president and director that it collected a commission of U.S.
$1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against DRACOR; (3) that the
statement of DRACOR's chief legal counsel in his memorandum dated May 31, 1965, Exhibit "K", is an
admission that Shinko was able to collect the commission in question; (4) that the fact that Shinko received
the questioned commissions is deemed admitted by DRACOR by its silence under Section 23, Rule 130 of the
Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that
DRACOR is not entitled to its 5% commission arising from the direct sales made by CMS to buyers in Japan;
and (6) that DRACOR is guilty of fraud and bad faith in its dealings with CMS.
With regard to CMS's arguments concerning whether or not Shinko received the commission in question, We
find the same unmeritorious.
To begin with, these arguments question the findings of fact made by the Court of Appeals, which are final
and conclusive and can not be reviewed on appeal to the Supreme Court. 12
Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's agent or
liaison in Japan, 13 there is no evidence which established the fact that Shinko did receive the amount of
U.S. $77,264.67 as commission arising from the sale of CMS's logs to various Japanese firms.
40
The fact that Shinko received the commissions in question was not established by the testimony of Atty.
Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko received a
commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, the
letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not presented to
testify on his letter. LexLib
CMS's other evidence have little or no probative value at all. The statements made in the memorandum of
Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15the letter dated February 2, 1963 of Daniel R.
Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by DRACOR's counsel
Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be categorized as
admissions that Shinko did receive the commissions in question.
The alleged admission made by Atty. Ciocon, to wit —
"Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd.,
is only for a net volume of 67,747,732 board feet which should enable Shinko to
collect a commission of US $67,747.73 only."
can not be considered as such since the statement was made in the context of questioning CMS's tally
of logs delivered to various Japanese firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit —
". . . Knowing as we do that Toyo Menka is a large and reputable company, it is
obvious that they paid Shinko for certain services which Shinko must have
satisfactorily performed for them in Japan otherwise they would not have paid
Shinko."
and that of Atty. V. E. Del Rosario,
". . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to
concern itself with, much less question, the right of Shinko Trading Co., Ltd. with
which our client dealt directly, to whatever benefits it might have derived form
the ultimate consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There appears
to be no justification for your client's contention that these benefits, whether
they can be considered as commissions paid by Toyo Menka Kaisha to Shinko
Trading, are to be regarded part of the gross sales."
can not be considered admissions that Shinko received the questioned commissions since neither
statements declared categorically that Shinko did in fact receive the commissions and that these arose
from the sale of CMS's logs.
As correctly stated by the appellate court:
"It is a rule that 'a statement is not competent as an admission where it does not,
under a reasonable construction, appear to admit or acknowledge the fact which is
sought to be proved by it'. An admission or declaration to be competent must have
been expressed in definite, certain and unequivocal language (Bank of the Philippine
Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64)." 18
CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the
commissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated February 6,
1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty. Sison, through the
letter dated March 5, 1963 of F.A. Novenario, 19 which stated:
"This is to acknowledge receipt of your letter dated February 6, 1963, and
addressed to Mr. D. R. Aguinaldo, who is at present out of the country.
xxx xxx xxx

"We have no record or knowledge of any such payment of commission made by Toyo
Menka to Shinko. If the payment was made by Toyo Menka to Shinko, as stated in
your letter, we knew nothing about it and had nothing to do with it."
The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of
$77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by CMS
itself, Exhibits "M" and "M-1."
Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is not
entitled thereto since these were apparently paid by the buyersto Shinko for arranging the sale. This is
therefore not part of the gross sales of CMS's logs.
However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR was
entitled to its commission from the sales made by CMS to Japanese firms. llcd
The principal may revoke a contract of agency at will, and such revocation may be express, or implied, 20 and
may be availed of even if the period fixed in the contract of agency as not yet expired. 21 As the principal
has this absolute right to revoke the agency, the agent can not object thereto; neither may he claim damages
arising from such revocation, 22 unless it is shown that such was done in order to evade the payment of
agent's commission. 23
In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet, during
the existence of the contract of agency, DRACOR admitted that CMS sold its logs directly to several
Japanese firms. This act constituted an implied revocation of the contract of agency under Article 1924 of
the Civil Code, which provides:
"Art. 1924 — The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons."
In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court ruled that the act of a
contractor, who, after executing powers of attorney in favor of another empowering the latter to collect
whatever amounts may be due to him from the Government, and thereafter demanded and collected from the
government the money the collection of which he entrusted to his attorney-in-fact, constituted revocation of
the agency in favor of the attorney-in-fact.
Since the contract of agency was revoked by CMS when its sold its logs to Japanese firms without the
intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of such sale and
is not entitled to retain whatever moneys it may have received as its commission for said transactions.
Neither would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded to
the agent for the revocation of the agency, and the case at bar is not one falling under the exception
mentioned, which is to evade the payment of the agent's commission.
Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had committed acts
of fraud and bad faith, We find the same unmeritorious. Like the contention involving Shinko and the
questioned commissions, the findings of the Court of Appeals on the matter were based on its appreciation of
the evidence, and these findings are binding on this Court.
In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's contention
that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of logs from the buyer of
CMS's logs. However, We reverse the ruling of the Court of Appeals with regard to DRACOR's right to retain
the amount of P101,536.77 as part of its commission from the sale of logs by CMS, and hold that DRACOR has
no right to its commission. Consequently, DRACOR is hereby ordered to remit to CMS the amount of
P101,536.77.
WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding paragraph.
Costs de officio.
SO ORDERED.
41
DY BUNCIO VS ONG GUAN CA
HULL, J p:
This is a suit over a rice-mill and camarin situated at Dao, Province of Capiz. Plaintiff claims
that the property belongs to its judgment debtor, Ong Guan Can, while defendants Juan Tong and Pua
Giok Eng claim as owner and lessee of the owner by virtue of a deed dated July 31, 1931, by Ong Guan
Can, Jr.
After trial the Court of First Instance of Capiz held that the deed was invalid and that the
property was subject to the execution which had been levied on said properties by the judgment
creditor of the owner. Defendants Juan Tong and Pua Giok Eng bring this appeal and insist that the
deed of the 31st of July, 1931, is valid.
The First recital of the deed is that Ong Guan Can, jr., as agent of Ong Guan Can, the
proprietor of the commercial firm of Ong Guan Can & Sons, sells the rice-mill and camarin for P13,000
and gives as his authority the power of attorney dated the 23d of May, 1928, a copy of this public
instrument being attached to the deed and recorded with the deed in the office of the register of
deeds of Capiz. The receipt of the money acknowledged in the deed was to the agent, and the deed was
signed by the agent in his own name and without any words indicating that he was signing it for the
principal.
Leaving aside the irregularities of the deed and coming to the power of attorney referred
to in the deed and registered therewith, it is at once seen that it is not a general power of attorney but
a limited one and does not give the express power to alienate the properties in question. (Article 1713
of the Civil Code.)
Appellants claim that this defect is cured by Exhibit 1, which purports to be a general
power of attorney given to the same agent in 1920. Article 1732 of the Civil Code is silent over the
partial termination of an agency. The making and accepting of a new power of attorney, whether it
enlarges or decreases the power of the agent under a prior power of attorney, must be held to supplant
and revoke the latter when the two are inconsistent. If the new appointment with limited powers does
not revoke the general power of attorney, the execution of the second power of attorney would be a
mere futile gesture.
The title of Ong Guan Can not having been divested by the so- called deed on July 31, 1931,
his properties are subject to attachment and execution.
The judgment appealed from is therefore affirmed. Costs against appellants. So ordered.
REPUBLIC VS EVANGELISTA
The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of
preliminary injunction, filed by private respondent Dante Legaspi, through his attorney-in-fact Paul Gutierrez,
against petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano before the Regional Trial
Court (RTC) of Quezon City. 1
The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte,
Norzagaray, Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the Philippines, and
as then head of the Intelligence Service of the Armed Forces of the Philippines and the Presidential Security
Group, entered into a Memorandum of Agreement (MOA) with one Ciriaco Reyes. The MOA granted Reyes a
permit to hunt for treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a
witness. 2 It was further alleged that thereafter, Reyes, together with petitioners, started, digging,
tunneling and blasting works on the said land of Legaspi. The complaint also alleged that petitioner Calimlim
assigned about 80 military personnel to guard the area and encamp thereon to intimidate Legaspi and other
occupants of the area from going near the subject land.
On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his nephew,
private respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the

