AGENCY ACJUCO 2nd MEETING 1
G.R. No. 125138 March 2, 1999
NICHOLAS Y. CERVANTES, petitioner,
vs.
COURT OF APPEALS AND THE PHILIPPINE
AIR LINES, INC., respondent.
PURISMA, J.:
This Petition for Review on certiorari assails
the 25 July 1995 decision of the Court of
Appeals 1 in CA GR CV No. 41407, entitled
"Nicholas Y. Cervantes vs. Philippine Air Lines
Inc.", affirming in toto the judgment of the trial
court dismissing petitioner's complaint for
damages.
On March 27, 1989, the private respondent,
Philippines Air Lines, Inc. (PAL), issued to the
herein petitioner, Nicholas
Cervantes (Cervantes), a round trip plane
ticket for Manila-Honolulu-Los Angeles-
Honolulu-Manila, which ticket expressly
provided an expiry of date of one year from
issuance, i.e., until March 27, 1990. The
issuance of the said plane ticket was in
compliance with a Compromise Agreement
entered into between the contending parties in
two previous suits, docketed as Civil Case
Nos. 3392 and 3451 before the Regional Trial
Court in Surigao City. 2
On March 23, 1990, four days before the expiry
date of subject ticket, the petitioner used it.
Upon his arrival in Los Angeles on the same
day, he immediately booked his Los Angeles-
Manila return ticket with the PAL office, and it
was confirmed for the April 2, 1990 flight.
Upon learning that the same PAL plane would
make a stop-over in San Francisco, and
considering that he would be there on April 2,
1990, petitioner made arrangements with PAL
for him to board the flight In San Francisco
instead of boarding in Las Angeles.
On April 2, 1990, when the petitioner checked
in at the PAL counter in San Francisco, he was
not allowed to board. The PAL personnel
concerned marked the following notation on his
ticket: "TICKET NOT ACCEPTED DUE
EXPIRATION OF VALIDITY."
Aggrieved, petitioner Cervantes filed a
Complaint for Damages, for breach of contract
of carriage docketed as Civil Case No. 3807
before Branch 32 of the Regional Trial Court of
Surigao del Norte in Surigao City. But the said
complaint was dismissed for lack of merit. 3
On September 20, 1993, petitioner interposed
an appeal to the Court of Appeals, which came
out with a Decision, on July 25, 1995,
upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court
via the Petition for Review under consideration.
The issues raised for resolution are: (1)
Whether or not the act of the PAL agents in
confirming subject ticket extended the period of
validity of petitioner's ticket; (2) Whether or not
the defense of lack of authority was correctly
ruled upon; and (3) Whether or not the denial
of the award for damages was proper.
To rule on the first issue, there is a need to
quote the findings below. As a rule, conclusions
and findings of fact arrived at by the trial court
are entitled to great weight on appeal and
should not be disturbed unless for strong and
cogent reasons. 4
The facts of the case as found by the lower
court 5 are, as follows:
The plane ticket itself (Exhibit A for
plaintiff; Exhibit 1 for defendant) provides
that it is not valid after March 27, 1990.
(Exhibit 1-F). It is also stipulated in
paragraph 8 of the Conditions of Contract
(Exhibit 1, page 2) as follows:
8. This ticket is good for carriage for
one year from date of issue, except as
otherwise provided in this ticket, in
carrier's tariffs, conditions of carriage,
or related regulations. The fare for
carriage hereunder is subject to
change prior to commencement of
carriage. Carrier may refuse
transportation if the applicable fare has
not been paid. 6
The question on the validity of subject ticket
can be resolved in light of the ruling in the case
of Lufthansa vs. Court of Appeals. 7 In the said

case, the Tolentinos were issued first class
tickets on April 3, 1982, which will be valid until
April 10, 1983. On June 10, 1982, they
changed their accommodations to economy
class but the replacement tickets still contained
the same restriction. On May 7, 1983, Tolentino
requested that subject tickets be extended,
which request was refused by the petitioner on
the ground that the said tickets had already
expired. The non-extension of their tickets
prompted the Tolentinos to bring a complaint
for breach of contract of carriage against the
petitioner. In ruling against the award of
damages, the Court held that the "ticket
constitute the contract between the parties. It is
axiomatic that when the terms are clear and
leave no doubt as to the intention of the
contracting parties, contracts are to be
interpreted according to their literal meaning."
In his effort to evade this inevitable conclusion,
petitioner theorized that the confirmation by the
PAL's agents in Los Angeles and San
Francisco changed the compromise agreement
between the parties.
As aptly by the appellate court:
. . . on March 23, 1990, he was aware
of the risk that his ticket could expire,
as it did, before he returned to the
Philippines.' (pp. 320-321, Original
Records) 8
The question is: "Did these two (2)
employees, in effect, extend the validity
or lifetime of the ticket in question? The
answer is in the negative. Both had no
authority to do so. Appellant knew this
from the very start when he called up
the Legal Department of appellee in
the Philippines before he left for the
United States of America. He had first
hand knowledge that the ticket in
question would expire on March 27,
1990 and that to secure an extension,
he would have to file a written request
for extension at the PAL's office in the
Philippines (TSN, Testimony of
Nicholas Cervantes, August 2, 1991,
pp. 20-23). Despite this knowledge,
appellant persisted to use the ticket in
question." 9
AGENCY ACJUCO 2nd MEETING 2
From the aforestated facts, it can be gleaned
that the petitioner was fully aware that there
was a need to send a letter to the legal counsel
of PAL for the extension of the period of validity
of his ticket.
Since the PAL agents are not privy to the said
Agreement and petitioner knew that a written
request to the legal counsel of PAL was
necessary, he cannot use what the PAL agents
did to his advantage. The said agents,
according to the Court of Appeals, 10 acted
without authority when they confirmed the
flights of the petitioner.
Under Article 1989 11 of the New Civil Code, the
acts an agent beyond the scope of his authority
do not bind the principal, unless the latter
ratifies the same expressly or impliedly.
Furthermore, when the third person (herein
petitioner) knows that the agent was acting
beyond his power or authority, the principal
cannot be held liable for the acts of the agent.
If the said third person is aware of such limits
of authority, he is to blame, and is not entitled
to recover damages from the agent, unless the
latter undertook to secure the principal's
ratification. 12
Anent the second issue, petitioner's stance that
the defense of lack of authority on the part of
the PAL employees was deemed waived under
Rule 9, Section 2 of the Revised Rules of
Court, is unsustainable. Thereunder, failure of
a party to put up defenses in their answer or in
a motion to dismiss is a waiver thereof.
Petitioner stresses that the alleged lack of
authority of the PAL employees was neither
raised in the answer nor in the motion to
dismiss. But records show that the question of
whether there was authority on the part of the
PAL employees was acted upon by the trial
court when Nicholas Cervantes was presented
as a witness and the depositions of the PAL
employees, Georgina M. Reyes and Ruth
Villanueva, were presented.
The admission by Cervantes that he was told
by PAL's legal counsel that he had to submit a
letter requesting for an extension of the validity
of subject tickets was tantamount to knowledge
on his part that the PAL employees had no
authority to extend the validity of subject tickets
 AGENCY ACJUCO 2nd MEETING 3

and only PAL's legal counsel was authorized to
do so.
However, notwithstanding PAL's failure to raise
the defense of lack of authority of the said PAL
agents in its answer or in a motion to dismiss,
the omission was cured since the said issue
was litigated upon, as shown by the testimony
of the petitioner in the course of trial. Rule 10,
Section 5 of the 1997 Rules of Civil Procedure
provides:
Sec. 5. Amendment to conform,
or authorize presentation of
evidence. — When issues not
raised by the pleadings are tried
with express or implied consent
of the parties, as if they had been
raised in the pleadings. Such
amendment of the pleadings as
may be necessary to cause them
to conform to the evidence and to
raise these issues may be made
upon motion of any party at any
time, even after judgment; but
failure to amend does not affect
the result of the trial of these
issues. . . .
negligence. No injury resulted on the part of
petitioner because he had a back-up ticket
should PAL refuse to accommodate him with
the use of subject ticket.
Neither can the claim for exemplary damages
be upheld. Such kind of damages is imposed
by way of example or correction for the public
good, and the existence of bad faith is
established. The wrongful act must be
accompanied by bad faith, and an award of
damages would be allowed only if the guilty
party acted in a wanton, fraudulent, reckless or
malevolent manner. 15 Here, there is no
showing that PAL acted in such a manner. An
award for attorney's fees is also improper.
WHEREFORE, the Petition is DENIED and the
decision of the Court of Appeals dated July 25,
1995 AFFIRMED in toto. No pronouncement as
to costs.
SO ORDERED.

Thus, "when evidence is presented by one

party, with the express or implied consent of
the adverse party, as to issues not alleged in
the pleadings, judgment may be rendered
validly as regards the said issue, which shall
be treated as if they have been raised in the
pleadings. There is implied consent to the
evidence thus presented when the adverse
party fails to object thereto." 13

Re: the third issue, an award of damages is

improper because petitioner failed to show that
PAL acted in bad faith in refusing to allow him
to board its plane in San Francisco.

In awarding moral damages for breach of

contract of carriage, the breach must be
wanton and deliberately injurious or the one
responsible acted fraudulently or with malice or
bad faith. 14 Petitioner knew there was a strong
possibility that he could not use the subject
ticket, so much so that he bought a back-up
ticket to ensure his departure. Should there be
a finding of bad faith, we are of the opinion that
it should be on the petitioner. What the
employees of PAL did was one of simple

[G.R. No. 129039. September 17, 2002]
SIREDY ENTERPRISES, INC. petitioner, vs.
HON. COURT OF APPEALS and CONRADO
DE GUZMAN, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review seeking to
annul the decision[1] dated April 26, 1996 of the
Court of Appeals in CA-G.R. CV No. 30374,
reversing the decision of the Regional Trial
Court of Malolos, Bulacan, and the
resolution[2] dated April 22, 1997, denying
petitioners motion for reconsideration.
The following are the facts as found by the
Court of Appeals,[3] undisputed by the parties
and adopted by petitioner:[4]
Private respondent Conrado De Guzman is
an architect-contractor doing business under
the name and style of Jigscon
Construction. Herein petitioner Siredy
Enterprises, Inc. (hereafter Siredy) is the owner
and developer of Ysmael Village, a subdivision
in Sta. Cruz, Marilao, Bulacan. [5] The president
of Siredy is Ismael E. Yanga.[6]
As stated in its Articles of Incorporation,
[7]
the primary corporate purpose of Siredy is to
acquire lands, subdivide and develop them,
erect buildings and houses thereon, and sell,
lease or otherwise dispose of said properties to
interested buyers.[8]
Sometime before October 1978, Yanga
executed an undated Letter of Authority,
[9]
hereunder reproduced verbatim:
KNOW ALL MEN BY THESE PRESENTS:
That I, DR. ISMAEL E. YANGA, SR., of legal
age, Filipino, married, resident of and with
Postal address at Poblacion, Bocaue, Bulacan
and duly authorized to execute this LETTER
OF AUTHORITY, do hereby authorize MR.
HERMOGENES B. SANTOS of legal age,
Filipino, married, resident of and with Postal
Address at 955 Banawe St., Quezon City to do
and execute all or any of the following acts:
1. To negotiate and enter into contract or
contracts to build Housing Units on our
subdivision lots in Ysmael Village, Sta. Rosa,
AGENCY ACJUCO 2nd MEETING 4
Marilao, Bulacan. However, all proceeds from
said contract or contracts shall be deposited in
my name, payments of all obligation in
connection with the said contract or contracts
should be made and the remainder will be paid
to MR. HERMOGENES B. SANTOS.
2. To sell lots on our subdivisions and;
3. To represent us, intercede and agree for or
make agreements for all payments in our favor,
provided that actual receipts thereof shall be
made by the undersigned.
(SGD) DR. ISMAEL E. YANGA, SR.
For myself and in my capacity as
President of SIREDY ENTERPRISE,
INCORPORATED RINCIPAL
On October 15, 1978, Santos entered into
a Deed of Agreement[10] with De Guzman. The
deed expressly stated that Santos was
representing Siredy Enterprises, Inc. Private
respondent was referred to as contractor while
petitioner Siredy was cited as principal.
In said Deed of Agreement we find the
following stipulations:
1.) That, the PRINCIPAL has contracts
with different SSS members
employed with different domestic
entities to build for them 2-bedroom
single housing units and 4-bedroom
duplex housing units;
2.) That, the site of the said housing
project is at YSMAEL VILLAGE, Bo.
Sta. Rosa, Marilao, Bulacan owned
and developed by SIREDY
ENTERPRISES and Mr. Ismael E.
Yanga, Sr.;
3.) That, the PRINCIPAL has
contracted to build the said units at
the amount of FORTY FIVE
THOUSAND (P45,000.00) PESOS
for the 2-bedroom single and SIXTY
NINE THOUSAND (P69,000.00)
PESOS, Philippine Currency for the
duplex residences;
4.) That, the CONTRACTOR intends to
build for the PRINCIPAL eighty (80)
units singles and eighteen (18) units
duplex residences at the cost above
mentioned or a lump sum total of
FOUR MILLION, EIGHT HUNDRED

FORTY TWO THOUSAND
(P4,842,000.00) PESOS, Philippine
Currency;
5.) That, the CONTRACTOR agrees to
supply all Construction Materials,
labor, tools and equipments
necessary for the completion of the
said housing units;
6.) That, the PRINCIPAL agrees to pay
all necessary permits and papers in
accordance with Government rules
and regulations;
7.) That, the PRINCIPAL agrees to
supply water and electrical facilities
needed during the time of
construction;
8.) That, the manner of payment shall
be in accordance with SSS
releases. Should the SSS fail to pay
the PRINCIPAL, the PRINCIPAL is
still in obligation to pay the
CONTRACTOR for whatever
accomplishments the
CONTRACTOR have
finished provided, that the failure of
the SSS to pay is not due to
defective work of the
CONTRACTOR;
9.) That, the CONTRACTOR promises
to finish the project at the rate of
TEN (10) units in THIRTY (30) days
or a total of THREE HUNDRED
(300) working days;
10.) That, the integral part of this
CONTRACT are:
a. Plans and Specifications
b. Subdivision Plan indicating
the Lot location of each unit
c. Authority of the National
Housing Authority;
11.) That, the CONTRACTOR agree[s]
to start work on the housing
units thirty (30) days after signing of
this CONTRACT.
NOW THEREFORE, for and in consideration of
the amount of FOUR MILLION, EIGHT
HUNDRED FORTY TWO THOUSAND
(P4,842,000.00) PESOS, Philippine Currency,
the PARTIES agree and herein set their hands
on the date and place above-mentioned.
AGENCY ACJUCO 2nd MEETING 5
xxx
From October 1978 to April 1990, De
Guzman constructed 26 residential units at
Ysmael Village. Thirteen (13) of these were
fully paid but the other 13 remained
unpaid. The total contractual price of these 13
unpaid houses is P412,154.93 which was
verified and confirmed to be correct by Santos,
per an Accomplishment Billing[11] that the latter
signed.
De Guzman tried but failed to collect the
unpaid account from petitioner. Thus, he
instituted the action below for specific
performance against Siredy, Yanga, and
Santos who all denied liability.
During the trial, Santos disappeared and
his whereabouts remain unknown.
In its defense, petitioner presented
testimonial evidence to the effect that Siredy
had no contract with De Guzman and had not
authorized Santos to enter into a contract with
anyone for the construction of housing units at
Ysmael Village.
The trial court agreed with petitioner based
on the doctrine of privity of contract and gave
the following rationale:[12]
The Deed of Agreement (Exh. A and A-1)
clearly reflects that the said contract was
entered into by and between plaintiff De
Guzman, on one hand, and defendant
Hermogenes B. Santos as purported
authorized representative of defendant Siredy
Enterprises, on the other. Plainly and clearly
enough, defendants Siredy Enterprises and
Ismael Yanga, Sr. were neither parties nor
signatories to the same. It does not bear any
legal significance that Dr. Yanga appears to
have signed the Letter of Authority (Exh. B)
designating defendant Santos as the
authorized representative for myself and as
president of the Siredy Enterprises, Inc. For the
evidentiary fact remains that Siredy Enterprises
and Dr. Yanga had absolutely had nothing to
do with the fulfillment of the terms and
conditions stipulated in the Deed of Agreement,
much less had they benefited in any
perceptible degree therefrom.
In the light of the foregoing circumstances,
Siredy Enterprises and Dr. Yanga cannot be
held liable in favor of the plaintiff in any manner

whatsoever respecting the unpaid residential
units constructed by the plaintiff. This is as it
should be, because contracts take effect only
between the parties, their assigns and heirs,
except only in the cases provided for by
law. (Art. 1311, Civil Code of the Philippines).
Not one of the exceptions obtains in this case.
[13]
Thus, the trial court disposed of the case
as follows:
WHEREFORE, premises considered, judgment
is hereby rendered:
a) directing defendant Hermogenes B.
Santos to pay unto plaintiff Conrado
de Guzman the amount of
P412,154.93 as actual damages
with legal interest thereon from the
filing of the complaint on July 29,
1982 until the same shall have been
fully paid, and P25,000.00 as
attorneys fees, plus costs;
b) dismissing the above-entitled case
as against defendants Siredy
Enterprises, Inc. and Dr. Ismael
Yanga, Sr.
SO ORDERED.[14]
On appeal, De Guzman obtained a
favorable judgment from the Court of
Appeals. The appellate court held that the
Letter of Authority duly signed by Yanga clearly
constituted Santos as Siredys agent,[15] whose
authority included entering into a contract for
the building of housing units at Ysmael
Village. Consequently, Siredy cannot deny
liability for the Deed of Agreement with private
respondent De Guzman, since the same
contract was entered into by Siredys duly
designated agent, Santos. There was no need
for Yanga himself to be a signatory to the
contract, for him and Siredy to be bound by the
terms thereof.
Hence, the Court of Appeals held:
WHEREFORE, We find merit in the appeal and
We hereby REVERSE the appealed Decision.
In its stead, we render the following verdict:
Appellee Siredy Enterprises. Inc. is ordered to
pay appellant Conrado de Guzman cost (sic)
and P412,154.93 as actual damage plus legal
AGENCY ACJUCO 2nd MEETING 6
interest thereon from the filing of the Complaint
on July 29, 1982 until full payment thereof. All
other claims and counterclaims are dismissed.
SO ORDERED.[16]
Petitioner Siredy Enterprises, Inc. now
comes to us via a petition for review on
certiorari[17] under Rule 45 of the Rules of
Court, on the following grounds:
I. RESPONDENT COURT ERRED IN
HOLDING THAT A VALID AGENCY
WAS CONSTITUTED DESPITE
THE FACT THAT PETITIONER
WAS NOT INVOLVED IN THE
CONSTRUCTION BUSINESS;
II. RESPONDENT COURT ERRED IN
FAILING TO CONSIDER A VITAL
PROVISION IN THE DEED OF
AGREEMENT (PAR. 8), WHEN IT
RENDERED ITS DECISION; and
III. RESPONDENT COURT ERRED IN
FAILING TO CONSIDER THAT
PRIVATE RESPONDENT WAS
NOT ENTITLED TO HIS CLAIM AS
HE WAS THE PARTY WHO
VIOLATED THE CONTRACT.[18]
We find two main issues presented for
resolution: First, whether or not Hermogenes
B. Santos was a duly constituted agent of
Siredy, with authority to enter into contracts for
the construction of residential units in Ysmael
Village and thus the capacity to bind Siredy to
the Deed of Agreement; and Second,
assuming arguendo that Siredy was bound by
the acts of Santos, whether or not under the
terms of the Deed of Agreement, Siredy can be
held liable for the amount sought to be
collected by private respondent De Guzman.
By the relationship of agency, one party
called the principal authorizes another called
the agent to act for and in his behalf in
transactions with third persons. The authority of
the agent to act emanates from the powers
granted to him by his principal; his act is the
act of the principal if done within the scope of
the authority. He who acts through another acts
himself.[19]
Was Santos then an agent of Siredy? Was
he acting within the scope of his authority?

Resolution of the first issue necessitates a
review of the Letter of Authority executed by
Ismael E. Yanga as president of Siredy in favor
of Santos. Within its terms can be found the
nature and extent of the authority granted to
Santos which, in turn, determines the extent of
Siredys participation in the Deed of Agreement.
On its face, the instrument executed by
Yanga clearly and unequivocally constituted
Santos to do and execute, among other things,
the act of negotiating and entering into contract
or contracts to build Housing Units on our
subdivision lots in Ysmael Village, Sta. Rosa,
Marilao, Bulacan.[20] Nothing could be more
express than the written stipulations contained
therein.
It was upon the authority of this document
that De Guzman transacted business with
Santos that resulted in the construction
contract denominated as the Deed of
Agreement.
However, petitioner denies any liability by
stating that: (1) the nature of Siredys business
did not involve the construction of housing
units since it was merely engaged in the selling
of empty lots; (2) the Letter of Authority is
defective, and hence needed reformation; (3)
Santos entering into the Deed of Agreement
was invalid because the same was in excess of
his authority; and (4) there is now implied
revocation of such Letter of Authority.
Testifying on the nature of the business
and the business practices of Siredy, its owner
Yanga testified[21] that Siredy was interested
only in the sale of lots. It was up to the buyers,
as owners, to construct their houses in the
particular style they prefer. It was allegedly
never the practice of the company to sell lots
with houses already erected thereon. On the
basis of the foregoing testimony, petitioner
states that despite the letter of authority, it is
quite certain that such provision would go
against the nature of the business of Siredy as
the same has absolutely no capability of
undertaking such a task as constructing
houses.
However, the self-serving contention of
petitioner cannot stand against the
documentary evidence clearly showing the
companys liability to De Guzman. As we stated
in the case of Cuizon vs. Court of Appeals:[22]
AGENCY ACJUCO 2nd MEETING 7
As it is, the mere denial of petitioner cannot
outweigh the strength of the documentary
evidence presented by and the positive
testimony of private respondents. As a jurist
once said, I would sooner trust the smallest slip
of paper for truth than the strongest and most
retentive memory ever bestowed on moral
man.[23]
Aside from the Letter of Authority, Siredys
Articles of Incorporation, duly approved by the
Securities and Exchange Commission, shows
that Siredy may also undertake to erect
buildings and houses on the lots and sell,
lease, or otherwise dispose of said properties
to interested buyers.[24] Such Articles, coupled
with the Letter of Authority, is sufficient to have
given De Guzman reason to believe that
Santos was duly authorized to represent Siredy
for the purpose stated in the Deed of
Agreement. Petitioners theory that it merely
sold lots is effectively debunked.
Thus, it was error for the trial court to have
ignored the Letter of Authority. As correctly held
by the Court of Appeals:
There is absolutely no question that the Letter
of Authority (Exhibit B) executed by appellee
Yanga constituted defendant Santos as his and
appellee Siredys agent. As agent, he was
empowered inter alia to enter into a contract to
build housing units in the Ysmael Village. This
was in furtherance of appellees business of
developing and subdividing lands, erecting
houses thereon, and selling them to the public.
x x x [25]
We find that a valid agency was created
between Siredy and Santos, and the authority
conferred upon the latter includes the power to
enter into a construction contract to build
houses such as the Deed of Agreement
between Santos and De Guzmans Jigscon
Construction. Hence, the inescapable
conclusion is that Siredy is bound by the
contract through the representation of its agent
Santos.
The basis of agency is representation, that is,
the agent acts for and in behalf of the principal
on matters within the scope of his authority
(Art, 1881) and said acts have the same legal
effect as if they were personally done by the

principal. By this legal fiction of representation,
the actual or legal absence of the principal is
converted into his legal or juridical presence. [26]
Moreover, even if arguendo Santos
mandate was only to sell subdivision lots as
Siredy asserts, the latter is still bound to pay
De Guzman. De Guzman is considered a third
party to the agency agreement who had no
knowledge of the specific instructions or
agreements between Siredy and its agent.
What De Guzman only saw was the written
Letter of Authority where Santos appears to be
duly authorized. Article 1900 of the Civil Code
provides:
Art. 1900. So far as third persons are
concerned, an act is deemed to have been
performed within the scope of the agents
authority, if such act is within the terms of the
power of attorney, as written, even if the agent
has in fact exceeded the limits of his authority
according to an understanding between the
principal and the agent.
The scope of the agents authority is what
appears in the written terms of the power of
attorney. While third persons are bound to
inquire into the extent or scope of the agents
authority, they are not required to go beyond
the terms of the written power of attorney. Third
persons cannot be adversely affected by an
understanding between the principal and his
agent as to the limits of the latters authority. In
the same way, third persons need not concern
themselves with instructions given by the
principal to his agent outside of the written
power of attorney.
The essence of agency being the
representation of another, it is evident that the
obligations contracted are for and on behalf of
the principal. This is what gives rise to the
juridical relation. A consequence of this
representation is the liability of the principal for
the acts of his agent performed within the limits
of his authority that is equivalent to the
performance by the principal himself who
should answer therefor.[27]
Petitioner belatedly asserts, however, that
the Letter of Authority was defective as it
allegedly failed to reduce into writing the real
intentions of the parties, and insists on its
reformation.
AGENCY ACJUCO 2nd MEETING 8
Such an argument deserves scant
consideration. As found by the Court of
Appeals, being a doctor of medicine and a
businessman, Yanga knew the meaning and
import of this document and had in fact
admitted having signed it. As aptly observed by
the Court of Appeals, there is no evidence
that ante litem, he abrogated the Letter of
Authority and withdrew the power conferred on
Santos.
Siredys contention that the present case is
in effect a revocation of the Letter of Authority
also deserves scant consideration. This is a
patently erroneous claim considering that it
was, in fact, private respondent De Guzman
who instituted the civil case before the RTC.
With regard to the second issue put forth
by petitioner, this Court notes that this issue is
being raised for the first time on appeal. From
the trial in the RTC to the appeal before the
Court of Appeals, the alleged violation of the
Deed of Agreement by Conrado de Guzman
was never put in issue. Heretofore, the
substance of petitioners defense before the
courts a quoconsisted of its denial of any
liability under the Deed of Agreement.
As we held in the case of Safic Alcan & Cie
vs. Imperial Vegetable Oil Co., Inc.:[28]
It must be borne in mind that a question that
was never raised in the courts below cannot be
allowed to be raised for the first time on appeal
without offending basic rules of fair play, justice
and due process. Such an issue was not
brought to the fore either in the trial court or the
appellate court, and would have been
disregarded by the latter tribunal for the
reasons previously stated. With more reason,
the same does not deserve consideration by
this Court.[29]
WHEREFORE, this petition is DENIED for
lack of merit. The Decision of the Court of
Appeals dated April 26, 1996, in CA-G.R. CV
No. 30374, is hereby AFFIRMED. Petitioner
Siredy Enterprises, Inc. is ordered to pay
Conrado de Guzman actual damages in the
amount of P412,154.93, with legal interest
thereon from the time the case was filed until
its full payment.Costs against petitioner.
SO ORDERED.

