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EUROTECH

INDUSTRIAL
TECHNOLOGIES,
INC.,

G.R. No. 167552

respondent EDWIN Cuizon (EDWIN) as a party Following the execution of the Deed of argument, petitioner points to paragraphs 1.2
defendant in Civil Case No. CEB-19672.
Assignment, petitioner delivered to respondents and 1.3 of petitioners Complaint stating
the sludge pump as shown by Invoice No. 12034
dated 30 June 1995.[8]

Present:

The generative facts of the case are as follows:

Petitioner,

YNARES-SANTIAGO, J.,
Chairperson,
Petitioner is engaged in the business of
AUSTRIA-MARTINEZ, importation and distribution of various European
industrial equipment for customers here in
CALLEJO, SR.,
the Philippines. It has as one of its customers
Impact Systems Sales (Impact Systems) which is
CHICO-NAZARIO, and a sole proprietorship owned by respondent
ERWIN Cuizon (ERWIN). Respondent EDWIN is the
NACHURA, JJ.
sales manager of Impact Systems and was
impleaded in the courta quo in said capacity.

THIRD DIVISION

- versus -

Promulgated:

April 23, 2007


EDWIN CUIZON and
ERWIN CUIZON,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

From January to April 1995, petitioner sold to


Impact Systems various products allegedly
amounting to ninety-one thousand three hundred
thirty-eight (P91,338.00) pesos. Subsequently,
respondents sought to buy from petitioner one
unit of sludge pump valued atP250,000.00 with
respondents making a down payment of fifty
thousand pesos (P50,000.00).[4] When the sludge
pump
arrived
from
the United
Kingdom,
petitioner refused to deliver the same to
On 8 January 1997, the trial court
respondents without their having fully settled
their indebtedness to petitioner. Thus, on 28 June granted petitioners prayer for[13]the issuance of
1995, respondent EDWIN and Alberto de Jesus, writ of preliminary attachment.
general manager of petitioner, executed a Deed
of Assignment of receivables in favor of
petitioner, the pertinent part of which states:
On 25 June 1997, respondent EDWIN
filed
his
Answer [14] wherein
he
admitted
petitioners allegations with respect to the sale
transactions entered into by Impact Systems and
1.) That ASSIGNOR[5] has an
outstanding receivables from Toledo
petitioner between January and April 1995.[15] He,
Power Corporation in the amount of
however, disputed the total amount of Impact
THREE HUNDRED SIXTY FIVE THOUSAND
Systems indebtedness to petitioner which,
(P365,000.00) PESOS as payment for the
purchase of one unit of Selwood Spate
according to him, amounted to only P220,000.00.
100D Sludge Pump;

Before
Us
is
a
petition
for
review
by certiorari assailing the Decision[1] of the Court
of Appeals dated 10 August 2004 and its
Resolution[2] dated 17 March 2005 in CA-G.R. SP
No.
71397
entitled, Eurotech
Industrial
Technologies, Inc. v. Hon. Antonio T. Echavez. The
assailed Decision and Resolution affirmed the
Order[3] dated 29 January 2002 rendered by Judge
Antonio T. Echavez ordering the dropping of

Allegedly unbeknownst to petitioner,


respondents, despite the existence of the Deed
of Assignment, proceeded to collect from Toledo
Power Company the amount of P365,135.29 as
evidenced by Check Voucher No. 0933 [9] prepared
by said power company and an official receipt
dated 15 August 1995 issued by Impact Systems.
[10]
Alarmed by this development, petitioner made
several demands upon respondents to pay their
obligations. As a result, respondents were able to
make partial payments to petitioner. On 7
October
1996,
petitioners
counsel
sent
respondents a final demand letter wherein it was
stated that as of 11 June 1996, respondents total
obligations stood at P295,000.00 excluding
interests and attorneys fees.[11] Because of
respondents failure to abide by said final demand
letter, petitioner instituted a complaint for sum of
money, damages, with application for preliminary
attachment against herein respondents before
the Regional Trial Court of Cebu City.[12]

2.) That said ASSIGNOR does


hereby ASSIGN, TRANSFER, and CONVEY
unto the ASSIGNEE[6] the said receivables
from
Toledo
Power
Corporation
in
the amount of THREE HUNDRED SIXTY
FIVE THOUSAND (P365,000.00) PESOS
which receivables the ASSIGNOR is the
lawful recipient;

3.) That the ASSIGNEE does


hereby accept this assignment.[7]

[16]

By way of special and affirmative


defenses, respondent EDWIN alleged that he is
not a real party in interest in this case.According
to him, he was acting as mere agent of his
principal, which was the Impact Systems, in his
transaction with petitioner and the latter was
very much aware of this fact. In support of this

1.2. Defendant Erwin H. Cuizon, is of


legal
age,
married,
a
resident
of Cebu City. He is the proprietor of a
single proprietorship business known as
Impact Systems Sales (Impact Systems
for brevity), with office located at 46-A del
Rosario Street, Cebu City, where he may
be served summons and other processes
of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal


age,
Filipino,
married,
a
resident
of Cebu City. He is the Sales Manager of
Impact Systems and is sued in this action
in such capacity.[17]

On 26 June 1998, petitioner filed a


Motion to Declare Defendant ERWIN in Default
with Motion for Summary Judgment.The trial
court granted petitioners motion to declare
respondent ERWIN in default for his failure to
answer within the prescribed period despite the
opportunity granted[18] but it denied petitioners
motion for summary judgment in its Order of 31
August 2001and scheduled the pre-trial of the
case on 16 October 2001.[19] However, the
conduct of the pre-trial conference was deferred
pending the resolution by the trial court of the
special and affirmative defenses raised by
respondent EDWIN.[20]

After the filing of respondent EDWINs


Memorandum[21] in support of his special and
affirmative
defenses
and
petitioners
opposition[22] thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this
case. According to the trial court

A study of Annex G to the


complaint shows that in the Deed of
Assignment, defendant Edwin B. Cuizon
acted in behalf of or represented [Impact]
Systems Sales; that [Impact] Systems
Sale is a single proprietorship entity and
the complaint shows that defendant Erwin
H. Cuizon is the proprietor; that plaintif
corporation is represented by its general

manager Alberto de Jesus in the contract


which is dated June 28, 1995. A study of
Annex H to the complaint reveals that
[Impact] Systems Sales which is owned
solely by defendant Erwin H. Cuizon,
made a down payment of P50,000.00 that
Annex H is dated June 30, 1995 or two
days after the execution of Annex G,
thereby showing that [Impact] Systems
Sales ratified the act of Edwin B. Cuizon;
the records further show that plaintif
knew that [Impact] Systems Sales, the
principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the
down payment of P50,000.00. Plaintif,
therefore, cannot say that it was deceived
by defendant Edwin B. Cuizon, since in
the instant case the principal has ratified
the act of its agent and plaintif knew
about said ratification. Plaintif could not
say that the subject contract was entered
into by Edwin B. Cuizon in excess of his
powers since [Impact] Systems Sales
made a down payment of P50,000.00 two
days later.

In view of the Foregoing, the


Court directs that defendant Edwin B.
Cuizon be dropped as party defendant.[23]

Aggrieved by the adverse ruling of the trial


court, petitioner brought the matter to the Court
of Appeals which, however, affirmed the 29
January 2002 Order of the court a quo. The
dispositive portion of the now assailed Decision
of the Court of Appeals states:

NEITHER ACTED BEYOND THE SCOPE OF


HIS AGENCY NOR DID HE PARTICIPATE IN
THE PERPETUATION OF A FRAUD.[25]

To support its argument, petitioner points to


Article 1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is


not personally liable to the party with
whom he contracts, unless he expressly
binds himself or exceeds the limits of his
authority without giving such party
sufficient notice of his powers.

Petitioner contends that the Court of Appeals


failed to appreciate the efect of ERWINs act of
collecting the receivables from the Toledo Power
Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf
of Impact Systems. While said collection did not
revoke the agency relations of respondents,
petitioner insists that ERWINs action repudiated
EDWINs
power
to
sign
the
Deed
of
Assignment. As EDWIN did not sufficiently notify
it of the extent of his powers as an agent,
petitioner claims that he should be made
personally liable for the obligations of his
principal.[26]

alleged in the Complaint that he is being sued in


his capacity as the sales manager of the said
business venture. Likewise, respondent EDWIN We disagree.
points to the Deed of Assignment which clearly
states that he was acting as a representative of Article 1897 reinforces the familiar doctrine that
Impact Systems in said transaction.
an agent, who acts as such, is not personally
liable to the party with whom he contracts. The
same provision, however, presents two instances
when an agent becomes personally liable to a
We do not find merit in the petition.
third person. The first is when he expressly binds
himself to the obligation and the second is when
he exceeds his authority. In the last instance, the
agent can be held liable if he does not give the
In a contract of agency, a person binds himself to third party sufficient notice of his powers. We
render some service or to do something in hold that respondent EDWIN does not fall within
representation or on behalf of another with the any of the exceptions contained in this provision.
latters consent.[29] The underlying principle of the
contract of agency is to accomplish results by
using the services of others to do a great variety
of things like selling, buying, manufacturing, and The Deed of Assignment clearly states that
transporting.[30] Its purpose is to extend the respondent EDWIN signed thereon as the sales
personality of the principal or the party for whom manager of Impact Systems. As discussed
another acts and from whom he or she derives elsewhere, the position of manager is unique in
the authority to act. [31] It is said that the basis of that it presupposes the grant of broad powers
agency is representation, that is, the agent acts with which to conduct the business of the
for and on behalf of the principal on matters principal, thus:
within the scope of his authority and said acts
have the same legal efect as if they were
personally executed by the principal.[32] By this
The powers of an agent are
legal fiction, the actual or real absence of the
particularly broad in the case of one
principal is converted into his legal or juridical
acting
as
a
general agent or manager;
presence qui facit per alium facit per se.[33]
such a position presupposes a degree of

The elements of the contract of agency are: (1)


consent, express or implied, of the parties to
establish the relationship; (2) the object is the
execution of a juridical act in relation to a third
person; (3) the agent acts as a representative
and not for himself; (4) the agent acts within the
scope of his authority.[34]