treasure hunting activities on Legaspi's land and to file charges against those who may enter it without the
latter's authority. 3Legaspi agreed to give Gutierrez 40% of the treasure that may be found in the land.
On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners for
illegally entering Legaspi's land. He hired the legal services of Atty. Homobono Adaza. Their contract
provided that as legal fees, Atty. Adaza shall be entitled to 30% of Legaspi's share in whatever treasure may
be found in the land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance fee per court
hearing and defray all expenses for the cost of the litigation. 4 Upon the filing of the complaint, then
Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary restraining order (TRO) against
petitioners.
The case 5 was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by
public respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued another 72-hour
TRO and a summary hearing for its extension was set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss 6 contending: first, there is no real
party-in-interest as the SPA of Gutierrez to bring the suit was already revoked by Legaspi on March 7, 2000,
as evidenced by a Deed of Revocation, 7 and, second, Gutierrez failed to establish that the alleged armed
men guarding the area were acting on orders of petitioners. On March 17, 2000, petitioners also filed a
Motion for Inhibition 8 of the respondent judge on the ground of alleged partiality in favor of private
respondent. SATDEI
On March 23, 2000, the trial court granted private respondent's application for a writ of
preliminary injunction on the following grounds: (1) the diggings and blastings appear to have been made on the
land of Legaspi, hence, there is an urgent need to maintain the status quo to prevent serious damage to
Legaspi's land; and, (2) the SPA granted to Gutierrez continues to be valid. 9 The trial court ordered thus:
WHEREFORE, in view of all the foregoing, the Court hereby resolves to
GRANT plaintiff's application for a writ of preliminary injunction. Upon plaintiff's
filing of an injunction bond in the amount of ONE HUNDRED THOUSAND PESOS
(P100,000.00), let a Writ of Preliminary Injunction issue enjoining the defendants
as well as their associates, agents or representatives from continuing to occupy and
encamp on the land of the plaintiff LEGASPI as well as the vicinity thereof; from
digging, tunneling and blasting the said land of plaintiff LEGASPI; from removing
whatever treasure may be found on the said land; from preventing and threatening
the plaintiffs and their representatives from entering the said land and performing
acts of ownership; from threatening the plaintiffs and their representatives as
well as plaintiffs' lawyer.
On even date, the trial court issued another Order 10 denying petitioners' motion to dismiss and
requiring petitioners to answer the complaint. On April 4, 2000, it likewise denied petitioners' motion for
inhibition. 11
On appeal, the Court of Appeals affirmed the decision of the trial court. 12
Hence this petition, with the following assigned errors:
I writ of preliminary injunction is an ancilliary or preventive remedy that is resorted to by a litigant to protect
WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE
RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.
II
WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE
DISMISSED.
III
42
WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF
FROM FURTHER PROCEEDING WITH THE CASE.
We find no merit in the petition.
On the first issue, petitioners claim that the special power of attorney of Gutierrez to represent
Legaspi has already been revoked by the latter. Private respondent Gutierrez, however, contends that the
unilateral revocation is invalid as his agency is coupled with interest.
We agree with private respondent. EHTIDA
Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to
render some service or do something in representation or on behalf of another, known as the principal, with
the consent or authority of the latter. 13
A contract of agency is generally revocable as it is a personal contract of representation based on
trust and confidence reposed by the principal on his agent. As the power of the agent to act depends on the
will and license of the principal he represents, the power of the agent ceases when the will or permission is
withdrawn by the principal. Thus, generally, the agency may be revoked by the principal at will. 14
However, an exception to the revocability of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon the agency. 15 The reason for its irrevocability is because
the agency becomes part of another obligation or agreement. It is not solely the rights of the principal but
also that of the agent and third persons which are affected. Hence, the law provides that in such cases, the
agency cannot be revoked at the sole will of the principal.
In the case at bar, we agree with the finding of the trial and appellate courts that the agency
granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear from
the records that Gutierrez was given by Legaspi, inter alia, the power to manage the treasure hunting
activities in the subject land; to file any case against anyone who enters the land without authority
from Legaspi; to engage the services of lawyers to carry out the agency; and, to dig for any treasure
within the land and enter into agreements relative thereto. It was likewise agreed upon that Gutierrez
shall be entitled to 40% of whatever treasure may be found in the land. Pursuant to this authority and to
protect Legaspi's land from the alleged illegal entry of petitioners, agent Gutierrez hired the services of
Atty. Adaza to prosecute the case for damages and injunction against petitioners. As payment for legal
services, Gutierrez agreed to assign to Atty. Adaza 30% of Legaspi's share in whatever treasure may
be recovered in the subject land. It is clear that the treasure that may be found in the land is the subject
matter of the agency; that under the SPA, Gutierrez can enter into contract for the legal services of Atty.
Adaza; and, thus Gutierrez and Atty. Adaza have an interest in the subject matter of the agency, i.e., in the
treasures that may be found in the land. This bilateral contract depends on the agency and thus renders it as
one coupled with interest, irrevocable at the sole will of the principal Legaspi. 16 When an agency is
constituted as a clause in a bilateral contract, that is, when the agency is inserted in another agreement, the
agency ceases to be revocable at the pleasure of the principal as the agency shall now follow the condition of
the bilateral agreement. 17 Consequently, the Deed of Revocation executed by Legaspi has no effect. The
authority of Gutierrez to file and continue with the prosecution of the case at bar is unaffected.
On the second issue, we hold that the issuance of the writ of preliminary injunction is justified. A
or preserve his rights or interests and for no other purpose during the pendency of the principal
action. 18 It is issued by the court to prevent threatened or continuous irremediable injury to the applicant
before his claim can be thoroughly studied and adjudicated. 19 Its aim is to preserve the status quo
ante until the merits of the case can be heard fully, upon the applicant's showing of two important
conditions, viz.: (1) the right to be protectedprima facie exists; and, (2) the acts sought to be enjoined are
violative of that right. 20
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary
injunction may be issued when it is established:

(a) that the applicant is entitled to the relief demanded, the whole or part of such
relief consists in restraining the commission or continuance of the act
or acts complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;
(b) that the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the
applicant; or
(c) that a party, court, agency or a person is doing, threatening, or is attempting to
do, or is procuring or suffering to be done, some act or actsprobably in
violation of the rights of the applicant respecting the subject of the
action or proceeding, and tending to render the judgment
ineffectual. cHAaCE
It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction,
mere prima facie evidence is needed to establish the applicant's rights or interests in the subject matter of
the main action. 21 It is not required that the applicant should conclusively show that there was a violation of
his rights as this issue will still be fully litigated in the main case. 22 Thus, an applicant for a writ is
required only to show that he has an ostensible right to the final relief prayed for in his complaint. 23
In the case at bar, we find that respondent judge had sufficient basis to issue the writ of
preliminary injunction. It was established, prima facie, that Legaspi has a right to peaceful possession of
his land, pendente lite. Legaspi had title to the subject land. It was likewise established that the diggings
were conducted by petitioners in the enclosed area of Legaspi's land. Whether the land fenced by Gutierrez
and claimed to be included in the land of Legaspi covered an area beyond that which is included in the
title of Legaspi is a factual issue still subject to litigation and proof by the parties in the main case for
damages. It was necessary for the trial court to issue the writ of preliminary injunction during the pendency
of the main case in order to preserve the rights and interests of private respondents Legaspi and Gutierrez.
On the third issue, petitioners charge that the respondent judge lacked the neutrality of an
impartial judge. They fault the respondent judge for not giving credence to the testimony of their surveyor
that the diggings were conducted outside the land of Legaspi. They also claim that respondent judge's rulings
on objections raised by the parties were biased against them.
We have carefully examined the records and we find no sufficient basis to hold that respondent
judge should have recused himself from hearing the case. There is no discernible pattern of bias on the
rulings of the respondent judge. Bias and partiality can never be presumed. Bare allegations of partiality will
not suffice in an absence of a clear showing that will overcome the presumption that the judge dispensed
justice without fear or favor. 24 It bears to stress again that a judge's appreciation or misappreciation of
the sufficiency of evidence adduced by the parties, or the correctness of a judge's orders or rulings on the
objections of counsels during the hearing, without proof of malice on the part of respondent judge, is not
sufficient to show bias or partiality. As we held in the case of Webb vs. People, 25 the adverse and
erroneous rulings of a judge on the various motions of a party do not sufficiently prove bias and prejudice to
disqualify him. To be disqualifying, it must be shown that the bias and prejudice stemmed from an
extrajudicial source and result in an opinion on the merits on some basis other than what the judge learned
from his participation in the case. Opinions formed in the course of judicial proceedings, although erroneous,
as long as based on the evidence adduced, do not prove bias or prejudice. We also emphasized that repeated
rulings against a litigant, no matter how erroneously, vigorously and consistently expressed, do not amount to
bias and prejudice which can be a bases for the disqualification of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages has become moot and
academic in view of the latter's death during the pendency of the case. The main case for damages shall now
be heard and tried before another judge.
IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115, dated
March 23 and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial Court of Quezon City
to whom Civil Case No. Q-00-40115 was assigned is directed to proceed with dispatch in hearing the main case
for damages. No pronouncement as to costs.
43
INTERNATIONAL EXCHANGE VS BRIONES
LEONEN, J p:
Upon accepting an agency, the agent becomes bound to carry out the agency and shall be
held liable for the damages, which the principal may incur due to the agent's non-performance. 1
This resolves the Petition for Review on Certiorari 2 filed by International Exchange Bank
(iBank), now Union Bank of the Philippines, assailing the Court of Appeals' September 27, 2012
Decision 3 and February 6, 2013 Resolution 4 in CA-G.R. CV. No. 97453, which upheld the June 16, 2011
Decision 5 of Branch 138, Makati City Regional Trial Court in Civil Case No. 04-557.
On July 2, 2003, spouses Jerome and Quinnie Briones (Spouses Briones) took out a loan of
P3,789,216.00 from iBank to purchase a BMW Z4 Roadster. 6 The monthly amortization for two (2)
years was P78,942.00. 7
The Spouses Briones executed a promissory note with chattel mortgage that required them
to take out an insurance policy on the vehicle. 8 The promissory note also gave iBank, as the Spouses
Briones' attorney-in-fact, irrevocable authority to file an insurance claim in case of loss or damage to
the vehicle. 9 The insurance proceeds were to be made payable to iBank. 10
On November 5, 2003, at about 10:50 p.m., the mortgaged BMW Z4 Roadster was
carnapped by three (3) armed men in front of Metrobank Banlat Branch in Tandang Sora, Quezon
City. 11 Jerome Briones (Jerome) immediately reported the incident to the Philippine National Police
Traffic Management Group. 12
The Spouses Briones declared the loss to iBank, which instructed them to continue paying
the next three (3) monthly installments "as a sign of good faith," a directive they complied with. 13
On March 26, 2004, or after the Spouses Briones finished paying the three (3)-month
installment, iBank sent them a letter demanding full payment of the lost vehicle. 14
On April 30, 2004, the Spouses Briones submitted a notice of claim with their insurance
company, which denied the claim on June 29, 2004 due to the delayed reporting of the lost vehicle. 15
On May 14, 2004, iBank filed a complaint for replevin and/or sum of money against the
Spouses Briones and a person named John Doe. 16 The Complaint alleged that the Spouses Briones
defaulted in paying the monthly amortizations of the mortgaged vehicle. 17
After no settlement was arrived at during the Pre-trial Conference, the case was referred
to Mediation and Judicial Dispute Resolution. 18 However, the parties still failed to agree on a
compromise settlement. 19
After pre-trial and trial on the merits, the Regional Trial Court 20 dismissed iBank's
complaint. It ruled that as the duly constituted attorney-in-fact of the Spouses Briones, iBank had the
obligation to facilitate the filing of the notice of claim and then to pursue the release of the insurance
proceeds. 21
The Regional Trial Court also pointed out that as the Spouses Briones' agent, iBank
prioritized its interest over that of its principal when it failed to file the notice of claim with the
insurance company and demanded full payment from the spouses. 22
The dispositive portion of the Regional Trial Court Decision read:
WHEREFORE, premises considered, judgment is hereby rendered
dismissing this case as the obligation of both parties to each other has already
been considered extinguished by compensation.
SO ORDERED. 23 (Emphasis in the original)