G.R. No. 85685 September 11, 1991
LAURO CRUZ, petitioner,
vs.
THE HONORABLE COURT OF APPEALS
and PURE FOODS CORP., respondents.
Alfonso G. Salvador for petitioner.
Hilario, Go & De la Cruz for private
respondent.
DAVIDE, JR., J.:
In C.A.-G.R. CV No. 07859 (entitled Pure
Foods Corporation versus Lauro Cruz, doing
business under the name and style Mang Uro
Store), a decision was promulgated on 9
August 1988 by respondent Court of
Appeals1affirming in toto the decision
promulgated on 28 February 1985 of the
Regional Trial Court of Pasig (Branch 151) of
the National Capital Judicial Region in Civil
Case No. 496722 which, by reason of its
unusual brevity, is fully reproduced as follows:
DECISION
This is an action for sum of money.
From the record, the following facts are
gathered: The plaintiff is a domestic
corporation engaged in the
manufacture, processing and selling of
various meat products while the
defendant is the owner/manager of
Mang Uro Store in Dela Paz Street,
Marikina, Metro Manila. Sometime in
November 1977, the defendant was
granted by the plaintiff a credit line on
which the defendant, on several
occasions, bought on credit several
Purefoods products. The defendant had
an unpaid balance with the plaintiff in
the amount of P57,897.63, from which
the former was credited the amount of
P2,651.42 representing the amount of
returned goods, thereby leaving the
balance of P 55,246.21. Demands were
made upon the defendant for him to
settle his account with the plaintiff. A
demand letter dated January 17, 1983
was sent to and was received by the
defendant who failed to heed the same.
The plaintiff, to protect its interest, was
AGENCY ACJUCO 2nd MEETING 9
constrained to hire the services of
counsel.
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant, ordering the
latter to pay the former the following:
1. The sum of P 55,246.21, representing
his outstanding unpaid account plus
interest of 12% percent per annum to be
counted from the date of the filing of this
case on April 15, 1983 until fully paid;
and
2. The sum equivalent to 15% of the
total amount due as and for attorney's
fees and litigation expenses.
Costs against the defendant.
SO ORDERED.
His motion for reconsideration having been
denied in the resolution of respondent Court on
27 October 1988,3petitioner filed the instant
appeal by certiorari under Rule 45 of the Rules
of Court urging Us to annul and set aside the
aforesaid decision and resolution because
respondent Court committed the following
errors — which are the very errors he ascribed
to the trial court: (a) in not holding that
petitioner is not a signatory to the credit
application card attached as Annex "A" of
private respondent's complaint as clearly
evidenced by the fact that only the signatures
of Me Cruz and Marilou Cruz, who are not
impleaded as party defendants, appear therein;
(b) in not holding that his signature does not
appear in the invoices submitted by private
respondent; (c) in not holding that he did not
receive the letters of demand; (d) in not finding
and concluding that private respondent failed
to comply with the Order of the trial court to
amend the complaint; and (e) in denying his
motion for reconsideration.
The antecedent facts are not disputed.
On 15 April 1983, private respondent Pure
Foods Corporation filed with the trial court a
complaint4 for sum of money against petitioner
alleging therein that sometime in November
1977, petitioner applied for a credit line with the

plaintiff which was consequently approved by
the latter subject to the conditions therein
stated; pursuant to said approved credit
arrangement, defendant (petitioner herein)
made various purchases from plaintiff until the
early part of 1982, when he accumulated a
total unpaid account of P57,897.63 as
evidenced by short payment notices and
invoices; against this obligation, defendant was
credited with the amount of P2,651.42
representing the value of returned goods,
thereby leaving a balance of P55,246.21,
which remained unpaid despite numerous
demands made upon him.
The parties who signed the Credit Application
card as applicants are Me Cruz, who signed
over the printed words name of signatory,
and Marilou L. Cruz, who signed over the
printed words Authorized Signature. The
opening paragraph thereof reads:
I/We hereby apply for a charge account
in the amount stated above, and
herewith are the information for your
consideration as a basis for the
extension of credit to us:
TRADE NAME: MANG URO STORE
Owner/Manager: Lauro Cruz
xxx xxx xxx
Petitioner did not sign any of the invoices
attached to the complaint.
For failure to file an answer within the
reglementary period, and upon motion of
private respondent, the trial court issued an
Order on 29 September 1983 declaring the
petitioner in default and authorizing the private
respondent to present its evidence ex parte on
4 October 1983.5
On 19 October 1983, petitioner filed a motion
to set aside the order of default6 alleging
therein that he did not file an answer anymore
because upon examination of the records of
the case, he discovered that it was his son
Rodolfo who received the summons and copy
of the complaint; he never entered into any
transaction with private respondent and that
although the store referred to is still licensed in
his name, it has, since 1977, been owned and
AGENCY ACJUCO 2nd MEETING 10
operated by his son Rodolfo Cruz for the
reason that he "is getting old already and
moreover, because of deteriorating physical
condition;" and according to his son Rodolfo,
he had already settled the matter with the
private respondent under an agreement
whereby Rodolfo would make partial payments
and the private respondent would dismiss the
case.
In its Order of 9 November 1983, 7 the trial court
granted the aforesaid motion, required
petitioner to file his responsive pleading within
five (5) days, and to present his evidence on 6
January 1984.
Petitioner filed an Answer With Counterclaim
on 28 March 1983.8 He reiterates therein his
allegations in the motion to lift the default order
and further avers that his signature does not
even appear on the credit application card. On
the counter-claim, he prays for judgment
awarding him moral damages in an amount to
be proved at the trial, and attorney's fees in the
amount of P15,000.00.
Pre-trial was set on 2 January 1984. It was
reset by the trial court for 19 January 1984,
and further reset for 21 February 1984 at 1:00
P.M. upon motion of private respondent. On the
last mentioned date, however, petitioner
arrived late and by then, the court had already
issued an order declaring him in default for
failure to appear at the pre-trial. Forthwith, he
filed a motion for reconsideration which the trial
court granted in its order of 22 February 1984.
Pre-trial was reset to 27 March 1984.9
Pre-trial was held as above scheduled and was
concluded with the issuance of the following
order:
As prayed for, the plaintiff is given ten
(10) days from today to file amended
complaint.
By agreement, the presentation of
defendant's evidence is set for May 16,
1984, at 8:30 a.m., without prejudice to
the filing of a compromise agreement.10
As stated by petitioner, 11 which is not denied by
private respondent, the purpose of the
amendment was to implead Me
Cruz and Marilou Cruz as parties defendants

since they are the applicants in the credit
application card.
Both parties did not appear on 16 May 1984.
Thereupon, the trial court issued an order
declaring the case as submitted for decision on
the basis of the evidence on record. 12
As adverted to earlier, on 28 February 1985,
the trial court rendered its decision against
petitioner who, on 21 March 1985, filed a
motion to reconsider13 the decision, which the
trial court denied for lack of merit in its order of
16 May 1985.14
Petitioner appealed from the decision to the
then Intermediate Appellate Court, now Court
of Appeals.
The appeal was docketed as C.A.-G.R. CV No.
07859.
In his Brief in said case, petitioner attributes to
the trial court the errors15 which, as earlier
mentioned, are the very same errors submitted
before Us as having been committed by the
respondent court.
According to the respondent Court, these
errors bring into focus one crucial issue: the
liability of petitioner for the amounts adjudged
by the trial court in favor of private respondent.
It held that petitioner is liable because in his
motion to set aside the order of default, he
admitted that the Mang Uro Store is still
licensed under his name and the credit
application card indicates that he is the
owner/manager thereof. Hence, even on the
assumption that there had been a transfer of
ownership and management of the store to
Rodolfo Cruz, previous to the transactions
made with appellee, petitioner permitted the
business to be carried on in his name as its
ostensible owner. Private respondent should
not be expected to be aware of such a transfer
and whatever agreement or understanding
appellant had with petitioner's son Rodolfo
regarding the store cannot bind or affect private
respondent, for matters accomplished between
two parties ought not to operate to the
prejudice of a third person.16 Accordingly, it
also finds as superfluous the amendment of
the complaint for the purpose of impleading
Rodolfo Cruz, Marilou Cruz and Me Cruz;
moreover, it contends that failure to amend the
AGENCY ACJUCO 2nd MEETING 11
complaint is no cause for reversal because
these persons were known to private
respondent as petitioner's "progeny"; besides,
the transfer of business, if indeed there was
such, is a matter of defense which need not be
"negatived" in the complaint. A complaint
should not, by the averments, anticipate a
defense thereto.
In respect to the failure of private respondent to
comply with the order of 27 March 1984
directing it to amend the complaint, respondent
Court held that the non-compliance was
"muted by the subsequent order of 16 May
1984 which considered the case submitted for
decision." By such order, the trial court gave its
assent to resolving the case on the basis of the
unamended complaint. Section 11 of Rule 3
(erroneously stated as Section 3 of Rule 11) of
the Rules of Court provides that parties may be
dropped or added by order of the court on
motion of any party or on its own initiative at
any stage of the action and on such terms as
are just; in the instant case, it may be inferred
that the trial court opted to resolve the case
without the proposed change in parties
defendants.
Finally, it ruled that both oral and documentary
evidence presented at the hearing on 3
October 1983 proved petitioner's unsatisfied
obligation to the private respondent.
To bring this petition within Our authority,
petitioner asserts, in effect, that at the bottom
of the assigned errors is the issue of whether
the respondent Court has made conclusions of
fact which are not substantiated by the
evidence on record. Petitioner asserts that it
did.
We have held in a long line of cases that
findings of facts of the Court of Appeals are
conclusive upon this Court.17There are,
however, recognized exceptions to this
rule,18 as where the findings are totally devoid
of support in the record, or are glaringly
erroneous as to constitute serious abuse of
discretion,19 or when the findings are grounded
entirely on speculation, surmise or conjecture.20
Deliberating on this case, We hold that the
findings and conclusions of both the trial court
and the respondent Court are not supported by
the evidence and that such conclusions are

glaringly erroneous. This petition is impressed
with merit.
In its very brief decision, the trial court, without
even laying the factual premises, made a
sweeping conclusion that it was the petitioner
who applied for a credit line with private
respondent and which the latter approved for
him; on the basis of such approval, he
subsequently bought Purefoods products on
credit from private respondent. Evidently, the
trial court may have in mind the Credit
Application Card21 and the several invoices for
the delivery of the goods.22 But as correctly
pointed out by the petitioner, and as the
documents themselves show, he did not sign
any of them.
It is the respondent Court which endeavored to
supply the arguments in support of the
foregoing conclusion. According to the
respondent court:
In his Motion to Set Aside Order of
Default filed on October 19, 1983
appellant23 admitted that subject store is
still licensed under his name ... Also, the
credit application card accomplished in
behalf of the store clearly indicates
appellant as owner/manager thereof ...
Hence, even on the assumption that
there really had been a transfer of
ownership and management of the
"Mang Uro Store" to Rodolfo Cruz
previous to the transactions made with
appellee24 the fact is that appellant
permitted the carrying of the business of
Id store with him as ostensible owner.
Appellee should not be expected to be
aware of such transfer. Whatever private
agreement or understanding appellant
made with his son Rodolfo regarding the
store cannot bind or affect appellee.
Insofar as the latter is concerned, the
store is business property of appellant.
The maxim res inter alios acta alteri
nocere non debet is square. Matters
accomplished between two parties
ought not to operate to the prejudice of
a third person (Blanza vs. Arcangel, 21
SCRA 4; Perez vs. Mendoza, 65 SCRA
493; Tinitigan vs. Tinitigan 100 SCRA
636).25
AGENCY ACJUCO 2nd MEETING 12
Unfortunately, however, this conclusion is
bereft of substantial factual basis and
disregards fundamental principles concerning
the primary duty of persons dealing with parties
who act for others, and of estoppel.
Indisputably, the credit application card is a
form prepared and supplied by private
respondent. There is no evidence, much less
an allegation by private respondent, that it was
petitioner who filled up the entries in said form.
It is logical to presume then that the parties
who signed it (Me Cruz and Marilou L. Cruz),
or anyone of them, made or accomplished the
entries. Needless to state, since on the face of
the document, the "owner/manager" of the
"Mang Uro Store", which is written on the
column Trade Name, is Lauro Cruz, and not
the parties signing the same, it was incumbent
upon the private respondent to inquire into the
relationship of the signatories to the petitioner
or to satisfy itself as to their authority to act for
or represent the petitioner. Under the
circumstances, it is apparent that petitioner had
no direct participation and that the two
applicants could have acted without authority
from him or as his duly authorized
representatives. In either case, for the
protection of its interest, private respondent
should have made the necessary inquiry
verification as to the authority of the applicants
and to find out from them whether Lauro Cruz
is both the owner and manager or merely
the owner or the manager, for that is what
"owner/manager" in its form could signify.
A person dealing with an agent is put upon
inquiry and must discover upon his peril the
authority of the agent.26 It is for this reason that
under Article No. 1902 of the Civil Code, a third
person with whom the agent wishes to contract
on behalf of the principal may require the
presentation of the power of attorney, or the
instructions as regards the agency, and that
private or secret orders and instructions of the
principal do not prejudice third persons who
have relied upon the power of attorney or
instructions shown them.
In short, petitioner is not under estoppel, as
against the claim of private respondent, which
seems to be at the bottom of the respondent
Court's rationalization.
In Kalalo vs. Luz,27 We held that the essential
elements of estoppel in respect to the party

claiming it are: (a) lack of knowledge and of the
means of knowledge of the truth as the facts in
question; (b) reliance, in good faith, upon the
conduct or statements of the party to be
estopped; and (c) action or inaction based
thereon of such character as to change the
position or status of the party claiming the
estoppel, to his injury, detriment, or prejudice.
The above disquisitions ineluctably show the
absence of said elements in this case.
In the instant case, there is no showing at all
that private respondent tried to ascertain the
ownership of Mang Uro Store and the extent of
the authority of the applicants to represent
Lauro Cruz at any time before it approved the
credit application card.
There is as well no evidence, much less any
claim by private respondent, that before Me
Cruz and Marilou Cruz signed the credit
application card, it had been dealing with
petitioner or the Mang Uro Store, or that for
sometime prior thereto, petitioner ever
represented to it as the owner of the store that
he has authorized the above signatories to
represent him in any transaction. Clearly, it was
error for the respondent Court to conclude that
petitioner should be held liable to private
respondent on account of the credit application
card on the theory that he permitted the
carrying of the business of the store. This
theory further erroneously assumes that the
business of the store before the filing of the
credit application card included the sale of
products of private respondent. There is
evidence on this appoint.
Moreover, it is apparent that the purpose of the
request of private respondent to file an
amended complaint within ten (10) days from
27 March 1984, the date when the pre-trial was
held, which the trial court granted, 28 was
precisely to implead the signatories to the
credit application card. This was precisely
prompted by the insistence of petitioner that he
is not liable for the claims in the complaint
because he did not sign the credit card
application and the invoices. In short, he is
erroneously impleaded as defendant. Since
among the matters to be considered at pre-trial
is the necessity or desirability of amendments
to pleadings,29 the request was seasonably and
properly made.
AGENCY ACJUCO 2nd MEETING 13
Private respondent did not amend the
complaint within the period aforesaid. So, when
the case was caned for heating on 16 May
1984, pursuant to the Order of 27 March 1984,
and the parties did not appear, the trial court
should have dismissed the case for failure on
the part of private respondent to file the
amended complaint. Such dismissal is
authorized under Section 3 of Rule 17 of the
Rules of Court. The respondent Court,
however, brushed aside this point by holding
that the non-compliance by private respondent
"was muted by the subsequent order dated
May 16, 1984 which submitted the case for
decision;" and that by said order "the trial court
appears to have given its assent to resolving
the case on the basis of the unamended
complaint," which is authorized by Section 11
of Rule 3 of the Rules of Court. Although this
justification is flimsy and begs the question, the
foregoing resolution on the issue of petitioner's
liability to the private respondent renders
unnecessary further discussion on the
remaining assigned errors.
WHEREFORE, the instant petition is
GRANTED, and the decision of the respondent
Court of Appeals of 9 August 1988 and its
resolution of 27 October 1988 in C.A.-G.R. CV
No. 07859, as well as the decision of the trial
court of 28 February 1985 in Civil Case No.
49672, are hereby REVERSED and SET
ASIDE. With costs against private respondent.
SO ORDERED.
Separate Opinions
FELICIANO, J,: dissenting:
With much regret, I am unable to join the
majority opinion. Although petitioner Lauro
Cruz did not personally sign the credit
application nor the Pure Foods invoices issued
under that credit line, I believe that he is liable
for the amounts due under that credit line.
While petitioner may have turned over active
management of his single proprietorship
enterprise to his son, Rodolfo Cruz, petitioner
remained legal or registered owner of that
enterprise and he was directly or indirectly
benefitting from the revenues generated by
that store. Those revenues were earned over a
period of approximately five (5) years from the
 AGENCY ACJUCO 2nd MEETING 14

time the credit application was signed by Me
Cruz and Merle Cruz. During that five-year
period, credit was drawn under the Pure Foods
credit line to finance the canned goods and
other items purchased from Pure Foods and
sold in the Mang Uro Store and Pure Foods
invoices were paid. Thus petitioner Lauro Cruz
must or should have known about the
existence of the credit line supporting at least
the Pure Foods inventory of the Mang Uro
Store. If there was lack of formal authority on
the part of Me Cruz and Merle Cruz to contract
for the credit line, that lack of authority must be
held to have been cured by prolonged inaction
on the part of petitioner and, more importantly,
by receipt of benefits by petitioner from
operation of the credit line and the purchase of
Pure Foods goods on credit.
If this is a case of an unauthorized agent, I
believe there was at least implied ratification on
the part of the principal. It is too late for
petitioner to disclaim responsibility for the
amount due to Pure Foods. It seems to me that
it would be grossly inequitable to permit
petitioner to escape that liability on such a
technical basis.
sold in the Mang Uro Store and Pure Foods
invoices were paid. Thus petitioner Lauro Cruz
must or should have known about the
existence of the credit line supporting at least
the Pure Foods inventory of the Mang Uro
Store. If there was lack of formal authority on
the part of Me Cruz and Merle Cruz to contract
for the credit line, that lack of authority must be
held to have been cured by prolonged inaction
on the part of petitioner and, more importantly,
by receipt of benefits by petitioner from
operation of the credit line and the purchase of
Pure Foods goods on credit.
If this is a case of an unauthorized agent, I
believe there was at least implied ratification on
the part of the principal. It is too late for
petitioner to disclaim responsibility for the
amount due to Pure Foods. It seems to me that
it would be grossly inequitable to permit
petitioner to escape that liability on such a
technical basis.
I vote to DENY the Petition for Review for lack
of merit.

I vote to DENY the Petition for Review for lack

of merit.

Separate Opinions

FELICIANO, J,: dissenting:

With much regret, I am unable to join the

majority opinion. Although petitioner Lauro
Cruz did not personally sign the credit
application nor the Pure Foods invoices issued
under that credit line, I believe that he is liable
for the amounts due under that credit line.