Petitioner also contends that it fell victim to the


fraudulent scheme of respondents who induced it
into selling the one unit of sludge pump to
Impact Systems and signing the Deed of
Assignment. Petitioner directs the attention of
this Court to the fact that respondents are bound
not only by their principal and agent relationship
but are in fact full-blooded brothers whose
Petitioners motion for reconsideration was denied successive contravening acts bore the obvious
In this case, the parties do not dispute the
by the appellate court in its Resolution signs of conspiracy to defraud petitioner. [27]
existence of the agency relationship between
promulgated on 17 March 2005. Hence, the
respondents ERWIN as principal and EDWIN as
present petition raising, as sole ground for its
agent. The only cause of the present dispute is
allowance, the following:
whether respondent EDWIN exceeded his
In his Comment,[28] respondent EDWIN again
authority when he signed the Deed of
posits the argument that he is not a real party in
Assignment thereby binding himself personally to
interest in this case and it was proper for the trial
THE COURT OF APPEALS COMMITTED A
pay the obligations to petitioner. Petitioner firmly
court
to
have
him
dropped
as
a
defendant.
He
REVERSIBLE ERROR WHEN IT RULED
believes that respondent EDWIN acted beyond
insists that he was a mere agent of Impact
THAT RESPONDENT EDWIN CUIZON, AS
the authority granted by his principal and he
AGENT
OF
IMPACT
SYSTEMS
Systems which is owned by ERWIN and that his
SALES/ERWIN
CUIZON,
IS
NOT
should therefore bear the efect of his deed
status
as
such
is
known
even
to
petitioner
as
it
is
PERSONALLY LIABLE, BECAUSE HE HAS
pursuant to Article 1897 of the New Civil Code.
WHEREFORE, finding no viable legal
ground to reverse or modify the
conclusions reached by the public
respondent in his Order datedJanuary 29,
2002, it is hereby AFFIRMED.[24]

confidence reposed and investiture with


liberal powers for the exercise of
judgment and discretion in transactions
and concerns which are incidental or
appurtenant to the business entrusted to
his care and management. In the absence
of an agreement to the contrary, a
managing agent may enter into any
contracts that he deems reasonably
necessary or requisite for the protection
of the interests of his principal entrusted
to his management. x x x.[35]

Applying the foregoing to the present case, we


hold that Edwin Cuizon acted well-within his
authority when he signed the Deed of
Assignment. To recall, petitioner refused to
deliver the one unit of sludge pump unless it
received, in full, the payment for Impact
Systems indebtedness.[36] We may very well
assume that Impact Systems desperately
needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos
(P50,000.00) as down payment on 3 March
1995,[37] it still persisted in negotiating with
petitioner which culminated in the execution of

the Deed of Assignment of its receivables from


Toledo Power Company on 28 June 1995.[38] The
significant amount of time spent on the
negotiation for the sale of the sludge pump
underscores Impact Systems perseverance to
get hold of the said equipment. There is,
therefore, no doubt in our mind that respondent
EDWINs participation in the Deed of Assignment
was reasonably necessary or was required in
order for him to protect the business of his
principal. Had he not acted in the way he did,
the business of his principal would have been
adversely afected and he would have violated
his fiduciary relation with his principal.

We likewise take note of the fact that in this


case, petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN,
the agent. It is well to state here that Article
1897 of the New Civil Code upon which petitioner
anchors its claim against respondent EDWIN
does not hold that in case of excess of authority,
both the agent and the principal are liable to the
other contracting party.[39] To reiterate, the first
part of Article 1897 declares that the principal is
liable in cases when the agent acted within the
bounds of his authority. Under this, the agent is
completely absolved of any liability. The second
part of the said provision presents the situations
when the agent himself becomes liable to a third
party when he expressly binds himself or he
exceeds the limits of his authority without giving
notice
of
his
powers
to
the
third
person. However, it must be pointed out that in
case of excess of authority by the agent, like
what petitioner claims exists here, the law does
not say that a third person can recover from both
the principal and the agent.[40]

As we declare that respondent EDWIN acted


within his authority as an agent, who did not
acquire any right nor incur any liability arising
from the Deed of Assignment, it follows that he is
not a real party in interest who should be
impleaded in this case. A real party in interest is
one who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the
avails of the suit.[41] In this respect, we sustain his
exclusion as a defendant in the suit before the
court a quo.

WHEREFORE, premises considered, the present


petition is DENIED and the Decision dated 10
August 2004 and Resolution dated 17 March
2005 of the Court of Appeals in CA-G.R. SP No.
71397, affirming the Order dated 29 January
2002 of the Regional Trial Court, Branch
8, Cebu City, is AFFIRMED.

On May 5, 1980, the respondent Philippine National


Railways (PNR) informed a certain Gaudencio
Romualdez (Romualdez, hereinafter) that it has
accepted the latters offer to buy, on an "AS IS, WHERE
IS" basis, the PNRs scrap/unserviceable rails located in
Del Carmen and Lubao, Pampanga at P1,300.00
and P2,100.00 per metric ton, respectively, for the total
amount of P96,600.00. After paying the stated purchase
price, Romualdez addressed a letter to Atty. Cipriano
Dizon, PNRs Acting Purchasing Agent. Bearing date
Let the records of this case be May 26, 1980, the letter reads:
remanded to the Regional Trial Court, Branch
8, Cebu City, for the continuation of the Dear Atty. Dizon:
proceedings against respondent ERWIN CUIZON.

On August 10, 1988, the spouses Angeles filed suit


against the PNR and its corporate secretary, Rodolfo
Flores, among others, for specific performance and
damages before the Regional Trial Court of Quezon
City. In it, they prayed that PNR be directed to deliver 46
metric tons of scrap/unserviceable rails and to pay them
damages and attorney's fees.

This is to inform you as President of San Juanico


Enterprises, that I have authorized the bearer, LIZETTE
R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila,
to be my lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to me.

On April 16, 1996, the trial court, on the postulate that


the spouses Angeles are not the real parties-in-interest,
rendered judgment dismissing their complaint for lack of
cause of action. As held by the court, Lizette was merely
a representative of Romualdez in the withdrawal of
scrap or unserviceable rails awarded to him and not an
assignee to the latter's rights with respect to the award.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 150128 August 31, 2006
LAUREANO T. ANGELES, Petitioner,
vs.
PHILIPPINE NATIONAL RAILWAYS (PNR) AND
RODOLFO FLORES, 1Respondents.
DECISION

For this reason, I have given her the original copy of the
award, dated May 5, 1980 and O.R. No. 8706855 dated
May 20, 1980 which will indicate my waiver of rights,
interests and participation in favor of LIZETTE R.
WIJANCO.
Thank you for your cooperation.

Issues having been joined following the filing by PNR, et


al., of their answer, trial ensued. Meanwhile, Lizette W.
Angeles passed away and was substituted by her heirs,
among whom is her husband, herein petitioner Laureno
T. Angeles.

Aggrieved, the petitioner interposed an appeal with the


CA, which, as stated at the threshold hereof, in its
decision of June 4, 2001, dismissed the appeal and
affirmed that of the trial court. The affirmatory decision
was reiterated by the CA in its resolution of September
17, 2001, denying the petitioners motion for
reconsideration.

Very truly yours,


(Sgd.) Gaudencio Romualdez

The Lizette R. Wijanco mentioned in the letter was


Lizette Wijanco- Angeles, petitioner's now deceased
wife. That very same day May 26, 1980 Lizette
GARCIA, J.:
requested the PNR to transfer the location of withdrawal
for the reason that the scrap/unserviceable rails located
Under consideration is this petition for review under
in Del Carmen and Lubao, Pampanga were not ready
Rule 45 of the Rules of Court assailing and seeking to
for hauling. The PNR granted said request and allowed
set aside the following issuances of the Court of Appeals Lizette to withdraw scrap/unserviceable rails in Murcia,
(CA) in CA-G.R. CV No. 54062, to wit:
Capas and San Miguel, Tarlac instead. However, the
PNR subsequently suspended the withdrawal in view of
what it considered as documentary discrepancies
1. Decision 2 dated June 4, 2001, affirming an earlier
coupled by reported pilferages of over P500,000.00
decision of the Regional Trial Court (RTC) of Quezon
worth of PNR scrap properties in Tarlac.
City, Branch 79, which dismissed the complaint for
specific performance and damages thereat commenced
by the petitioner against the herein respondents; and
Consequently, the spouses Angeles demanded the
refund of the amount of P96,000.00. The PNR, however,
refused to pay, alleging that as per delivery receipt duly
2. Resolution 3 dated September 17, 2001, denying the
signed by Lizette, 54.658 metric tons of unserviceable
petitioner's motion for reconsideration.
rails had already been withdrawn which, at P2,100.00
per metric ton, were worth P114,781.80, an amount that
The facts:
exceeds the claim for refund.

Hence, the petitioners present recourse on the


submission that the CA erred in affirming the trial court's
holding that petitioner and his spouse, as plaintiffs a
quo, had no cause of action as they were not the real
parties-in-interest in this case.
We DENY the petition.
At the crux of the issue is the matter of how the
aforequoted May 26, 1980 letter of Romualdez to Atty.
Dizon of the PNR should be taken: was it meant to
designate, or has it the effect of designating, Lizette W.
Angeles as a mere agent or as an assignee of his
(Romualdez's) interest in the scrap rails awarded to San
Juanico Enterprises? The CAs conclusion, affirmatory of
that of the trial court, is that Lizette was not an assignee,
but merely an agent whose authority was limited to the
withdrawal of the scrap rails, hence, without personality
to sue.
Where agency exists, the third party's (in this case,
PNR's) liability on a contract is to the principal and not to
the agent and the relationship of the third party to the
principal is the same as that in a contract in which there
is no agent. Normally, the agent has neither rights nor

liabilities as against the third party. He cannot thus sue


or be sued on the contract. Since a contract may be
violated only by the parties thereto as against each
other, the real party-in-interest, either as plaintiff or
defendant in an action upon that contract must,
generally, be a contracting party.
The legal situation is, however, different where an agent
is constituted as an assignee. In such a case, the agent
may, in his own behalf, sue on a contract made for his
principal, as an assignee of such contract. The rule
requiring every action to be prosecuted in the name of
the real party-in-interest recognizes the assignment of
rights of action and also recognizes
that when one has a right assigned to him, he is then
the real party-in-interest and may maintain an action
upon such claim or right. 4
Upon scrutiny of the subject Romualdez's letter to Atty.
Cipriano Dizon dated May 26, 1980, it is at once
apparent that Lizette was to act just as a
"representative" of Romualdez in the "withdrawal of
rails," and not an assignee. For perspective, we
reproduce the contents of said letter:

indicated an intent on his part to keep and retain his


interest in the subject matter. Stated a bit differently, he
intended to limit Lizettes role in the scrap transaction to
being the representative of his interest therein.
Petitioner submits that the second paragraph of the
Romualdez letter, stating - "I have given [Lizette] the
original copy of the award x x x which will indicate my
waiver of rights, interests and participation in favor of
Lizette R. Wijanco" - clarifies that Lizette was intended
to be an assignee, and not a mere agent.
We are not persuaded. As it were, the petitioner
conveniently omitted an important phrase preceding the
paragraph which would have put the whole matter in
context. The phrase is "For this reason," and the
antecedent thereof is his (Romualdez) having appointed
Lizette as his representative in the matter of the
withdrawal of the scrap items. In fine, the key phrase
clearly conveys the idea that Lizette was given the
original copy of the contract award to enable her to
withdraw the rails as Romualdezs authorized
representative.