The Regional Trial Court's Decision was appealed by iBank to the Court of Appeals, which
dismissed 24 it on September 27, 2012.
The Court of Appeals ruled that the terms and stipulations of the promissory note with
chattel mortgage were clear. 25 Sections 6 and 22 of the promissory note provided that the Spouses
Briones, as the mortgagors, would insure the vehicle against loss, damage, theft, and fire with the
insurance proceeds payable to iBank, as the mortgagee. 26 Furthermore, in the event of loss or damage,
Spouses Briones irrevocably appointed iBank or its assigns as their attorney-in-fact with full power to
process the insurance claim. 27
The Court of Appeals stated that as the Spouses Briones' agent, iBank was bound by its
acceptance to carry out the agency. 28 However, instead of filing an insurance claim, iBank opted to
collect the balance of Spouses Briones' loan. 29 By not looking after the interests of its principal, the
Court of Appeals ruled that iBank should be held liable for the damages suffered by Spouses
Briones. 30
The Court of Appeals likewise upheld the Regional Trial Court's ruling that "the denial of
the insurance claim [for delayed filing] was a direct consequence of [the] bank's inaction in not filing
the insurance claim." 31
The dispositive portion of the Court of Appeals Decision read:
WHEREFORE, the instant appeal is hereby DENIED. The assailed
Decision dated June 16, 2011 of the Regional Trial Court, Branch 138, Makati
City is AFFIRMED.
SO ORDERED. 32 (Emphasis in the original)
On February 6, 2013, the Court of Appeals denied 33 iBank's motion for
reconsideration, 34 prompting iBank to appeal the denial to this Court.
Petitioner iBank claims that it is entitled to recover the mortgaged vehicle or, in the
alternative, to collect a sum of money from respondents because of the clear wording of the promissory
note with chattel mortgage executed by respondents. 35 Petitioner also insists that it is entitled to the
award of damages. 36
Petitioner maintains that the insurance coverage taken on the vehicle is "only an aleatory
alternative that [respondents] are entitled [to]" if their claim is granted by the insurance
company. 37 Petitioner asserts that it was the duty of the respondents to file a claim with the
insurance company. Thus, they should not be allowed to pass on that responsibility to petitioner and
they should be held accountable for the loan taken out on the carnapped vehicle. 38
Moreover, petitioner posits that respondent Jerome's direct dealing with the insurance
company was a revocation of the agency relationship between petitioner and respondents. 39
Petitioner holds that respondents only shifted the blame after the insurance company
denied respondents' claim. 40
On the other hand, respondents insist that when the mortgaged vehicle was carnapped,
petitioner, as the agent, should have asserted its right "to collect, demand and proceed against the
[insurance company.]" 41
Respondents state that after they had informed petitioner of the loss of the mortgaged
vehicle, they continued to pay the monthly installment for three (3) months as compliance with
petitioner's request. Nonetheless, despite their good faith and the insurance policy taken out on the
carnapped vehicle, petitioner still demanded full payment from them. 42
Finally, respondents maintain that petitioner failed to exercise the "degree of diligence
required [of it considering] the fiduciary nature of its relationship with its client[s]." 43
The issues for this Court's resolution are as follows:
First, whether an agency relationship existed between the parties;
44
Second, whether the agency relationship was revoked or terminated; and
Finally, whether petitioner is entitled to the return of the mortgaged vehicle or, in the
alternative, payment of the outstanding balance of the loan taken out for the mortgaged vehicle.
I
The Petition is devoid of merit.
In a contract of agency, "a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter." 44 Furthermore,
Article 1884 of the Civil Code provides that "the agent is bound by his acceptance to carry out the
agency, and is liable for the damages which, through his non-performance, the principal may suffer." 45
Rallos v. Felix Go Chan & Sons Realty Corporation 46 lays down the elements of agency:
Out of the above given principles, sprung the creation an acceptance
of the relationship of agency whereby one party, called the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there
is consent, express or implied, of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3)
the agent acts as a representative and not for himself; and (4) the agent acts
within the scope of his authority. 47 (Emphasis in the original, citation omitted)
All the elements of agency exist in this case. Under the promissory note with chattel
mortgage, Spouses Briones appointed iBank as their attorney-in-fact, authorizing it to file a claim with
the insurance company if the mortgaged vehicle was lost or damaged. 48 Petitioner was also authorized
to collect the insurance proceeds as the beneficiary of the insurance policy. 49 Sections 6 and 22 of
the promissory note state:
6. The MORTGAGOR agrees that he will cause the mortgaged property/ies to be
insured against loss or damage by accident, theft and fire . . . with an
insurance company/ies acceptable to the MORTGAGEE . . .; that he will
make all loss, if any, under such policy/ies payable to the MORTGAGEE
or its assigns . . . [w]ith the proceeds thereon in case of loss, payable to
the said MORTGAGEE or its assigns . . . shall be added to the principal
indebtedness hereby secured . . . [M]ortgagor hereby further
constitutes the MORTGAGEE to be its/his/her Attorney-in-Fact for
the purpose of filing claims with insurance company including but not
limited to apply, sign, follow-up and secure any documents, deeds . . .
that may be required by the insurance company to process the
insurance claim . . .
22. In case of loss or damage, the MORTGAGOR hereby irrevocably appoints the
MORTGAGEE or its assigns as his attorney-in-fact with full power and
authority to file, follow-up, prosecute, compromise or settle insurance
claims; to sign, execute and deliver the corresponding papers, receipt
and documents to the insurance company as may be necessary to prove
the claim, and to collect from the latter the proceeds of insurance to
the extent of its interest. 50 (Emphasis supplied, citation omitted)
Article 1370 of the Civil Code is categorical that when "the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control." 51
The determination of agency is ultimately factual in nature and this Court sees no reason to
reverse the findings of the Regional Trial Court and the Court of Appeals. They both found the
existence of an agency relationship between the Spouses Briones and iBank, based on the clear wording
of Sections 6 and 22 of the promissory note with chattel mortgage, which petitioner prepared and
respondents signed.
II

Petitioner asserts that the Spouses Briones effectively revoked the agency granted under
the promissory note when they filed a claim with the insurance company. 52
Petitioner is mistaken.
Revocation as a form of extinguishing an agency under Article 1924 53 of the Civil Code only
applies in cases of incompatibility, such as when the principal disregards or bypasses the agent in order
to deal with a third person in a way that excludes the agent. 54
In the case at bar, the mortgaged vehicle was carnapped on November 5, 2003 and the
Spouses Briones immediately informed petitioner about the loss. 55 The Spouses Briones continued
paying the monthly installment for the next three (3) months following the vehicle's loss to show their
good faith. 56
However, on March 26, 2004, petitioner demanded full payment from Spouses Briones for
the lost vehicle. 57 The Spouses Briones were thus constrained to file a claim for loss with the
insurance company on April 30, 2004, precisely because petitioner failed to do so despite being their
agent and being authorized to file a claim under the insurance policy. 58 Not surprisingly, the insurance
company declined the claim for belated filing.
The Spouses Briones' claim for loss cannot be seen as an implied revocation of the agency or
their way of excluding petitioner. They did not disregard or bypass petitioner when they made an
insurance claim; rather, they had no choice but to personally do it because of their agent's negligence.
This is not the implied termination or revocation of an agency provided for under Article 1924 of
the Civil Code.
While a contract of agency is generally revocable at will as it is primarily based on trust and
confidence, 59 Article 1927 of the Civil Code provides the instances when an agency becomes
irrevocable:
Article 1927. An agency cannot be revoked if a bilateral contract depends upon
it, or if it is the means of fulfilling an obligation already contracted, or if a
partner is appointed manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable.
A bilateral contract that depends upon the agency is considered an agency coupled with an
interest, making it an exception to the general rule of revocability at will. 60 Lim v.
Saban 61 emphasizes that when an agency is established for both the principal and the agent, an agency
coupled with an interest is created and the principal cannot revoke the agency at will. 62
In the promissory note with chattel mortgage, the Spouses Briones authorized petitioner to
claim, collect, and apply the insurance proceeds towards the full satisfaction of their loan if the
mortgaged vehicle were lost or damaged. Clearly, a bilateral contract existed between the parties,
making the agency irrevocable. Petitioner was also aware of the bilateral contract; thus, it included the
designation of an irrevocable agency in the promissory note with chattel mortgage that it prepared for
the Spouses Briones to sign.
III
Petitioner asserts that the insurance coverage is only an alternative available to the
Spouses Briones; 63 and with the denial of the insurance claim, the Spouses Briones are obligated to
pay the remaining balance plus interest of the mortgaged vehicle. 64
The petitioner is again mistaken.
As the agent, petitioner was mandated to look after the interests of the Spouses Briones.
However, instead of going after the insurance proceeds, as expected of it as the agent, petitioner
opted to claim the full amount from the Spouses Briones, disregard the established principal-agency
relationship, and put its own interests before those of its principal.
The facts show that the insurance policy was valid when the vehicle was lost, and that the
insurance claim was only denied because of the belated filing.
45
Having been negligent in its duties as the duly constituted agent, petitioner must be held
liable for the damages suffered by the Spouses Briones because of non-performance 65 of its
obligation as the agent, and because it prioritized its interests over that of its principal. 66
Furthermore, petitioner's bad faith was evident when it advised the Spouses Briones to
continue paying three (3) monthly installments after the loss, purportedly to show their good
faith. 67 A principal and an agent enjoy a fiduciary relationship marked with trust and confidence,
therefore, the agent has the duty "to act in good faith [to advance] the interests of [its] principal." 68
If petitioner was indeed acting in good faith, it could have timely informed the Spouses
Briones that it was terminating the agency and its right to file an insurance claim, and could have
advised them to facilitate the insurance proceeds themselves. Petitioner's failure to do so only
compounds its negligence and underscores its bad faith. Thus, it will be inequitable now to compel the
Spouses Briones to pay the full amount of the lost property.
WHEREFORE, premises considered, the Petition is DENIED. The Court of Appeals Decision
and Resolution dated September 27, 2012 and February 6, 2013, respectively, in CA-G.R. CV No. 97453
are AFFIRMED.
SEVILLA VS CA
SARMIENTO, J p:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellants Exhibit 2 for the
appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera,
party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo
Canilao as party of the second part, and hereinafter referred to as appellants, the
Tourist World Service, Inc. leased the premises belonging to the party of the first
part at Mabini St., Manila for the former's use as a branch office. In the said
contract the party of the third part held herself solidarily liable with the party of
the second part for the prompt payment of the monthly rental agreed on. When
the branch office was opened, the same was run by the herein appellant Lina O.
Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in
on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be
withheld by the Tourist World Service, Inc. Cdpr
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc.
appears to have been informed that Lina Sevilla was connected with a rival firm,
the Philippine Travel Bureau, and, since the branch office was anyhow losing, the
Tourist World Service considered closing down its office. This was firmed up by
two resolutions of the board of directors of Tourist World Service, Inc. dated
Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager
and vice-president of the Tourist World Service, Inc., Ermita Branch, and the
second, authorizing the corporate secretary to receive the properties of the
Tourist World Service then located at the said branch office. It further appears
that on Jan. 3, 1962, the contract with the appellees for the use of the Branch
Office premises was terminated and while the effectivity thereof was Jan. 31,
1962, the appellees no longer used it. As a matter of fact appellants used it since
Nov. 1961. Because of this, and to comply with the mandate of the Tourist World
Service, the corporate secretary Gabino Canilao went over to the branch office,
and, finding the premises locked, and, being unable to contact Lina Sevilla, he
padlocked the premises on June 4, 1962 to protect the interests of the Tourist
World Service. When neither the appellant Lina Sevilla nor any of her employees
could enter the locked premises, a complaint was filed by the herein appellants
against the appellees with a prayer for the issuance of mandatory preliminary