While petitioner may have turned over active

management of his single proprietorship
enterprise to his son, Rodolfo Cruz, petitioner
remained legal or registered owner of that
enterprise and he was directly or indirectly
benefitting from the revenues generated by
that store. Those revenues were earned over a
period of approximately five (5) years from the
time the credit application was signed by Me
Cruz and Merle Cruz. During that five-year
period, credit was drawn under the Pure Foods
credit line to finance the canned goods and
other items purchased from Pure Foods and

G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST
COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS &
LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
CRUZ, J.:
This case, for all its seeming complexity, turns
on a simple question of negligence. The facts,
pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a
commercial bank with branches throughout the
Philippines and even abroad. Golden Savings
and Loan Association was, at the time these
events happened, operating in Calapan,
Mindoro, with the other private respondents as
its principal officers.
In January 1979, a certain Eduardo Gomez
opened an account with Golden Savings and
deposited over a period of two months 38
treasury warrants with a total value of
P1,755,228.37. They were all drawn by the
Philippine Fish Marketing Authority and
purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were
directly payable to Gomez while the others
appeared to have been indorsed by their
respective payees, followed by Gomez as
second indorser.1
On various dates between June 25 and July
16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of
Golden Savings and deposited to its Savings
Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for
clearing by the branch office to the principal
office of Metrobank, which forwarded them to
the Bureau of Treasury for special clearing.2
More than two weeks after the deposits, Gloria
Castillo went to the Calapan branch several
times to ask whether the warrants had been
cleared. She was told to wait. Accordingly,
Gomez was meanwhile not allowed to
withdraw from his account. Later, however,
"exasperated" over Gloria's repeated inquiries
AGENCY ACJUCO 2nd MEETING 15
and also as an accommodation for a "valued
client," the petitioner says it finally decided to
allow Golden Savings to withdraw from the
proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979,
in the amount of P508,000.00, the second on
July 13, 1979, in the amount of P310,000.00,
and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was
P968.000.00.4
In turn, Golden Savings subsequently allowed
Gomez to make withdrawals from his own
account, eventually collecting the total amount
of P1,167,500.00 from the proceeds of the
apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden
Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury on July
19, 1979, and demanded the refund by Golden
Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then
sued Golden Savings in the Regional Trial
Court of Mindoro.5 After trial, judgment was
rendered in favor of Golden Savings, which,
however, filed a motion for reconsideration
even as Metrobank filed its notice of appeal.
On November 4, 1986, the lower court
modified its decision thus:
ACCORDINGLY, judgment is hereby
rendered:
1. Dismissing the complaint with costs
against the plaintiff;
2. Dissolving and lifting the writ of
attachment of the properties of
defendant Golden Savings and Loan
Association, Inc. and defendant
Spouses Magno Castillo and Lucia
Castillo;
3. Directing the plaintiff to reverse its
action of debiting Savings Account No.
2498 of the sum of P1,754,089.00 and
to reinstate and credit to such account
such amount existing before the debit

was made including the amount of
P812,033.37 in favor of defendant
Golden Savings and Loan Association,
Inc. and thereafter, to allow defendant
Golden Savings and Loan Association,
Inc. to withdraw the amount outstanding
thereon before the debit;
4. Ordering the plaintiff to pay the
defendant Golden Savings and Loan
Association, Inc. attorney's fees and
expenses of litigation in the amount of
P200,000.00.
5. Ordering the plaintiff to pay the
defendant Spouses Magno Castillo and
Lucia Castillo attorney's fees and
expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the
decision was affirmed, prompting Metrobank to
file this petition for review on the following
grounds:
1. Respondent Court of Appeals erred in
disregarding and failing to apply the
clear contractual terms and conditions
on the deposit slips allowing Metrobank
to charge back any amount erroneously
credited.
(a) Metrobank's right to charge
back is not limited to instances
where the checks or treasury
warrants are forged or
unauthorized.
(b) Until such time as Metrobank
is actually paid, its obligation is
that of a mere collecting agent
which cannot be held liable for its
failure to collect on the warrants.
2. Under the lower court's decision,
affirmed by respondent Court of
Appeals, Metrobank is made to pay for
warrants already dishonored, thereby
perpetuating the fraud committed by
Eduardo Gomez.
3. Respondent Court of Appeals erred in
not finding that as between Metrobank
AGENCY ACJUCO 2nd MEETING 16
and Golden Savings, the latter should
bear the loss.
4. Respondent Court of Appeals erred in
holding that the treasury warrants
involved in this case are not negotiable
instruments.
The petition has no merit.
From the above undisputed facts, it would
appear to the Court that Metrobank was indeed
negligent in giving Golden Savings the
impression that the treasury warrants had been
cleared and that, consequently, it was safe to
allow Gomez to withdraw the proceeds thereof
from his account with it. Without such
assurance, Golden Savings would not have
allowed the withdrawals; with such assurance,
there was no reason not to allow the
withdrawal. Indeed, Golden Savings might
even have incurred liability for its refusal to
return the money that to all appearances
belonged to the depositor, who could therefore
withdraw it any time and for any reason he saw
fit.
It was, in fact, to secure the clearance of the
treasury warrants that Golden Savings
deposited them to its account with Metrobank.
Golden Savings had no clearing facilities of its
own. It relied on Metrobank to determine the
validity of the warrants through its own
services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed
Golden Savings itself to withdraw them from its
own deposit.7 It was only when Metrobank
gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them
from his own account.
The argument of Metrobank that Golden
Savings should have exercised more care in
checking the personal circumstances of
Gomez before accepting his deposit does not
hold water. It was Gomez who was entrusting
the warrants, not Golden Savings that was
extending him a loan; and moreover, the
treasury warrants were subject to clearing,
pending which the depositor could not
withdraw its proceeds. There was no question
of Gomez's identity or of the genuineness of
his signature as checked by Golden Savings.
In fact, the treasury warrants were dishonored
allegedly because of the forgery of the

signatures of the drawers, not of Gomez as
payee or indorser. Under the circumstances, it
is clear that Golden Savings acted with due
care and diligence and cannot be faulted for
the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary
carelessness. The amount involved was not
trifling — more than one and a half million
pesos (and this was 1979). There was no
reason why it should not have waited until the
treasury warrants had been cleared; it would
not have lost a single centavo by waiting. Yet,
despite the lack of such clearance — and
notwithstanding that it had not received a
single centavo from the proceeds of the
treasury warrants, as it now repeatedly
stresses — it allowed Golden Savings to
withdraw — not once, not twice, but thrice
— from the uncleared treasury warrants in the
total amount of P968,000.00
Its reason? It was "exasperated" over the
persistent inquiries of Gloria Castillo about the
clearance and it also wanted to
"accommodate" a valued client. It "presumed"
that the warrants had been cleared simply
because of "the lapse of one week." 8 For a
bank with its long experience, this explanation
is unbelievably naive.
And now, to gloss over its carelessness,
Metrobank would invoke the conditions printed
on the dorsal side of the deposit slips through
which the treasury warrants were deposited by
Golden Savings with its Calapan branch. The
conditions read as follows:
Kindly note that in receiving items on
deposit, the bank obligates itself only as
the depositor's collecting agent,
assuming no responsibility beyond care
in selecting correspondents, and until
such time as actual payment shall have
come into possession of this bank, the
right is reserved to charge back to the
depositor's account any amount
previously credited, whether or not such
item is returned. This also applies to
checks drawn on local banks and
bankers and their branches as well as
on this bank, which are unpaid due
to insufficiency of funds, forgery,
unauthorized overdraft or any other
reason. (Emphasis supplied.)
AGENCY ACJUCO 2nd MEETING 17
According to Metrobank, the said conditions
clearly show that it was acting only as a
collecting agent for Golden Savings and give it
the right to "charge back to the depositor's
account any amount previously credited,
whether or not such item is returned. This also
applies to checks ". . . which are unpaid due to
insufficiency of funds, forgery, unauthorized
overdraft of any other reason." It is claimed that
the said conditions are in the nature of
contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its
Cashier, signed the deposit slips.
Doubt may be expressed about the binding
force of the conditions, considering that they
have apparently been imposed by the bank
unilaterally, without the consent of the
depositor. Indeed, it could be argued that the
depositor, in signing the deposit slip, does so
only to identify himself and not to agree to the
conditions set forth in the given permit at the
back of the deposit slip. We do not have to rule
on this matter at this time. At any rate, the
Court feels that even if the deposit slip were
considered a contract, the petitioner could still
not validly disclaim responsibility thereunder in
the light of the circumstances of this case.
In stressing that it was acting only as a
collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a
mere agent it cannot be liable to the principal.
This is not exactly true. On the contrary, Article
1909 of the Civil Code clearly provides that —
Art. 1909. — The agent is responsible
not only for fraud, but also for
negligence, which shall be judged 'with
more or less rigor by the courts,
according to whether the agency was or
was not for a compensation.
The negligence of Metrobank has been
sufficiently established. To repeat for emphasis,
it was the clearance given by it that assured
Golden Savings it was already safe to allow
Gomez to withdraw the proceeds of the
treasury warrants he had deposited
Metrobank misled Golden Savings. There may
have been no express clearance, as
Metrobank insists (although this is refuted by
Golden Savings) but in any case that clearance
could be implied from its allowing Golden
Savings to withdraw from its account not only

once or even twice but three times. The total
withdrawal was in excess of its original balance
before the treasury warrants were deposited,
which only added to its belief that the treasury
warrants had indeed been cleared.
Metrobank's argument that it may recover the
disputed amount if the warrants are not
paid for any reason is not acceptable. Any
reason does not mean no reason at all.
Otherwise, there would have been no need at
all for Golden Savings to deposit the treasury
warrants with it for clearance. There would
have been no need for it to wait until the
warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition,
if interpreted in the way the petitioner suggests,
is not binding for being arbitrary and
unconscionable. And it becomes more so in the
case at bar when it is considered that the
supposed dishonor of the warrants was not
communicated to Golden Savings before it
made its own payment to Gomez.
The belated notification aggravated the
petitioner's earlier negligence in giving express
or at least implied clearance to the treasury
warrants and allowing payments therefrom to
Golden Savings. But that is not all. On top of
this, the supposed reason for the dishonor, to
wit, the forgery of the signatures of the general
manager and the auditor of the drawer
corporation, has not been established. 9 This
was the finding of the lower courts which we
see no reason to disturb. And as we said in
MWSS v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et
al. v. IAC, et al., 139 SCRA 238). It must
be established by clear, positive and
convincing evidence. This was not done
in the present case.
A no less important consideration is the
circumstance that the treasury warrants in
question are not negotiable instruments.
Clearly stamped on their face is the word "non-
negotiable." Moreover, and this is of equal
significance, it is indicated that they are
payable from a particular fund, to wit, Fund
501.
The following sections of the Negotiable
Instruments Law, especially the underscored
parts, are pertinent:
AGENCY ACJUCO 2nd MEETING 18
Sec. 1. — Form of negotiable
instruments. — An instrument to be
negotiable must conform to the following
requirements:
(a) It must be in writing and signed by
the maker or drawer;
(b) Must contain an unconditional
promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a
fixed or determinable future time;
(d) Must be payable to order or to
bearer; and
(e) Where the instrument is addressed
to a drawee, he must be named or
otherwise indicated therein with
reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional.
— An unqualified order or promise to
pay is unconditional within the meaning
of this Act though coupled with —
(a) An indication of a particular fund out
of which reimbursement is to be made
or a particular account to be debited
with the amount; or
(b) A statement of the transaction which
gives rise to the instrument judgment.
But an order or promise to pay out of a
particular fund is not unconditional.
The indication of Fund 501 as the source of the
payment to be made on the treasury warrants
makes the order or promise to pay "not
unconditional" and the warrants themselves
non-negotiable. There should be no question
that the exception on Section 3 of the
Negotiable Instruments Law is applicable in the
case at bar. This conclusion conforms to
Abubakar vs. Auditor General11 where the
Court held:
The petitioner argues that he is a holder
in good faith and for value of a
negotiable instrument and is entitled to
 AGENCY ACJUCO 2nd MEETING 19

the rights and privileges of a holder in
due course, free from defenses. But this
treasury warrant is not within the scope
of the negotiable instrument law. For
one thing, the document bearing on its
face the words "payable from the
appropriation for food administration, is
actually an Order for payment out of "a
particular fund," and is not unconditional
and does not fulfill one of the essential
requirements of a negotiable instrument
(Sec. 3 last sentence and section [1(b)]
of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing
the warrants in general, Golden Savings
assumed that they were "genuine and in all
respects what they purport to be," in
accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this
law is not applicable to the non-negotiable
treasury warrants. The indorsement was made
by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants
but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made
the guarantee when it stamped on the back of
the warrants: "All prior indorsement and/or lack
of endorsements guaranteed, Metropolitan
Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai
Corporation v. Bank of the Philippine
Islands,12 but we feel this case is inapplicable
to the present controversy.1âwphi1 That case
involved checks whereas this case involves
treasury warrants. Golden Savings never
represented that the warrants were negotiable
but signed them only for the purpose of
depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai
Alai Corporation negligent in accepting the
checks without question from one Antonio
Ramirez notwithstanding that the payee was
the Inter-Island Gas Services, Inc. and it did
not appear that he was authorized to indorse it.
No similar negligence can be imputed to
Golden Savings.
The total value of the 32 treasury warrants
dishonored was P1,754,089.00, from which
Gomez was allowed to withdraw
P1,167,500.00 before Golden Savings was
notified of the dishonor. The amount he has
withdrawn must be charged not to Golden
Savings but to Metrobank, which must bear the
consequences of its own negligence. But the
balance of P586,589.00 should be debited to
Golden Savings, as obviously Gomez can no
longer be permitted to withdraw this amount
from his deposit because of the dishonor of the
warrants. Gomez has in fact disappeared. To
also credit the balance to Golden Savings
would unduly enrich it at the expense of
Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury
warrants.
WHEREFORE, the challenged decision is
AFFIRMED, with the modification that
Paragraph 3 of the dispositive portion of the
judgment of the lower court shall be reworded
as follows:
3. Debiting Savings Account No. 2498 in
the sum of P586,589.00 only and
thereafter allowing defendant Golden
Savings & Loan Association, Inc. to
withdraw the amount outstanding
thereon, if any, after the debit.
SO ORDERED.

We find the challenged decision to be basically

correct. However, we will have to amend it
insofar as it directs the petitioner to credit
Golden Savings with the full amount of the
treasury checks deposited to its account.

G.R. No. 94050 November 21, 1991
SYLVIA H. BEDIA and HONTIVEROS &
ASSOCIATED PRODUCERS PHILS. YIELDS,
INC., petitioners,
vs.
EMILY A. WHITE and HOLMAN T.
WHITE, respondents.
CRUZ, J.:
The basic issue before us is the capacity in
which petitioner Sylvia H. Bedia entered into
the subject contract with private respondent
Emily A. White. Both the trial court and the
respondent court held she was acting in her
own personal behalf. She faults this finding as
reversible error and insists that she was merely
acting as an agent.
The case arose when Bedia and White entered
into a Participation Contract 1 reading in full as
follows:
THE STATE FAIR OF TEXAS '80
PARTICIPATION CONTRACT
PARTICIPANT (COMPANY NAME)
EMILY WHITE
ENTERPRISES
I/We, the abovementioned company
hereby agrees to participate in the 1980
Dallas State Fair to be held in Dallas,
Texas on October 3, to October
19,1980. I/We request for a 15 square
meter booth space worth $2,250.00 U.S.
Dollars.
I/We further understand that this
participation contract shall be deemed
non-cancellable after payment of the
said down payment, and that any
intention on our part to cancel the same
shall render whatever amount we have
paid forfeited in favor of HONTIVEROS
& ASSOCIATED PRODUCERS
PHILIPPINE YIELDS, INC.
FOR THE ABOVE CONSIDERATION,
I/We understand the HONTIVEROS &
ASSOCIATED PRODUCERS PHIL.
YIELDS, INC. shall: Reserve said booth
for our exclusive perusal; We also
AGENCY ACJUCO 2nd MEETING 20
understand that the above cost includes
overall exterior booth decoration and
materials but does not include interior
designs which will be per our
specifications and expenses.
PARTICIPANT'S PARTICIPATION
AUTHORIZED SIGNATURE:
ACCEPTED BY:
(SGD.) EMILY WHITE (SGD.) SYLVIA
H. BEDIA
DATE: 8/13/80 DATE: Aug. 1, 1980
On August 10, 1986, White and her husband
filed a complaint in the Regional Trial Court of
Pasay City for damages against Bedia and
Hontiveros & Associated Producers Phil.
Yields, Inc. for damages caused by their
fraudulent violation of their agreement. She
averred that Bedia had approached her and
persuaded her to participate in the State of
Texas Fair, and that she made a down
payment of $500.00 to Bedia on the agreed
display space. In due time, she enplaned for
Dallas with her merchandise but was dismayed
to learn later that the defendants had not paid
for or registered any display space in her
name, nor were they authorized by the state
fair director to recruit participants. She said she
incurred losses as a result for which the
defendants should be held solidarily liable. 2
In their joint answer, the defendants denied the
plaintiff's allegation that they had deceived her
and explained that no display space was
registered in her name as she was only
supposed to share the space leased by
Hontiveros in its name. She was not allowed to
display her goods in that space because she
had not paid her balance of $1,750.00, in
violation of their contract. Bedia also made the
particular averment that she did not sign the
Participation Contract on her own behalf but as
an agent of Hontiveros and that she had later
returned the advance payment of $500.00 to
the plaintiff. The defendants filed their own
counterclaim and complained of malice on the
part of the plaintiffs. 3
In the course of the trial, the complaint against
Hontiveros was dismissed on motion of the
plaintiffs. 4

In his decision dated May 29, 1986, Judge
Fermin Martin, Jr. found Bedia liable for fraud
and awarded the plaintiffs actual and moral
damages plus attorney's fees and the costs.
The court said:
In claiming to be a mere agent of
Hontiveros & Associated Producers Phil.
Yields, Inc., defendant Sylvia H. Bedia
evidently attempted to escape liability
for herself. Unfortunately for her, the
"Participation Contract" is not actually in
representation or in the name of said
corporation. It is a covenant entered into
by her in her personal capacity, for no
one may contract in the name of another
without being authorized by the latter, or
unless she has by law a right to
represent her. (Art. 1347, new Civil
Code)
Sustaining the trail court on this point, the
respondent court 5 declared in its decision
dated March 30, 1990:
The evidence, on the whole, shows that
she definitely acted on her own. She
represented herself as authorized by the
State of Texas to solicit and assign
booths at the Texas fair; she assured the
appellee that she could give her booth.
Under Article 1883 of the New Civil
Code, if the agent acts in his own name,
the principal has no right of action
against the persons with whom the
agent had contracted.
We do not share these views.
It is noteworthy that in her letter to the Minister
of Trade dated December 23,1984, Emily
White began:
I am a local exporter who was recruited
by Hontiveros & Associated Producers
Phil. Yields, Inc. to participate in the
State Fair of Dallas, Texas which was
held last Oct. 3 to 19, 1980. Hontiveros
& Associated charged me US$150.00
per square meter for display booth of
said fair. I have paid an advance of
US$500.00 as partial payment for the
total space of 15 square meter of which
AGENCY ACJUCO 2nd MEETING 21
is $2,250.00 (Two Thousand Two
Hundred Fifty Dollars). 6
As the Participation Contract was signed by
Bedia, the above statement was an
acknowledgment by White that Bedia was only
acting for Hontiveros when it recruited her as a
participant in the Texas State Fair and charged
her a partial payment of $500.00. This amount
was to be fortified to Hontiveros in case of
cancellation by her of the agreement. The fact
that the contract was typewritten on the
letterhead stationery of Hontiveros bolsters this
conclusion in the absence of any showing that
said stationery had been illegally used by
Bedia.
Significantly, Hontiveros itself has not
repudiated Bedia's agency as it would have if
she had really not signed in its name. In the
answer it filed with Bedia, it did not deny the
latter's allegation in Paragraph 4 thereof that
she was only acting as its agent when she
solicited White's participation. In fact, by filing
the answer jointly with Bedia through their
common counsel, Hontiveros affirmed this
allegation.
If the plaintiffs had any doubt about the
capacity in which Bedia was acting, what they
should have done was verify the matter with
Hontiveros. They did not. Instead, they simply
accepted Bedia's representation that she was
an agent of Hontiveros and dealt with her as
such. Under Article 1910 of the Civil Code, "the
principal must comply with all the obligations
which the agent may have contracted within
the scope of his authority." Hence, the private
respondents cannot now hold Bedia liable for
the acts performed by her for, and imputable
to, Hontiveros as her principal.
The plaintiffs' position became all the more
untenable when they moved on June 5, 1984,
for the dismissal of the complaint against
Hontiveros, 7 leaving Bedia as the sole
defendant. Hontiveros had admitted as early as
when it filed its answer that Bedia was acting
as its agent. The effect of the motion was to
leave the plaintiffs without a cause of action
 AGENCY ACJUCO 2nd MEETING 22

against Bedia for the obligation, if any, of

Hontiveros.

Our conclusion is that since it has not been

found that Bedia was acting beyond the scope
of her authority when she entered into the
Participation Contract on behalf of Hontiveros,
it is the latter that should be held answerable
for any obligation arising from that agreement.
By moving to dismiss the complaint against
Hontiveros, the plaintiffs virtually disarmed
themselves and forfeited whatever claims they
might have proved against the latter under the
contract signed for it by Bedia. It should be
obvious that having waived these claims
against the principal, they cannot now assert
them against the agent.

WHEREFORE, the appealed decision dated

March 30, 1990, of the respondent court is
REVERSED and a new judgment is rendered
dismissing Civil Case No. 9246-P in the
Regional Trial Court of Pasay City.

SO ORDERED.

G.R. No. 95641 September 22, 1994
SANTOS B. AREOLA and LYDIA D.
AREOLA, petitioners-appellants,
vs.
COURT OF APPEALS and PRUDENTIAL
GUARANTEE AND ASSURANCE,
INC., respondents-appellees.
ROMERO, J.:
On June 29, 1985, seven months after the
issuance of petitioner Santos Areola's Personal
Accident Insurance Policy No. PA-20015,
respondent insurance company unilaterally
cancelled the same since company records
revealed that petitioner-insured failed to pay
his premiums.
On August 3, 1985, respondent insurance
company offered to reinstate same policy it had
previously cancelled and even proposed to
extend its lifetime to December 17, 1985, upon
a finding that the cancellation was erroneous
and that the premiums were paid in full by
petitioner-insured but were not remitted by
Teofilo M. Malapit, respondent insurance
company's branch manager.
These, in brief, are the material facts that gave
rise to the action for damages due to breach of
contract instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against
respondent insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject
insurance policy entitle petitioner-insured to
payment of damages?
(2) Did the subsequent act of reinstating the
wrongfully cancelled insurance policy by
respondent insurance company, in an effort to
rectify such error, obliterate whatever liability
for damages it may have to bear, thus
absolving it therefrom?
From the factual findings of the trial court, it
appears that petitioner-insured, Santos Areola,
a lawyer from Dagupan City, bought, through
the Baguio City branch of Prudential
Guarantee and Assurance, Inc. (hereinafter
referred to as Prudential), a personal accident
AGENCY ACJUCO 2nd MEETING 23
insurance policy covering the one-year period
between noon of November 28, 1984 and noon
of November 28, 1985. 1 Under the terms of
the statement of account issued by respondent
insurance company, petitioner-insured was
supposed to pay the total amount of P1,609.65
which included the premium of P1,470.00,
documentary stamp of P110.25 and 2%
premium tax of P29.40. 2 At the lower left-hand
corner of the statement of account, the
following is legibly printed:
This Statement of Account must
not be considered a receipt.
Official Receipt will be issued to
you upon payment of this
account.
If payment is made to our
representative, demand for a
Provisional Receipt and if our
Official Receipts is (sic) not
received by you within 7 days
please notify us.
If payment is made to our office,
demand for an OFFICIAL
RECEIPT.
On December 17, 1984, respondent insurance
company issued collector's provisional receipt
No. 9300 to petitioner-insured for the amount
of P1,609.65 3 On the lower portion of the
receipt the following is written in capital letters:
Note: This collector's provisional
receipt will be confirmed by our
official receipt. If our official
receipt is not received by you
within 7 days, please notify us. 4
On June 29, 1985, respondent insurance
company, through its Baguio City manager,
Teofilo M. Malapit, sent petitioner-insured
Endorsement
No. BG-002/85 which "cancelled flat" Policy
No. PA BG-20015 "for non-payment of
premium effective as of inception dated." 5 The
same endorsement also credited "a return
premium of P1,609.65 plus documentary
stamps and premium tax" to the account of the
insured.