Article 1374 of the Civil Code provides that the various


stipulations of a contract shall be read and interpreted
together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. In fine,
the real intention of the parties is primarily to be
This is to inform you as President of San Juanico
Enterprises, that I have authorized the bearer, LIZETTE determined from the language used and gathered from
the whole instrument. When put into the context of the
R. WIJANCO x x x to be my lawful representative in
letter as a whole, it is abundantly clear that the rights
the withdrawal of the scrap/unserviceable rails
which Romualdez waived or ceded in favor of Lizette
awarded to me.
were those in furtherance of the agency relation that he
had established for the withdrawal of the rails.
For this reason, I have given her the original copy of
the award, dated May 5, 1980 and O.R. No. 8706855
At any rate, any doubt as to the intent of Romualdez
dated May 20, 1980 which will indicate my waiver of
rights, interests and participation in favor of LIZETTE R. generated by the way his letter was couched could be
clarified by the acts of the main players themselves.
WIJANCO. (Emphasis added)
Article 1371 of the Civil Code provides that to judge the
intention of the contracting parties, their
If Lizette was without legal standing to sue and appear
contemporaneous and subsequent acts shall be
in this case, there is more reason to hold that her
principally considered. In other words, in case of doubt,
petitioner husband, either as her conjugal partner or her resort may be made to the situation, surroundings, and
heir, is also without such standing.
relations of the parties.
Petitioner makes much of the fact that the terms "agent"
or "attorney-in-fact" were not used in the Romualdez
letter aforestated. It bears to stress, however, that the
words "principal" and "agent," are not the only terms
used to designate the parties in an agency relation. The
agent may also be called an attorney, proxy, delegate or,
as here, representative.
It cannot be over emphasized that Romualdez's use of
the active verb "authorized," instead of "assigned,"

The fact of agency was, as the trial court aptly


observed, 5 confirmed in subsequent letters from the
Angeles spouses in which they themselves refer to
Lizette as "authorized representative" of San Juanico
Enterprises. Mention may also be made that the
withdrawal receipt which Lizette had signed indicated
that she was doing so in a representative capacity. One
professing to act as agent for another is estopped to
deny his agency both as against his asserted principal

and third persons interested in the transaction which he


engaged in.

himself admitted in his complaint that it was Romualdez


who paid this amount.

Whether or not an agency has been created is a


question to be determined by the fact that one
represents and is acting for another. The appellate
court, and before it, the trial court, had peremptorily
determined that Lizette, with respect to the withdrawal of
the scrap in question, was acting for Romualdez. And
with the view we take of this case, there were
substantial pieces of evidence adduced to support this
determination. The desired reversal urged by the
petitioner cannot, accordingly, be granted. For, factual
findings of the trial court, adopted and confirmed by the
CA, are, as a rule, final and conclusive and may not be
disturbed on appeal. 6 So it must be here.

WHEREFORE, the petition is DENIED and the assailed


decision of the CA is AFFIRMED.

Petitioner maintains that the Romualdez letter in


question was not in the form of a special power of
attorney, implying that the latter had not intended to
merely authorize his wife, Lizette, to perform an act for
him (Romualdez). The contention is specious. In the
absence of statute, no form or method of execution is
required for a valid power of attorney; it may be in any
form clearly showing on its face the agents authority. 7
A power of attorney is only but an instrument in writing
by which a person, as principal, appoints another as his
agent and confers upon him the authority to perform
certain specified acts on behalf of the principal. The
written authorization itself is the power of attorney, and
this is clearly indicated by the fact that it has also been
called a "letter of attorney." Its primary purpose is not to
define the authority of the agent as between himself and
his principal but to evidence the authority of the agent to
third parties with whom the agent deals. 8 The letter
under consideration is sufficient to constitute a power of
attorney. Except as may be required by statute, a power
of attorney is valid although no notary public intervened
in its execution. 9
A power of attorney must be strictly construed and
pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may
neither go beyond nor deviate from the power of
attorney.10 Contextually, all that Lizette was authorized to
do was to withdraw the unserviceable/scrap railings.
Allowing her authority to sue therefor, especially in her
own name, would be to read something not intended, let
alone written in the Romualdez letter.
Finally, the petitioner's claim that Lizette paid the
amount of P96,000.00 to the PNR appears to be a mere
afterthought; it ought to be dismissed outright under the
estoppel principle. In earlier proceedings, petitioner

Costs against the petitioner.


SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119858

April 29, 2003

EDWARD C. ONG, petitioner,


vs.
THE COURT OF APPEALS AND THE PEOPLE
OF THE PHILIPPINES, respondents.
CARPIO, J.:
The Case
Petitioner Edward C. Ong ("petitioner") filed this
petition for review on certiorari1 to nullify the
Decision2 dated 27 October 1994 of the Court of
Appeals in CA-G.R. C.R. No. 14031, and its
Resolution3 dated 18 April 1995, denying
petitioner's motion for reconsideration. The
assailed Decision affirmed in toto petitioner's
conviction4 by the Regional Trial Court of Manila,
Branch 35,5 on two counts of estafa for violation of
the Trust Receipts Law,6 as follows:
WHEREFORE, judgment is rendered: (1)
pronouncing accused EDWARD C. ONG
guilty beyond reasonable doubt on two
counts, as principal on both counts,
of ESTAFA defined under No. 1 (b) of
Article 315 of the Revised Penal Code in
relation to Section 13 of Presidential
Decree No. 115, and penalized under the
1st paragraph of the same Article 315,
and sentenced said accused in each

count to TEN (10) YEARS of prision


mayor, as minimum, to TWENTY (20)
YEARS of reclusion temporal, as
maximum;
(2) ACQUITTING accused BENITO ONG
of the crime charged against him, his
guilt thereof not having been established
by the People beyond reasonable doubt;
(3) Ordering accused Edward C. Ong to
pay private complainant Solid Bank
Corporation the aggregate sum of
P2,976,576.37 as reparation for the
damages said accused caused to the
private complainant, plus the interest
thereon at the legal rate and the penalty
of 1% per month, both interest and
penalty computed from July 15, 1991,
until the principal obligation is fully paid;
(4) Ordering Benito Ong to pay, jointly
and severally with Edward C. Ong, the
private complainant the legal interest and
the penalty of 1% per month due and
accruing on the unpaid amount of
P1,449,395.71, still owing to the private
offended under the trust receipt Exhibit
C, computed from July 15, 1991, until the
said unpaid obligation is fully paid;
(5) Ordering accused Edward C. Ong to
pay the costs of these two actions.
SO ORDERED.7
The Charge
Assistant City Prosecutor Dina P. Teves of the
City of Manila charged petitioner and Benito Ong
with two counts ofestafa under separate
Informations dated 11 October 1991.
In Criminal Case No. 92-101989, the Information
indicts petitioner and Benito Ong of the crime
of estafacommitted as follows:
That on or about July 23, 1990, in the
City of Manila, Philippines, the said

accused, representing ARMAGRI


International Corporation, conspiring and
confederating together did then and
there willfully, unlawfully and feloniously
defraud the SOLIDBANK Corporation
represented by its Accountant,
DEMETRIO LAZARO, a corporation duly
organized and existing under the laws of
the Philippines located at Juan Luna
Street, Binondo, this City, in the following
manner, to wit: the said accused
received in trust from said SOLIDBANK
Corporation the following, to wit:

Corporation, did then and there willfully,


unlawfully and feloniously defraud the
SOLIDBANK Corporation represented by
its Accountant, DEMETRIO LAZARO, a
corporation duly organized and existing
under the laws of the Philippines located
at Juan Luna Street, Binondo, this City,
in the following manner, to wit: the said
accused received in trust from said
SOLIDBANK Corporation the following
goods, to wit:
125 pcs. Rear diff. assy RNZO
49"

10,000 bags of urea


valued at P2,050,000.00 specified in a
Trust Receipt Agreement and covered by
a Letter of Credit No. DOM GD 90-009 in
favor of the Fertiphil Corporation; under
the express obligation on the part of the
said accused to account for said goods
to Solidbank Corporation and/or remit
the proceeds of the sale thereof within
the period specified in the Agreement or
return the goods, if unsold immediately
or upon demand; but said accused, once
in possession of said goods, far from
complying with the aforesaid obligation
failed and refused and still fails and
refuses to do so despite repeated
demands made upon him to that effect
and with intent to defraud, willfully,
unlawfully and feloniously misapplied,
misappropriated and converted the same
or the value thereof to his own personal
use and benefit, to the damage and
prejudice of the said Solidbank
Corporation in the aforesaid amount of
P2,050,000.00 Philippine Currency.
Contrary to law.
In Criminal Case No. 92-101990, the Information
likewise charges petitioner of the crime
of estafa committed as follows:
That on or about July 6, 1990, in the City
of Manila, Philippines, the said accused,
representing ARMAGRI International

50 pcs. Front & Rear diff assy.


Isuzu Elof
85 units 1-Beam assy. Isuzu
Spz
all valued at P2,532,500.00 specified in a
Trust Receipt Agreement and covered by
a Domestic Letter of Credit No. DOM GD
90-006 in favor of the Metropole
Industrial Sales with address at P.O. Box
AC 219, Quezon City; under the express
obligation on the part of the said accused
to account for said goods to Solidbank
Corporation and/or remit the proceeds of
the sale thereof within the period
specified in the Agreement or return the
goods, if unsold immediately or upon
demand; but said accused, once in
possession of said goods, far from
complying with the aforesaid obligation
failed and refused and still fails and
refuses to do so despite repeated
demands made upon him to that effect
and with intent to defraud, willfully,
unlawfully and feloniously misapplied,
misappropriated and converted the same
or the value thereof to his own personal
use and benefit, to the damage and
prejudice of the said Solidbank
Corporation in the aforesaid amount of
P2,532,500.00 Philippine Currency.
Contrary to law.