injunction. Both appellees answered with counterclaims. For apparent lack of
interest of the parties therein, the trial court ordered the dismissal of the case
without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing
her counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.
On June 17, 1963, appellant Lina Sevilla refiled her case against the herein
appellees and after the issues were joined, the reinstated counterclaim of
Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly
heard following which the court a quo ordered both cases dismissed for lack of
merit, on the basis of which was elevated the instant appeal on the following
assignment of errors:
"I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
"II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA O.
SEVILLA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE,
INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN
FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT
BUSINESS VENTURE.
"III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT
MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A
MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC.
EVEN AS AGAINST THE LATTER.
"IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
"V. THE LOWER COURT ERRED IN NOT CONSIDERING AT ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR APPELLANT MRS. LINA O. SEVILLA'S
FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
"VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT MRS. LINA O.
SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS."
On the foregoing facts and in the light of the errors assigned the issues to be
resolved are:
1. Whether the appellee Tourist World Service unilaterally disconnected the
telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and
3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellee TWS or TWS and the appellant. cdll
In this appeal, appellant Lina Sevilla claims that a joint business venture was
entered into by and between her and appellee TWS with offices at the Ermita
branch office and that she was not an employee of the TWS to the end that her
relationship with TWS was one of a joint business venture appellant made
declarations showing:
"1. Appellant Mrs. Lina O. Sevilla, a prominent social figure and wife of an eminent
eye, ear and nose specialist as well as a society columnist, had been in the travel
46
business prior to the establishment of the joint business venture with appellee
Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being
the godmother of one of his children, with her own clientele, coming mostly from
her own social circle (pp. 3-6 tsn. February 16, 1965).
"2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October
1960 (Exh. "A") covering the premises at A. Mabini St., she expressly warranting
and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc.
for the prompt payment of the monthly rentals thereof to other appellee Mrs.
Noguera (pp. 14-15, tsn. Jan. 18, 1964).
"3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World
Service, Inc., which had its own separate office located at the Trade & Commerce
Building; nor was she an employee thereof, having no participation in nor connection
with said business at the Trade & Commerce Building (pp. 16-18 tsn. id.).
"4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own
bookings, her own business (and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline companies. She shared the 7%
commissions given by the airline companies, giving appellee Tourist World Service,
Inc. 3% thereof and retaining 4% for herself (pp. 18 tsn. id.)
"5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A.
Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and
other sundry expenses, aside from designing the office furniture and supplying
some office furnishings (pp. 15, 18 tsn. April 6, 1965), appellee Tourist World
Service, Inc. shouldering the rental and other expenses in consideration for the
3% split in the commissions procured by appellant Mrs. Sevilla (p. 35 tsn. Feb. 16,
1965).
"6. It was the understanding between them that appellant Mrs. Sevilla would be
given the title of branch manager for appearance's sake only (p. 31 tsn. id.),
appellee Eliseo Canilao admitting that it was just a title for dignity (p. 36 tsn June
18, 1965 - testimony of appellee Eliseo Canilao; pp. 38-39 tsn. April 6, 1966 -
testimony of corporate secretary Gabino Canilao)." (pp. 2-5, Appellants' Reply
Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager." 1
xxx xxx xxx
The trial court 2 held for the private respondents on the premise that the private
respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to
terminate the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a
mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her
employer. 4 The respondent Court of Appeals 5 rendered an affirmance. prLL
The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
Specifically, they state:
I.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE
PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE
AND CONSENT OF THE APPELLANT LINA SEVILLA . . . WITHOUT NOTIFYING
MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT

INFORMING COUNSEL FOR THE APPELLANT (SEVILLA), WHO IMMEDIATELY
BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE
CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE
PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMPT TO
AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA)
AND THE TOURIST WORLD SERVICE . . . (DID NOT) ENTITLE THE LATTER TO
THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7, 8 AND ANNEX "B" P. 2) - A
DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF
BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMPLAINT PROVIDED
THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES
WERE WITHDRAWN." (ANNEX "A" P. 8)
III.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING - IN FACT NOT PASSING AND
RESOLVING - APPELLANT SEVILLA'S CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON HUMAN RELATIONS.
IV.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF YET
NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH
TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN
INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation
between Lina Sevilla and Tourist World Service, Inc. The respondent Court of Appeals did not see fit to
rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the
premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina
Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the
said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and
without the consent of the appellant disconnected the telephone lines of the Ermita branch office of
the appellee Tourist World Service, Inc." 7 Tourist World Service, Inc., insists, on the other hand, that
Lina Sevilla was a mere employee, being "branch manager" of its Ermita "branch" office and that
inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera.
The petitioners contend, however, that relation between the parties was one of joint venture, but
concede that "whatever might have been the true relationship between Sevilla and Tourist World
Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own
hands," 8 in reference to the padlocking now questioned. cdphil
The Court finds the resolution of the issue material, for if, as the private respondent,
Tourist World Service, Inc., maintains, that the relation between the parties was in the character of
employer and employee, the courts would have been without jurisdiction to try the case, labor disputes
being the exclusive domain of the Court of Industrial Relations, later, the Bureau of Labor Relations,
pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the existence of an
employer-employee relation. In general, we have relied on the so-called right of control test, "where the
person for whom the services are performed reserves a right to control not only the end to be
achieved but also the means to be used in reaching such end." 10 Subsequently, however, we have
considered, in addition to the standard of right-of-control, the existing economic conditions prevailing
47
between the parties, like the inclusion of the employee in the payrolls, in determining the existence of
an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the
private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the
means used in connection therewith. In the first place, under the contract of lease covering the Tourist
World's Ermita office, she had bound herself in solidum as and for rental payments, an arrangement
that would belie claims of a master-servant relationship. True, the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 12 that does not make her an employee
of Tourist World, since in any case, a true employee cannot be made to part with his own money in
pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the
parties must be bound by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, "[w]hen the branch office was
opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc.
by any airline for any fare brought in on the effort of Mrs. Lina Sevilla." 13 Under these circumstances,
it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means
used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she
retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts
depending on her booking successes.
The fact that Sevilla had been designated "branch manager" does not make her, ergo,
Tourist World's employee. As we said, employment is determined by the right-of-control test and
certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a
consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or
otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a
relation. In her letter of November 28, 1961, she expressly "concedes your [Tourist World Service,
Inc.'s] right to stop the operation of your branch office," 14 in effect, accepting Tourist World
Service, Inc.'s control over the manner in which the business was run. A joint venture, including a
partnership, presupposes generally a parity of standing between the joint co-venturers or partners, in
which each party has an equal proprietary interest in the capital or property contributed 15 and where
each party exercises equal rights in the conduct of the business. 16 Furthermore, the parties did not
hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist
World Service, Inc.," 17 in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to
(wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so
pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another."18 In the case at bar, Sevilla solicited airline fares, but she did
so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of
the proceeds in the concept of commissions. And as we said, Sevilla herself, based on her letter of
November 28, 1961, presumed her principal's authority as owner of the business undertaking. We are
convinced, considering the circumstances and from the respondent Court's recital of facts, that the
parties had contemplated a principal-agent relationship, rather than a joint management or a
partnership.
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled
with an interest, the agency having been created for the mutual interest of the agent and the
principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had
acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation
for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued
the business, using her own name, after Tourist World had stopped further operations. Her interest,
obviously, is not limited to the commissions she earned as a result of her business transactions, but one
that extends to the very subject matter of the power of management delegated to her. It is an agency

that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation
complained of should entitle the petitioner, Lina Sevilla, to damages. cdll
As we have stated, the respondent Court avoided this issue, confining itself to the
telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is "no evidence showing that the Tourist World Service, Inc. disconnected
the telephone lines at the branch office." 20 Yet, what cannot be denied is the fact that Tourist World
Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in
the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it
must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking
incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease contract did
not accord it any authority to terminate that contract without notice to its actual occupant, and to
padlock the premises in such blitzkrieg fashion. As this Court has ruled, the petitioner, Lina Sevilla, had
acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third
party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted from
possession as summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent
design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a
rival firm. To be sure, the respondent court speaks of alleged business losses to justify the
closure, 21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such
reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses,
on the other hand, is that following such an information (that Sevilla was working for another company),
Tourist World's board of directors adopted two resolutions abolishing the office of "manager" and
authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its
branch office properties. On January 3, 1962, the private respondents ended the lease over the branch
office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was
padlocked, personally by the respondent Canilao, on the pretext that it was necessary "to protect the
interests of the Tourist World Service." 22 It is strange indeed that Tourist World Service, Inc. did
not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc.
would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware
that after office hours, she could not have been anywhere near the premises. Capping these series of
"offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in
the process, depriving Sevilla of her participation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish
Sevilla for what it had perceived to be disloyalty on her part. It is offensive, in any event, to
elementary norms of justice and fair play.
We rule, therefore, that for its unwarranted revocation of the contract of agency, the
private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil
Code, moral damages may be awarded for "breaches of contract where the defendant acted . . . in bad
faith." 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral
injury done to Lina Sevilla arising from its brazen conduct subsequent to the cancellation of the power
of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219
(10) thereof:
ART. 21. Any person who wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter for
the damage. prcd
ART. 2219. Moral damages may be recovered in the following and analogous cases:
48
xxx xxx xxx
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby ordered to respond
for the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence
has been shown that she had connived with Tourist World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a co-tortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages, 24 P10,000.00 as
exemplary damages, 25 and P5,000.00 as nominal 26 and/or temperate27 damages, to be just, fair, and
reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution
issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally
to indemnify the petitioner, Lina Sevilla, the sum of P25,000.00 as and for moral damages, the sum of
P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or
temperate damages. llcd
Costs against said private respondents.
SO ORDERED
VALENZUELA VS CA.
This is a petition for review of the January 29, 1988 decision of the Court of Appeals and the April 27, 1988
resolution denying the petitioners' motion for reconsideration, which decision and resolution reversed the
decision dated June 23, 1986 of the Court of First Instance of Manila, Branch 34 in Civil Case No. 121126
upholding the petitioners' causes of action and granting all the reliefs prayed for in their complaint against
private respondents. cdphil
The antecedent facts of the case are as follows:
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private respondent Philippine
American General Insurance Company, Inc. (Philamgen for short) since 1965. As such, he was authorized to
solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered
was entitled to receive the full agent's commission of 32.5% from Philamgen under the scheduled commission
rates (Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited marine insurance from one of his clients,
the Delta Motors, Inc. (Division of Electronics Airconditioning and Refrigeration) in the amount of P4.4 Million
from which he was entitled to a commission of 32% (Exhibit "B"). However, Valenzuela did not receive his full
commission which amounted to P1.6 Million from the P4.4 Million insurance coverage of the Delta Motors.
During the period 1976 to 1978, premium payments amounting to P1,946,886.00 were paid directly to
Philamgen and Valenzuela's commission to which he is entitled amounted to P632,737.00.
In 1977, Philamgen started to become interested in and expressed its intent to share in the commission due
Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D").
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of the
commission with Valenzuela (Exhibit E). This was followed by another sharing proposal dated June 1, 1978. On
June 16, 1978, Valenzuela firmly reiterated his objection to the proposals of respondents stating that: "It is
with great reluctance that I have to decline upon request to signify my conformity to your alternative
proposal regarding the payment of the commission due me. However, I have no choice for to do otherwise
would be violative of the Agency Agreement executed between our goodselves." (Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido Aragon, Carlos Catolico
and Robert E. Parnell took drastic action against Valenzuela. They: (a) reversed the commission due him by not
crediting in his account the commission earned from the Delta Motors, Inc. insurance (Exhibit "J" and "2");
(b) placed agency transactions on a cash-and-carry basis; (c) threatened the cancellation of policies issued by