Shocked by the cancellation of the policy,
petitioner-insured confronted Carlito Ang, agent
of respondent insurance company, and
demanded the issuance of an official receipt.
Ang told petitioner-insured that the cancellation
of the policy was a mistake but he would
personally see to its rectification. However,
petitioner-insured failed to receive any official
receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured
sent respondent insurance company a letter
demanding that he be insured under the same
terms and conditions as those contained in
Policy No. PA-BG-20015 commencing upon its
receipt of his letter, or that the current
commercial rate of increase on the payment he
had made under provisional receipt No. 9300
be returned within five days. 6 Areola also
warned that should his demands be
unsatisfied, he would sue for damages.
On July 17, 1985, he received a letter from
production manager Malapit informing him that
the "partial payment" of P1,000.00 he had
made on the policy had been "exhausted
pursuant to the provisions of the Short Period
Rate Scale" printed at the back of the policy.
Malapit warned Areola that should be fail to
pay the balance, the company's liability would
cease to operate. 7
In reply to the petitioner-insured's letter of July
15, 1985, respondent insurance company,
through its Assistant Vice-President Mariano M.
Ampil III, wrote Areola a letter dated July 25,
1985 stating that the company was verifying
whether the payment had in fact been issued
therefor. Ampil emphasized that the official
receipt should have been issued seven days
from the issuance of the provisional receipt but
because no official receipt had been issued in
Areola's name, there was reason to believe
that no payment had been made. Apologizing
for the inconvenience, Ampil expressed the
company's concern by agreeing "to hold you
cover (sic) under the terms of the referenced
policy until such time that this matter is
cleared." 8
On August 3, 1985, Ampil wrote Areola another
letter confirming that the amount of P1,609.65
covered by provisional receipt No. 9300 was in
fact received by Prudential on December 17,
1984. Hence, Ampil informed
AGENCY ACJUCO 2nd MEETING 24
Areola that Prudential was "amenable to
extending PGA-PA-BG-20015 up to December
17, 1985 or one year from the date when
payment was received." Apologizing again for
the inconvenience caused Areola, Ampil
exhorted him to indicate his conformity to the
proposal by signing on the space provided for
in the letter. 9
The letter was personally delivered by Carlito
Ang to Areola on
August 13, 1985 10 but unfortunately, Areola
and his wife, Lydia, as early as August 6, 1985
had filed a complaint for breach of contract with
damages before the lower court.
In its Answer, respondent insurance company
admitted that the cancellation of petitioner-
insured's policy was due to the failure of
Malapit to turn over the premiums collected, for
which reason no official receipt was issued to
him. However, it argued that, by acknowledging
the inconvenience caused on petitioner-insured
and after taking steps to rectify its omission by
reinstating the cancelled policy prior to the
filing of the complaint, respondent insurance
company had complied with its obligation
under the contract. Hence, it concluded that
petitioner-insured no longer has a cause of
action against it. It insists that it cannot be held
liable for damages arising from breach of
contract, having demonstrated fully well its
fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a
judgment in favor of petitioner-insured,
ordering respondent insurance company to pay
the former the following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral
damages; and
c) P50,000.00 as exemplary
damages;
2. To pay to the plaintiff, as and
for attorney's fees the amount of
P10,000.00; and
3. To pay the costs.
In its decision, the court below declared that
respondent insurance company acted in bad

faith in unilaterally cancelling subject insurance
policy, having done so only after seven months
from the time that it had taken force and effect
and despite the fact of full payment of
premiums and other charges on the issued
insurance policy. Cancellation from the date of
the policy's inception, explained the lower
court, meant that the protection sought by
petitioner-insured from the risks insured
against was never extended by respondent
insurance company. Had the insured met an
accident at the time, the insurance company
would certainly have disclaimed any liability
because technically, the petitioner could not
have been considered insured. Consequently,
the trial court held that there was breach of
contract on the part of respondent insurance
company, entitling petitioner-insured to an
award of the damages prayed for.
This ruling was challenged on appeal by
respondent insurance company, denying bad
faith on its part in unilaterally cancelling subject
insurance policy.
After consideration of the appeal, the appellate
court issued a reversal of the decision of the
trial court, convinced that the latter had erred in
finding respondent insurance company in bad
faith for the cancellation of petitioner-insured's
policy. According to the Court of Appeals,
respondent insurance company was not
motivated by negligence, malice or bad faith in
cancelling subject policy. Rather, the
cancellation of the insurance policy was based
on what the existing records showed, i.e.,
absence of an official receipt issued to
petitioner-insured confirming payment of
premiums. Bad faith, said the Court of Appeals,
is some motive of self-interest or ill-will; a
furtive design of ulterior purpose, proof of
which must be established convincingly. On the
contrary, it further observed, the following acts
indicate that respondent insurance company
did not act precipitately or willfully to inflict a
wrong on petitioner-insured:
(a) the investigation conducted by Alfredo
Bustamante to verify if petitioner-insured had
indeed paid the premium; (b) the letter of
August 3, 1985 confirming that the premium
had been paid on December 17, 1984; (c) the
reinstatement of the policy with a proposal to
extend its effective period to December 17,
1985; and (d) respondent insurance company's
apologies for the "inconvenience" caused upon
AGENCY ACJUCO 2nd MEETING 25
petitioner-insured. The appellate court added
that respondent insurance company even
relieved Malapit, its Baguio City manager, of
his job by forcing him to resign.
Petitioner-insured moved for the
reconsideration of the said decision which the
Court of Appeals denied. Hence, this petition
for review on certiorari anchored on these
arguments:
I
Respondent Court of Appeals is
guilty of grave abuse of discretion
and committed a serious and
reversible error in not holding
Respondent Prudential liable for
the cancellation of the insurance
contract which was admittedly
caused by the fraudulent acts
and bad faith of its own officers.
II
Respondent Court of Appeals
committed serious and reversible
error and abused its discretion in
ruling that the defenses of good
faith and honest mistake can co-
exist with the admitted fraudulent
acts and evident bad faith.
III
Respondent Court of Appeals
committed a reversible error in
not finding that even without
considering the fraudulent acts of
its own officer in misappropriating
the premium payment, the act
itself in cancelling the insurance
policy was done with bad faith
and/or gross negligence and
wanton attitude amounting to bad
faith, because among others, it
was
Mr. Malapit — the person who
committed the fraud — who sent
and signed the notice of
cancellation.
IV

Respondent Court of Appeals has
decided a question of substance
contrary to law and applicable
decision of the Supreme Court
when it refused to award
damages in favor of herein
Petitioner-Appellants.
It is petitioner-insured's submission that the
fraudulent act of Malapit, manager of
respondent insurance company's branch office
in Baguio, in misappropriating his premium
payments is the proximate cause of the
cancellation of the insurance policy. Petitioner-
insured theorized that Malapit's act of signing
and even sending the notice of cancellation
himself, notwithstanding his personal
knowledge of petitioner-insured's full payment
of premiums, further reinforces the allegation of
bad faith. Such fraudulent act committed by
Malapit, argued petitioner-insured, is
attributable to respondent insurance company,
an artificial corporate being which can act only
through its officers or employees. Malapit's
actuation, concludes petitioner-insured, is
therefore not separate and distinct from that of
respondent-insurance company, contrary to the
view held by the Court of Appeals. It must,
therefore, bear the consequences of the
erroneous cancellation of subject insurance
policy caused by the non-remittance by its own
employee of the premiums paid. Subsequent
reinstatement, according to petitioner-insured,
could not possibly absolve respondent
insurance company from liability, there being
an obvious breach of contract. After all,
reasoned out petitioner-insured, damage had
already been inflicted on him and no amount of
rectification could remedy the same.
Respondent insurance company, on the other
hand, argues that where reinstatement, the
equitable relief sought by petitioner-insured
was granted at an opportune moment, i.e. prior
to the filing of the complaint, petitioner-insured
is left without a cause of action on which to
predicate his claim for damages.
Reinstatement, it further explained, effectively
restored petitioner-insured to all his rights
under the policy. Hence, whatever cause of
action there might have been against it, no
longer exists and the consequent award of
damages ordered by the lower court in
unsustainable.
AGENCY ACJUCO 2nd MEETING 26
We uphold petitioner-insured's submission.
Malapit's fraudulent act of misappropriating the
premiums paid by petitioner-insured is beyond
doubt directly imputable to respondent
insurance company. A corporation, such as
respondent insurance company, acts solely
thru its employees. The latters' acts are
considered as its own for which it can be held
to account. 11 The facts are clear as to the
relationship between private respondent
insurance company and Malapit. As admitted
by private respondent insurance company in its
answer, 12 Malapit was the manager of its
Baguio branch. It is beyond doubt that he
represented its interest and acted in its behalf.
His act of receiving the premiums collected is
well within the province of his authority. Thus,
his receipt of said premiums is receipt by
private respondent insurance company who, by
provision of law, particularly under Article 1910
of the Civil Code, is bound by the acts of its
agent.
Article 1910 thus reads:
Art. 1910. The principal must
comply with all the obligations
which the agent may have
contracted within the scope of his
authority.
As for any obligation wherein the
agent has exceeded his power,
the principal is not bound except
when he ratifies it expressly or
tacitly.
Malapit's failure to remit the premiums he
received cannot constitute a defense for
private respondent insurance company; no
exoneration from liability could result
therefrom. The fact that private respondent
insurance company was itself defrauded due to
the anomalies that took place in its Baguio
branch office, such as the non-accrual of said
premiums to its account, does not free the
same from its obligation to petitioner Areola. As
held in Prudential Bank v. Court of
Appeals 13 citing the ruling in McIntosh v.
Dakota Trust Co.: 14
A bank is liable for wrongful acts
of its officers done in the interests
of the bank or in the course of
dealings of the officers in their

representative capacity but not
for acts outside the scope of their
authority. A bank holding out its
officers and agent as worthy of
confidence will not be permitted
to profit by the frauds they may
thus be enabled to perpetrate in
the apparent scope of their
employment; nor will it be
permitted to shirk its
responsibility for such frauds,
even though no benefit may
accrue to the bank therefrom.
Accordingly, a banking
corporation is liable to innocent
third persons where the
representation is made in the
course of its business by an
agent acting within the general
scope of his authority even
though, in the particular case, the
agent is secretly abusing his
authority and attempting to
perpetrate a fraud upon his
principal or some other person,
for his own ultimate benefit.
Consequently, respondent insurance company
is liable by way of damages for the fraudulent
acts committed by Malapit that gave occasion
to the erroneous cancellation of subject
insurance policy. Its earlier act of reinstating
the insurance policy can not obliterate the
injury inflicted on petitioner-insured.
Respondent company should be reminded that
a contract of insurance creates reciprocal
obligations for both insurer and insured.
Reciprocal obligations are those which arise
from the same cause and in which each party
is both a debtor and a creditor of the other,
such that the obligation of one is dependent
upon the obligation of the other. 15
Under the circumstances of instant case, the
relationship as creditor and debtor between the
parties arose from a common cause: i.e., by
reason of their agreement to enter into a
contract of insurance under whose terms,
respondent insurance company promised to
extend protection to petitioner-insured against
the risk insured for a consideration in the form
of premiums to be paid by the latter. Under the
law governing reciprocal obligations,
particularly the second paragraph of Article
1191, 16 the injured party, petitioner-insured in
AGENCY ACJUCO 2nd MEETING 27
this case, is given a choice between fulfillment
or rescission of the obligation in case one of
the obligors, such as respondent insurance
company, fails to comply with what is
incumbent upon him. However, said article
entitles the injured party to payment of
damages, regardless of whether he demands
fulfillment or rescission of the obligation.
Untenable then is reinstatement insurance
company's argument, namely, that
reinstatement being equivalent to fulfillment of
its obligation, divests petitioner-insured of a
rightful claim for payment of damages. Such a
claim finds no support in our laws on
obligations and contracts.
The nature of damages to be awarded,
however, would be in the form of nominal
damages 17 contrary to that granted by the
court below. Although the erroneous
cancellation of the insurance policy constituted
a breach of contract, private respondent
insurance company, within a reasonable time
took steps to rectify the wrong committed by
reinstating the insurance policy of petitioner.
Moreover, no actual or substantial damage or
injury was inflicted on petitioner Areola at the
time the insurance policy was cancelled.
Nominal damages are "recoverable where a
legal right is technically violated and must be
vindicated against an invasion that has
produced no actual present loss of any kind, or
where there has been a breach of contract and
no substantial injury or actual damages
whatsoever have been or can be shown. 18
WHEREFORE, the petition for review
on certiorari is hereby GRANTED and the
decision of the Court of Appeals in CA-G.R.
No. 16902 on May 31, 1990, REVERSED. The
decision of Branch 40, RTC Dagupan City, in
Civil Case No. D-7972 rendered on June 30,
1987 is hereby REINSTATED subject to the
following modifications: (a) that nominal
damages amounting to P30,000.00 be
awarded petitioner in lieu of the damages
adjudicated by court a quo; and (b) that in the
satisfaction of the damages awarded therein,
respondent insurance company is ORDERED
to pay the legal rate of interest computed from
date of filing of complaint until final payment
thereof.
SO ORDERED.
AGENCY ACJUCO 2nd MEETING 28

G.R. No. 156335 November 28, 2007
SPOUSES RAUL and AMALIA
PANLILIO, Petitioners,
vs.
CITIBANK, N.A., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review
on Certiorari under Rule 45 of the Rules of
Court, seeking to reverse the Decision 1 of the
Court of Appeals (CA) dated May 28, 2002 in
CA-G.R. CV No. 66649 and its Resolution of
December 11, 2002, which reversed and set
aside the Decision of the Regional Trial Court
(RTC) of Makati City.
The case originated as a Complaint 2 for a sum
of money and damages, filed with the RTC of
Makati City on March 2, 1999, by the spouses
Raul and Amalia Panlilio (petitioners) against
Citibank N.A. (respondent).
The factual antecedents are as follows:
On October 10, 1997, petitioner Amalia Panlilio
(Amalia) visited respondent's Makati City office
and deposited one million pesos (PhP1 million)
in the bank's "Citihi" account, a fixed-term
savings account with a higher-than-average
interest.3 On the same day, Amalia also opened
a current or checking account with respondent,
to which interest earnings of the Citihi account
were to be credited.4 Respondent assigned
one of its employees, Jinky Suzara Lee (Lee),
to personally transact with Amalia and to
handle the accounts.5
Amalia opened the accounts as ITF or "in trust
for" accounts, as they were intended to benefit
her minor children, Alejandro King Aguilar and
Fe Emanuelle C. Panlilio, in case she would
meet an untimely death.6 To open these
accounts, Amalia signed two documents: a
Relationship Opening Form (ROF)7 and an
Investor Profiling and Suitability Questionnaire
(Questionnaire).8
Amalia's initial intention was to invest the
money in a Citibank product called the Peso
Repriceable Promissory Note (PRPN), a
AGENCY ACJUCO 2nd MEETING 29
product which had a higher interest. However,
as the PRPN was not available that day,
Amalia put her money in the Citihi savings
account.9
More than a month later, or on November 28,
1997, Amalia phoned Citibank saying she
wanted to place an investment, this time in the
amount of three million pesos (PhP3 million).
Again, she spoke with Lee, the bank employee,
who introduced her to Citibank's various
investment offerings. After the phone
conversation, apparently decided on where to
invest the money, Amalia went to Citibank
bringing a PCIBank check in the amount of
three million pesos (PhP3 million). During the
visit, Amalia instructed Lee on what to do with
the PhP3 million. Later, she learned that out of
the said amount, PhP2,134,635.87 was placed
by Citibank in a Long-Term Commercial Paper
(LTCP), a debt instrument that paid a high
interest, issued by the corporation Camella and
Palmera Homes (C&P Homes).10 The rest of
the money was placed in two PRPN accounts,
in trust for each of Amalia's two children.11
Allegations differ between petitioners and
respondent as to whether Amalia instructed
Lee to place the money in the LTCP of C&P
Homes.12
An LTCP is an evidence of indebtedness, with
a maturity period of more than 365 days,
issued by a corporation to any person or
entity.13 It is in effect a loan obtained by a
corporation (as borrower) from the investing
public (as lender)14 and is one of many
instruments that investment banks can legally
buy on behalf of their clients, upon the latter's
express instructions, for investment
15
purposes. LTCPs' attraction is that they
usually have higher yields than most
investment instruments. In the case of the
LTCP issued by C&P Homes, the gross interest
rate was 16.25% per annum at the time Amalia
made her investment.16
On November 28, 1997, the day she made the
PhP3million investment, Amalia signed the
following documents: a Directional Investment
Management Agreement (DIMA),17 Term
Investment Application (TIA),18 and Directional
Letter/Specific Instructions.19 Key features of
the DIMA and the Directional Letter are

provisions that essentially clear Citibank of any
obligation to guarantee the principal and
interest of the investment, absent fraud or
negligence on the latter's part. The provisions
likewise state that all risks are to be assumed
by the investor (petitioner).
As to the amount invested, only
PhP2,134,635.87 out of the PhP3 million
brought by Amalia was placed in the LTCP
since, according to Lee, this was the only
amount of LTCP then available.20 According to
Lee, the balance of the PhP3 million was
placed in two PRPN accounts, each one in
trust for Amalia's two children, per her
instructions.21
Following this investment, respondent claims to
have regularly sent confirmations of investment
(COIs) to petitioners.22 A COI is a one-page,
computer generated document informing the
customer of the investment earlier made with
the bank. The first of these COIs was received
by petitioners on or about December 9, 1997,
as admitted by Amalia, which is around a week
after the investment was made.23 Respondent
claims that other succeeding COIs were sent to
and received by petitioners.
Amalia claims to have called Lee as soon as
she received the first COI in December 1997,
and demanded that the investment in LTCP be
withdrawn and placed in a days." Further, petitioners alleged that it was
PRPN.24 Respondent, however, denies this,
claiming that Amalia merely called to clarify
provisions in the COI and did not demand a
withdrawal.25
On August 6, 1998, petitioners met with
respondent's other employee, Lizza Colet, to
preterminate the LTCP and their other
investments. Petitioners were told that as to
the LTCP, liquidation could be made only if
there is a willing buyer, a prospect which could
be difficult at that time because of the
economic crisis. Still, petitioners signed three
sets of Sales Order Slip to sell the LTCP and
left these with Colet.26
On August 18, 1998, Amalia, through counsel,
sent her first formal, written demand to
respondent "for a withdrawal of her investment
as soon as possible."27 The same was followed
by another letter dated September 7, 1998,
which reiterated the same demands.28 In
AGENCY ACJUCO 2nd MEETING 30
answer to the letters, respondent noted that the
investment had a 2003 maturity, was not a
deposit, and thus, its return to the investor was
not guaranteed by respondent; however, it
added that the LTCP may be sold prior to
maturity and had in fact been put up for sale,
but such sale was "subject to the availability of
buyers in the secondary market."29 At that time,
respondent was not able to find a buyer for the
LTCP. As this response did not satisfy
petitioners, Amalia again wrote respondent,
this time a final demand letter dated
September 21, 1998, asking for a
reconsideration and a return of the money she
invested.30 In reply, respondent wrote a letter
dated October 12, 1998 stating that despite
efforts to sell the LTCP, no willing buyers were
found and that even if a buyer would come
later, the price would be lower than Amalia's
original investment.31
Thus, petitioners filed with the RTC their
complaint against respondent for a sum of
money and damages.
The Complaint32 essentially demanded a return
of the investment, alleging that Amalia never
instructed respondent's employee Lee to invest
the money in an LTCP; and that far from what
Lee executed, Amalia's instructions were to
invest the money in a "trust account" with an
"interest of around 16.25% with a term of 91
only later, or on December 8, 1997, when
Amalia received the first confirmation of
investment (COI) from respondent, that she
and her husband learned of Lee's infidelity to
her orders. The COI allegedly informed
petitioners that the money was placed in an
LTCP of C&P Homes with a maturity in 2003,
and that the investment was not guaranteed by
respondent. Petitioners also claimed that as
soon as Amalia received the COI, she
immediately called Lee; however, the latter
allegedly convinced her to ignore the COI, that
C&P Homes was an Ayala company, that the
investment was secure, and that it could be
easily "withdrawn"; hence, Amalia decided not
to immediately "withdraw" the investment.
Several months later, or on August 6, 1998,
petitioners allegedly wanted to "withdraw" the
investment to buy a property; however, they
failed to do so, since respondent told them the
LTCP had not yet matured, and that no buyers
were willing to buy it. Hence, they sent various

demand letters to respondent, asking for a
return of their money; and when these went
unheeded, they filed the complaint.
In its Answer,33 respondent admitted that,
indeed, Amalia was its client and that she
invested the amounts stated in the complaint.
However, respondent disputed the claim that
Amalia opened a "trust account" with a
"request for an interest rate of around 16.25%
with a term of 91 days;" instead, respondent
presented documents stating that Amalia
opened a "directional investment management
account," with investments to be made in C&P
Homes' LTCP with a 2003 maturity.
Respondent disputed allegations that it violated
petitioners' express instructions. Respondent
likewise denied that Amalia, upon her receipt of
the COI, immediately called respondent and
protested the investment in LTCP, its 2003
maturity and Citibank's lack of guarantee.
According to respondent, no such protest was
made and petitioners actually decided to
liquidate their investment only months later,
after the newspapers reported that Ayala Land,
Inc. was cancelling plans to invest in C&P
Homes.
The rest of respondent's Answer denied (1)
that it convinced Amalia not to liquidate or
"withdraw" her investment or to ignore the
contents of the COI; (2) that it assured Amalia
that the investment could be easily or quickly
"withdrawn" or sold; (3) that it misrepresented
that C&P was an Ayala company, implying that
C&P had secure finances; and (4) that
respondent had been unfaithful to and in
breach of its contractual obligations.
After trial, the RTC rendered its
Decision,34 dated February 16, 2000, the
dispositive portion of which states:
The foregoing considered, the court hereby
rules in favor of plaintiffs and order defendant
to pay:
1. The sum of PhP2,134,635.87
representing the actual amount
deposited by plaintiffs with defendant
plus interest corresponding to time
deposit during the time material to this
action from date of filing of this case
until fully paid;
AGENCY ACJUCO 2nd MEETING 31
2. The sum of PhP300,000.00
representing moral damages;
3. The sum of PhP100,000.00
representing attorney's fees;
4. Costs.
SO ORDERED.35
The RTC upheld all the allegations of
petitioners and concluded that Amalia never
instructed Citibank to invest the money in an
LTCP. Thus, the RTC found Citibank in
violation of its contractual and fiduciary duties
and held it liable to return the money invested
by petitioners plus damages.
Respondent appealed to the CA.
On appeal, in its Decision promulgated on May
28, 2002, the CA reversed the Decision of the
RTC, thus:
WHEREFORE, premises considered, the
assailed decision dated 16 February 2000 is
REVERSED and SET ASIDE and a new one
entered DISMISSING Civil Case No. 99-500.36
The CA held that with respect to the amount of
PhP2,134,635.87, the account opened by
Amalia was an investment management
account; as a result, the money invested was
the sole and exclusive obligation of C&P
Homes, the issuer of the LTCP, and was not
guaranteed or insured by herein respondent
Citibank;37 that Amalia opened such an account
as evidenced by the documents she executed
with Citibank, namely, the Directional
Investment Management Agreement (DIMA),
Term Investment Application (TIA), and
Directional Letter/Specific Instructions, which
were all dated November 28, 1997, the day
Amalia brought the money to Citibank. Further,
the CA brushed aside petitioners' arguments
that Amalia failed to understand the true nature
of the LTCP investment, and that she failed to
read the documents as they were written in fine
print. The CA ruled that petitioners could not
seek the court's aid to extricate them from their
contractual obligations. Citing jurisprudence,
the CA held that the courts protected only
those who were innocent victims of fraud, and
not those who simply made bad bargains or
exercised unwise judgment.