Arraignment and Plea


With the assistance of counsel, petitioner and
Benito Ong both pleaded not guilty when
arraigned. Thereafter, trial ensued.
Version of the Prosecution
The prosecution's evidence disclosed that on 22
June 1990, petitioner, representing ARMAGRI
International Corporation8 ("ARMAGRI"), applied
for a letter of credit for P2,532,500.00 with
SOLIDBANK Corporation ("Bank") to finance the
purchase of differential assemblies from
Metropole Industrial Sales. On 6 July 1990,
petitioner, representing ARMAGRI, executed a
trust receipt9 acknowledging receipt from the Bank
of the goods valued at P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong,
representing ARMAGRI, applied for another letter
of credit for P2,050,000.00 to finance the
purchase of merchandise from Fertiphil
Corporation. The Bank approved the application,
opened the letter of credit and paid to Fertiphil
Corporation the amount of P2,050,000.00. On 23
July 1990, petitioner, signing for ARMAGRI,
executed another trust receipt10 in favor of the
Bank acknowledging receipt of the merchandise.
Both trust receipts contained the same
stipulations. Under the trust receipts, ARMAGRI
undertook to account for the goods held in trust
for the Bank, or if the goods are sold, to turn over
the proceeds to the Bank. ARMAGRI also
undertook the obligation to keep the proceeds in
the form of money, bills or receivables as the
separate property of the Bank or to return the
goods upon demand by the Bank, if not sold. In
addition, petitioner executed the following
additional undertaking stamped on the dorsal
portion of both trust receipts:
I/We jointly and severally agreed to any
increase or decrease in the interest rate
which may occur after July 1, 1981,
when the Central Bank floated the
interest rates, and to pay additionally the
penalty of 1% per month until the
amount/s or installment/s due and

unpaid under the trust receipt on the


reverse side hereof is/are fully paid.11
Petitioner signed alone the foregoing additional
undertaking in the Trust Receipt for
P2,253,500.00, while both petitioner and Benito
Ong signed the additional undertaking in the Trust
Receipt for P2,050,000.00.
When the trust receipts became due and
demandable, ARMAGRI failed to pay or deliver
the goods to the Bank despite several demand
letters.12 Consequently, as of 31 May 1991, the
unpaid account under the first trust receipt
amounted to P1,527,180.66,13 while the unpaid
account under the second trust receipt amounted
to P1,449,395.71.14

has a personality distinct and separate


from those acting on its behalf. In the
fulfillment of its purpose, the corporation
by necessity has to employ persons to
act on its behalf.
Being a mere artificial person, the law
(Section 13, P.D. 115) recognizes the
impossibility of imposing the penalty of
imprisonment on the corporation itself.
For this reason, it is the officers or
employees or other persons whom the
law holds responsible.16

goods covered by a trust receipt. Moreover, the


The pivotal issue for resolution is whether
bank is not obliged to determine if the goods
petitioner comes within the purview of Section 13
came into the actual possession of the entrustee. of the Trust Receipts Law which provides:
Trust receipts are issued to facilitate the purchase
of merchandise. To obligate the bank to examine
x x x . If the violation is committed by a
the fact of actual possession by the entrustee of
corporation, partnership, association or
the goods subject of every trust receipt will greatly
other juridical entities, the penalty
impede commercial transactions.
provided for in this Decree shall be
Hence, this petition.
The Issues

Petitioner seeks to reverse his conviction by


The Court of Appeals ruled that what made
contending that the Court of Appeals erred:
petitioner liable was his failure to account to the
entruster Bank what he undertook to perform
1. IN RULING THAT, BY THE MERE
under the trust receipts. The Court of Appeals
CIRCUMSTANCE THAT PETITIONER
held
that
ARMAGRI,
which
petitioner
represented,
Version of the Defense
ACTED AS AGENT AND SIGNED FOR
could not itself negotiate the execution of the trust
THE ENTRUSTEE CORPORATION,
receipts, go to the Bank to receive, return or
After the prosecution rested its case, petitioner
PETITIONER WAS NECESSARILY THE
account for the entrusted goods. Based on the
and Benito Ong, through counsel, manifested in
ONE RESPONSIBLE FOR THE
representations of petitioner, the Bank accepted
open court that they were waiving their right to
OFFENSE; AND
the trust receipts and, consequently, expected
present evidence. The trial court then considered petitioner to return or account for the goods
the case submitted for decision.15
entrusted.17
2. IN CONVICTING PETITIONER
UNDER SPECIFICATIONS NOT
The Ruling of the Court of Appeals
ALLEGED IN THE INFORMATION.
The Court of Appeals also ruled that the
prosecution need not prove that petitioner is
Petitioner appealed his conviction to the Court of occupying a position in ARMAGRI in the nature of
The Ruling of the Court
an officer or similar position to hold him the
Appeals. On 27 October 1994, the Court of
Appeals affirmed the trial court's decision in toto. "person(s) therein responsible for the offense."
The Court sustains the conviction of petitioner.
The Court of Appeals held that petitioner's
Petitioner filed a motion for reconsideration but
admission that his participation was merely
the same was denied by the Court of Appeals in
First Assigned Error: Petitioner comes
incidental still makes him fall within the purview of
the Resolution dated 18 April 1995.
within the purview of Section 13 of the Trust
the law as one of the corporation's "employees or
Receipts Law.
The Court of Appeals held that although petitioner other officials or persons therein responsible for
the
offense."
Incidental
or
not,
petitioner
was
then
is neither a director nor an officer of ARMAGRI,
Petitioner contends that the Court of Appeals
he certainly comes within the term "employees or acting on behalf of ARMAGRI, carrying out the
corporation's decision when he signed the trust
erred in finding him liable for the default of
other x x x persons therein responsible for the
ARMAGRI, arguing that in signing the trust
offense" in Section 13 of the Trust Receipts Law. receipts.
receipts, he merely acted as an agent of
The Court of Appeals explained as follows:
ARMAGRI. Petitioner asserts that nowhere in the
The Court of Appeals further ruled that the
trust receipts did he assume personal
prosecution need not prove that petitioner
It is not disputed that appellant
responsibility for the undertakings of ARMAGRI
personally
received
and
misappropriated
the
transacted with the Solid Bank on behalf
which was the entrustee.
goods
subject
of
the
trust
receipts.
Evidence
of
of ARMAGRI. This is because the
misappropriation
is
not
required
under
the
Trust
Corporation cannot by itself transact
Receipts Law. To establish the crime of estafa, it
Petitioner's arguments fail to persuade us.
business or sign documents it being an
is
sufficient
to
show
failure
by
the
entrustee
to
turn
artificial person. It has to accomplish
over the goods or the proceeds of the sale of the
these through its agents. A corporation

imposed upon the directors, officers,


employees or other officials or persons
therein responsible for the offense,
without prejudice to the civil liabilities
arising from the offense. (Emphasis
supplied)
We hold that petitioner is a person responsible for
violation of the Trust Receipts Law.
The relevant penal provision of the Trust Receipts
Law reads:
SEC. 13. Penalty Clause. - The failure of
the entrustee to turn over the proceeds
of the sale of the goods, documents or
instruments covered by a trust receipt to
the extent of the amount owing to the
entruster or as appears in the trust
receipt or to return said goods,
documents or instruments if they were
not sold or disposed of in accordance
with the terms of the trust receipt shall
constitute the crime of estafa, punishable
under the provisions of Article Three
Hundred and Fifteen, Paragraph One
(b), of Act Numbered Three Thousand
Eight Hundred and Fifteen, as amended,
otherwise known as the Revised Penal
Code. If the violation or offense
is committed by a corporation,
partnership, association or other juridical
entities, the penalty provided for in this
Decree shall be imposed upon the
directors, officers, employees or other
officials or persons therein responsible
for the offense, without prejudice to the
civil liabilities arising from the criminal
offense. (Emphasis supplied)
The Trust Receipts Law is violated whenever the
entrustee fails to: (1) turn over the proceeds of the

sale of the goods, or (2) return the goods covered


by the trust receipts if the goods are not
sold.18 The mere failure to account or return gives
rise to the crime which is malum
prohibitum.19 There is no requirement to prove
intent to defraud.20
The Trust Receipts Law recognizes the
impossibility of imposing the penalty of
imprisonment on a corporation. Hence, if the
entrustee is a corporation, the law makes the
officers or employees or other persons
responsible for the offense liable to suffer the
penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other
juridical entities cannot be put to jail. Hence, the
criminal liability falls on the human agent
responsible for the violation of the Trust Receipts
Law.
In the instant case, the Bank was the entruster
while ARMAGRI was the entrustee. Being the
entrustee, ARMAGRI was the one responsible to
account for the goods or its proceeds in case of
sale. However, the criminal liability for violation of
the Trust Receipts Law falls on the human agent
responsible for the violation. Petitioner, who
admits being the agent of ARMAGRI, is the
person responsible for the offense for two
reasons. First, petitioner is the signatory to the
trust receipts, the loan applications and the letters
of credit. Second, despite being the signatory to
the trust receipts and the other documents,
petitioner did not explain or show why he is not
responsible for the failure to turn over the
proceeds of the sale or account for the goods
covered by the trust receipts.
The Bank released the goods to ARMAGRI upon
execution of the trust receipts and as part of the
loan transactions of ARMAGRI. The Bank had a
right to demand from ARMAGRI payment or at
least a return of the goods. ARMAGRI failed to
pay or return the goods despite repeated
demands by the Bank.
It is a well-settled doctrine long before the
enactment of the Trust Receipts Law, that the
failure to account, upon demand, for funds or
property held in trust is evidence of conversion or

misappropriation.21 Under the law, mere failure by


the entrustee to account for the goods received in
trust constitutes estafa. The Trust Receipts Law
punishes dishonesty and abuse of confidence in
the handling of money or goods to the prejudice
of public order.22 The mere failure to deliver the
proceeds of the sale or the goods if not sold
constitutes a criminal offense that causes
prejudice not only to the creditor, but also to the
public interest.23 Evidently, the Bank suffered
prejudice for neither money nor the goods were
turned over to the Bank.
The Trust Receipts Law expressly makes the
corporation's officers or employees or other
persons therein responsible for the offense liable
to suffer the penalty of imprisonment. In the
instant case, petitioner signed the two trust
receipts on behalf of ARMAGRI 24 as the latter
could only act through its agents. When petitioner
signed the trust receipts, he acknowledged receipt
of the goods covered by the trust receipts. In
addition, petitioner was fully aware of the terms
and conditions stated in the trust receipts,
including the obligation to turn over the proceeds
of the sale or return the goods to the Bank, to wit:
Received, upon the TRUST hereinafter
mentioned from SOLIDBANK
CORPORATION (hereafter referred to as
the BANK), the following goods and
merchandise, the property of said BANK
specified in the bill of lading as follows: x
x x and in consideration thereof, I/we
hereby agree to hold said goods in Trust
for the said BANK and as its property
with liberty to sell the same for its
account but without authority to make
any other disposition whatsoever of the
said goods or any part thereof (or the
proceeds thereof) either by way of
conditional sale, pledge, or otherwise.
In case of sale I/we agree to hand the
proceeds as soon as received to the
BANK to apply against the relative
acceptance (as described above) and for
the payment of any other indebtedness
of mine/ours to SOLIDBANK
CORPORATION.

xxx

xxx

xxx.