his agency (Exhibits "H" to "H-2"); and (d) started to leak out news that Valenzuela has a substantial account
with Philamgen. All of these acts resulted in the decline of his business as insurance agent (Exhibits "N", "O",
"K" and "K-8"). Then on December 27, 1978, Philamgen terminated the General Agency Agreement of
Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I,
Petition).
The petitioners sought relief by filing the complaint against the private respondents in the court a
quo (Complaint of January 24, 1979, Annex "F" Petition). After due proceedings, the trial court found:
xxx xxx xxx
"Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as
one of defendant PHILAMGEN's General Agent by making it appear that plaintiff
Arturo P. Valenzuela has a substantial account with defendant PHILAMGEN,
particularly Delta Motors, Inc.'s Account, thereby prejudicing defendant
PHILAMGEN's interest (Exhibits 6, '11,' '11- ,' '12-A' and '13-A').
"Defendants also invoked the provisions of the Civil Code of the Philippines (Article
1868) and the provisions of the General Agency Agreement as their basis for
terminating plaintiff Arturo P. Valenzuela as one of their General Agents.
"That defendants' position could have been justified had the termination of
plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of the Civil
Code and the conditions of the General Agency Agreement. But the records will
show that the principal cause of the termination of the plaintiff as General Agent
of defendant PHILAMGEN was his refusal to share his Delta commission.
"That it should be noted that there were several attempts made by defendant
Bienvenido M. Aragon to share with the Delta commission of plaintiff Arturo P.
Valenzuela. He had persistently pursued the sharing scheme to the point of
terminating plaintiff Arturo P. Valenzuela, and to make matters worse, defendants
made it appear that plaintiff Arturo P. Valenzuela had substantial accounts with
defendant PHILAMGEN.
"Not only that, defendants have also started (a) to treat separately the Delta
Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta commission
due plaintiff Arturo P. Valenzuela by not crediting or applying said commission
earned to the account of plaintiff Arturo P. Valenzuela, (c) placed plaintiff Arturo
P. Valenzuela's agency transactions on a 'cash-and-carry' basis, (d) sending threats
to cancel existing policies issued by plaintiff Arturo P. Valenzuela's agency, (e) to
divert plaintiff Arturo P. Valenzuela's insurance business to other agencies, and (f)
to spread wild and malicious rumors that plaintiff Arturo P. Valenzuela has
substantial account with defendant PHILAMGEN to force plaintiff Arturo P.
Valenzuela into agreeing with the sharing of his Delta commission." (pp. 9-10,
Decision, Annex 1, Petition).
xxx xxx xxx
"These acts of harassment done by defendants on plaintiff Arturo P. Valenzuela to
force him to agree to the sharing of his Delta commission, which culminated in the
termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's
General Agent, do not justify said termination of the General Agency Agreement
entered into by defendant PHILAMGEN and plaintiff Arturo P. Valenzuela.
"That since defendants are not justified in the termination of plaintiff Arturo P.
Valenzuela as one of their General Agents, defendants shall be liable for the
resulting damage and loss of business of plaintiff Arturo P. Valenzuela. (Arts.
2199/2200, Civil Code of the Philippines). (Ibid, p. 11)
The court accordingly rendered judgment, the dispositive portion of which reads:
49
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
defendants ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its
General Agent, and to pay plaintiffs, jointly and severally, the following:
"1. The amount of five hundred twenty-one thousand nine hundred sixty four and
16/100 pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's Delta
Commission with interest at the legal rate from the time of the filing of the
complaint, which amount shall be adjusted in accordance with Article 1250 of the
Civil Code of the Philippines;
"2. The amount of seventy-five thousand pesos (P75,000.00) per month as
compensatory damages from 1980 until such time that defendant Philamgen shall
reinstate plaintiff Arturo P. Valenzuela as one of its general agents;
3. The amount of three hundred fifty thousand pesos (P350,000.00) for each
plaintiff as moral damages;
4. The amount of seventy-five thousand pesos (P75,000.00) as and for attorney's
fees;
5. Costs of the suit.' (Ibid., p. 12)
From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell, Carlos K. Catolico and
PHILAMGEN respondents herein, and defendants-appellants below, interposed an appeal on the
following: LLpr
ASSIGNMENT OF ERRORS
I
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P.
VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT
PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY.
II
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P.
VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE
DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF
PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND THAT
CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL
DAMAGES, ATTORNEY'S FEES AND COSTS.
IV
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST
DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT ERRED IN
AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO
ARE MERE CORPORATE AGENTS ACTING WITHIN THE SCOPE OF THEIR
AUTHORITY.
V
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF
PLAINTIFF ARTURO P. VALENZUELA WAS PROPER, THE LOWER COURT ERRED
IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA VALENZUELA, WHO,
NOT BEING THE REAL PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.

On January 29, 1988, respondent Court of Appeals promulgated its decision in the appealed case. The
dispositive portion of the decision reads:
"WHEREFORE, the decision appealed from is hereby modified accordingly and
judgment is hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the sum of
one million nine hundred thirty two thousand five hundred thirty-two pesos and
seventeen centavos (P1,932,532.17), with legal interest thereon from the date of
finality of this judgment until fully paid.
2. Both plaintiff-appellees to pay jointly and severally defendants-appellants the
sum of fifty thousand pesos (P50,000.00) as and by way of attorney's fees.
No pronouncement is made as to costs." (p. 44, Rollo)
There is in this instance irreconcilable divergence in the findings and conclusions of the Court of Appeals, vis-
a-vis those of the trial court particularly on the pivotal issue whether or not Philamgen and/or its officers can
be held liable for damages due to the termination of the General Agency Agreement it entered into with the
petitioners. In its questioned decision the Court of Appeals observed that:
"In any event the principal's power to revoke an agency at will is so pervasive, that
the Supreme Court has consistently held that termination may be effected even if
the principal acts in bad faith, subject only to the principal's liability for damages
(Danon v. Antonio A. Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and
Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of the Philippines
Annotated [1986] 696).
"The lower court, however, thought the termination of Valenzuela as General Agent
improper because the record will show the principal cause of the termination of
the plaintiff as General Agent of defendant Philamgen was his refusal to share his
Delta commission" (Decision, p. 9; p. 13, Rollo, 41).
Because of the conflicting conclusions, this Court deemed it necessary in the interest of substantial justice
to scrutinize the evidence and records of the cases. While it is an established principle that the factual
findings of the Court of Appeals are final and may not be reviewed on appeal to this Court, there are however
certain exceptions to the rule which this Court has recognized and accepted, among which, are when the
judgment is based on a misapprehension of facts and when the findings of the appellate court, are contrary to
those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court of Appeals, 139
SCRA 576 [1986]). Where the findings of the Court of Appeals and the trial court are contrary to each
other, this Court may scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222
[1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When
the conclusion of the Court of Appeals is grounded entirely on speculation, surmises or conjectures, or when
the inference made is manifestly mistaken, absurd or impossible, or when there is grave abuse of discretion,
or when the judgment is based on a misapprehension of facts, and when the findings of facts are conflicting
the exception also applies (Malaysian Airline System Bernad v. Court of Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records of the case and the findings of facts of both the court a
quo and respondent appellate court, we are constrained to affirm the trial court's findings and rule for the
petitioners.
We agree with the court a quo that the principal cause of the termination of Valenzuela as General Agent of
Philamgen arose from his refusal to share his Delta commission. The records sustain the conclusions of the
trial court on the apparent bad faith of the private respondents in terminating the General Agency
Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are entitled to great
weight (People v. Atanacio, 128 SCRA 22 [1984]) and should not be disturbed on appeal unless for strong and
cogent reasons because the trial court is in a better position to examine the evidence as well as to observe
50
the demeanor of the witnesses while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v.
Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In the case
at bar, the records show that the findings and conclusions of the trial court are supported by substantial
evidence and there appears to be no cogent reason to disturb them (Mendoza v. Court of Appeals, 156 SCRA
597 [1987]). LibLex
As early as September 30, 1977, Philamgen told the petitioners of its desire to share the Delta Commission
with them. It stated that should Delta back out from the agreement, the petitioners would be charged
interests through a reduced commission after full payment by Delta.
On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50% thus giving them an
agent's commission of 16.25%. On February 8, 1978, Philamgen insisted on the reduction scheme followed on
June 1, 1978 by still another insistence on reducing commissions and proposing two alternative schemes for
reduction. There were other pressures. Demands to settle accounts, to confer and thresh out differences
regarding the petitioners' income and the threat to terminate the agency followed. The petitioners were told
that the Delta commissions would not be credited to their account (Exhibit "J"). They were informed that the
Valenzuela agency would be placed on a cash and carry basis thus removing the 60-day credit for premiums
due. (TSN., March 26, 1979, pp. 54-57). Existing policies were threatened to be cancelled (Exhibits "H" and
"14"; TSN., March 26, 1979, pp. 29-30). The Valenzuela business was threatened with diversion to other
agencies. (Exhibit "NNN"). Rumors were also spread about alleged accounts of the Valenzuela agency (TSN.,
January 25, 1980, p. 41). The petitioners consistently opposed the pressures to hand over the agency or half
of their commissions and for a treatment of the Delta account distinct from other accounts. The pressures
and demands, however, continued until the agency agreement itself was finally terminated.
It is also evident from the records that the agency involving petitioner and private respondent is one "coupled
with an interest," and, therefore, should not be freely revocable at the unilateral will of the latter.
In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation and
persuasion of the prospective clients to buy insurance policies. Normally, agents would encounter much
embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement of the insurance
policies. To sell policies, an agent exerts great effort, patience, perseverance, ingenuity, tact, imagination,
time and money. In the case of Valenzuela, he was able to build up an agency from scratch in 1965 to a highly
productive enterprise with gross billings of about Two Million Five Hundred Thousand Pesos (P2,500,000.00)
premiums per annum. The records sustain the finding that the private respondent started to covet a share of
the insurance business that Valenzuela had built up, developed and nurtured to profitability through over
thirteen (13) years of patient work and perseverance. When Valenzuela refused to share his commission in the
Delta account, the boom suddenly fell on him.
The private respondents by the simple expedient of terminating the General Agency Agreement appropriated
the entire insurance business of Valenzuela. With the termination of the General Agency Agreement,
Valenzuela would no longer be entitled to commission on the renewal of insurance policies of clients sourced
from his agency. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela jointly
and severally liable with the insured for unpaid premiums. Under these circumstances, it is clear that
Valenzuela had an interest in the continuation of the agency when it was unceremoniously terminated not only
because of the commissions he should continue to receive from the insurance business he has solicited and
procured but also for the fact that by the very acts of the respondents, he was made liable to Philamgen in
the event the insured fail to pay the premiums due. They are estopped by their own positive averments and
claims for damages. Therefore, the respondents cannot state that the agency relationship between
Valenzuela and Philamgen is not coupled with interest. "There may be cases in which an agent has been induced
to assume a responsibility or incur a liability, in reliance upon the continuance of the authority under such
circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or liability" (See
MEC 569 p. 406).
Furthermore, there is an exception to the principle that an agency is revocable at will and that is when the
agency has been given not only for the interest of the principal but for the interest of third persons or for
the mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases to be
freely revocable by the sole will of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350).
The following citations are apropos:

"The principal may not defeat the agent's right to indemnification by a termination
of the contract of agency (Erskine v. Chevrolet Motors Co. 185 NC 479, 117 SE
706, 32 ALR 196).
"Where the principal terminates or repudiates the agent's employment in violation
of the contract of employment and without cause . . . the agent is entitled to
receive either the amount of net losses caused and gains prevented by the breach,
or the reasonable value of the services rendered. Thus, the agent is entitled to
prospective profits which he would have made except for such wrongful
termination provided that such profits are not conjectural, or speculative but are
capable of determination upon some fairly reliable basis. And a principal's
revocation of the agency agreement made to avoid payment of compensation for a
result which he has actually accomplished (Hildendorf v. Hague, 293 NW 2d 272;
Newhall v. Journal Printing Co., 105 Minn 44, 117 NW 228; Gaylen Machinery Corp.
v. Pitman-Moore Co. [CA 2 NY] 273 F 2d 340)
"If a principal violates a contractual or quasi-contractual duty which he was his
agent, the agent may as a rule bring an appropriate action for the breach of that
duty. The agent may in a proper case maintain an action at law for compensation or
damages . . . A wrongfully discharged agent has a right of action for damages and in
such action the measure and element of damages are controlled generally by the
rules governing any other action for the employer's breach of an employment
contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v. Stoehr, 54
Ohio 157, 43 NE 2798)
At any rate, the question of whether or not the agency agreement is coupled with interest is helpful to the
petitioners' cause but is not the primary and compelling reason. For the pivotal factor rendering Philamgen
and the other private respondents liable in damages is that the termination by them of the General Agency
Agreement was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of right in
terminating the agency, then he is liable in damages. This is in accordance with the precepts in Human
Relations enshrined in our Civil Code that "every person must in the exercise of his rights and in the
performance of his duties act with justice, give every one his due, and observe honesty and good faith: (Art.
19, Civil Code), and every person who, contrary to law, wilfully or negligently causes damages to another, shall
indemnify the latter for the same (Art. 20, id). "Any person who wilfully causes loss or injury to another in a
manner contrary to morals, good customs and public policy shall compensate the latter for the damages" (Art.
21, id.)
As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and uncollected
premiums which the respondent court ordered Valenzuela to pay Philamgen the amount of One Million Nine
Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532.17) with legal interest
thereon until fully paid (Decision - January 20, 1988, p. 16; Petition, Annex "A"), we rule that the respondent
court erred in holding Valenzuela liable. We find no factual and legal basis for the award. Under Section 77 of
the Insurance Code, the remedy for the non-payment of premiums is to put an end to and render the
insurance policy not binding —
"Sec. 77 . . . [N]otwithstanding any agreement to the contrary, no policy or
contract of insurance is valid and binding unless and until the premiums thereof
have been paid except in the case of a life or industrial life policy whenever the
grace period provision applies (P.D. 612, as amended otherwise known as
the Insurance Code of 1974)
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held that the
non-payment of premium does not merely suspend but puts an end to an insurance contract since the time of
the payment is peculiarly of the essence of the contract. And in Arce v. The Capital Insurance and Surety Co.,
Inc. (117 SCRA 63-[1982]), we reiterated the rule that unless premium is paid, an insurance contract does not
take effect. Thus: llcd
51
"It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9
SCRA 177 [1963] was decided in the light of the Insurance Act before Sec. 72 was
amended by the underscored portion. Supra. Prior to the Amendment, an insurance
contract was effective even if the premium had not been paid so that an insurer
was obligated to pay indemnity in case of loss and correlatively he had also the
right to sue for payment of the premium. But the amendment to Sec. 72 has
radically changed the legal regime in that unless the premium is paid there is no
insurance." (Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Italics
supplied)
In Philippine Phoenix Surety case, we held:
"Moreover, an insurer cannot treat a contract as valid for the purpose of collecting
premiums and invalid for the purpose of indemnity. (Citing Insurance Law and
Practice by John Alan Appleman, Vol. 15, p. 331; Emphasis supplied)
"The foregoing findings are buttressed by Section 776 of the Insurance
Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now
provides that no contract of Insurance by an insurance company is valid and binding
unless and until the premium thereof has been paid, notwithstanding any agreement
to the contrary" (Ibid., 92 SCRA 425).
Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The
insurance coverage did not go into effect or did not continue and the obligation of Philamgen as insurer
ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to
demand, much less sue Valenzuela for the unpaid premiums would be the height of injustice and unfair
dealing. In this instance, with the lapsing of the policies through the non-payment of premiums by the
insured there were no more insurance contracts to speak of. As this Court held in the Philippine Phoenix
Surety case, (supra) — "the non-payment of premiums does not merely suspend but puts an end to an
insurance contract since the time of the payment is peculiarly of the essence of the contract."
The respondent appellate court also seriously erred in according undue reliance to the report of Banaria and
Banaria and Company, auditors, that as of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40. This
audit report of Banaria was commissioned by Philamgen after Valenzuela was almost through with the
presentation of his evidence. In essence, the Banaria report started with an unconfirmed and unaudited
beginning balance of account of P1,758,185.43 as of August 20, 1976. But even with that unaudited and
unconfirmed beginning balance of P1,758,185.43, Banaria still came up with the amount of P3,865.49 as
Valenzuela's balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December 31, 1976,
and December 31, 1977, Valenzuela had no unpaid account with Philamgen (Ref: Annexes "D", "D-1" "E",
Petitioner's Memorandum). But even disregarding these annexes which are records of Philamgen and
addressed to Valenzuela in due course of business, the facts show that as of July 1977, the beginning balance
of Valenzuela's account with Philamgen amounted to P744,159.80. This was confirmed by Philamgen itself not
only once but four (4) times on different occasions, as shown by the records.
On April 3, 1978, Philamgen sent Valenzuela a statement of account with a beginning balance of P744,159.80
as of July 1977.
On May 23, 1978, another statement of account with exactly the same beginning balance was sent to
Valenzuela.
On November 17, 1978, Philamgen sent still another statement of account with P744,159.80 as the beginning
balance.
And on December 20, 1978, a statement of account with exactly the same figure was sent to Valenzuela.
It was only after the filing of the complaint that a radically different statement of accounts surfaced in
court. Certainly, Philamgen's own statements made by its own accountants over a long period of time and
covering examinations made on four different occasions must prevail over unconfirmed and unaudited
statements made to support a position made in the course of defending against a lawsuit.

It is not correct to say that Valenzuela should have presented its own records to refute the unconfirmed and
unaudited finding of the Banaria auditor. The records of Philamgen itself are the best refutation against
figures made as an afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where
the figures would be reconciled. Philamgen refused to meet with him and, instead, terminated the agency
agreement.
After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of credits
representing the commission due from Delta and other accounts, Valenzuela had overpaid Philamgen the
amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it
committed a mistake in its computation. The alleged error may be given credence if committed only once. But
as earlier stated, the reconciliation of accounts was arrived at four (4) times on different occasions where
Philamgen was duly represented by its account executives. On the basis of these admissions and
representations, Philamgen cannot later on assume a different posture and claim that it was mistaken in its
representation with respect to the correct beginning balance as of July 1977 amounting to P744,159.80. The
Banaria audit report commissioned by Philamgen is unreliable since its results are admittedly based on an
unconfirmed and unaudited beginning balance of P1,758,185.43 as of August 20, 1976. Cdpr
As so aptly stated by the trial court in its decision:
"Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela
after the controversy has started. In fact, after hearing plaintiffs have already
rested their case.
"The results of said audit were presented in Court to show plaintiff Arturo P.
Valenzuela's accountability to defendant PHILAMGEN. However, the auditor, when
presented as witness in this case testified that the beginning balance of their
audit report was based on an unaudited amount of P1,758,185.43 (Exhibit 46-A) as
of August 20, 1976, which was unverified and merely supplied by the officers of
defendant PHILAMGEN.
"Even defendants very own Exhibit 38-A-3, showed that plaintiff Arturo P.
Valenzuela's balance as of 1978 amounted to only P3,865.59, not P826,128.46 as
stated in defendant Bienvenido M. Aragon's letter dated December 20, 1978
(Exhibit 14) or P1,528,698.40 as reflected in defendant's Exhibit 46 (Audit Report
of Banaria dated December 24, 1980).
"These glaring discrepancy (sic) in the accountability of plaintiff Arturo P.
Valenzuela to defendant PHILAMGEN only lends credence to the claim of plaintiff
Arturo P. Valenzuela that he has no outstanding account with defendant
PHILAMGEN when the latter, thru defendant Bienvenido M. Aragon, terminated
the General Agency Agreement entered into by plaintiff (Exhibit A) effective
January 31, 1979 (see Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has
shown that as of October 31, 1978, he has overpaid defendant PHILAMGEN in the
amount of P53,040.37 (Exhibit "EEE", which computation was based on defendant
PHILAMGEN's balance of P744,159.80 furnished on several occasions to plaintiff
Arturo P. Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW,
WW-1, YY, YY-2, ZZ and ZZ-2).
Prescinding from the foregoing, and considering that the private respondents terminated Valenzuela with
evident mala fide, it necessarily follows that the former are liable in damages. Respondent Philamgen has been
appropriating for itself all these years the gross billings and income that it unceremoniously took away from
the petitioners. The preponderance of the authorities sustain the preposition that a principal can be held
liable for damages in cases of unjust termination of agency. InDanon v. Brimo, 42 Phil. 133 [1921]), this Court
ruled that where no time for the continuance of the contract is fixed by its terms, either party is at liberty
to terminate it at will, subject only to the ordinary requirements of good faith. The right of the principal to
terminate his authority is absolute and unrestricted, except only that he may not do so in bad faith.
52
The trial court in its decision awarded to Valenzuela the amount of Seventy Five Thousand Pesos (P75,000,00)
per month as compensatory damages from June 1980 until its decision becomes final and executory. This
award is justified in the light of the evidence extant on record (Exhibits "N", "N-10", "O", "0-1, "P" and "P-1")
showing that the average gross premium collection monthly of Valenzuela over a period of four (4) months
from December 1978 to February 1979, amounted to over P300,000.00 from which he is entitled to a
commission of P100,000.00 more or less per month. Moreover, his annual sales production amounted to
P2,500,000.00 from where he was given 32.5% commissions. Under Article 2200 of the new Civil Code,
"indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the
profits which the obligee failed to obtain."
The circumstances of the case, however, require that the contractual relationship between the parties shall
be terminated upon the satisfaction of the judgment. No more claims arising from or as a result of the agency
shall be entertained by the courts after that date. LexLib
ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and resolution of April
27, 1988 of respondent court are hereby SET ASIDE. The decision of the trial court dated January 23, 1986
in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE HUNDRED
TWENTY-ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing
the petitioners Delta commission shall earn only legal interests without any adjustments under Article 1250
of the Civil Code and that the contractual relationship between Arturo P. Valenzuela and Philippine American
General Insurance Company shall be deemed terminated upon the satisfaction of the judgment as modified.
NATIONAL SUGAR VS PNB
This is a petition for review which seeks to set aside the decision of the Court of Appeals dated
August 10, 2001 in CA-G.R. SP. No. 58102, 1 upholding the decision of the Office of the President dated
September 17, 1999, 2 as well as the resolution dated December 12, 2001 denying petitioners' motion for
reconsideration.
The antecedent facts, as culled from the records, are as follows:
Sometime in February 1974, then President Ferdinand E. Marcos issued Presidential Decree No.
388 3 constituting the Philippine Sugar Commission (PHILSUCOM), as the sole buying and selling agent of
sugar on the quedan permit level. In November of the same year, PD 579 4 was issued, authorizing the
Philippine Exchange Company, Inc. (PHILEXCHANGE), a wholly owned subsidiary of Philippine National Bank
(PNB) to serve as the marketing agent of PHILSUCOM. Pursuant to PD 579, PHILEXCHANGE's purchases of
sugar shall be financed by PNB and the proceeds of sugar trading operations of PHILEXCHANGE shall be
used to pay its liabilities with PNB. 5
Similarly, in February 1975, PD 659 was issued, constituting PHILEXCHANGE and/or PNB as the
exclusive sugar trading agencies of the government for buying sugar from planters or millers and selling or
exporting them. 6 PNB then extended loans to PHILEXCHANGE for the latter's sugar trading operations. At
first, PHILEXCHANGE religiously paid its obligations to PNB by depositing the proceeds of the sale of sugar
with the bank. Subsequently, however, with the fall of sugar prices in the world market, PHILEXCHANGE
defaulted in the payments of its loans amounting to P206,070,172.57. 7
In July 1977, the National Sugar Trading Corporation (NASUTRA) replaced PHILEXCHANGE as
the marketing agent of PHILSUCOM. Accordingly, PHILEXCHANGE sold and turned over all sugar quedans to
NASUTRA. However, no physical inventory of the sugar covered by the quedans was made. 8 Neither
NASUTRA nor PHILSUCOM was required to immediately pay PHILEXCHANGE. Notwithstanding this
concession, NASUTRA and PHILSUCOM still failed to pay the sugar stocks covered by quedans to
PHILEXCHANGE which, as of June 30, 1984, amounted to P498,828,845.03. As a consequence,
PHILEXCHANGE was not able to pay its obligations to PNB.
To finance its sugar trading operations, NASUTRA applied for and was granted 9 a P408 Million
Revolving Credit Line by PNB in 1981. Every time NASUTRA availed of the credit line, 10 its Executive Vice-
President, Jose Unson, executed a promissory note in favor of PNB.
 53
In order to stabilize sugar liquidation prices at a minimum of P300.00 per picul, PHILSUCOM 04-22-86 Societé Generalé—Manila 82,151,953.10
issued on March 15, 1985 Circular Letter No. EC-4-85, considering all sugar produced during crop year 1984–
1985 as domestic sugar. Furthermore, PHILSUCOM's Chairman of Executive Committee, Armando C. Gustillo 06-09-86 Credit Lyonnais—Manila 536,158.62
proposed on May 14, 1985 the following liquidation scheme of the sugar quedans 11 assigned to PNB by the ———————
sugar planters:

Upon notice from NASUTRA, PNB shall credit the individual producer
and millers loan accounts for their sugar proceeds and shall treat the same as loans Total P696,281,405.09
of NASUTRA.
APPLICATIONS
Such loans shall be charged interest at the prevailing rates and it shall
commence five (5) days after receipt by PNB of quedans from NASUTRA. 12
Date Applied to Amount
PNB, for its part, issued Resolution No. 353 dated May 20, 1985 approving 13 the
PHILSUCOM/NASUTRA proposal for the payment of the sugar quedans assigned to it. Pursuant to said
resolution, NASUTRA would assume the interest on the planter/mill loan accounts. The pertinent portion of
1986 NASUTRA account with PNB P389,246,324.60
the Resolution states:
1986 Claims of various CAB planters 15,863,898.79
Five (5) days after receipt of the quedans, NASUTRA shall absorb the
accruing interest on that portion of the planter/mill loan with PNB commensurate 1987 Claims of various PNB branches for
to the net liquidation value of the sugar delivered, or in other words, NASUTRA
interest or the unpaid CY 1984–85
proposes to assume interest that will run on the planter/mill loan equivalent to the
net proceeds of the sugar quedans, reckoned five (5) days after quedan delivery to sugar proceeds 65,412,245.84
PNB. 14
1987& Philsucom account carried in the books
Despite such liquidation scheme, NASUTRA/PHILSUCOM still failed to remit the interest
payments to PNB and its branches, which interests amounted to P65,412,245.84 in 1986. 15 As a result 1988 of Philexchange 206,070,172.57
thereof, then President Marcos issued PD 2005 dissolving NASUTRA effective January 31, 1986. P676,592,641.80
NASUTRA's records of its sugar trading operations, however, were destroyed during the Edsa Revolution in
February 1986. ———————

On May 28, 1986, then President Corazon C. Aquino issued Executive Order (EO) No. 18 creating
the Sugar Regulatory Administration (SRA) and abolishing PHILSUCOM. All the assets and records of
PHILSUCOM 16 including its beneficial interests over the assets of NASUTRA were transferred to
SRA. 17 On January 24, 1989, before the completion of the three-year winding up period, NASUTRA
established a trusteeship to liquidate and settle its accounts. 18 This notwithstanding, NASUTRA still
defaulted in the payment of its loans amounting to P389,246,324.60 (principal and accrued interest) to
PNB. HAaDTE
In the meantime, PNB received remittances from foreign banks totaling US$36,564,558.90 or
the equivalent of P696,281,405.09 representing the proceeds of NASUTRA's sugar exports. 19 Said
remittances were then applied by PNB to the unpaid accounts of NASUTRA/PHILSUCOM with PNB and
PHILEXCHANGE. The schedule of remittances and applications are as follows:
Unapplied Remittance P19,688,763.29"20
Subsequently, PNB applied the P19,688,763.29 to PHILSUCOM's account with PHILEXCHANGE
which in turn was applied to PHILEXCHANGE's account with PNB. 21
Accordingly, NASUTRA requested 22 PNB to furnish it with the necessary documents and/or
explanation 23 concerning the disposition/application, accounting and restitution of the remittances in
question. Dissatisfied, and believing that PNB failed to provide them with said documents, NASUTRA and SRA
filed a petition for arbitration 24 with the Department of Justice on August 13, 1991.
After due proceedings, the Secretary of Justice rendered a decision, to wit:
WHEREFORE, judgment is hereby rendered —

SCHEDULE OF REMITTANCES & APPLICATIONS 1. Declaring that of the amount of Six Hundred Ninety Six Million Two
Account of NASUTRA Hundred Eighty One Thousand Four Hundred Five and 09/100 Pesos
July 31, 1988 (P696,281,405.09) equivalent of US$36,564,558.90, foreign remittances received
by respondent PNB, for and in behalf of petitioner NASUTRA—
REMITTANCES
a) the amount of Three Hundred Eighty Nine Million Two Hundred
Forty Six Thousand Three Hundred Twenty Four and
Date Remitting Bank Amount 60/100 Pesos (P389,246,324.60) was validly applied to
outstanding account of NASUTRA to PNB;
11-19-85 Bankers Trust—New York P259,253,573.46
b) the amount of Sixty Five Billion Four Hundred Twelve Thousand Two
11-26-85 Bankers Trust—New York 144,459,242.84
Hundred Forty Five and 84/100 Pesos (P65,412,245.84) was
03-06-86 Credit Lyonnais—Manila 209,880,477.07 validly applied to claims of various PNB branches for
interest on the unpaid CY 1984-85 sugar proceeds;

Or a total of Four Hundred Fifty Four Million Six Hundred
Fifty Eight Thousand Five Hundred Seventy and 44/100 Pesos
(P454,658,570.44).
2. Ordering respondent PNB to pay petitioners —
a) the amount of Two Hundred Six Million Seventy Thousand One
Hundred Seventy Two and 57/100 Pesos (P206,070,172.57)
representing the amount of remittance applied to
PHILSUCOM account carried in the books of Philexchange;
b) the amount of Fifteen Million Eight Hundred Sixty Three Thousand
Eight Hundred Ninety Eight and 79/100 Pesos
(P15,863,898.79) representing the amount applied to settle
Claims of Various CAB Planters; and to pay interest on both
items, at legal rate from date of filing of this case.
Costs of suit will be shared equally by the parties.
SO ORDERED. 25
Both parties appealed before the Office of the President. On September 17, 1999, the Office of
the President modified the decision of the Secretary of Justice, to wit:
IN VIEW OF ALL THE FOREGOING, the decision of the Secretary of
Justice is hereby AFFIRMED with the MODIFICATION that the application by
the Philippine National Bank of the amounts of P225,758,935.86 and
P15,863,898.79 as payment of the Philippine Sugar Commission's account carried in
the books of Philippine Exchange Co., Inc. and the claims of various CAB planters,
respectively, is hereby declared legal and valid.
SO ORDERED. 26
Petitioners' subsequent Motion for Reconsideration was denied by the Office of the
President. 27 Thereafter, petitioners filed a petition for review with the Court of Appeals, alleging, inter
alia, that the Office of the President erred when it relied solely on the documents submitted by PNB to
determine the amount of the subject remittances and in not ordering PNB to render an accounting of the said
remittances; in declaring as valid and legal PNB's application of the subject remittances to alleged
NASUTRA's accounts with PNB and PHILEXCHANGE without NASUTRA's knowledge, consent and authority.
On August 10, 2001, Court of Appeals rendered judgment dismissing the petition. 28 Petitioners
filed a Motion for Reconsideration, which was denied on December 12, 2001.
Hence this petition, raising the lone issue:
THE CA DECIDED NOT IN ACCORD WITH LAW AND WITH THE APPLICABLE
DECISION OF THIS HONORABLE COURT, AND GRAVELY ABUSED ITS
DISCRETION, WHEN IT UPHELD THE LEGALITY AND VALIDITY OF THE
OFFSETTING OR COMPENSATION OF THE SUBJECT REMITTANCES TO
ALLEGED ACCOUNTS OF NASUTRA WITH PNB AND PHILEX DESPITE THE
FACT THAT NO CREDITOR-DEBTOR RELATIONSHIP EXISTED BETWEEN PNB
AND NASUTRA WITH RESPECT TO THE SAID REMITTANCES.
In essence, NASUTRA and SRA aver that no compensation involving the subject remittances can
take effect by operation of law since the relationship created between PNB and NASUTRA was one of
trustee-beneficiary and not one of creditor and debtor. They also claim that no legal compensation can take
place in favor of PHILEXCHANGE since the subject remittances were received by PNB and not
PHILEXCHANGE, a corporation clothed with a separate and distinct corporate personality from PNB. They
added that PHILEXCHANGE's account had already prescribed.
54
Moreover, NASUTRA and SRA contend that, assuming arguendo that creditor-debtor relationship
existed between PNB and NASUTRA, compensation was still illegal, since PNB has not proven the existence of
the P408 million revolving credit line and the CAB Planters Account. Petitioners also assert that the CAB
Planters Account is an unliquidated account considering that it still has to be recomputed pursuant to the
Sugar Reconstitution Law. 29
Respondent PNB counters that it can apply the foreign remittances on the long-overdue
obligations of NASUTRA. They were entered into by NASUTRA with the blessing, if not with express
mandate, of the National Government in the pursuit of national interest and policy. PNB invokes also the
Letter of Intent submitted by the National Government to the International Monetary Fund (IMF), wherein
the government made specific reference to the immediate payment by NASUTRA and PHILSUCOM of their
outstanding obligations with PNB to buoy up the country's sagging economy. 30
Petitioners' arguments are specious.
Article 1306 of the New Civil Code provides:
Contracting parties may establish such stipulations, clauses terms and
conditions as they may deem convenient provided they are not contrary to law,
morals, good customs, public order or public policy.
In the instant case, NASUTRA applied for a P408 million credit line with PNB in order to finance
its trading operations. PNB, on the other hand, approved said credit line in its Resolution No. 68. Thereafter,
NASUTRA availed of the credit and in fact drew P389,246,324.60, in principal and accrued interest, from
the approved credit line. Evidence shows that every time NASUTRA availed of the credit, its Executive Vice
President, Jose Unson, executed a promissory note 31 in favor of PNB with the following proviso:
In the event that this note is not paid at maturity or when the same
becomes due under any of the provisions hereof, I/We hereby authorize the Bank,
at its option and without notice, to apply to the payment of this note, any and all
moneys, securities and things of values which may be in the hands on deposit or
otherwise belonging to me/us and for this purpose, I/We hereby, jointly and
severally, irrevocably constitute and appoint the Bank to be my/our true Attorney-
in-Fact with full power and authority for me/us and in my/our name and behalf and
without prior notice to negotiate, sell and transfer any moneys, securities and
things of value which it may hold, by public or private sale and apply the proceeds
thereof to the payment of this note. (Italics ours)
While we agree with petitioners that the application of subject remittances cannot be justified
under Article 1278 in relation to Article 1279 of the Civil Code, considering that some elements of legal
compensation were lacking, application of the subject remittances to NASUTRA's account with PNB and the
claims of various PNB branches for interest on the unpaid CY 1984-1985 sugar proceeds is authorized under
the above-quoted stipulation. PNB correctly treated the subject remittances for the account of NASUTRA
as moneys in its hands which may be applied for the payment of the note.
Also, the relationship between NASUTRA/SRA and PNB when the former constituted the latter
as its attorney-in-fact is not a simple agency. NASUTRA/SRA has assigned and practically surrendered its
rights in favor of PNB for a substantial consideration. 32 To reiterate, NASUTRA/SRA executed promissory
notes in favor of PNB every time it availed of the credit line. The agency established between the parties is
one coupled with interest which cannot be revoked or cancelled at will by any of the parties. 33
Notwithstanding its availment of the approved credit, NASUTRA, for reasons only known to
itself, insisted in claiming for refund of the remittances. NASUTRA's posture is untenable. NASUTRA's
actuation runs counter to the good faith covenant in contractual relations, required under Article 1159 of the
Civil Code, to wit:
Obligations arising from contract have the force of law between the
contracting parties and should be complied with in good faith.