On petitioners' motion for reconsideration, the
CA reiterated its ruling and denied the motion
in a Resolution38 dated December 11, 2002.
Thus, the instant petition which raises issues,
summarized as follows: (1) whether petitioners
are bound by the terms and conditions of the
Directional Investment Management
Agreement (DIMA), Term Investment
Application (TIA), Directional Letter/Specific
Instructions, and Confirmations of Investment
(COIs); (2) and whether petitioners are entitled
to take back the money they invested from
respondent bank; or stated differently, whether
respondent is obliged to return the money to
petitioners upon their demand prior to maturity.
Petitioners contend that they are not bound by
the terms and conditions of the DIMA,
Directional Letter and COIs because these
were inconsistent with the TIA and other
documents they signed.39 Further, they claim
that the DIMA and the Directional letter were
signed in blank or contained unauthorized
intercalations by Citibank.40 Petitioners argue
that contrary to the contents of the documents,
they did not instruct Citibank to invest in an
LTCP or to put their money in such high-risk,
long-term instruments.41
The Court notes the factual nature of the
questions raised in the petition. Although the
general rule is that only questions of law are
entertained by the Court in petitions for review
on certiorari,42 as the Court is not tasked to
repeat the lower courts' analysis or weighing of
evidence,43 there are instances when the Court
may resolve factual issues, such as (1) when
the trial court misconstrued facts and
circumstances of substance which if
considered would alter the outcome of the
case;44 and (2) when the findings of facts of the
CA and the trial court differ.45
In the instant case, the CA completely reversed
the findings of facts of the trial court on the
ground that the RTC failed to appreciate
certain facts and circumstances. Thus,
applying the standing jurisprudence on the
matter,46 the Court proceeded to examine the
evidence on record.
The Court's Ruling
AGENCY ACJUCO 2nd MEETING 32
The Court finds no merit in the petition. After a
careful examination of the records, the Court
affirms the CA's ruling for being more in accord
with the facts and evidence on record.
On the first issue of whether petitioners are
bound by the terms and conditions of the
DIMA, TIA, Directional Letter and COIs, the
Court holds in the affirmative and finds for
respondent.
The DIMA, Directional Letter and COIs are
evidence of the contract between the parties
and are binding on them, following Article 1159
of the Civil Code which states that contracts
have the force of law between the parties and
must be complied with in good faith. 47 In
particular, petitioner Amalia affixed her
signatures on the DIMA, Directional Letter and
TIA, a clear evidence of her consent which,
under Article 1330 of the same Code, she
cannot deny absent any evidence of mistake,
violence, intimidation, undue influence or
fraud.48
As the documents have the effect of law, an
examination is in order to reveal what underlies
petitioners' zeal to exclude these from
consideration.
Under the DIMA, the following provisions
appear:
4. Nature of Agreement – THIS AGREEMENT
IS AN AGENCY AND NOT A TRUST
AGREEMENT. AS SUCH, THE PRINCIPAL
SHALL AT ALL TIMES RETAIN LEGAL TITLE
TO THE FUNDS AND PROPERTIES
SUBJECT OF THE ARRANGEMENT.
THIS AGREEMENT IS FOR FINANCIAL
RETURN AND FOR THE APPRECIATION OF
ASSETS OF THE ACCOUNT. THIS
AGREEMENT DOES NOT GUARANTEE A
YIELD, RETURN OR INCOME BY THE
INVESTMENT MANAGER. AS SUCH, PAST
PERFORMANCE OF THE ACCOUNT IS NOT
A GUARANTY OF FUTURE PERFORMANCE
AND THE INCOME OF INVESTMENTS CAN
FALL AS WELL AS RISE DEPENDING ON
PREVAILING MARKET CONDITIONS.
IT IS UNDERSTOOD THAT THIS
INVESTMENT MANAGEMENT AGREEMENT
IS NOT COVERED BY THE PHILIPPINE

DEPOSIT INSURANCE CORPORATION
(PDIC) AND THAT LOSSES, IF ANY, SHALL
BE FOR THE ACCOUNT OF THE PRINCIPAL.
(Underscoring supplied.)
xxxx
6. Exemption from Liability. - In the absence
of fraud, bad faith, or gross or willful negligence
on the part of the INVESTMENT MANAGER or
any person acting in its behalf, the
INVESTMENT MANAGER shall not be liable
for any loss or damage to the Portfolio arising
out of or in connection with any act done or
omitted or caused to be done or omitted by the
INVESTMENT MANAGER pursuant to the
terms and conditions herein agreed upon, and
pursuant to and in accordance with the written
instructions of the PRINCIPAL to carry out the
powers, duties and purposes for which this
Agreement is executed. The PRINCIPAL will
hold the INVESTMENT MANAGER free and
harmless from any liability, claim, damage or
fiduciary responsibility that may arise from any
investment made pursuant to this Agreement
and to such letters or instructions under
Paragraph 3 hereof due to the default,
bankruptcy or insolvency of the
Borrower/Issuer or the Broker/Dealer handling
the transaction and or their failure in any
manner to comply with any of their obligations
under the aforesaid transactions, it being the
PRINCIPAL'S understanding and intention that
the investments/reinvestments under this
account shall be strictly for his/its account and
risk except as indicated above.
The INVESTMENT MANAGER shall manage
the Portfolio with the skill, care, prudence, and
diligence necessary under the prevailing
circumstances that a good father of the family,
acting in a like capacity and familiar with such
matters, would exercise in the conduct of an
enterprise of like character and with similar
aims. (Underscoring supplied.)
xxxx
11. Withdrawal of Income/Principal – Subject
to availability of funds and taking into
consideration the commitment of this account
to third parties, the PRINCIPAL may withdraw
the income/principal of the Portfolio or portion
thereof upon request or application thereof
from the Bank. The INVESTMENT MANAGER
AGENCY ACJUCO 2nd MEETING 33
shall not be required to inquire as to the
income/principal so withdrawn from the
Portfolio. Any income of the Portfolio not
withdrawn shall be accumulated and added to
the principal of the Portfolio for further
investment and reinvestment.49 (Underscoring
supplied.)
Under the Directional Letter, which constituted
petitioners' instructions to respondent, the
following provisions are found:
In the absence of fraud, bad faith or gross or
willful negligence on your part or any person
acting in your behalf, you shall not be held
liable for any loss or damage arising out of or
in connection with any act done or performed
or caused to be done or performed by you
pursuant to the terms and conditions of our
Agreement. I/We shall hold you free and
harmless from any liability, claim, damage, or
fiduciary responsibility that may arise from this
investment made pursuant to the foregoing due
to the default, bankruptcy or insolvency of the
Borrower/Issuer, or the Broker/Dealer handling
the aforesaid transactions/s, it being our
intention and understanding that the
investment/reinvestment under these
transaction/s shall be strictly for my/our
account and risk.
In case of default of the Borrower/Issuers, we
hereby authorize you at your sole option, to
terminate the investment/s therein and deliver
to us the securities/loan documents then
constituting the assets of my/our DIMA/trust
account with you for me/us to undertake the
necessary legal action to collect and/or recover
from the borrower/issuers.50 (Underscoring
supplied.)
The documents, characterized by the quoted
provisions, generally extricate respondent from
liability in case the investment is lost.
Accordingly, petitioners assumed all risks and
the task of collecting from the borrower/issuer
C&P Homes.
In addition to the DIMA and Directional Letter,
respondent also sent petitioners the COIs on a
regular basis, the first of which was received by
petitioners on December 9, 1997. The COIs
have the following provisions in common:
xxxx

NATURE OF INVESTMENT
TRANSACTION IN LTCP
NAME OF
C&P HOMES
BORROWER/ISSUER
xxxx
TENOR 91 DAYS
xxxx
MATURITY DATE 11/05/03
xxxx
REPRICEABLE
OTHERS EVERY 91
DAYS
PURSUANT TO THE BANGKO SENTRAL
REGULATIONS, THE PRINCIPAL AND
INTEREST OF YOUR INVESTMENT ARE
OBLIGATIONS OF THE BORROWER AND
NOT OF THE BANK. YOUR INVESTMENT IS
NOT A DEPOSIT AND IS NOT GUARANTEED
BY CITIBANK N.A.
xxxx
Please examine this Confirmation and notify us
in writing within seven (7) days from receipt
hereof of any deviation from your prior
conformity to the investment. If no notice is
received by us within this period, this
Confirmation shall be deemed correct and
approved by you, and we shall be released and
discharged as to all items, particulars, matters
and things set forth in this Confirmation.51
Petitioners admit receiving only the first COI on
December 8, 1997.52 The evidence on record,
however, supports respondent's contentions
that petitioners received the three other COIs
on February 12, 1998,53 May 14, 1998,54and
August 14, 1998,55 before petitioners' first
demand letter dated August 18, 1998.56
The DIMA, Directional Letter, TIA and COIs,
read together, establish the agreement
between the parties as an investment
management agreement, which created a
principal-agent relationship between petitioners
as principals and respondent as agent for
investment purposes. The agreement is not a
trust or an ordinary bank deposit; hence, no
trustor-trustee-beneficiary or even borrower-
lender relationship existed between petitioners
and respondent with respect to the DIMA
account. Respondent purchased the LTCPs
only as agent of petitioners; thus, the latter
AGENCY ACJUCO 2nd MEETING 34
assumed all obligations or inherent risks
entailed by the transaction under Article 1910
of the Civil Code, which provides:
Article 1910. The principal must comply with all
the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
The transaction is perfectly legal, as
investment management activities may be
exercised by a banking institution, pursuant to
Republic Act No. 337 or the General Banking
Act of 1948, as amended, which was the law
then in effect.1avvphi1 Section 72 of said Act
provides:
Sec. 72. In addition to the operations
specifically authorized elsewhere in this Act,
banking institutions other than building and
loan associations may perform the following
services:
(a) Receive in custody funds,
documents, and valuable objects, and
rent safety deposit boxes for the
safeguarding of such effects;
(b) Act as financial agent and buy and
sell, by order of and for the account
of their customers, shares, evidences
of indebtedness and all types of
securities;
(c) Make collections and payments for
the account of others and perform such
other services for their customers as are
not incompatible with banking business.
(d) Upon prior approval of the Monetary
Board, act as managing agent, adviser,
consultant or administrator of
investment management/
advisory/consultancy accounts.
The banks shall perform the services
permitted under subsections (a), (b) and (c)
of this section as depositories or as agents.
Accordingly, they shall keep the funds,
securities and other effects which they thus
receive duly separated and apart from the
bank's own assets and liabilities.

The Monetary Board may regulate the
operations authorized by this section in order
to insure that said operations do not endanger
the interests of the depositors and other
creditors of the banks. (Emphasis supplied.)
while Section 74 prohibits banks from
guaranteeing obligations of any person, thus:
Sec. 74. No bank or banking institution shall
enter, directly, or indirectly into any
contract of guaranty or suretyship, or shall
guarantee the interest or principal of any
obligation of any person, copartnership,
association, corporation or other entity. The
provisions of this section shall, however, not
apply to the following: (a) borrowing of money
by banking institution through the rediscounting
of receivables; (b) acceptance of drafts or bills
of exchange (c) certification of checks; (d)
transactions involving the release of
documents attached to items received for
collection; (e) letters of credit transaction,
including stand-by arrangements; (f)
repurchase agreements; (g) shipside bonds;
(h) ordinary guarantees or indorsements in
favor of foreign creditors where the principal
obligation involves loans and credits extended
directly by foreign investment purposes; and (i)
other transactions which the Monetary Board
may, by regulation, define or specify as not
covered by the prohibition. (Emphasis
supplied.)
Nothing also taints the legality of the LTCP
bought in behalf of petitioners. C&P Homes'
LTCP was duly registered with the Securities
and Exchange Commission while the issuer
was accredited by the Philippine Trust
Committee.57
The evidence also sustains respondent's claim
that its trust department handled the account
only because it was the department tasked to
oversee the trust, and other fiduciary and
investment management services of the
bank.58Contrary to petitioners' claim, this did
not mean that petitioners opened a "trust
account." This is consistent with Bangko
Sentral ng Pilipinas (BSP) regulations,
specifically the Manual of Regulations for
Banks (MORB), which groups a bank's trust,
and other fiduciary and investment
management activities under the same set of
regulations, to wit:
AGENCY ACJUCO 2nd MEETING 35
PART FOUR: TRUST, OTHER FIDUCIARY
BUSINESS AND INVESTMENT
MANAGEMENT ACTIVITIES
xxxx
Sec. X402 Scope of Regulations. These
regulations shall govern the grant of authority
to and the management, administration and
conduct of trust, other fiduciary business and
investment management activities (as these
terms are defined in Sec. X403) of banks. The
regulations are divided into three (3)
Sub-Parts where:
A. Trust and Other Fiduciary Business
shall apply to banks authorized to
engage in trust and other fiduciary
business including investment
management activities;
B. Investment Management Activities
shall apply to banks without trust
authority but with authority to engage
in investment management activities;
and
C. General Provisions shall apply to
both.
xxxx
Sec. X403 Definitions. For purposes of
regulating the operations of trust and other
fiduciary business and investment
management activities, unless the context
clearly connotes otherwise, the following shall
have the meaning indicated.
a. Trust business shall refer to any
activity resulting from a trustor-trustee
relationship (trusteeship) involving the
appointment of a trustee by a trustor for
the administration, holding,
management of funds and/or properties
of the trustor by the trustee for the use,
benefit or advantage of the trustor or of
others called beneficiaries.
b. Other fiduciary business shall refer
to any activity of a trust-licensed
bank resulting from a contract or
agreement whereby the bank binds
itself to render services or to act in a

representative capacity such as in an
agency, guardianship,
administratorship of wills, properties
and estates, executorship,
receivership, and other similar
services which do not create or result
in a trusteeship. It shall exclude
collecting or paying agency
arrangements and similar fiduciary
services which are inherent in the
use of the facilities of the other
operating departments of said bank.
Investment management activities,
which are considered as among other
fiduciary business, shall be
separately defined in the succeeding
item to highlight its being a major
source of fiduciary business.
c. Investment management activity
shall refer to any activity resulting
from a contract or agreement
primarily for financial return whereby
the bank (the investment manager)
binds itself to handle or manage
investible funds or any investment
portfolio in a representative capacity
as financial or managing agent,
adviser, consultant or administrator
of financial or investment
management, advisory, consultancy
or any similar arrangement which
does not create or result in a
trusteeship. (Emphasis supplied.)
The Court finds no proof to sustain petitioners'
contention that the DIMA and Directional Letter
contradict other papers on record, or were
signed in blank, or had unauthorized
intercalations.59 Petitioners themselves admit
that Amalia signed the DIMA and the
Directional Letter, which bars them from
disowning the contract on the belated claim
that she signed it in blank or did not read it first
because of the "fine print." 60 On the contrary,
the evidence does not support these latter
allegations, and it is highly improbable that
someone fairly educated and with investment
experience would sign a document in blank or
without reading it first.61 Petitioners owned
various businesses and were clients of other
banks, which omits the possibility of such
carelessness.62 Even more damning for
petitioners is that, on record, Amalia admitted
that it was not her habit to sign in blank and
AGENCY ACJUCO 2nd MEETING 36
that the contents of the documents were
explained to her before she signed.63
Testimonial evidence and the complaint itself
contained allegations that petitioners' reason
for transferring their money from local banks to
respondent is because it is safer to do so, 64 a
clear indicia of their intelligence and keen
business sense which they could not have
easily surrendered upon meeting with
respondent.
Nothing irregular or illegal attends the
execution or construction of the DIMA and the
Directional Letter, as their provisions merely
conform with BSP regulations governing these
types of transactions. Specifically, the MORB
mandates that investment managers act as
agents, not as trustees, of the investor;65 that
the investment manager is prohibited from
guaranteeing returns on the funds or
properties;66 that a written document should
state that the account is not covered by the
PDIC; and that losses are to be borne by
clients.67 That these legal requirements were
communicated to petitioners is evident in
Amalia's signatures on the documents and in
testimony to this effect.68
As to the allegation that the documents were in
"fine print," the Court notes that although the
print may have looked smaller than average,
they were nevertheless of the same size
throughout the documents, so that no part or
provision is hidden from the reader. The Court
also takes judicial notice that the print is no
smaller than those found in similar contracts in
common usage, such as insurance, mortgage,
sales contracts and even ordinary bank deposit
contracts. In the documents in question, the
provisions hurtful to petitioners' cause were
likewise in no smaller print than the rest of the
document, as indeed they were even
highlighted either in bold or in all caps. This
disposes of the argument that they were
designed to hide their damaging nature to the
signatory.69 The conclusion is that the print is
readable and should not have prevented
petitioners from studying the papers before
their signing. Considering petitioners' social
stature, the nature of the transaction and the
amount of money involved, the Court
presumes that petitioners exercised adequate
care and diligence in studying the contract prior
to its execution.70

In Sweet Lines, Inc. v. Teves,71 the Court
pronounced the general rule regarding
contracts of adhesion, thus:
x x x there are certain contracts almost all the
provisions of which have been drafted only by
one party, usually a corporation. Such
contracts are called contracts of adhesion,
because the only participation of the other
party is the signing of his signature or his
‘adhesion’ thereto. Insurance contracts, bills of
lading, contracts of sale of lots on the
installment plan fall into this category.
x x x it is drafted only by one party, usually the
corporation, and is sought to be accepted or
adhered to by the other party x x x who cannot
change the same and who are thus made to
adhere hereto on the ‘take it or leave it’ basis.
x x x it is hardly just and proper to expect the
passengers to examine their tickets received
from crowded/congested counters, more often
than not during rush hours, for conditions that
may be printed thereon, much less charge
them with having consented to the conditions,
so printed, especially if there are a number of
such conditions in fine print, as in this case.
However, Sweet Lines72 further expounded that
the validity and/or enforceability of contracts of
adhesion will have to be determined by the
peculiar circumstances obtaining in each case
and the nature of the conditions or terms
sought to be enforced.73 Thus, while any
ambiguity, obscurity or doubt in a contract of
adhesion is construed or resolved strictly
against the party who prepared it, 74 it is also
equally obvious that in a case where no such
ambiguity, obscurity or doubt exists, no such
construction is warranted. This was the case in
the DIMA and the Directional Letter signed by
Amalia in the instant controversy.
The parties to this case only disagree on
whether petitioners were properly informed of
the contents of the documents. But as earlier
stated, petitioners were free to read and study
the contents of the papers before signing them,
without compulsion to sign immediately or even
days after, as indeed the parties were even
free not to sign the documents at all. Unlike
in Sweet Lines, where the plaintiffs had no
choice but to take the services of monopolistic
transport companies during rush hours, in the
AGENCY ACJUCO 2nd MEETING 37
instant case, petitioners were under no such
pressure; petitioners were free to invest
anytime and through any of the dozens of local
and foreign banks in the market.
In addition, it has been held that contracts of
adhesion are not necessarily voidable. The
Court has consistently held that contracts of
adhesion, wherein one party imposes a ready-
made form of contract on the other, are
contracts not entirely prohibited, since the one
who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his
consent.75 It is the rule that these contracts are
upheld unless they are in the nature of a
patently lopsided deal where blind adherence
is not justified by other factual circumstances.76
Petitioners insist that other documents Amalia
signed -- that is, the
ROF,77 Questionnaire78 and TIA79 -- contradict
the DIMA and Directional Letter. Specifically,
they argue that under the ROF and the
Questionnaire, they manifested an intent to
invest only in a time deposit in the medium
term of over a year to three years, with no risk
on the capital, or with returns in line with a time
deposit.80 However, this contention is belied by
the evidence and testimony on record.
Respondent explains that investors fill up the
ROF and Questionnaire only when they first
visit the bank and only for the account they first
opened,81 as confirmed by the evidence on
record and the fact that there were no
subsequent ROFs and Questionnaires
presented by petitioners.
The ROF and Questionnaire were filled up
when the PhP1 million "Citihi" savings account
was opened by Amalia on October 10, 1997,
during her first visit to the bank. When Amalia
returned more than a month later on November
28, 1997, a change in her investment attitude
occurred in that she wanted to invest an even
bigger amount (PhP3 million) and her interest
had shifted to high-yield but riskier long-term
instruments like PRPNs and LTCPs. When
Amalia proceeded to sign new documents like
the DIMA and the Directional Letter for the
LTCP investment, despite their obviously
different contents from those she was used to
signing for ordinary deposits, she essentially
confirmed that she knew what she was
agreeing to and that it was different from all her
previous transactions.
 AGENCY ACJUCO 2nd MEETING 38

In addition, even the ROF and Questionnaire ____________________

signed by Amalia during the first visit contained ____________________
provisions that clearly contradict petitioners' PANLILIO, ________
claims. The ROF contained the following: AMALIA ITF _________
________
I/We declare the above information to be ALEJANDRO _________
correct. I/We hereby acknowledge to have KING AGUILAR & FE ________
received, read, understood and agree to be _________
bound by the general terms and conditions EMMANUELLE ________
applicable and governing my/our account/s PANLILIO
and/or investment/s which appear in a
separate brochure/manual as well as
separate documents relative to said Address
account/s and/or investment/s. Said terms _______________________________
and conditions shall likewise apply to all our _______________________
existing and future account/s and/or For corporations, c/o
investment/s with Citibank. I/We hereby further _______________________ Tel. No.
authorize Citibank to open additional account/s ____________
and/or investment/s in the future with the same
account title as contained in this relationship Dear Sir:
opening form subject to the rules governing the
aforementioned account/s and/or investment/s THIS IS TO ( ) rollover
and the terms and conditions therein or herein. AUTHORIZE ( ) rollover w/
I/We agree to notify you in writing of any CITIBANK, N. A. TO: ( ) added
change in the information supplied in this open funds
relationship opening form.82 (Emphasis ( ) rollover w/
supplied.) payout
Ref. No.
while the Questionnaire had the following ____
provisions: [ ]
[ ] Peso [ ] Dollar
Confirmation
I am aware that investment products are not Time TD
of Sale
bank deposits or other obligations of, or Depositorie [ ]
[ ] CITIHI-
guaranteed or insured by Citibank N.A., s Multicurre
Yielder
Citicorp or their affiliates. I am aware that the [ ] NNPN ncy TD
TRUST
principal and interest of my investments are
obligations of the borrower/issuer. They are NEW ADDED FUNDS
subject to risk and possible loss of WILL COME FROM: for P/$
principal. Past performance is not indicative of ( ) debit my/our account __________
future performance. In addition, investments no. ________________ _____
are not covered by the Philippine Deposit ( ) Check No. for P/$
Insurance Corporation (PDIC) or the Federal ___________________ __________
Deposit Insurance Corporation (FDIC). 83 which _________ _____
do not need further elaboration on the matter. ( ) Cash deposit for P/$
___________________ __________
Petitioners contend that the Term Investment _______ _____
Application (TIA), viz:
IN THE AMOUNT AND TERMS
SPECIFIED AS FOLLOWS:
TERM INVESTMENT
APPLICATION Date P/$
PRINCIPA Value
MAKATI 1/28/97 3,000,000
L/Money In 11/28/97
Branch and Service Area
CIF Keys MATURITY Maturity Date
TITLE OF ACCOUNT _________ AMOUNT/Par Value P/ _______