I/we agree to keep said goods,


manufactured products, or proceeds
thereof, whether in the form of money or
bills, receivables, or accounts, separate
and capable of identification as the
property of the BANK.
I/we further agree to return the goods,
documents, or instruments in the event
of their non-sale, upon demand or
within ____ days, at the option of the
BANK.

other hand, petitioner failed to explain and


communicate to the Bank what happened to the
goods despite repeated demands from the Bank.
As of 13 May 1991, the unpaid account under the
first and second trust receipts amounted to
P1,527,180.60 and P1,449,395.71, respectively.28
Second Assigned Error: Petitioner's conviction
under the
allegations in the two Informations for Estafa.

Petitioner argues that he cannot be convicted on


a new set of facts not alleged in the Informations.
Petitioner claims that the trial court's decision
found that it was ARMAGRI that transacted with
the Bank, acting through petitioner as its agent.
xxx
xxx
xxx. (Emphasis
Petitioner asserts that this contradicts the specific
25
supplied)
allegation in the Informations that it was petitioner
who was constituted as the entrustee and was
True, petitioner acted on behalf of ARMAGRI.
thus obligated to account for the goods or its
However, it is a well-settled rule that the law of
proceeds if sold. Petitioner maintains that this
agency governing civil cases has no application in absolves him from criminal liability.
criminal cases. When a person participates in the
commission of a crime, he cannot escape
punishment on the ground that he simply acted as We find no merit in petitioner's arguments.
an agent of another party.26 In the instant case,
the Bank accepted the trust receipts signed by
Contrary to petitioner's assertions, the
petitioner based on petitioner's representations. It Informations explicitly allege that petitioner,
is the fact of being the signatory to the two trust
representing ARMAGRI, defrauded the Bank by
receipts, and thus a direct participant to the crime, failing to remit the proceeds of the sale or to
which makes petitioner a person responsible for
return the goods despite demands by the Bank, to
the offense.
the latter's prejudice. As an essential element
of estafa with abuse of confidence, it is sufficient
that the Informations specifically allege that the
Petitioner could have raised the defense that he
entrustee received the goods. The Informations
had nothing to do with the failure to account for
expressly state that ARMAGRI, represented by
the proceeds or to return the goods. Petitioner
petitioner, received the goods in trust for the Bank
could have shown that he had severed his
relationship with ARMAGRI prior to the loss of the under the express obligation to remit the proceeds
of the sale or to return the goods upon demand by
proceeds or the disappearance of the goods.
the Bank. There is no need to allege in the
Petitioner, however, waived his right to present
Informations in what capacity petitioner
any evidence, and thus failed to show that he is
participated to hold him responsible for the
not responsible for the violation of the Trust
offense. Under the Trust Receipts Law, it is
Receipts Law.
sufficient to allege and establish the failure of
ARMAGRI, whom petitioner represented, to remit
There is no dispute that on 6 July 1990 and on 23 the proceeds or to return the goods to the Bank.
July 1990, petitioner signed the two trust
receipts27 on behalf of ARMAGRI. Petitioner,
When petitioner signed the trust receipts, he
acting on behalf of ARMAGRI, expressly
acknowledged receipt of the goods in trust for the claimed he was representing ARMAGRI. The
corporation obviously acts only through its human
Bank. ARMAGRI failed to comply with its
agents and it is the conduct of such agents which
undertakings under the trust receipts. On the

the law must deter.29 The existence of the


corporate entity does not shield from prosecution
the agent who knowingly and intentionally
commits a crime at the instance of a corporation.30

the imposition of the maximum term of the


indeterminate sentence.32 Since the penalty
prescribed in Article 315 is prision
correccional maximum to prision mayor minimum,
the penalty next lower in degree would be prision
correccional minimum to medium. Thus, the
Penalty for the crime of Estafa.
minimum term of the indeterminate penalty should
be anywhere within 6 months and 1 day to 4
The penalty for the crime of estafa is prescribed in years and 2 months.33
Article 315 of the Revised Penal Code, as follows:
1st. The penalty of prision correccional in
its maximum period to prision mayor in
its minimum period, if the amount of the
fraud is over 12,000 pesos but does not
exceed 22,000 pesos; and if such
amount exceeds the latter sum, the
penalty provided in this paragraph shall
be imposed in its maximum period,
adding one year for each additional
10,000 pesos; but the total penalty which
may be imposed should not exceed
twenty years. x x x .
In the instant case, the amount of the fraud in
Criminal Case No. 92-101989 is P1,527,180.66.
In Criminal Case No. 92-101990, the amount of
the fraud is P1,449,395.71. Since the amounts of
the fraud in each estafa exceeds P22,000.00, the
penalty of prision correccional maximum
to prision mayor minimum should be imposed in
its maximum period as prescribed in Article 315 of
the Revised Penal Code. The maximum
indeterminate sentence should be taken from this
maximum period which has a duration of 6 years,
8 months and 21 days to 8 years. One year is
then added for each additional P10,000.00, but
the total penalty should not exceed 20 years.
Thus, the maximum penalty for each count
of estafa in this case should be 20 years.

Accordingly, the Court finds a need to modify in


part the penalties imposed by the trial court. The
minimum penalty for each count of estafa should
be reduced to four (4) years and two (2) months
of prision correccional.
As for the civil liability arising from the criminal
offense, the question is whether as the signatory
for ARMAGRI, petitioner is personally liable
pursuant to the provision of Section 13 of the
Trust Receipts Law.

is not solidarily liable with the entrusteecomputed from 15 July 1991 until the debt is fully
corporation for the civil liability arising from the
paid.
criminal offense. He may, however, be personally
liable if he bound himself to pay the debt of the
SO ORDERED.
corporation under a separate contract of surety or
guaranty.
In the instant case, petitioner did not sign in his
personal capacity the solidary guarantee clause
35 found on the dorsal portion of the trust
receipts. Petitioner placed his signature after the
typewritten words "ARMCO INDUSTRIAL
CORPORATION" found at the end of the solidary
guarantee clause. Evidently, petitioner did not
undertake to guaranty personally the payment of
the principal and interest of ARMAGRI's debt
under the two trust receipts.

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 120465 September 9, 1999


WILLIAM UY and RODEL ROXAS, petitioners,
vs.
COURT OF APPEALS, HON. ROBERT BALAO and
NATIONAL HOUSING AUTHORITY, respondents.

In contrast, petitioner signed the stamped


additional undertaking without any indication he
was signing for ARMAGRI. Petitioner merely
placed his signature after the additional
undertaking. Clearly, what petitioner signed in his KAPUNAN, J.:
In Prudential Bank v. Intermediate Appellate
Court,34 the Court discussed the imposition of civil personal capacity was the stamped additional
undertaking to pay a monthly penalty of 1% of the Petitioners William Uy and Rodel Roxas are agents
liability for violation of the Trust Receipts Law in
authorized to sell eight parcels of land by the owners
total obligation in case of ARMAGRI's default.
this wise:
It is clear that if the violation or offense is
committed by a corporation, partnership,
association or other juridical entities, the
penalty shall be imposed upon the
directors, officers, employees or other
officials or persons responsible for the
offense. The penalty referred to
is imprisonment, the duration of which
would depend on the amount of the fraud
as provided for in Article 315 of the
Revised Penal Code. The reason for this
is obvious: corporation, partnership,
association or other juridical entities
cannot be put in jail.However, it is these
entities which are made liable for the
civil liabilities arising from the criminal
offense. This is the import of the clause
'without prejudice to the civil liabilities
arising from the criminal offense'.
(Emphasis supplied)

Under the Indeterminate Sentence Law, the


minimum indeterminate sentence can be
anywhere within the range of the penalty next
lower in degree to the penalty prescribed by the
Code for the offense. The minimum range of the
penalty is determined without first considering any
modifying circumstance attendant to the
commission of the crime and without reference to
the periods into which it may be subdivided.31 The In Prudential Bank, the Court ruled that the
modifying circumstances are considered only in
person signing the trust receipt for the corporation

In the additional undertaking, petitioner bound


himself to pay "jointly and severally" a monthly
penalty of 1% in case of ARMAGRI's default. 35
Thus, petitioner is liable to the Bank for the
stipulated monthly penalty of 1% on the
outstanding amount of each trust receipt. The
penalty shall be computed from 15 July 1991,
when petitioner received the demand letter, 36
until the debt is fully paid.
WHEREFORE, the assailed Decision is
AFFIRMED with MODIFICATION. In Criminal
Case No. 92-101989 and in Criminal Case No.
92-101990, for each count of estafa, petitioner
EDWARD C. ONG is sentenced to an
indeterminate penalty of imprisonment from four
(4) years and two (2) months of prision
correctional as MINIMUM, to twenty (20) years
of reclusion temporal as MAXIMUM. Petitioner is
ordered to pay SOLIDBANK CORPORATION the
stipulated penalty of 1% per month on the
outstanding balance of the two trust receipts to be

thereof. By virtue of such authority, petitioners offered to


sell the lands, located in Tuba, Tadiangan, Benguet to
respondent National Housing Authority (NHA) to be
utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed
Resolution No. 1632 approving the acquisition of said
lands, with an area of 31.8231 hectares, at the cost of
P23.867 million, pursuant to which the parties executed
a series of Deeds of Absolute Sale covering the subject
lands. Of the eight parcels of land, however, only five
were paid for by the NHA because of the report 1 it received
from the Land Geosciences Bureau of the Department of Environment and
Natural Resources (DENR) that the remaining area is located at an active
landslide area and therefore, not suitable for development into a housing
project.

On 22 November 1991, the NHA issued Resolution No.


2352 cancelling the sale over the three parcels of land.
The NHA, through Resolution No. 2394, subsecguently
offered the amount of P1.225 million to the landowners
as daos perjuicios.
On 9 March 1992, petitioners filed before the Regional
Trial Court (RTC) of Quezon City a Complaint for
Damages against NHA and its General Manager Robert
Balao.