Verily, parties may freely stipulate their duties and obligations which perforce would be binding
on them. Not being repugnant to any legal proscription, the agreement entered into by NASUTRA/SRA and
PNB must be respected and have the force of law between them.
With respect to the application of the sum of P65,412,245.84, 34 the record shows that
NASUTRA failed to remit the interest payments to PNB despite its obligation under the liquidation scheme
proposed by the Chairman of its Executive Committee, Armando C. Gustillo, to stabilize sugar liquidation
prices. Certainly, the authority granted by NASUTRA to Armando Gustillo to propose such liquidation scheme
was an authority to represent NASUTRA. Undisputedly, any obligation or liability arising from such agreement
shall be binding on the parties. NASUTRA, for its part, cannot now renege on its duties, considering that it
took advantage of the loan.
Having established that PNB validly applied the subject remittances to the interest of
NASUTRA's loan in the amount of P65,412,245.84, the application of the remainder of the remittance
amounting to P15,863,898.79 to the principal is proper.
With respect to the Central Azucarera de Bais (CAB) Planters account, petitioners maintained
that the subject remittances cannot be applied to payment thereof, considering that it is unliquidated and
needs recomputation, pursuant to Section 3 of Republic Act No. 7202 or the Sugar Reconstitution Law, which
provides:
The Philippine National Bank, the Republic Planters Bank, the
Development Bank of the Philippines and other government-owned and controlled
financial institutions which have granted loans to the sugar producers shall extend
to accounts of said sugar producers incurred from Crop Year 1974–1975 up to and
including Crop Year 1984–1985 the following:
(a) Condonation of interest charged by the banks in excess
of twelve percent (12%) per annum and all penalties and surcharges:
(b) The recomputed loans shall be amortized for a period of
thirteen (13) years inclusive of a three-year grace period on principal
effective upon the approval of this Act. The portion of the loan will
carry an interest rate of twelve (12%) and on the outstanding balance
effective when the original promissory notes were signed and funds
released to the producer.
Section 6 of Rules and Regulations implementing RA No. 7202 also provides:
SECTION 2. In cases, however, where sugar producers have no
outstanding loan balance with said financial institutions as of the date of
effectivity of RA No. 7202(i.e. sugar producers who have fully paid their loans
either through actual payment or foreclosure of collateral, or who have partially
paid their loans and after the computation of the interest charges, they end up
with excess payment to said financial institutions), said producers shall be entitled
to the benefits of recomputation in accordance with Sections 3 and 4 of RA No.
7202, but the said financial institutions, instead of refunding the interest in
excess of twelve (12%) percent per annum, interests, penalties and surcharges,
apply the excess payment as an offset and/or as payment for the producers'
outstanding loan obligations. Applications of restructuring banks under Section 6
of RA No. 7202 shall be filed with the Central Monetary Authority of the
Philippines within one (1) year from application of excess payment.
Although it appears from said provision that PNB was directed to condone interest, penalties and
surcharges charged in excess of 12% per annum, the passage of said law did not forestall legal compensation
that had taken place before its effectivity. The loan had been definitely ascertained, assessed and
determined by PNB. Pursuant to Section 4 35 of RA 7202, there would be condonation of interest whether
the accounts were fully or partially paid.
55
With regard to the application of the amount of P206,070,172.57 to the PHILSUCOM account
carried in the books of PHILEXCHANGE, petitioners maintain that there could be no application of the
subject remittance, considering that the remittances were received by PNB and not PHILEXCHANGE which
has a personality separate and distinct from PNB.
Petitioners' contention is not well-taken.
There exist clear indications that insofar as sugar trading was concerned, PHILEXCHANGE and
PNB were treated as one entity. Purchases of sugar of PHILEXCHANGE as the exclusive sugar trading arm of
PHILSUCOM were financed by PNB pursuant to PD 579. More importantly, PNB, a wholly owned bank of the
government at that time, in turn wholly owned and controlled PHILEXCHANGE. Also, Section 2 (a), PD 659
declared as illegal the sale, transfer and assignment of sugar by any planter, producer, miller, central, or
refinery to any person or entity other than Philippine Exchange, Inc. and/or the PNB. To reiterate,
PHILEXCHANGE failed to pay its loans with PNB because of the fall of the sugar prices in the world market.
When NASUTRA substituted PHILEXCHANGE as marketing agent of PHILSUCOM, 1,485,532.47 metric
tons 36 of export sugar were turned over by PHILEXCHANGE to NASUTRA. To reiterate, the foreign
remittances constituted proceeds of the sale of the sugar covered by quedans transferred by
PHILEXCHANGE to NASUTRA.
WHEREFORE, in view of the foregoing, the instant petition for review is DENIED. The decision of
the Court of Appeals dated August 10, 2001 is AFFIRMED.
PNB VS PEREZ
BAUTISTA ANGELO, J p:
The Philippine National Bank filed on March 22, 1961 before the Court of First Instance of
Manila a complaint for revival of a judgment rendered on December 29, 1949 against Amando M. Perez.
Gregorio Pumuntoc and Virginia de Pumuntoc pursuant to the provisions of Section 6, Rule 39 of the
Rules of Court. It was alleged therein that said judgment was rendered more than five years ago but
that since then less than ten years had elapsed, and that judgment be rendered reviving the one
entered on December 29, 1949 sentencing the defendants to pay jointly and severally the outstanding
balance of P7,699.49 as of February 9, 1961, with interest thereon of 10% per annum from February 10,
1961, plus 10% of the amount due as attorney's fees and costs of suit. cda
Defendants Gregorio Pumuntoc and Virginia de Pumuntoc failed to file their answer within
the reglementary period for which reason they were declared in default. Defendant Amando M. Perez,
who was summoned by publication, also failed to file his answer, whereupon he was also declared in
default, and though he later filed an answer the same was stricken out from the record.
Thereupon, plaintiff submitted its evidence, but when the case was submitted for decision,
the court a quo dismissed the complaint on the ground that plaintiff's cause of action had already
prescribed under Articles 1144 and 1152 of the Civil Code.
Plaintiff filed a motion for reconsideration contending that, since prescription is a defense
that can only be set up by defendants, the court could not motu proprio consider it as basis for
dismissal, but this motion was denied.
Plaintiff took the present appeal.
It appears that when defendants were declared in default plaintiff was allowed to present
its evidence from which it was established that in the previous case between the same parties (Civil
Case No. 9048) a decision was rendered on December 29, 1949 ordering defendants to pay plaintiff the
sum of P3,783.78, with 8% interest from December 21, 1949 until fully paid, plus the corresponding
attorney's fees and costs of suit. This decision became final on February 2, 1950, or 30 days from the
date same was received by the parties. As a matter of fact, the writ issued for its execution bears the
date of February 24, 1950. However, the instant case was filed with the court a quo only on March 22,
 56
1961, thereby showing that more than 11 years had already elapsed on the date of the filing of the
action.

Since under Section 6, Rule 39, of the Rules of Court a judgment which was rendered more
than five years after it had become final can only be revived before it is barred by the statute of
limitations, and an action for the enforcement of judgment can only be brought within 10 years from
the time the judgment becomes final (Articles 1144 and 1152, Civil Code), it follows that plaintiff's
action has already prescribed as found by the court a quo. In other words, while plaintiff's complaint
alleges that the previous judgment was rendered more than five years but less than ten years since its
rendition, the very evidence of the plaintiff, however, shows that the present action was filed after the
lapse of more than 10 years. liblex

It is true that the defense of prescription can only be considered if the same is invoked as
such in the answer of the defendant and that in this particular instance no such defense was invoked
because the defendants had been declared in default, but such rule does not obtain when the evidence
shows that the cause of action upon which plaintiff's complaint is based is already barred by the
statute of limitations. Thus, the court a quo made on this point the following finding:

". . . Since the defendants did not elect to appeal the decision against
them, the same became final on February 2, 1950 or 30 days from receipt by the
parties of copies of the decision. Said decision must at the latest have become
final on February 24, 1950, the date the writ of execution Exhibit B-1 was signed.
However, the instant case was filed with this Court on March 22, 1961, thereby
showing that whether from February 2, 1950 or February 24, 1950, more than 11
years have already elapsed."

WHEREFORE, the order appealed from is affirmed. No costs.

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