$____________
INTEREST around Term 91
84
RATE 16.25% days
(Emphasis supplied.)
clearly contradicts the DIMA, Directional Letter
and COIs.
Petitioners insist that the amount PhP3 million
in the TIA does not tally with the actual value of
the investment which appeared on the first
COI, which was PhP2,134,635.87. Petitioners
add that the TIA's interest rate of "around
16.25%" with the term "91 days" contradicts
the COI's interest rate of 16.95% with a tenor
of 75 days repriceable after 91 days. 85 Further,
petitioners claim that the word "TRUST"
inscribed on the TIA obviously meant that they
opened a trust account, and not any other
account.86
The explanation of respondent is plausible.
Only PhP2,134,635.87 out of the PhP3 million
was placed in the LTCP since this was the only
amount of LTCP then available, while the
balance was placed in two PRPN accounts,
each one in trust for Amalia's two children,
upon her instructions.87 The disparity in the
interest rate is also explained by the fact that
the 16.95% rate placed in the COI is gross and
not net interest,88 and that it is subject to
repricing every 91 days.
The Court gives credence to respondent's
explanation that the word "TRUST" appearing
on the TIA simply means that the account is to
be handled by the bank's trust department,
which handles not only the trust business but
also the other fiduciary business and
investment management activities of the bank,
while the "ITF" or "in trust for" appearing on the
other documents only signifies that the money
was invested by Amalia in trust for her two
children, a device that she uses even in her
ordinary deposit accounts with other
89
banks. The ITF device allows the children to
obtain the money without need of paying estate
taxes in case Amalia meets a premature
death.90 However, it creates a trustee-
beneficiary relationship only between Amalia
and her children, and not between Amalia, her
children, and Citibank.
AGENCY ACJUCO 2nd MEETING 39
All the documents signed by Amalia, including
the DIMA and Directional Letter, show that her
agreement with respondent is one of agency,
and not a trust.
The DIMA, TIA, Directional Letter and COIs,
viewed altogether, establish without doubt the
transaction between the parties, that on
November 28, 1997, with PhP3 million in tow,
Amalia opened an investment management
account with respondent, under which she
instructed the latter as her agent to invest the
bulk of the money in LTCP.
Aside from their bare allegations, evidence that
supports petitioners' contentions that no such
deal took place, or that the agreement was
different, simply does not exist in the records.
Petitioners were experienced and intelligent
enough to be able to demand and sign a
different document to signify their real intention;
but no such document exists. Thus, petitioners'
acts and omissions negate their allegations
that they were essentially defrauded by the
bank.
Petitioners had other chances to protest
respondent's alleged disregard of their
instructions. The COIs sent by respondent to
petitioners encapsulate the spirit of the DIMA
and Directional Letter, with the proviso that
should there be any deviations from petitioners'
instructions, they may inform respondent in
writing within seven days.
Assuming arguendo that respondent violated
the instructions, petitioners did not file a single
timely written protest, however, despite their
admission that they received the first COI on
December 8, 1997.91 It took eight months for
petitioners to formally demand the return of
their investment through their counsel in a
letter dated August 18, 1998. 92 The letter,
however, did not even contest the placement of
the money in an LTCP, but merely its maturity
in the year 2003. Prior to the letter, it has been
shown that petitioners had received COIs on
February 12, 1998,93 May 14, 1998,94 and
August 14, 1998,95 and in between, petitioners
never demanded a return of the money they
invested.
Petitioners' acts and omissions strongly
indicate that they in fact conformed to the
agreement in the months after the signing. In

that period, they were receiving their bank
statements and earning interest from the
investment, as in fact, C&P Homes under the
LTCP continuously paid interest even up to the
time the instant case was already on
trial.96 When petitioners finally contested the
contract months after its signing, it was
suspiciously during the time when newspaper
reports came out that C&P Homes' stock had
plunged in value and that Ayala Land was
withdrawing its offer to invest in the
company.97 The connection is too obvious to
ignore. It is reasonable to conclude that
petitioners' repudiation of the agreement was
nothing more than an afterthought, a reaction
to the negative events in the market and an
effort to flee from a losing investment.
Anent the second issue, whether petitioners
are entitled to recover from respondent the
amount of PhP2,134,635.87 invested under the
LTCP, the Court agrees with the CA in
dismissing the complaint filed by petitioners.
Petitioners may not seek a return of their
investment directly from respondent at or prior
to maturity. As earlier explained, the investment
is not a deposit and is not guaranteed by
respondent. Absent any fraud or bad faith, the
recourse of petitioners in the LTCP is solely
against the issuer, C&P Homes, and only upon
maturity. The DIMA states, thus:
11. Withdrawal of Income/Principal
– Subject to availability of funds and taking
into consideration the commitment of this
account to third parties, the PRINCIPAL
may withdraw the income/principal of the
Portfolio or portion thereof upon request or
application thereof from the Bank. The
INVESTMENT MANAGER shall not be
required to inquire as to the income/principal
so withdrawn from the Portfolio. Any income of
the Portfolio not withdrawn shall be
accumulated and added to the principal of the
Portfolio for further investment and
reinvestment.98 (Emphasis supplied.)
It is clear that since the money is committed to
C&P Homes via LTCP for five years, or until
2003, petitioners may not seek its recovery
from respondent prior to the lapse of this
period. Petitioners must wait and meanwhile
just be content with receiving their interest
regularly. If petitioners want the immediate
AGENCY ACJUCO 2nd MEETING 40
return of their investment before the maturity
date, their only way is to find a willing buyer to
purchase the LTCP at an agreed price, or to go
directly against the issuer C&P Homes, not
against the respondent.
The nature of the DIMA and the other
documents signed by the parties calls for this
condition. The DIMA states that respondent is a
mere agent of petitioners and that losses from
both the principal and interest of the
investment are strictly on petitioners' account.
Meanwhile, the Directional Letter clearly states
that the investment is to be made in an LTCP
which, by definition, has a term of more than
365 days.99 Prior to the expiry of the term,
which in the case of the C&P Homes LTCP is
five years, petitioners may not claim back their
investment, especially not from respondent
bank.
Having bound themselves under the contract
as earlier discussed, petitioners are governed
by its provisions. Petitioners as principals in an
agency relationship are solely obliged to
observe the solemnity of the transaction
entered into by the agent on their behalf,
absent any proof that the latter acted beyond
its authority.100 Concomitant to this obligation is
that the principal also assumes the risks that
may arise from the transaction.101 Indeed, as in
the instant case, bank regulations prohibit
banks from guaranteeing profits or the principal
in an investment management
102
account. Hence, the CA correctly dismissed
petitioners’ complaint against respondent.
WHEREFORE, the Petition is DENIED. For
lack of evidence, the Decision of the Court of
Appeals dated dated May 28, 2002 and its
Resolution of December 11, 2002,
are AFFIRMED.
Costs against the petitioners.
SO ORDERED.

G.R. No. 111924 January 27, 1997
ADORACION LUSTAN, petitioner,
vs.
COURT OF APPEALS, NICOLAS
PARANGAN and SOLEDAD PARANGAN,
PHILIPPINE NATIONAL BANK, respondents.
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered
owner of a parcel of land otherwise known as
Lot 8069 of the Cadastral Survey of Calinog,
Iloilo containing an area of 10.0057 hectares
and covered by TCT No. T-561. On February
25, 1969, petitioner leased the above
described property to private respondent
Nicolas Parangan for a term of ten (10) years
and an annual rent of One Thousand
(P1,000.00) Pesos. During the period of lease,
Parangan was regularly extending loans in
small amounts to petitioner to defray her daily
expenses and to finance her daughter's
education. On July 29, 1970, petitioner
executed a Special Power of Attorney in favor
of Parangan to secure an agricultural loan from
private respondent Philippine National Bank
(PNB) with the aforesaid lot as collateral. On
February 18, 1972, a second Special Power of
Attorney was executed by petitioner, by virtue
of which, Parangan was able to secure four (4)
additional loans, to wit: the sums of
P24,000.00, P38,000.00, P38,600.00 and
P25,000.00 on December 15, 1975,
September 6, 1976, July 2, 1979 and June 2,
1980, respectively. The last three loans were
without the knowledge of herein petitioner and
all the proceeds therefrom were used by
Parangan for his own benefit. 1 These
encumbrances were duly annotated on the
certificate of title. On April 16, 1973, petitioner
signed a Deed of Pacto de Retro Sale2 in favor
of Parangan which was superseded by the
Deed of Definite Sale3dated May 4, 1979 which
petitioner signed upon Parangan's
representation that the same merely evidences
the loans extended by him unto the former.
For fear that her property might be prejudiced
by the continued borrowing of Parangan,
petitioner demanded the return of her
certificate of title. Instead of complying with the
request, Parangan asserted his rights over the
property which allegedly had become his by
AGENCY ACJUCO 2nd MEETING 41
virtue of the aforementioned Deed of Definite
Sale. Under said document, petitioner
conveyed the subject property and all the
improvements thereon unto Parangan
absolutely for and in consideration of the sum
of Seventy Five Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for
cancellation of liens, quieting of title, recovery
of possession and damages against Parangan
and PNB in the Regional Trial Court of Iloilo
City. After trial, the lower court rendered
judgment, disposing as follows:
WHEREFORE and in view of the
foregoing, a decision is rendered
as follows:
1. Ordering cancellation by the
Register of Deeds of the Province
of Iloilo, of the unauthorized
loans, the liens and
encumbrances appearing in the
Transfer Certificate of Title No. T-
561, especially entries nos.
286231; 338638; and 352794;
2. Declaring the Deed of Pacto
de Retro Sale dated April 25,
1978 and the Deed of Definite
Sale dated May 6, 1979, both
documents executed by
Adoracion Lustan in favor of
Nicolas Parangan over Lot 8069
in TCT No. T-561 of the Register
of Deeds of Iloilo, as null and
void, declaring the same to be
Deeds of Equitable Mortgage;
3. Ordering defendant Nicolas
Parangan to pay all the loans he
secured from defendant PNB
using thereto as security TCT No.
T-561 of plaintiff and defendant
PNB to return TCT No. T-561 to
plaintiff;
4. Ordering defendant Nicolas
Parangan to return possession of
the land in question, Lot 8069 of
the Calinog Cadastre, described
in TCT No. T-561 of the Register
of Deeds of Iloilo, to plaintiff upon
payment of the sum of
 AGENCY ACJUCO 2nd MEETING 42

P75,000.00 by plaintiff to necessitating a review of the evidence on

defendant Parangan which record.5 After a thorough examination, we note
payment by plaintiff must be some errors, both in fact and in law, committed
made within ninety (90) days by public respondent CA.
from receipt of this decision;
otherwise, sale of the land will be The court a quo ruled that the Deed of Definite
ordered by the court to satisfy Sale is in reality an equitable mortgage as it
payment of the amount; was shown beyond doubt that the intention of
the parties was one of a loan secured by
5. Ordering defendant Nicolas petitioner's land.6 We agree.
Parangan to pay plaintiff
attorney's fees in the sum of A contract is perfected by mere consent. 7 More
P15,000.00 and to pay the costs particularly, a contract of sale is perfected at
of the suit. the moment there is a meeting of minds upon
the thing which is the object of the contract and
SO ORDERED.4 upon the price.8 This meeting of the minds
speaks of the intent of the parties in entering
Upon appeal to the Court of Appeals (CA), into the contract respecting the subject matter
respondent court reversed the trial court's and the consideration thereof. If the words of
decision. Hence this petition contending that the contract appear to be contrary to the
the CA committed the following errors: evident intention of the parties, the latter shall
prevail over the former.9 In the case at bench,
IN ARRIVING AT THE the evidence is sufficient to warrant a finding
CONCLUSION THAT NONE OF that petitioner and Parangan merely intended
THE CONDITIONS STATED IN to consolidate the former's indebtedness to the
ART. 1602 OF THE NEW CIVIL latter in a single instrument and to secure the
CODE HAS BEEN PROVEN TO same with the subject property. Even when a
EXIST BY PREPONDERANCE document appears on its face to be a sale, the
OF EVIDENCE; owner of the property may prove that the
contract is really a loan with mortgage by
IN CONCLUDING THAT raising as an issue the fact that the document
PETITIONER SIGNED THE does not express the true intent of the parties.
DEED OF SALE WITH In this case, parol evidence then becomes
KNOWLEDGE AS TO THE competent and admissible to prove that the
CONTENTS THEREOF; instrument was in truth and in fact given merely
as a security for the repayment of a loan. And
IN ARRIVING AT THE upon proof of the truth of such allegations, the
CONCLUSION THAT THE court will enforce the agreement or
TESTIMONY OF WITNESS understanding in consonance with the true
DELIA CABIAL DESERVES intent of the parties at the time of the execution
FULL FAITH AND CREDIT; of the contract. 10

IN FINDING THAT THE SPECIAL
POWER OF ATTORNEY
AUTHORIZING MORTGAGE
FOR "UNLIMITED" LOANS AS
RELEVANT.
Two main issues confront us in this case, to
wit: whether or not the Deed of Definite Sale is
in reality an equitable mortgage and whether or
not petitioner's property is liable to PNB for the
loans contracted by Parangan by virtue of the
special power of attorney. The lower court and
the CA arrived at different factual findings thus
Articles 1602 and 1604 of the Civil Code
respectively provide:
The contract shall be presumed
to be an equitable mortgage in
any of the following cases:
1) When the price of a sale with
right to repurchase is unusually
inadequate;

2) When the vendor remains in
possession as lessor or
otherwise;
3) When upon or after the
expiration of the right to
repurchase, another instrument
extending the period of
redemption or granting a new
period is executed;
4) When the vendor binds himself
to pay the taxes on the thing sold;
5) When the purchaser retains for
himself a part of the purchase
price;
6) In any other case where it may
be fairly inferred that the real
intention of the parties is that the
transaction shall secure the
payment of a debt or the
performance of any other
obligation.
Art. 1604. The provisions of
Article 1602 shall also apply to a
contract purporting to be an
absolute sale.
From a reading of the above-quoted
provisions, for a presumption of an equitable
mortgage to arise, we must first satisfy two
requisites namely: that the parties entered into
a contract denominated as a contract of sale
and that their intention was to secure an
existing debt by way of mortgage. Under Art.
1604 of the Civil Code, a contract purporting to
be an absolute sale shall be presumed to be
an equitable mortgage should any of the
conditions in Art. 1602 be present. The
existence of any of the circumstances therein,
not a concurrence nor an overwhelming
number of such circumstances, suffices to give
rise to the presumption that the contract is an
equitable mortgage. 11
Art. 1602, (6), in relation to Art 1604 provides
that a contract of sale is presumed to be an
equitable mortgage in any other case where it
may be fairly inferred that the real intention of
the parties is that the transaction shall secure
the payment of a debt or the performance of
any other obligation. That the case clearly falls
AGENCY ACJUCO 2nd MEETING 43
under this category can be inferred from the
circumstances surrounding the transaction as
herein set forth:
Petitioner had no knowledge that the
contract 12 she signed is a deed of sale. The
contents of the same were not read nor
explained to her so that she may intelligibly
formulate in her mind the consequences of her
conduct and the nature of the rights she was
ceding in favor of Parangan. Petitioner is
illiterate and her condition constrained her to
merely rely on Parangan's assurance that the
contract only evidences her indebtedness to
the latter. When one of the contracting parties
is unable to read, or if the contract is in a
language not understood by him, and mistake
or fraud is alleged, the person enforcing the
contract must show that the terms thereof have
been fully explained to the former. 13 Settled is
the rule that where a party to a contract is
illiterate or cannot read or cannot understand
the language in which the contract is written,
the burden is on the party interested in
enforcing the contract to prove that the terms
thereof are fully explained to the former in a
language understood by him.14 To our mind,
this burden has not been satisfactorily
discharged.
We do not find the testimony of Parangan and
Delia Cabial that the contract was duly read
and explained to petitioner worthy of credit.
The assessment by the trial court of the
credibility of witnesses is entitled to great
respect and weight for having had the
opportunity of observing the conduct and
demeanor of the witnesses while
testifying. 15 The lower court may not have
categorically declared Cabial's testimony as
doubtful but this fact is readily apparent when it
ruled on the basis of petitioner's evidence in
total disregard of the positive testimony on
Parangan's side. We have subjected the
records to a thorough examination, and a
reading of the transcript of stenographic notes
would bear out that the court a quo is correct in
its assessment. The CA committed a reversible
error when it relied on the testimony of Cabial
in upholding the validity of the Deed of Definite
Sale. For one, there are noted major
contradictions between the testimonies of
Cabial and Judge Lebaquin, who notarized the
purported Deed of Definite Sale. While the
former testified that receipts were presented
 AGENCY ACJUCO 2nd MEETING 44

before Judge Lebaquin, who in turn made an A: No, sir.

accounting to determine the price of the land 16,
the latter categorically denied the Q: Did Nicolas
allegation. 17 This contradiction casts doubt on Parangan right in
the credibility of Cabial as it is ostensible that that very room tell
her version of the story is concocted. Adoracion what she
was signing?
On the other hand, petitioner's witness Celso
Pamplona, testified that the contract was not A: No, sir.
read nor explained to petitioner. We believe
that this witness gave a more accurate account xxx xxx xxx
of the circumstances surrounding the
transaction. He has no motive to prevaricate or Q: What did you
concoct a story as he witnessed the execution have in mind when
of the document at the behest of Parangan you were signing
himself who, at the outset, informed him that this document, Exh.
he will witness a document consolidating "4"?
petitioner's debts. He thus testified:
A: To show that
Q: In (sic) May 4, Adoracion Lustan
1979, you has debts with
remember having Nicolas
went (sic) to the Parangan. 18
Municipality of
Calinog? Furthermore, we note the absence of any
question propounded to Judge Lebaquin to
A: Yes, sir. establish that the deed of sale was read and
explained by him to petitioner. When asked if
Q: Who invited you witness has any knowledge whether petitioner
to go there? knows how to read or write, he answered in the
negative. 19 This latter admission impresses
A: Parangan. upon us that the contract was not at all read or
explained to petitioner for had he known that
Q: You mean petitioner is illiterate, his assistance would not
Nicolas Parangan? have been necessary.

A: Yes, sir. The foregoing squares with the sixth instance

when a presumption of equitable mortgage
Q: What did Nicolas prevails. The contract of definite sale, where
tell you why he petitioner purportedly ceded all her rights to the
invited you to go subject lot in favor of Parangan, did not
there? embody the true intention of the parties. The
evidence speaks clearly of the nature of the
A: He told me that I agreement — it was one executed to secure
will witness on the some loans.
indebtedness of
Adoracion to Anent the issue of whether the outstanding
Parangan. mortgages on the subject property can be
enforced against petitioner, we rule in the
Q: Before affirmative.
Adoracion Lustan
signed her name in Third persons who are not parties to a loan
this Exh. "4", was may secure the latter by pledging or
this document read mortgaging their own property. 20So long as
to her? valid consent was given, the fact that the loans

were solely for the benefit of Parangan would
not invalidate the mortgage with respect to
petitioner's property. In consenting thereto,
even granting that petitioner may not be
assuming personal liability for the debt, her
property shall nevertheless secure and
respond for the performance of the principal
obligation. 21 It is admitted that petitioner is the
owner of the parcel of land mortgaged to PNB
on five (5) occasions by virtue of the Special
Powers of Attorney executed by petitioner in
favor of Parangan. Petitioner argues that the
last three mortgages were void for lack of
authority. She totally failed to consider that said
Special Powers of Attorney are a continuing
one and absent a valid revocation duly
furnished to the mortgagee, the same
continues to have force and effect as against
third persons who had no knowledge of such
lack of authority. Article 1921 of the Civil Code
provides:
Art. 1921. If the agency has been
entrusted for the purpose of
contracting with specified
persons, its revocation shall not
prejudice the latter if they were
not given notice thereof.
The Special Power of Attorney executed by
petitioner in favor of Parangan duly authorized
the latter to represent and act on behalf of the
former. Having done so, petitioner clothed
Parangan with authority to deal with PNB on
her behalf and in the absence of any proof that
the bank had knowledge that the last three
loans were without the express authority of
petitioner, it cannot be prejudiced thereby. As
far as third persons are concerned, an act is
deemed to have been performed within the
scope of the agent's authority if such is within
the terms of the power of attorney as written
even if the agent has in fact exceeded the
limits of his authority according to the
understanding between the principal and the
agent. 22 The Special Power of Attorney
particularly provides that the same is good not
only for the principal loan but also for
subsequent commercial, industrial, agricultural
loan or credit accommodation that the attorney-
in-fact may obtain and until the power of
attorney is revoked in a public instrument and a
copy of which is furnished to PNB. 23 Even
when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the
AGENCY ACJUCO 2nd MEETING 45
former allowed the latter to act as though he
had full powers (Article 1911, Civil
Code). 24 The mortgage directly and
immediately subjects the property upon which
it is imposed. 25 The property of third persons
which has been expressly mortgaged to
guarantee an obligation to which the said
persons are foreign, is directly and jointly liable
for the fulfillment thereof; it is therefore subject
to execution and sale for the purpose of paying
the amount of the debt for which it is
liable. 26 However, petitioner has an
unquestionable right to demand proportional
indemnification from Parangan with respect to
the sum paid to PNB from the proceeds of the
sale of her property 27 in case the same is sold
to satisfy the unpaid debts.
WHEREFORE, premises considered, the
judgment of the lower court is hereby
REINSTATED with the following
MODIFICATIONS:
1. DECLARING THE DEED OF DEFINITE
SALE AS AN EQUITABLE MORTGAGE;
2. ORDERING PRIVATE RESPONDENT
NICOLAS PARANGAN TO RETURN THE
POSSESSION OF THE SUBJECT LAND
UNTO PETITIONER UPON THE LATTER'S
PAYMENT OF THE SUM OF P75,000.00
WITHIN NINETY (90) DAYS FROM RECEIPT
OF THIS DECISION;
3. DECLARING THE MORTGAGES IN FAVOR
OF PNB AS VALID AND SUBSISTING AND
MAY THEREFORE BE SUBJECTED TO
EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT
PARANGAN TO PAY PETITIONER THE
AMOUNT OF P15,000.00 BY WAY OF
ATTORNEY'S FEES AND TO PAY THE
COSTS OF THE SUIT.
SO ORDERED.