After trial, the RTC rendered a decision declaring the


cancellation of the contract to be justified. The trial court
nevertheless awarded damages to plaintiffs in the sum
of P1.255 million, the same amount initially offered by
NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals
reversed the decision of the trial court and entered a
new one dismissing the complaint. It held that since
there was "sufficient justifiable basis" in cancelling the
sale, "it saw no reason" for the award of damages. The
Court of Appeals also noted that petitioners were mere
attorneys-in-fact and, therefore, not the real parties-ininterest in the action before the trial court.

complaint, page 5, RTC


records), it becomes
obviously indispensable
that the lot owners be
included, mentioned and
named as party-plaintiffs,
being the real party-ininterest. UY and Roxas,
as attorneys-in-fact or
apoderados, cannot by
themselves lawfully
commence this action,
more so, when the
supposed special power
of attorney, in their favor,
was never presented as
an evidence in this case.
Besides, even if herein
plaintiffs Uy and Roxas
were authorized by the lot
owners to commence this
action, the same must still
be filed in the name of the
principal, (Filipino
Industrial Corporation vs.
San Diego, 23 SCRA 706
[1968]). As such
indispensable party, their
joinder in the action is
mandatory and the
complaint may be
dismissed if not so
impleaded (NDC vs. CA,
211 SCRA 422 [1992]). 2

. . . In paragraph 4 of the
complaint, plaintiffs
alleged themselves to be
"sellers' agents" for the
several owners of the 8
lots subject matter of the
case. Obsviously, William
Uy and Rodel Roxas in
filing this case acted as
attorneys-in-fact of the lot
owners who are the real
parties in interest but who
were omitted to be
pleaded as party-plaintiffs
in the case. This omission
is fatal. Where the action
is brought by an attorneyin-fact of a land owner in
his name, (as in our
present action) and not in
Their motion for reconsideration having been denied,
the name of his principal,
petitioners seek relief from this Court contending that:
the action was properly
dismissed (Ferrer vs.
Villamor, 60 SCRA 406
I. THE RESPONDENT
[1974]; Marcelo vs. de
CA ERRED IN
Leon, 105 Phil. 1175)
DECLARING THAT
because the rule is that
RESPONDENT NHA
every action must be
HAD ANY LEGAL BASIS
prosecuted in the name
FOR RESCINDING THE
of the real parties-inSALE INVOLVING THE
interest (Section 2, Rule
LAST THREE (3)
3, Rules of Court).
PARCELS COVERED BY
NHA RESOLUTION NO.
1632.
When plaintiffs UY and
Roxas sought payment of
damages in their favor in
II. GRANTING
view of the partial
ARGUENDO THAT THE
rescission of Resolution
RESPONDENT NHA
No. 1632 and the Deed of
HAD LEGAL BASIS TO
Absolute Sale covering
RESCIND THE
TCT Nos. 10998, 10999
SUBJECT SALE, THE
and 11292 (Prayer
RESPONDENT CA

NONETHELESS ERRED
IN DENYING HEREIN
PETITIONERS' CLAIM
TO DAMAGES,
CONTRARY TO THE
PROVISIONS OF ART.
1191 OF THE CIVIL
CODE.

The applicable substantive law in this case is Article


1311 of the Civil Code, which states:
Contracts take effect only
between the parties, their
assigns, and heirs,
except in case where the
rights and obligations
arising from the contract
are not transmissible by
their nature, or by
stipulation, or by
provision of law. . . .

III. THE RESPONDENT


CA ERRED IN
DISMISSING THE
SUBJECT COMPLAINT
FINDING THAT THE
PETITIONERS FAILED
TO JOIN AS
INDISPENSABLE PARTY
PLAINTIFF THE
SELLING LOTOWNERS. 3

If a contract should
contain some stipulation
in favor of a third person,
he may demand its
fulfillment provided he
communicated his
acceptance to the obligor
before its revocation. A
mere incidental benefit or
interest of a person is not
sufficient. The contracting
parties must have clearly
and deliberately
conferred a favor upon a
third person. (Emphasis
supplied.)

We first resolve the issue raised in the the third


assignment of error.

Petitioners claim that they lodged the complaint not in


behalf of their principals but in their own name as agents
directly damaged by the termination of the contract. The
damages prayed for were intended not for the benefit of
their principals but to indemnify petitioners for the losses
they themselves allegedly incurred as a result of such
termination. These damages consist mainly of
"unearned income" and advances. 4 Petitioners, thus, attempt
Petitioners are not parties to the contract of sale
to distinguish the case at bar from those involving agents
between their principals and NHA. They are mere
or apoderedos instituting actions in their own name but in behalf of their
agents of the owners of the land subject of the sale. As
principals. 5 Petitioners in this case purportedly brought the action for
agents, they only render some service or do something
damages in their own name and in their own behalf.
in representation or on behalf of their principals. 8 The
We find this contention unmeritorious.
Sec. 2, Rule 3 of the Rules of Court requires that every
action must be prosecuted and defended in the name of
the real party-in-interest. The real party-in-interest is the
party who stands to be benefited or injured by the
judgment or the party entitled to the avails of the suit.
"Interest, within the meaning of the rule, means material
interest, an interest in the issue and to be affected by
the decree, as distinguished from mere interest in the
question involved, or a mere incidental interest. 6 Cases
construing the real party-in-interest provision can be more easily
understood if it is borne in mind that the true meaning of real party-ininterest may be summarized as follows: An action shall be prosecuted in
the name of the party who, by the substantive law, has the right sought to
be enforced. 7

Do petitioners, under substantive law, possess the right


they seek to enforce? We rule in the negative.

rendering of such service did not make them parties to the contracts of sale
executed in behalf of the latter. Since a contract may be violated only by
the parties thereto as against each other, the real parties-in-interest, either
as plaintiff or defendant, in an action upon that contract must, generally,
either be parties to said contract. 9

Neither has there been any allegation, much less proof,


that petitioners are the heirs of their principals.
Are petitioners assignees to the rights under the
contract of sale? In McMicking vs. Banco EspaolFilipino, 10 we held that the rule requiring every action to be prosecuted
in the name of the real party-in-interest.

. . . recognizes the
assignments of rights of
action and also
recognizes that when one
has a right of action
assigned to him he is

then the real party in


interest and may maintain
an action upon such
claim or right. The
purpose of [this rule] is to
require the plaintiff to be
the real party in interest,
or, in other words, he
must be the person to
whom the proceeds of the
action shall belong, and
to prevent actions by
persons who have no
interest in the result of the
same. . . .
Thus, an agent, in his own behalf, may bring an action
founded on a contract made for his principal, as an
assignee of such contract. We find the following
declaration in Section 372 (1) of the Restatement of the
Law on Agency (Second): 11
Sec. 372. Agent as Owner of Contract Right
(1) Unless otherwise
agreed, an agent who
has or who acquires an
interest in a contract
which he makes on
behalf of his principal
can, although not a
promisee, maintain such
action thereon maintain
such action thereon as
might a transferee having
a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee.
One who has made a
contract on behalf of
another may become an
assignee of the contract
and bring suit against the
other party to it, as any
other transferee. The
customs of business or
the course of conduct
between the principal and
the agent may indicate
that an agent who
ordinarily has merely a
security interest is a
transferee of the
principals rights under the

contract and as such is


permitted to bring suit. If
the agent has settled with
his principal with the
understanding that he is
to collect the claim
against the obligor by
way of reimbursing
himself for his advances
and commissions, the
agent is in the position of
an assignee who is the
beneficial owner of the
chose in action. He has
an irrevocable power to
sue in his principal's
name. . . . And, under the
statutes which permit the
real party in interest to
sue, he can maintain an
action in his own name.
This power to sue is not
affected by a settlement
between the principal and
the obligor if the latter has
notice of the agent's
interest. . . . Even though
the agent has not settled
with his principal, he may,
by agreement with the
principal, have a right to
receive payment and out
of the proceeds to
reimburse himself for
advances and
commissions before
turning the balance over
to the principal. In such a
case, although there is no
formal assignment, the
agent is in the position of
a transferee of the whole
claim for security; he has
an irrevocable power to
sue in his principal's
name and, under statutes
which permit the real
party in interest to sue, he
can maintain an action in
his own name.
Petitioners, however, have not shown that they are
assignees of their principals to the subject contracts.
While they alleged that they made advances and that
they suffered loss of commissions, they have not
established any agreement granting them "the right to
receive payment and out of the proceeds to reimburse

[themselves] for advances and commissions before


turning the balance over to the principal[s]."
Finally, it does not appear that petitioners are
beneficiaries of a stipulation pour autrui under the
second paragraph of Article 1311 of the Civil Code.
Indeed, there is no stipulation in any of the Deeds of
Absolute Sale "clearly and deliberately" conferring a
favor to any third person.
That petitioners did not obtain their commissions or
recoup their advances because of the non-performance
of the contract did not entitle them to file the action
below against respondent NHA. Section 372 (2) of the
Restatement of the Law on Agency (Second) states:
(2) An agent does not have such an
interest in a contract as to entitle
him to maintain an action at law
upon it in his own name merely
because he is entitled to a portion
of the proceeds as compensation
for making it or because he is liable
for its breach.
The following Comment on the above
subsection is illuminating:

his alleged commission against the purchaser in an agreement to purchase


property.

In Goduco vs. Court of appeals, 13 this Court held that:


. . . granting that
appellant had the
authority to sell the
property, the same did
not make the buyer liable
for the commission she
claimed. At most, the
owner of the property and
the one who promised to
give her a commission
should be the one liable
to pay the same and to
whom the claim should
have been directed. . . .
As petitioners are not parties, heirs, assignees, or
beneficiaries of a stipulation pour autrui under the
contracts of sale, they do not, under substantive law,
possess the right they seek to enforce. Therefore, they
are not the real parties-in-interest in this case.

Petitioners not being the real parties-in-interest, any


decision rendered herein would be pointless since the
same would not bind the real parties-inThe fact that an agent who makes a interest. 14
contract for his principal will gain or
suffer loss by the performance or
Nevertheless, to forestall further litigation on the
nonperformance of the contract by
substantive aspects of this case, we shall proceed to
the principal or by the other party
rule on me merits. 15
thereto does not entitle him to
maintain an action on his own
behalf against the other party for its Petitioners submit that respondent NHA had no legal
breach. An agent entitled to receive basis to "rescind" the sale of the subject three parcels of
a commission from his principal
land. The existence of such legal basis, notwithstanding,
upon the performance of a contract petitioners argue that they are still entitled to an award
which he has made on his
of damages.
principal's account does not, from
this fact alone, have any claim
Petitioners confuse the cancellation of the contract by
against the other party for breach of
the NHA as a rescission of the contract under Article
the contract, either in an action on
1191 of the Civil Code. The right of rescission or, more
the contract or otherwise. An agent
accurately, resolution, of a party to an obligation under
who is not a promisee cannot
Article 1191 is predicated on a breach of faith by the
maintain an action at law against a
other party that violates the reciprocity between
purchaser merely because he is
them. 16 The power to rescind, therefore, is given to the injured
entitled to have his compensation or
party. 17 Article 1191 states:
advances paid out of the purchase
price before payment to the
The power to rescind obligations is
principal. . . .
implied in reciprocal ones, in case
one of the obligors should not
Thus, in Hopkins vs. Ives, 12 the Supreme Court of Arkansas, citing
comply with what is incumbent upon
Section 372 (2) above, denied the claim of a real estate broker to recover
him.

The injured party may choose


between the fulfillment and the
rescission of the obligation, with the
payment of damages in either case.
He may also seek rescission, even
after he has chosen fulfillment, if the
latter should become impossible.
In this case, the NHA did not rescind the contract.
Indeed, it did not have the right to do so for the other
parties to the contract, the vendors, did not commit any
breach, much less a substantial breach, 18 of their obligation.
Their obligation was merely to deliver the parcels of land to the NHA, an
obligation that they fulfilled. The NHA did not suffer any injury by the
performance thereof.

The cancellation, therefore, was not a rescission under


Article 1191. Rather, the cancellation was based on the
negation of the cause arising from the realization that
the lands, which were the object of the sale, were not
suitable for housing.
Cause is the essential reason which moves the
contracting parties to enter into it. 19 In other words, the cause is
the immediate, direct and proximate reason which justifies the creation of
an obligation through the will of the contracting parties. 20 Cause, which is
the essential reason for the contract, should be distinguished from motive,
which is the particular reason of a contracting party which does not affect
the other party. 21

dealing with slum, squatter and


other blighted communities;
xxx xxx xxx
WHEREAS, the VENDEE, in pursuit
of and in compliance with the
above-stated purposes offers to buy
and the VENDORS, in a gesture of
their willing to cooperate with the
above policy and commitments,
agree to sell the aforesaid property
together with all the existing
improvements there or belonging to
the VENDORS;
NOW, THEREFORE, for and in
consideration of the foregoing
premises and the terms and
conditions hereinbelow stipulated,
the VENDORS hereby, sell,
transfer, cede and convey unto the
VENDEE, its assigns, or
successors-in-interest, a parcel of
land located at Bo. Tadiangan,
Tuba, Benguet containing a total
area of FIFTY SIX THOUSAND
EIGHT HUNDRED NINETEEN
(56,819) SQUARE METERS, more
or less . . . .

For example, in a contract of sale of a piece of land,


such as in this case, the cause of the vendor
(petitioners' principals) in entering into the contract is to
Ordinarily, a party's motives for entering into the contract
obtain the price. For the vendee, NHA, it is the
acquisition of the land. 22 The motive of the NHA, on the other hand, do not affect the contract. However, when the motive
predetermines the cause, the motive may be regarded
is to use said lands for housing. This is apparent from the portion of the
Deeds of Absolute Sale 23 stating:
as the cause. InLiguez vs. Court of Appeals, 24 this Court,
speaking through Justice J.B.L. REYES, HELD:

WHEREAS, under the Executive


Order No. 90 dated December 17,
1986, the VENDEE is mandated to
focus and concentrate its efforts
and resources in providing housing
assistance to the lowest thirty
percent (30%) of urban income
earners, thru slum upgrading and
development of sites and services
projects;
WHEREAS, Letters of Instructions
Nos. 555 and 557 [as] amended by
Letter of Instruction No. 630,
prescribed slum improvement and
upgrading, as well as the
development of sites and services
as the principal housing strategy for

. . . it is well to note,
however, that Manresa
himself (Vol. 8, pp. 641642), while maintaining
the distinction and
upholding the
inoperativeness of the
motives of the parties to
determine the validity of
the contract, expressly
excepts from the rule
those contracts that are
conditioned upon the
attainment of the motives
of either party.
The same view is held by
the Supreme Court of

Spain, in its decisions of


February 4, 1941, and
December 4, 1946,
holding that the motive
may be regarded
ascausa when it
predetermines the
purpose of the contract.
In this case, it is clear, and petitioners do not dispute,
that NHA would not have entered into the contract were
the lands not suitable for housing. In other words, the
quality of the land was an implied condition for the NHA
to enter into the contract. On the part of the NHA,
therefore, the motive was the cause for its being a party
to the sale.
Were the lands indeed unsuitable for housing as NHA
claimed?

Chief, Lands Geology


Division
FROM: ARISTOTLE A.
RILLON
Geologist II
SUBJECT: Preliminary
Assessment of
Tadiangan Housing
Project in Tuba,
Benguet 26
Thus, page 2 of the report states in part:
xxx xxx xxx

We deem the findings contained in the report of the


Land Geosciences Bureau dated 15 July 1991 sufficient
basis for the cancellation of the sale, thus:
In Tadiangan, Tuba, the
housing site is situated in
an area of moderate
topography. There [are]
more areas of less
sloping ground apparently
habitable. The site is
underlain by . . . thick
slide deposits (4-45m)
consisting of huge
conglomerate boulders
(see Photo No. 2) mix[ed]
with silty clay
materials. These clay
particles when saturated
have some swelling
characteristics which is
dangerous for any civil
structures especially
mass housing
development. 25
Petitioners contend that the report was merely
"preliminary," and not conclusive, as indicated in its title:
MEMORANDUM
TO: EDWIN G.
DOMINGO

Actually there is a need


to conduct further
geottechnical [sic] studies
in the NHA property.
Standard Penetration
Test (SPT) must be
carried out to give an
estimate of the degree of
compaction (the relative
density) of the slide
deposit and also the
bearing capacity of the
soil materials. Another
thing to consider is the
vulnerability of the area to
landslides and other
mass movements due to
thick soil cover.
Preventive physical
mitigation methods such
as surface and
subsurface drainage and
regrading of the slope
must be done in the
area. 27
We read the quoted portion, however, to mean only that
further tests are required to determine the "degree of
compaction," "the bearing capacity of the soil materials,"
and the "vulnerability of the area to landslides," since
the tests already conducted were inadequate to
ascertain such geological attributes. It is only in this
sense that the assessment was "preliminary."

Accordingly, we hold that the NHA was justified in


canceling the contract. The realization of the mistake as
regards the quality of the land resulted in the negation of
the motive/cause thus rendering the contract
inexistent. 28 Article 1318 of the Civil Code states that:
Art. 1318. There is no
contract unless the
following requisites
concur:
(1) Consent of the
contracting parties;

Order issuing a writ of preliminary injunction of the


Regional Trial Court of Makati, Branch 147 dated June
30, 1999, and its Order dated October 4, 1999, which
denied petitioner's motion to dismiss.

injunction, which writ was correspondingly issued on


July 14, 1999. On October 4, 1999, the motion to
dismiss was denied by the trial court judge for lack of
merit.

The antecedents of this case are as follows:

Petitioner, thereafter, in a petition for certiorari and


prohibition assailed the issuance of the writ of
preliminary injunction before the Court of Appeals. In the
impugned decision,1 the appellate court dismissed the
petition. Petitioner thus seeks recourse to this Court and
raises the following errors:

Petitioner Philippine National Bank is a domestic


corporation organized and existing under Philippine law.
Meanwhile, respondents Ritratto Group, Inc., Riatto
International, Inc. and Dadasan General Merchandise
are domestic corporations, likewise, organized and
existing under Philippine law.

(2) Object certain which is On May 29, 1996, PNB International Finance Ltd. (PNBthe subject matter of the
IFL) a subsidiary company of PNB, organized and doing
contract;
business in Hong Kong, extended a letter of credit in
favor of the respondents in the amount of
US$300,000.00 secured by real estate mortgages
(3) Cause of the
constituted over four (4) parcels of land in Makati City.
obligation which is
This credit facility was later increased successively to
established. (Emphasis
US$1,140,000.00 in September 1996; to
supplied.)
US$1,290,000.00 in November 1996; to
US$1,425,000.00 in February 1997; and decreased to
US$1,421,316.18 in April 1998. Respondents made
Therefore, assuming that petitioners are parties,
repayments of the loan incurred by remitting those
assignees or beneficiaries to the contract of sale, they
amounts to their loan account with PNB-IFL in Hong
would not be entitled to any award of damages.
Kong.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142616

July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,


vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL,
INC., and DADASAN GENERAL
MERCHANDISE,respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the
Revised Rules of Court, petitioner seeks to annul and
set aside the Court of Appeals' decision in C.A. CV G.R.
S.P. No. 55374 dated March 27, 2000, affirming the

However, as of April 30, 1998, their outstanding


obligations stood at US$1,497,274.70. Pursuant to the
terms of the real estate mortgages, PNB-IFL, through its
attorney-in-fact PNB, notified the respondents of the
foreclosure of all the real estate mortgages and that the
properties subject thereof were to be sold at a public
auction on May 27, 1999 at the Makati City Hall.
On May 25, 1999, respondents filed a complaint for
injunction with prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order
before the Regional Trial Court of Makati. The Executive
Judge of the Regional Trial Court of Makati issued a 72hour temporary restraining order. On May 28, 1999, the
case was raffled to Branch 147 of the Regional Trial
Court of Makati. The trial judge then set a hearing on
June 8, 1999. At the hearing of the application for
preliminary injunction, petitioner was given a period of
seven days to file its written opposition to the
application. On June 15, 1999, petitioner filed an
opposition to the application for a writ of preliminary
injunction to which the respondents filed a reply. On
June 25, 1999, petitioner filed a motion to dismiss on the
grounds of failure to state a cause of action and the
absence of any privity between the petitioner and
respondents. On June 30, 1999, the trial court judge
issued an Order for the issuance of a writ of preliminary

1.
THE COURT OF APPEALS PALPABLY
ERRED IN NOT DISMISSING THE
COMPLAINT A QUO, CONSIDERING THAT
BY THE ALLEGATIONS OF THE
COMPLAINT, NO CAUSE OF ACTION
EXISTS AGAINST PETITIONER, WHICH IS
NOT A REAL PARTY IN INTEREST BEING A
MERE ATTORNEY-IN-FACT AUTHORIZED
TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY
ERRED IN ALLOWING THE TRIAL COURT
TO ISSUE IN EXCESS OR LACK OF
JURISDICTION A WRIT OF PRELIMINARY
INJUNCTION OVER AND BEYOND WHAT
WAS PRAYED FOR IN THE COMPLAINT A
QUO CONTRARY TO CHIEF OF STAFF, AFP
VS. GUADIZ JR., 101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals'
Decision dated March 27, 2000 and the trial court's
Orders dated June 30, 1999 and October 4, 1999 be set
aside and the dismissal of the complaint in the instant
case.3
In their Comment, respondents argue that even
assuming arguendo that petitioner and PNB-IFL are two
separate entities, petitioner is still the party-in-interest in
the application for preliminary injunction because it is
tasked to commit acts of foreclosing respondents'
properties.4 Respondents maintain that the entire credit
facility is void as it contains stipulations in violation of
the principle of mutuality of contracts.5 In addition,
respondents justified the act of the court a quo in
applying the doctrine of "Piercing the Veil of Corporate
Identity" by stating that petitioner is merely an alter
ego or a business conduit of PNB-IFL.6

The petition is impressed with merit.