G.R. No. 115838 July 18, 2002
CONSTANTE AMOR DE CASTRO and
CORAZON AMOR DE CASTRO, petitioners,
vs.
COURT OF APPEALS and FRANCISCO
ARTIGO, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on
Certiorari1 seeking to annul the Decision of the
Court of Appeals2 dated May 4, 1994 in CA-
G.R. CV No. 37996, which affirmed in toto the
decision3 of the Regional Trial Court of Quezon
City, Branch 80, in Civil Case No. Q-89-2631.
The trial court disposed as follows:
"WHEREFORE, the Court finds
defendants Constante and Corazon
Amor de Castro jointly and solidarily
liable to plaintiff the sum of:
a) P303,606.24 representing unpaid
commission;
b) P25,000.00 for and by way of moral
damages;
c) P45,000.00 for and by way of
attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December
20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent
Francisco Artigo ("Artigo" for brevity) sued
petitioners Constante A. De Castro
("Constante" for brevity) and Corazon A. De
Castro ("Corazon" for brevity) to collect the
unpaid balance of his broker's commission
from the De Castros.4 The Court of Appeals
summarized the facts in this wise:
"x x x. Appellants5 were co-owners of
four (4) lots located at EDSA corner
New York and Denver Streets in Cubao,
Quezon City. In a letter dated January
AGENCY ACJUCO 2nd MEETING 46
24, 1984 (Exhibit "A-1, p. 144, Records),
appellee6 was authorized by appellants
to act as real estate broker in the sale of
these properties for the amount
of P23,000,000.00, five percent (5%) of
which will be given to the agent as
commission. It was appellee who first
found Times Transit Corporation,
represented by its president Mr.
Rondaris, as prospective buyer which
desired to buy two (2) lots only,
specifically lots 14 and 15. Eventually,
sometime in May of 1985, the sale of
lots 14 and 15 was consummated.
Appellee received from
appellants P48,893.76 as commission.
It was then that the rift between the
contending parties soon emerged.
Appellee apparently felt short changed
because according to him, his total
commission should be P352,500.00
which is five percent (5%) of the agreed
price of P7,050,000.00 paid by Times
Transit Corporation to appellants for the
two (2) lots, and that it was he who
introduced the buyer to appellants and
unceasingly facilitated the negotiation
which ultimately led to the
consummation of the sale. Hence, he
sued below to collect the balance
of P303,606.24 after having
received P48,893.76 in
advance.1âwphi1.nêt
On the other hand, appellants
completely traverse appellee's claims
and essentially argue that appellee is
selfishly asking for more than what he
truly deserved as commission to the
prejudice of other agents who were
more instrumental in the consummation
of the sale. Although appellants readily
concede that it was appellee who first
introduced Times Transit Corp. to them,
appellee was not designated by them as
their exclusive real estate agent but that
in fact there were more or less eighteen
(18) others whose collective efforts in
the long run dwarfed those of appellee's,
considering that the first negotiation for
the sale where appellee took active
participation failed and it was these
other agents who successfully brokered

in the second negotiation. But despite
this and out of appellants' "pure
liberality, beneficence and
magnanimity", appellee nevertheless
was given the largest cut in the
commission (P48,893.76), although on
the principle of quantum meruit he
would have certainly been entitled to
less. So appellee should not have been
heard to complain of getting only a
pittance when he actually got the lion's
share of the commission and worse, he
should not have been allowed to get the
entire commission. Furthermore, the
purchase price for the two lots was
only P3.6 million as appearing in the
deed of sale and not P7.05 million as
alleged by appellee. Thus, even
assuming that appellee is entitled to the
entire commission, he would only be
getting 5% of the P3.6 million,
or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the
decision of the trial court.
First. The Court of Appeals found that
Constante authorized Artigo to act as agent in
the sale of two lots in Cubao, Quezon City. The
handwritten authorization letter signed by
Constante clearly established a contract of
agency between Constante and Artigo. Thus,
Artigo sought prospective buyers and found
Times Transit Corporation ("Times Transit" for
brevity). Artigo facilitated the negotiations
which eventually led to the sale of the two lots.
Therefore, the Court of Appeals decided that
Artigo is entitled to the 5% commission on the
purchase price as provided in the contract of
agency.
Second. The Court of Appeals ruled that
Artigo's complaint is not dismissible for failure
to implead as indispensable parties the other
co-owners of the two lots. The Court of Appeals
explained that it is not necessary to implead
the other co-owners since the action is
exclusively based on a contract of agency
between Artigo and Constante.
Third. The Court of Appeals likewise declared
that the trial court did not err in admitting parol
evidence to prove the true amount paid by
AGENCY ACJUCO 2nd MEETING 47
Times Transit to the De Castros for the two
lots. The Court of Appeals ruled that
evidence aliunde could be presented to prove
that the actual purchase price was P7.05
million and not P3.6 million as appearing in the
deed of sale. Evidence aliunde is admissible
considering that Artigo is not a party, but a
mere witness in the deed of sale between the
De Castros and Times Transit. The Court of
Appeals explained that, "the rule that oral
evidence is inadmissible to vary the terms of
written instruments is generally applied only in
suits between parties to the instrument and
strangers to the contract are not bound by it."
Besides, Artigo was not suing under the deed
of sale, but solely under the contract of agency.
Thus, the Court of Appeals upheld the trial
court's finding that the purchase price was
P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals
erred in -
I. NOT ORDERING THE DISMISSAL
OF THE COMPLAINT FOR FAILURE
TO IMPLEAD INDISPENSABLE
PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL
OF THE COMPLAINT ON THE
GROUND THAT ARTIGO'S CLAIM HAS
BEEN EXTINGUISHED BY FULL
PAYMENT, WAIVER, OR
ABANDONMENT;
III. CONSIDERING INCOMPETENT
EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY
PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF
MORAL DAMAGES AND ATTORNEY'S
FEES;
VI. NOT AWARDING THE DE
CASTRO'S MORAL AND EXEMPLARY
DAMAGES, AND ATTORNEY'S FEES.
The Court's Ruling

The petition is bereft of merit.
First Issue: whether the complaint merits
dismissal for failure to implead other co-
owners as indispensable parties
The De Castros argue that Artigo's complaint
should have been dismissed for failure to
implead all the co-owners of the two lots. The
De Castros claim that Artigo always knew that
the two lots were co-owned by Constante and
Corazon with their other siblings Jose and
Carmela whom Constante merely represented.
The De Castros contend that failure to implead
such indispensable parties is fatal to the
complaint since Artigo, as agent of all the four
co-owners, would be paid with funds co-owned
by the four co-owners.
The De Castros' contentions are devoid of
legal basis.
An indispensable party is one whose interest
will be affected by the court's action in the
litigation, and without whom no final
determination of the case can be had. 7 The
joinder of indispensable parties is mandatory
and courts cannot proceed without their
presence.8 Whenever it appears to the court in
the course of a proceeding that an
indispensable party has not been joined, it is
the duty of the court to stop the trial and order
the inclusion of such party.9
However, the rule on mandatory joinder of
indispensable parties is not applicable to the
instant case.
There is no dispute that Constante appointed
Artigo in a handwritten note dated January 24,
1984 to sell the properties of the De Castros
for P23 million at a 5 percent commission. The
authority was on a first come, first serve basis.
The authority reads in full:
"24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo
is authorized as our real estate broker in
connection with the sale of our property
AGENCY ACJUCO 2nd MEETING 48
located at Edsa Corner New York &
Denver, Cubao, Quezon City.
Asking price P 23,000,000.00 with 5%
commission as agent's fee.
C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis –CAC"
Constante signed the note as owner and as
representative of the other co-owners. Under
this note, a contract of agency was clearly
constituted between Constante and Artigo.
Whether Constante appointed Artigo as agent,
in Constante's individual or representative
capacity, or both, the De Castros cannot seek
the dismissal of the case for failure to implead
the other co-owners as indispensable
parties. The De Castros admit that the other
co-owners are solidarily liable under the
contract of agency,10 citing Article 1915 of the
Civil Code, which reads:
Art. 1915. If two or more persons have
appointed an agent for a common
transaction or undertaking, they shall be
solidarily liable to the agent for all the
consequences of the agency.
The solidary liability of the four co-owners,
however, militates against the De Castros'
theory that the other co-owners should be
impleaded as indispensable parties. A noted
commentator explained Article 1915 thus –
"The rule in this article applies even
when the appointments were made by
the principals in separate acts, provided
that they are for the same
transaction. The solidarity arises from
the common interest of the
principals, and not from the act of
constituting the agency. By virtue of
this solidarity, the agent can recover
from any principal the whole
compensation and indemnity owing
to him by the others. The parties,

however, may, by express agreement,
negate this solidary responsibility. The
solidarity does not disappear by the
mere partition effected by the principals
after the accomplishment of the agency.
If the undertaking is one in which
several are interested, but only some
create the agency, only the latter are
solidarily liable, without prejudice to the
effects of negotiorum gestio with respect
to the others. And if the power granted
includes various transactions some of
which are common and others are not,
only those interested in each transaction
shall be liable for it."11
When the law expressly provides for solidarity
of the obligation, as in the liability of co-
principals in a contract of agency, each obligor
may be compelled to pay the entire
obligation.12 The agent may recover the whole
compensation from any one of the co-
principals, as in this case.
Indeed, Article 1216 of the Civil Code provides
that a creditor may sue any of the solidary
debtors. This article reads:
Art. 1216. The creditor may proceed
against any one of the solidary debtors
or some or all of them simultaneously.
The demand made against one of them
shall not be an obstacle to those which
may subsequently be directed against
the others, so long as the debt has not
been fully collected.
Thus, the Court has ruled in Operators
Incorporated vs. American Biscuit Co.,
Inc.13 that –
"x x x solidarity does not make a
solidary obligor an indispensable
party in a suit filed by the creditor.
Article 1216 of the Civil Code says that
the creditor `may proceed against
anyone of the solidary debtors or some
or all of them simultaneously'."
(Emphasis supplied)
Second Issue: whether Artigo's claim has
been extinguished by full payment, waiver
or abandonment
AGENCY ACJUCO 2nd MEETING 49
The De Castros claim that Artigo was fully paid
on June 14, 1985, that is, Artigo was given "his
proportionate share and no longer entitled to
any balance." According to them, Artigo was
just one of the agents involved in the sale and
entitled to a "proportionate share" in the
commission. They assert that Artigo did
absolutely nothing during the second
negotiation but to sign as a witness in the deed
of sale. He did not even prepare the
documents for the transaction as an active real
estate broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to
law, public order, public policy, morals or good
custom is a valid contract, and constitutes the
law between the parties.14 The contract of
agency entered into by Constante with Artigo is
the law between them and both are bound to
comply with its terms and conditions in good
faith.
The mere fact that "other agents" intervened in
the consummation of the sale and were paid
their respective commissions cannot vary the
terms of the contract of agency granting Artigo
a 5 percent commission based on the selling
price. These "other agents" turned out to be
employees of Times Transit, the buyer Artigo
introduced to the De Castros. This prompted
the trial court to observe:
"The alleged `second group' of agents
came into the picture only during the so-
called `second negotiation' and it is
amusing to note that these (sic) second
group, prominent among whom are Atty.
Del Castillo and Ms. Prudencio,
happened to be employees of Times
Transit, the buyer of the properties. And
their efforts were limited to convincing
Constante to 'part away' with the
properties because the redemption
period of the foreclosed properties is
around the corner, so to speak. (tsn.
June 6, 1991).
xxx
To accept Constante's version of the
story is to open the floodgates of fraud
and deceit. A seller could always
pretend rejection of the offer and wait for

sometime for others to renew it who are
much willing to accept a commission far
less than the original broker. The
immorality in the instant case easily
presents itself if one has to consider
that the alleged `second group' are
the employees of the buyer, Times
Transit and they have not bettered
the offer secured by Mr. Artigo for P7
million.
It is to be noted also that while
Constante was too particular about the
unrenewed real estate broker's license
of Mr. Artigo, he did not bother at all to
inquire as to the licenses of Prudencio
and Castillo. (tsn, April 11, 1991, pp. 39-
40)."15 (Emphasis supplied)
In any event, we find that the 5 percent real
estate broker's commission is reasonable and
within the standard practice in the real estate
industry for transactions of this nature.
The De Castros also contend that Artigo's
inaction as well as failure to protest estops him
from recovering more than what was actually
paid him. The De Castros cite Article 1235 of
the Civil Code which reads:
Art. 1235. When the obligee accepts the
performance, knowing its
incompleteness and irregularity, and
without expressing any protest or
objection, the obligation is deemed fully
complied with.
The De Castros' reliance on Article 1235 of the
Civil Code is misplaced. Artigo's acceptance of
partial payment of his commission neither
amounts to a waiver of the balance nor puts
him in estoppel. This is the import of Article
1235 which was explained in this wise:
"The word accept, as used in Article
1235 of the Civil Code, means to take
as satisfactory or sufficient, or agree to
an incomplete or irregular
performance. Hence, the mere receipt
of a partial payment is not equivalent
to the required acceptance of
performance as would extinguish the
whole obligation."16(Emphasis
supplied)
AGENCY ACJUCO 2nd MEETING 50
There is thus a clear distinction between
acceptance and mere receipt. In this case, it is
evident that Artigo merely received the partial
payment without waiving the balance. Thus,
there is no estoppel to speak of.
The De Castros further argue that laches
should apply because Artigo did not file his
complaint in court until May 29, 1989, or almost
four years later. Hence, Artigo's claim for the
balance of his commission is barred by laches.
Laches means the failure or neglect, for an
unreasonable and unexplained length of time,
to do that which by exercising due diligence
could or should have been done earlier. It is
negligence or omission to assert a right within
a reasonable time, warranting a presumption
that the party entitled to assert it either has
abandoned it or declined to assert it.17
Artigo disputes the claim that he neglected to
assert his rights. He was appointed as agent
on January 24, 1984. The two lots were finally
sold in June 1985. As found by the trial court,
Artigo demanded in April and July of 1985 the
payment of his commission by Constante on
the basis of the selling price of P7.05 million
but there was no response from
Constante.18 After it became clear that his
demands for payment have fallen on deaf ears,
Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a
contract of agency, must be brought within ten
years from the time the right of action
accrues.19 The right of action accrues from the
moment the breach of right or duty occurs.
From this moment, the creditor can institute the
action even as the ten-year prescriptive period
begins to run.20
The De Castros admit that Artigo's claim was
filed within the ten-year prescriptive period. The
De Castros, however, still maintain that Artigo's
cause of action is barred by laches. Laches
does not apply because only four years had
lapsed from the time of the sale in June 1985.
Artigo made a demand in July 1985 and filed
the action in court on May 29, 1989, well within
the ten-year prescriptive period. This does not
constitute an unreasonable delay in asserting
one's right. The Court has ruled, "a delay
within the prescriptive period is sanctioned
by law and is not considered to be a delay

that would bar relief."21 In explaining that
laches applies only in the absence of a
statutory prescriptive period, the Court has
stated -
"Laches is recourse in equity. Equity,
however, is applied only in the
absence, never in contravention, of
statutory law. Thus, laches, cannot,
as a rule, be used to abate a
collection suit filed within the
prescriptive period mandated by the
Civil Code."22
Clearly, the De Castros' defense of laches finds
no support in law, equity or jurisprudence.
Third issue: whether the determination of
the purchase price was made in violation of
the Rules on Evidence
The De Castros want the Court to re-examine
the probative value of the evidence adduced in
the trial court to determine whether the actual
selling price of the two lots was P7.05 million
and not P3.6 million. The De Castros contend
that it is erroneous to base the 5 percent
commission on a purchase price of P7.05
million as ordered by the trial court and the
appellate court. The De Castros insist that the
purchase price is P3.6 million as expressly
stated in the deed of sale, the due execution
and authenticity of which was admitted during
the trial.
The De Castros believe that the trial and
appellate courts committed a mistake in
considering incompetent evidence and
disregarding the best evidence and parole
evidence rules. They claim that the Court of
Appeals erroneously affirmed sub silentio the
trial court's reliance on the various
correspondences between Constante and
Times Transit which were mere photocopies
that do not satisfy the best evidence rule.
Further, these letters covered only the first
negotiations between Constante and Times
Transit which failed; hence, these are
immaterial in determining the final purchase
price.
The De Castros further argue that if there was
an undervaluation, Artigo who signed as
witness benefited therefrom, and being equally
guilty, should be left where he presently stands.
AGENCY ACJUCO 2nd MEETING 51
They likewise claim that the Court of Appeals
erred in relying on evidence which were not
offered for the purpose considered by the trial
court. Specifically, Exhibits "B", "C", "D" and "E"
were not offered to prove that the purchase
price was P7.05 Million. Finally, they argue
that the courts a quo erred in giving credence
to the perjured testimony of Artigo. They want
the entire testimony of Artigo rejected as a
falsehood because he was lying when he
claimed at the outset that he was a licensed
real estate broker when he was not.
Whether the actual purchase price was P7.05
Million as found by the trial court and affirmed
by the Court of Appeals, or P3.6 Million as
claimed by the De Castros, is a question of fact
and not of law. Inevitably, this calls for an
inquiry into the facts and evidence on record.
This we can not do.
It is not the function of this Court to re-examine
the evidence submitted by the parties, or
analyze or weigh the evidence again. 23 This
Court is not the proper venue to consider a
factual issue as it is not a trier of facts. In
petitions for review on certiorari as a mode of
appeal under Rule 45, a petitioner can only
raise questions of law. Our pronouncement in
the case of Cormero vs. Court of
24
Appeals bears reiteration:
"At the outset, it is evident from the
errors assigned that the petition is
anchored on a plea to review the factual
conclusion reached by the respondent
court. Such task however is foreclosed
by the rule that in petitions for certiorari
as a mode of appeal, like this one, only
questions of law distinctly set forth may
be raised. These questions have been
defined as those that do not call for any
examination of the probative value of
the evidence presented by the parties.
(Uniland Resources vs. Development
Bank of the Philippines, 200 SCRA 751
[1991] citing Goduco vs. Court of
appeals, et al., 119 Phil. 531; Hernandez
vs. Court of Appeals, 149 SCRA 67).
And when this court is asked to go over
the proof presented by the parties, and
analyze, assess and weigh them to
ascertain if the trial court and the
appellate court were correct in
according superior credit to this or that
 AGENCY ACJUCO 2nd MEETING 52

piece of evidence and eventually, to the
totality of the evidence of one party or
the other, the court cannot and will not
do the same. (Elayda vs. Court of
Appeals, 199 SCRA 349 [1991]). Thus,
in the absence of any showing that the
findings complained of are totally devoid
of support in the record, or that they are
so glaringly erroneous as to constitute
serious abuse of discretion, such
findings must stand, for this court is not
expected or required to examine or
contrast the oral and documentary
evidence submitted by the parties.
(Morales vs. Court of Appeals, 197
SCRA 391 [1991] citing Santa Ana vs.
Hernandez, 18 SCRA 973 [1966])."
damages and P 45,000.00 in attorney's fees.
The amounts are, in our view, fair and
reasonable. Having found a buyer for the two
lots, Artigo had already performed his part of
the bargain under the contract of agency. The
De Castros should have exercised fairness and
good judgment in dealing with Artigo by
fulfilling their own part of the bargain - paying
Artigo his 5 percent broker's commission based
on the actual purchase price of the two lots.
WHEREFORE, the petition is denied for lack of
merit. The Decision of the Court of Appeals
dated May 4, 1994 in CA-G.R. CV No. 37996
is AFFIRMED in toto.
SO ORDERED.

We find no reason to depart from this principle.

The trial and appellate courts are in a much
better position to evaluate properly the
evidence. Hence, we find no other recourse but
to affirm their finding on the actual purchase
price.1âwphi1.nêt

Fourth Issue: whether award of moral

damages and attorney's fees is proper

The De Castros claim that Artigo failed to prove

that he is entitled to moral damages and
attorney's fees. The De Castros, however, cite
no concrete reason except to say that they are
the ones entitled to damages since the case
was filed to harass and extort money from
them.

Law and jurisprudence support the award of

moral damages and attorney's fees in favor of
Artigo. The award of damages and attorney's
fees is left to the sound discretion of the court,
and if such discretion is well exercised, as in
this case, it will not be disturbed on
appeal.25 Moral damages may be awarded
when in a breach of contract the defendant
acted in bad faith, or in wanton disregard of his
contractual obligation.26 On the other hand,
attorney's fees are awarded in instances where
"the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim." 27 There is
no reason to disturb the trial court's finding that
"the defendants' lack of good faith and unkind
treatment of the plaintiff in refusing to give his
due commission deserve censure." This
warrants the award of P25,000.00 in moral

G.R. No. 88539 October 26, 1993
KUE CUISON, doing business under the
firm name and style"KUE CUISON PAPER
SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT
INVESTMENT ASSOCIATES, respondents.
Leighton R. Siazon for petitioner.
Melanio L. Zoreta for private respondent.
BIDIN, J.:
This petition for review assails the decision of
the respondent Court of Appeals ordering
petitioner to pay private respondent, among
others, the sum of P297,482.30 with interest.
Said decision reversed the appealed decision
of the trial court rendered in favor of petitioner.
The case involves an action for a sum of
money filed by respondent against petitioner
anchored on the following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship
engaged in the purchase and sale of
newsprint, bond paper and scrap, with places
of business at Baesa, Quezon City, and Sto.
Cristo, Binondo, Manila. Private respondent
Valiant Investment Associates, on the other
hand, is a partnership duly organized and
existing under the laws of the Philippines with
business address at Kalookan City.
From December 4, 1979 to February 15, 1980,
private respondent delivered various kinds of
paper products amounting to P297,487.30 to a
certain Lilian Tan of LT Trading. The deliveries
were made by respondent pursuant to orders
allegedly placed by Tiu Huy Tiac who was then
employed in the Binondo office of petitioner. It
was likewise pursuant to Tiac's instructions that
the merchandise was delivered to Lilian Tan.
Upon delivery, Lilian Tan paid for the
merchandise by issuing several checks
payable to cash at the specific request of Tiu
Huy Tiac. In turn, Tiac issued nine (9)
postdated checks to private respondent as
payment for the paper products. Unfortunately,
AGENCY ACJUCO 2nd MEETING 53
sad checks were later dishonored by the
drawee bank.
Thereafter, private respondent made several
demands upon petitioner to pay for the
merchandise in question, claiming that Tiu Huy
Tiac was duly authorized by petitioner as the
manager of his Binondo office, to enter into the
questioned transactions with private
respondent and Lilian Tan. Petitioner denied
any involvement in the transaction entered into
by Tiu Huy Tiac and refused to pay private
respondent the amount corresponding to the
selling price of the subject merchandise.
Left with no recourse, private respondent filed
an action against petitioner for the collection of
P297,487.30 representing the price of the
merchandise. After due hearing, the trial court
dismissed the complaint against petitioner for
lack of merit. On appeal, however, the decision
of the trial court was modified, but was in effect
reversed by the Court of Appeals, the
dispositive portion of which reads:
WHEREFORE, the decision
appealed from is MODIFIED in
that defendant-appellant Kue
Cuison is hereby ordered to pay
plaintiff-appellant Valiant
Investment Associates the sum of
P297,487.30 with 12% interest
from the filing of the complaint
until the amount is fully paid, plus
the sum of 7% of the total amount
due as attorney's fees, and to pay
the costs. In all other respects,
the decision appealed from is
affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT
ERRED IN FINDING TIU HUY
TIAC AGENT OF DEFENDANT-
APPELLANT CONTRARY TO
THE
UNDISPUTED/ESTABLISHED
FACTS AND CIRCUMSTANCES.
THE HONORABLE COURT
ERRED IN FINDING
DEFENDANT-APPELLANT
LIABLE FOR AN OBLIGATION