Respondents, in their complaint, anchor their prayer for
injunction on alleged invalid provisions of the contract:
GROUNDS
I
THE DETERMINATION OF THE INTEREST
RATES BEING LEFT TO THE SOLE
DISCRETION OF THE DEFENDANT PNB
CONTRAVENES THE PRINCIPAL OF
MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE
LOAN AGREEMENT THAT THE RATE OF
INTEREST AGREED UPON MAY BE
UNILATERALLY MODIFIED BY
DEFENDANT, THERE WAS NO
STIPULATION THAT THE RATE OF
INTEREST SHALL BE REDUCED IN THE
EVENT THAT THE APPLICABLE MAXIMUM
RATE OF INTEREST IS REDUCED BY LAW
OR BY THE MONETARY BOARD.7
Based on the aforementioned grounds, respondents
sought to enjoin and restrain PNB from the foreclosure
and eventual sale of the property in order to protect their
rights to said property by reason of void credit facilities
as bases for the real estate mortgage over the said
property.8
The contract questioned is one entered into between
respondent and PNB-IFL, not PNB. In their complaint,
respondents admit that petitioner is a mere attorney-infact for the PNB-IFL with full power and authority
to, inter alia, foreclose on the properties mortgaged to
secure their loan obligations with PNB-IFL. In other
words, herein petitioner is an agent with limited authority
and specific duties under a special power of attorney
incorporated in the real estate mortgage. It is not privy to
the loan contracts entered into by respondents and
PNB-IFL.
The issue of the validity of the loan contracts is a matter
between PNB-IFL, the petitioner's principal and the
party to the loan contracts, and the respondents. Yet,
despite the recognition that petitioner is a mere agent,
the respondents in their complaint prayed that the
petitioner PNB be ordered to re-compute the
rescheduling of the interest to be paid by them in

accordance with the terms and conditions in the


documents evidencing the credit facilities, and crediting
the amount previously paid to PNB by herein
respondents.9

Southern Railway Co.14is enlightening. The case


involved a suit against the Southern Railway Company.
Plaintiff was employed by Lenoir Car Works and alleged
that he sustained injuries while working for Lenoir. He,
however, filed a suit against Southern Railway Company
on the ground that Southern had acquired the entire
Clearly, petitioner not being a part to the contract has no
capital stock of Lenoir Car Works, hence, the latter
power to re-compute the interest rates set forth in the
corporation was but a mere instrumentality of the former.
contract. Respondents, therefore, do not have any
The Tennessee Supreme Court stated that as a general
cause of action against petitioner.
rule the stock ownership alone by one corporation of the
stock of another does not thereby render the dominant
corporation liable for the torts of the subsidiary unless
The trial court, however, in its Order dated October 4,
the separate corporate existence of the subsidiary is a
1994, ruled that since PNB-IFL, is a wholly owned
mere sham, or unless the control of the subsidiary is
subsidiary of defendant Philippine National Bank, the
such that it is but an instrumentality or adjunct of the
suit against the defendant PNB is a suit against PNBIFL.10In justifying its ruling, the trial court, citing the case dominant corporation. Said Court then outlined the
circumstances which may be useful in the determination
of Koppel Phil. Inc. vs. Yatco,11 reasoned that the
of whether the subsidiary is but a mere instrumentality of
corporate entity may be disregarded where a
corporation is the mere alter ego, or business conduit of the parent-corporation:
a person or where the corporation is so organized and
controlled and its affairs are so conducted, as to make it
The Circumstance rendering the subsidiary
merely an instrumentality, agency, conduit or adjunct of
an instrumentality. It is manifestly impossible
another corporation.12
to catalogue the infinite variations of fact that
can arise but there are certain common
circumstances which are important and which,
We disagree.
if present in the proper combination, are
controlling.
The general rule is that as a legal entity, a corporation
has a personality distinct and separate from its
These are as follows:
individual stockholders or members, and is not affected
by the personal rights, obligations and transactions of
the latter.13The mere fact that a corporation owns all of
(a) The parent corporation owns all or most of
the stocks of another corporation, taken alone is not
the capital stock of the subsidiary.
sufficient to justify their being treated as one entity. If
used to perform legitimate functions, a subsidiary's
separate existence may be respected, and the liability of
(b) The parent and subsidiary corporations
the parent corporation as well as the subsidiary will be
have common directors or officers.
confined to those arising in their respective business.
The courts may in the exercise of judicial discretion step
(c) The parent corporation finances the
in to prevent the abuses of separate entity privilege and
subsidiary.
pierce the veil of corporate entity.
We find, however, that the ruling in Koppel finds no
application in the case at bar. In said case, this Court
disregarded the separate existence of the parent and
the subsidiary on the ground that the latter was formed
merely for the purpose of evading the payment of higher
taxes. In the case at bar, respondents fail to show any
cogent reason why the separate entities of the PNB and
PNB-IFL should be disregarded.
While there exists no definite test of general application
in determining when a subsidiary may be treated as a
mere instrumentality of the parent corporation, some
factors have been identified that will justify the
application of the treatment of the doctrine of the
piercing of the corporate veil. The case of Garrett vs.

(h) In the papers of the parent corporation or


in the statements of its officers, the subsidiary
is described as a department or division of the
parent corporation, or its business or financial
responsibility is referred to as the parent
corporation's own.

2. Such control must have been used by the


defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest and, unjust
act in contravention of plaintiffs legal rights;
and,

(i) The parent corporation uses the property of


the subsidiary as its own.

3. The aforesaid control and breach of duty


must proximately cause the injury or unjust
loss complained of.

(j) The directors or executives of the


subsidiary do not act independently in the
interest of the subsidiary but take their orders
from the parent corporation.
(k) The formal legal requirements of the
subsidiary are not observed.

The absence of any one of these elements


prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego"
doctrine, the courts are concerned with reality
and not form, with how the corporation
operated and the individual defendant's
relationship to the operation.17

The Tennessee Supreme Court thus ruled:

Aside from the fact that PNB-IFL is a wholly owned


subsidiary of petitioner PNB, there is no showing of the
In the case at bar only two of the eleven listed indicative factors that the former corporation is a mere
instrumentality of the latter are present. Neither is there
indicia occur, namely, the ownership of most
of the capital stock of Lenoir by Southern, and a demonstration that any of the evils sought to be
prevented by the doctrine of piercing the corporate veil
possibly subscription to the capital stock of
exists. Inescapably, therefore, the doctrine of piercing
Lenoir. . . The complaint must be dismissed.
the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the case
Similarly, in this jurisdiction, we have held that the
at bar.
doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the
In any case, the parent-subsidiary relationship between
separate corporate personality of a corporation is
PNB and PNB-IFL is not the significant legal relationship
abused or used for wrongful purposes. The doctrine
involved in this case since the petitioner was not sued
applies when the corporate fiction is used to defeat
because it is the parent company of PNB-IFL. Rather,
public convenience, justify wrong, protect fraud or
defend crime, or when it is made as a shield to confuse the petitioner was sued because it acted as an attorneyin-fact of PNB-IFL in initiating the foreclosure
the legitimate issues, or where a corporation is the
proceedings. A suit against an agent cannot without
mere alter ego or business conduit of a person, or
compelling reasons be considered a suit against the
where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an principal. Under the Rules of Court, every action must
be prosecuted or defended in the name of the real partyinstrumentality, agency, conduit or adjunct of another
in-interest, unless otherwise authorized by law or these
(d) The parent corporation subscribes to all
corporation.15
Rules.18 In mandatory terms, the Rules require that
the capital stock of the subsidiary or otherwise
"parties-in-interest without whom no final determination
causes its incorporation.
16
In Concept Builders, Inc. v. NLRC, we have laid the
can be had, an action shall be joined either as plaintiffs
test in determining the applicability of the doctrine of
or defendants."19 In the case at bar, the injunction suit is
(e) The subsidiary has grossly inadequate
piercing the veil of corporate fiction, to wit:
directed only against the agent, not the principal.
capital.
(f) The parent corporation pays the salaries
and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no
business except with the parent corporation or
no assets except those conveyed to or by the
parent corporation.

1. Control, not mere majority or complete


control, but complete domination, not only of
finances but of policy and business practice in
respect to the transaction attacked so that the
corporate entity as to this transaction had at
the time no separate mind, will or existence of
its own.

Anent the issuance of the preliminary injunction, the


same must be lifted as it is a mere provisional remedy
but adjunct to the main suit.20 A writ of preliminary
injunction is an ancillary or preventive remedy that may
only be resorted to by a litigant to protect or preserve his
rights or interests and for no other purpose during the
pendency of the principal action. The dismissal of the
principal action thus results in the denial of the prayer
for the issuance of the writ. Further, there is no showing

that respondents are entitled to the issuance of the writ.


Section 3, Rule 58, of the 1997 Rules of Civil Procedure
provides:
SECTION 3. Grounds for issuance of
preliminary injunction. A preliminary
injunction may be granted when it is
established:

Trial Court must be dismissed and the preliminary


injunction issued in connection therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby
GRANTED. The assailed decision of the Court of
Appeals is hereby REVERSED. The Orders dated June
30, 1999 and October 4, 1999 of the Regional Trial
Court of Makati, Branch 147 in Civil Case No. 99-1037
are hereby ANNULLED and SET ASIDE and the
complaint in said case DISMISSED.

(a) That the applicant is entitled to the relief


demanded, and the whole or part of such
relief consists in restraining the commission or SO ORDERED.
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 nonperformance of the acts 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
acts probably in violation of the rights of the
applicant respecting the subject of the action
or proceeding, and tending to render the
judgment ineffectual.
Thus, an injunctive remedy may only be resorted to
when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any
standard compensation.21 Respondents do not deny
their indebtedness. Their properties are by their own
choice encumbered by real estate mortgages. Upon the
non-payment of the loans, which were secured by the
mortgages sought to be foreclosed, the mortgaged
properties are properly subject to a foreclosure sale.
Moreover, respondents questioned the alleged void
stipulations in the contract only when petitioner initiated
the foreclosure proceedings. Clearly, respondents have
failed to prove that they have a right protected and that
the acts against which the writ is to be directed are
violative of said right.22The Court is not unmindful of the
findings of both the trial court and the appellate court
that there may be serious grounds to nullify the
provisions of the loan agreement. However, as earlier
discussed, respondents committed the mistake of filing
the case against the wrong party, thus, they must suffer
the consequences of their error.
All told, respondents do not have a cause of action
against the petitioner as the latter is not privy to the
contract the provisions of which respondents seek to
declare void. Accordingly, the case before the Regional