UNDISPUTEDLY BELONGING
TO TIU HUY TIAC.
THE HONORABLE COURT ERRED IN
REVERSING THE WELL-FOUNDED
DECISION OF THE TRIAL COURT, (Rollo, p,
19)
The issue here is really quite simple —
whether or not Tiu Huy Tiac possessed the
required authority from petitioner sufficient to
hold the latter liable for the disputed
transaction.
This petition ought to have been denied
outright, forin the final analysis, it raises a
factual issue. It is elementary that in petitions
for review under Rule 45, this Court only
passes upon questions of law. An exception
thereto occurs where the findings of fact of the
Court of Appeals are at variance with the trial
court, in which case the Court reviews the
evidence in order to arrive at the correct
findings based on the records.
As to the merits of the case, it is a well-
established rule that one who clothes another
with apparent authority as his agent and holds
him out to the public as such cannot be
permitted to deny the authority of such person
to act as his agent, to the prejudice of innocent
third parties dealing with such person in good
faith and in the honest belief that he is what he
appears to be (Macke, et al, v. Camps, 7 Phil.
553 (1907]; Philippine National Bank. v Court
of Appeals, 94 SCRA 357 [1979]). From the
facts and the evidence on record, there is no
doubt that this rule obtains. The petition must
therefore fail.
It is evident from the records that by his own
acts and admission, petitioner held out Tiu Huy
Tiac to the public as the manager of his store in
Sto. Cristo, Binondo, Manila. More particularly,
petitioner explicitly introduced Tiu Huy Tiac to
Bernardino Villanueva, respondent's manager,
as his (petitioner's) branch manager as testified
to by Bernardino Villanueva. Secondly, Lilian
Tan, who has been doing business with
petitioner for quite a while, also testified that
she knew Tiu Huy Tiac to be the manager of
petitioner's Sto. Cristo, Binondo branch. This
general perception of Tiu Huy Tiac as the
manager of petitioner's Sto. Cristo store is
even made manifest by the fact that Tiu Huy
AGENCY ACJUCO 2nd MEETING 54
Tiac is known in the community to be the
"kinakapatid" (godbrother) of petitioner. In fact,
even petitioner admitted his close relationship
with Tiu Huy Tiac when he said that they are
"like brothers" (Rollo, p. 54). There was thus no
reason for anybody especially those
transacting business with petitioner to even
doubt the authority of Tiu Huy Tiac as his
manager in the Sto. Cristo Binondo branch.
In a futile attempt to discredit Villanueva,
petitioner alleges that the former's testimony is
clearly self-serving inasmuch as Villanueva
worked for private respondent as its manager.
We disagree, The argument that Villanueva's
testimony is self-serving and therefore
inadmissible on the lame excuse of his
employment with private respondent utterly
misconstrues the nature of "'self-serving
evidence" and the specific ground for its
exclusion. As pointed out by this Court in Co
v. Court of Appeals et, al., (99 SCRA 321
[1980]):
Self-serving evidence is evidence
made by a party out of court at
one time; it does not include a
party's testimony as a witness in
court. It is excluded on the same
ground as any hearsay evidence,
that is the lack of opportunity for
cross-examination by the adverse
party, and on the consideration
that its admission would open the
door to fraud and to fabrication of
testimony. On theother hand, a
party's testimony in court is sworn
and affords the other party the
opportunity for cross-examination
(emphasis supplied)
Petitioner cites Villanueva's failure, despite his
commitment to do so on cross-examination, to
produce the very first invoice of the transaction
between petitioner and private respondent as
another ground to discredit Villanueva's
testimony. Such failure, proves that Villanueva
was not only bluffing when he pretended that
he can produce the invoice, but that Villanueva
was likewise prevaricating when he insisted
that such prior transactions actually took place.
Petitioner is mistaken. In fact, it was petitioner's
counsel himself who withdrew the reservation
to have Villanueva produce the document in

court. As aptly observed by the Court of
Appeals in its decision:
. . . However, during the hearing
on March 3, 1981, Villanueva
failed to present the document
adverted to because defendant-
appellant's counsel withdrew his
reservation to have the former
(Villanueva) produce the
document or invoice, thus
prompting plaintiff-appellant to
rest its case that same day (t.s.n.,
pp. 39-40, Sess. of March 3,
1981). Now, defendant-appellant
assails the credibility of
Villanueva for having allegedly
failed to produce even one single
document to show that plaintiff-
appellant have had transactions
before, when in fact said failure of
Villanueva to produce said
document is a direct off-shoot of
the action of defendant-
appellant's counsel who withdrew
his reservation for the production
of the document or invoice and
which led plaintiff-appellant to
rest its case that very day. (Rollo,
p.52)
In the same manner, petitioner assails the
credibility of Lilian Tan by alleging that Tan was
part of an intricate plot to defraud him.
However, petitioner failed to substantiate or
prove that the subject transaction was
designed to defraud him. Ironically, it was even
the testimony of petitioner's daughter and
assistant manager Imelda Kue Cuison which
confirmed the credibility of Tan as a witness.
On the witness stand, Imelda testified that she
knew for a fact that prior to the transaction in
question, Tan regularly transacted business
with her father (petitioner herein), thereby
corroborating Tan's testimony to the same
effect. As correctly found by the respondent
court, there was no logical explanation for Tan
to impute liability upon petitioner. Rather, the
testimony of Imelda Kue Cuison only served to
add credence to Tan's testimony as regards the
transaction, the liability for which petitioner
wishes to be absolved.
But of even greater weight than any of these
testimonies, is petitioner's categorical
AGENCY ACJUCO 2nd MEETING 55
admission on the witness stand that Tiu Huy
Tiac was the manager of his store in Sto.
Cristo, Binondo, to wit:
Court:
xxx xxx xxx
Q And who was managing the store in
Sto. Cristo?
A At first it was Mr. Ang, then later Mr. Tiu
Huy Tiac but I cannot remember the exact
year.
Q So, Mr. Tiu Huy Tiac took over the
management,.
A Not that was because every afternoon, I
was there, sir.
Q But in the morning, who takes charge?
A Tiu Huy Tiac takes charge of
management and if there (sic) orders for
newsprint or bond papers they are always
referred to the compound in Baesa, sir.
(t.s.n., p. 16, Session of January 20,
1981, CA decision, Rollo, p. 50, emphasis
supplied).
Such admission, spontaneous no doubt, and
standing alone, is sufficient to negate all the
denials made by petitioner regarding the
capacity of Tiu Huy Tiac to enter into the
transaction in question. Furthermore,
consistent with and as an obvious indication of
the fact that Tiu Huy Tiac was the manager of
the Sto. Cristo branch, three (3) months after
Tiu Huy Tiac left petitioner's employ, petitioner
even sent, communications to its customers
notifying them that Tiu Huy Tiac is no longer
connected with petitioner's business. Such
undertaking spoke unmistakenly of Tiu Huy
Tiac's valuable position as petitioner's manager
than any uttered disclaimer. More than
anything else, this act taken together with the
declaration of petitioner in open court amount
to admissions under Rule 130 Section 22 of
the Rules of Court, to wit : "The act, declaration
or omission of a party as to a relevant fact may
be given in evidence against him." For well-
settled is the rule that "a man's acts, conduct,
and declaration, wherever made, if voluntary,
are admissible against him, for the reason that

it is fair to presume that they correspond with
the truth, and it is his fault if they do not. If a
man's extrajudicial admissions are admissible
against him, there seems to be no reason why
his admissions made in open court, under
oath, should not be accepted against him."
(U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];).
Moreover, petitioner's unexplained delay in
disowning the transactions entered into by Tiu
Huy Tiac despite several attempts made by
respondent to collect the amount from him,
proved all the more that petitioner was aware
of the questioned commission was tantamount
to an admission by silence under Rule 130
Section 23 of the Rules of Court, thus: "Any act
or declaration made in the presence of and
within the observation of a party who does or
says nothing when the act or declaration is
such as naturally to call for action or comment
if not true, may be given in evidence against
him."
All of these point to the fact that at the time of
the transaction Tiu Huy Tiac was admittedly the
manager of petitioner's store in Sto. Cristo,
Binondo. Consequently, the transaction in
question as well as the concomitant obligation
is valid and binding upon petitioner.
By his representations, petitioner is now
estopped from disclaiming liability for the
transaction entered by Tiu Huy Tiac on his
behalf. It matters not whether the
representations are intentional or merely
negligent so long as innocent, third persons
relied upon such representations in good faith
and for value As held in the case of Manila
Remnant Co. Inc. v. Court of Appeals, (191
SCRA 622 [1990]):
More in point, we find that by the principle
of estoppel, Manila Remnant is deemed
to have allowed its agent to act as though
it had plenary powers. Article 1911 of the
Civil Code provides:
"Even when the agent has exceeded
his authority, the principal issolidarily
liable with the agent if the former
allowed the latter to act as though he
had full powers." (Emphasis supplied).
The above-quoted article is new. It is
intended to protect the rights of innocent
AGENCY ACJUCO 2nd MEETING 56
persons. In such a situation, both the
principal and the agent may be
considered as joint tortfeasors whose
liability is joint and solidary.
Authority by estoppel has arisen in the
instant case because by its negligence,
the principal, Manila Remnant, has
permitted its agent, A.U. Valencia and
Co., to exercise powers not granted to it.
That the principal might not have had
actual knowledge of theagent's misdeed
is of no moment.
Tiu Huy Tiac, therefore, by petitioner's own
representations and manifestations, became
an agent of petitioner by estoppel, an
admission or representation is rendered
conclusive upon the person making it, and
cannot be denied or disproved as against the
person relying thereon (Article 1431, Civil Code
of the Philippines). A party cannot be allowed
to go back on his own acts and representations
to the prejudice of the other party who, in good
faith, relied upon them (Philippine National
Bank v. Intermediate Appellate Court, et al.,
189 SCRA 680 [1990]).
Taken in this light,. petitioner is liable for the
transaction entered into by Tiu Huy Tiac on his
behalf. Thus, even when the agent has
exceeded his authority, the principal is
solidarily liable with the agent if the former
allowed the latter to fact as though he had full
powers (Article 1911 Civil Code), as in the case
at bar.
Finally, although it may appear that Tiu Huy
Tiac defrauded his principal (petitioner) in not
turning over the proceeds of the transaction to
the latter, such fact cannot in any way relieve
nor exonerate petitioner of his liability to private
respondent. For it is an equitable maxim that
as between two innocent parties, the one who
made it possible for the wrong to be done
should be the one to bear the resulting loss
(Francisco vs. Government Service Insurance
System, 7 SCRA 577 [1963]).
Inasmuch as the fundamental issue of the
capacity or incapacity of the purported agent
Tiu Huy Tiac, has already been resolved, the
Court deems it unnecessary to resolve the
other peripheral issues raised by petitioner.
 AGENCY ACJUCO 2nd MEETING 57

WHEREFORE, the instant petition in hereby

DENIED for lack of merit. Costs against
petitioner.

SO ORDERED.

G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-
LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES,
INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR
SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
PADILLA, J.:
This case is a consolidation of two (2) petitions
for review on certiorari of a decision1 of the
Court of Appeals in CA-G.R. No. CV-04294,
entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc."
which affirmed, with modification, the
decision2 of the Regional Trial Court of Manila,
Branch IV, which dismissed the complaint and
granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc.
(hereinafter referred to as American Air), an air
carrier offering passenger and air cargo
transportation in the Philippines, and Orient Air
Services and Hotel Representatives
(hereinafter referred to as Orient Air), entered
into a General Sales Agency Agreement
(hereinafter referred to as the Agreement),
whereby the former authorized the latter to act
as its exclusive general sales agent within the
Philippines for the sale of air passenger
transportation. Pertinent provisions of the
agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual
convenants herein contained, the
parties hereto agree as follows:
1. Representation of American by Orient
Air Services
AGENCY ACJUCO 2nd MEETING 58
Orient Air Services will act on
American's behalf as its exclusive
General Sales Agent within the
Philippines, including any United States
military installation therein which are not
serviced by an Air Carrier
Representation Office (ACRO), for the
sale of air passenger transportation. The
services to be performed by Orient Air
Services shall include:
(a) soliciting and promoting
passenger traffic for the services
of American and, if necessary,
employing staff competent and
sufficient to do so;
(b) providing and maintaining a
suitable area in its place of
business to be used exclusively
for the transaction of the
business of American;
(c) arranging for distribution of
American's timetables, tariffs and
promotional material to sales
agents and the general public in
the assigned territory;
(d) servicing and supervising of
sales agents (including such sub-
agents as may be appointed by
Orient Air Services with the prior
written consent of American) in
the assigned territory including if
required by American the control
of remittances and commissions
retained; and
(e) holding out a passenger
reservation facility to sales
agents and the general public in
the assigned territory.
In connection with scheduled or non-
scheduled air passenger transportation
within the United States, neither Orient
Air Services nor its sub-agents will
perform services for any other air carrier
similar to those to be performed
hereunder for American without the prior
written consent of American. Subject to
periodic instructions and continued
consent from American, Orient Air

Services may sell air passenger
transportation to be performed within the
United States by other scheduled air
carriers provided American does not
provide substantially equivalent
schedules between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United
States dollars to American the ticket
stock or exchange orders, less
commissions to which Orient Air
Services is entitled hereunder, not less
frequently than semi-monthly, on the
15th and last days of each month for
sales made during the preceding half
month.
All monies collected by Orient Air
Services for transportation sold
hereunder on American's ticket stock or
on exchange orders, less applicable
commissions to which Orient Air
Services is entitled hereunder, are the
property of American and shall be held
in trust by Orient Air Services until
satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services
commission on transportation sold
hereunder by Orient Air Services or its
sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a
sales agency commission for all sales of
transportation by Orient Air Services or
its sub-agents over American's services
and any connecting through air
transportation, when made on
American's ticket stock, equal to the
following percentages of the tariff fares
and charges:
(i) For transportation solely
between points within the United
States and between such points
and Canada: 7% or such other
rate(s) as may be prescribed by
AGENCY ACJUCO 2nd MEETING 59
the Air Traffic Conference of
America.
(ii) For transportation included in
a through ticket covering
transportation between points
other than those described
above: 8% or such other rate(s)
as may be prescribed by the
International Air Transport
Association.
(b) Overriding commission
In addition to the above commission
American will pay Orient Air Services an
overriding commission of 3% of the tariff
fares and charges for all sales of
transportation over American's service
by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time
default in observing or performing any of
the provisions of this Agreement or shall
become bankrupt or make any
assignment for the benefit of or enter
into any agreement or promise with its
creditors or go into liquidation, or suffer
any of its goods to be taken in
execution, or if it ceases to be in
business, this Agreement may, at the
option of American, be terminated
forthwith and American may, without
prejudice to any of its rights under this
Agreement, take possession of any
ticket forms, exchange orders, traffic
material or other property or funds
belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are
subject to any applicable rules or
resolutions of the International Air
Transport Association and the Air Traffic
Conference of America, and such rules
or resolutions shall control in the event
of any conflict with the provisions
hereof.
xxx xxx xxx

13. Termination
American may terminate the Agreement
on two days' notice in the event Orient
Air Services is unable to transfer to the
United States the funds payable by
Orient Air Services to American under
this Agreement. Either party may
terminate the Agreement without cause
by giving the other 30 days' notice by
letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had
reneged on its obligations under the
Agreement by failing to promptly remit the net
proceeds of sales for the months of January to
March 1981 in the amount of US $254,400.40,
American Air by itself undertook the collection
of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the
Agreement in accordance with Paragraph 13
thereof (Termination). Four (4) days later, or on
15 May 1981, American Air instituted suit
against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting
with Preliminary Attachment or Garnishment,
Mandatory Injunction and Restraining
Order4 averring the aforesaid basis for the
termination of the Agreement as well as therein
defendant's previous record of failures "to
promptly settle past outstanding refunds of
which there were available funds in the
possession of the defendant, . . . to the
damage and prejudice of plaintiff." 5
In its Answer6 with counterclaim dated 9 July
1981, defendant Orient Air denied the material
allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted
amounts, contending that after application
thereof to the commissions due it under the
Agreement, plaintiff in fact still owed Orient Air
a balance in unpaid overriding commissions.
Further, the defendant contended that the
actions taken by American Air in the course of
terminating the Agreement as well as the
termination itself were untenable, Orient Air
claiming that American Air's precipitous
conduct had occasioned prejudice to its
business interests.
Finding that the record and the evidence
substantiated the allegations of the defendant,
AGENCY ACJUCO 2nd MEETING 60
the trial court ruled in its favor, rendering a
decision dated 16 July 1984, the dispositive
portion of which reads:
WHEREFORE, all the foregoing
premises considered, judgment is
hereby rendered in favor of defendant
and against plaintiff dismissing the
complaint and holding the termination
made by the latter as affecting the GSA
agreement illegal and improper and
order the plaintiff to reinstate defendant
as its general sales agent for passenger
tranportation in the Philippines in
accordance with said GSA agreement;
plaintiff is ordered to pay defendant the
balance of the overriding commission on
total flown revenue covering the period
from March 16, 1977 to December 31,
1980 in the amount of US$84,821.31
plus the additional amount of
US$8,000.00 by way of proper 3%
overriding commission per month
commencing from January 1, 1981 until
such reinstatement or said amounts in
its Philippine peso equivalent legally
prevailing at the time of payment plus
legal interest to commence from the
filing of the counterclaim up to the time
of payment. Further, plaintiff is directed
to pay defendant the amount of One
Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for
exemplary damages; and the amount of
Three Hundred Thousand
(P300,000.00) pesos as and by way of
attorney's fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court
(now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the
findings of the court a quo on their material
points but with some modifications with respect
to the monetary awards granted. The
dispositive portion of the appellate court's
decision is as follows:
WHEREFORE, with the following
modifications —
1) American is ordered to pay Orient the
sum of US$53,491.11 representing the
balance of the latter's overriding

commission covering the period March
16, 1977 to December 31, 1980, or its
Philippine peso equivalent in
accordance with the official rate of
exchange legally prevailing on July 10,
1981, the date the counterclaim was
filed;
2) American is ordered to pay Orient the
sum of US$7,440.00 as the latter's
overriding commission per month
starting January 1, 1981 until date of
termination, May 9, 1981 or its
Philippine peso equivalent in
accordance with the official rate of
exchange legally prevailing on July 10,
1981, the date the counterclaim was
filed
3) American is ordered to pay interest of
12% on said amounts from July 10,
1981 the date the answer with
counterclaim was filed, until full
payment;
4) American is ordered to pay
Orient exemplary damages of
P200,000.00;
5) American is ordered to pay Orient the
sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is
affirmed.
Costs against American.8
American Air moved for reconsideration of the
aforementioned decision, assailing the
substance thereof and arguing for its reversal.
The appellate court's decision was also the
subject of a Motion for Partial Reconsideration
by Orient Air which prayed for the restoration of
the trial court's ruling with respect to the
monetary awards. The Court of Appeals, by
resolution promulgated on 17 December 1986,
denied American Air's motion and with respect
to that of Orient Air, ruled thus:
Orient's motion for partial
reconsideration is denied insofar as it
prays for affirmance of the trial court's
award of exemplary damages and
attorney's fees, but granted insofar as
the rate of exchange is concerned. The
AGENCY ACJUCO 2nd MEETING 61
decision of January 27, 1986 is modified
in paragraphs (1) and (2) of the
dispositive part so that the payment of
the sums mentioned therein shall be at
their Philippine peso equivalent in
accordance with the official rate of
exchange legally prevailing on the date
of actual payment.9
Both parties appealed the aforesaid resolution
and decision of the respondent court, Orient Air
as petitioner in G.R. No. 76931 and American
Air as petitioner in G.R. No. 76933. By
resolution10 of this Court dated 25 March 1987
both petitions were consolidated, hence, the
case at bar.
The principal issue for resolution by the Court
is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of
American Air that such commission is based
only on sales of its services actually negotiated
or transacted by Orient Air, otherwise referred
to as "ticketed sales." As basis thereof, primary
reliance is placed upon paragraph 5(b) of the
Agreement which, in reiteration, is quoted as
follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission,
American will pay Orient Air Services an
overriding commission of 3% of the tariff
fees and charges for all sales of
transportation over American's services
by Orient Air Services or itssub-
agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the
ticket stocks of American Air, and the former
not having opted to appoint any sub-agents, it
is American Air's contention that Orient Air can
claim entitlement to the disputed overriding
commission based only on ticketed sales. This
is supposed to be the clear meaning of the
underscored portion of the above provision.
Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient
Air and the sale must be done with the use of
American Air's ticket stocks.

On the other hand, Orient Air contends that the
contractual stipulation of a 3% overriding
commission covers the total revenue of
American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The
latter, in justification of its submission, invokes
its designation as the exclusive General Sales
Agent of American Air, with the corresponding
obligations arising from such agency, such as,
the promotion and solicitation for the services
of its principal. In effect, by virtue of such
exclusivity, "all sales of transportation over
American Air's services are necessarily by
Orient Air."11
It is a well settled legal principle that in the
interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain
the meaning of its provisions.12 The various
stipulations in the contract must be read
together to give effect to all.13 After a careful
examination of the records, the Court finds
merit in the contention of Orient Air that the
Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the
3% overriding commission based on total
revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales
Agent of American Air, Orient Air was
responsible for the promotion and marketing of
American Air's services for air passenger
transportation, and the solicitation of sales
therefor. In return for such efforts and services,
Orient Air was to be paid commissions of two
(2) kinds: first, a sales agency commission,
ranging from 7-8% of tariff fares and charges
from sales by Orient Air when made on
American Air ticket stock; and second, an
overriding commission of 3% of tariff fares and
charges for all sales of passenger
transportation over American Air services. It is
immediately observed that the precondition
attached to the first type of commission does
not obtain for the second type of commissions.
The latter type of commissions would accrue
for sales of American Air services made not on
its ticket stock but on the ticket stock of other
air carriers sold by such carriers or other
authorized ticketing facilities or travel agents.
To rule otherwise, i.e., to limit the basis of such
overriding commissions to sales from American
Air ticket stock would erase any distinction
between the two (2) types of commissions and
AGENCY ACJUCO 2nd MEETING 62
would lead to the absurd conclusion that the
parties had entered into a contract with
meaningless provisions. Such an interpretation
must at all times be avoided with every effort
exerted to harmonize the entire Agreement.
An additional point before finally disposing of
this issue. It is clear from the records that
American Air was the party responsible for the
preparation of the Agreement. Consequently,
any ambiguity in this "contract of adhesion" is
to be taken "contra proferentem", i.e.,
construed against the party who caused the
ambiguity and could have avoided it by the
exercise of a little more care. Thus, Article
1377 of the Civil Code provides that the
interpretation of obscure words or stipulations
in a contract shall not favor the party who
caused the obscurity.14 To put it differently,
when several interpretations of a provision are
otherwise equally proper, that interpretation or
construction is to be adopted which is most
favorable to the party in whose favor the
provision was made and who did not cause the
ambiguity.15 We therefore agree with the
respondent appellate court's declaration that:
Any ambiguity in a contract, whose
terms are susceptible of different
interpretations, must be read against the
party who drafted it.16
We now turn to the propriety of American Air's
termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:
It is not denied that Orient withheld
remittances but such action finds
justification from paragraph 4 of the
Agreement, Exh. F, which provides for
remittances to American less
commissions to which Orient is entitled,
and from paragraph 5(d) which
specifically allows Orient to retain the
full amount of its commissions. Since,
as stated ante, Orient is entitled to the
3% override. American's premise,
therefore, for the cancellation of the
Agreement did not exist. . . ."
We agree with the findings of the respondent
appellate court. As earlier established, Orient
Air was entitled to an overriding commission
based on total flown revenue. American Air's
perception that Orient Air was remiss or in
 AGENCY ACJUCO 2nd MEETING 63

default of its obligations under the Agreement WHEREFORE, with the foregoing modification,
was, in fact, a situation where the latter acted the Court AFFIRMS the decision and resolution
in accordance with the Agreement—that of of the respondent Court of Appeals, dated 27
retaining from the sales proceeds its accrued January 1986 and 17 December 1986,
commissions before remitting the balance to respectively. Costs against petitioner American
American Air. Since the latter was still obligated Air.
to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and SO ORDERED.
refusing to remit the sums claimed by
American Air. The latter's termination of the
Agreement was, therefore, without cause and
basis, for which it should be held liable to
Orient Air.

On the matter of damages, the respondent

appellate court modified by reduction the trial
court's award of exemplary damages and
attorney's fees. This Court sees no error in
such modification and, thus, affirms the same.

It is believed, however, that respondent

appellate court erred in affirming the rest of the
decision of the trial court.1âwphi1We refer
particularly to the lower court's decision
ordering American Air to "reinstate defendant
as its general sales agent for passenger
transportation in the Philippines in accordance
with said GSA Agreement."

By affirming this ruling of the trial court,

respondent appellate court, in effect, compels
American Air to extend its personality to Orient
Air. Such would be violative of the principles
and essence of agency, defined by law as a
contract whereby "a person binds himself to
render some service or to do something in
representation or on behalf of another, WITH
THE CONSENT OR AUTHORITY OF THE
LATTER .17 (emphasis supplied) In an agent-
principal relationship, the personality of the
principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform
all acts which the latter would have him do.
Such a relationship can only be effected with
the consent of the principal, which must not, in
any way, be compelled by law or by any court.
The Agreement itself between the parties
states that "either party may terminate the
Agreementwithout cause by giving the other 30
days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside
the portion of the ruling of the respondent
appellate court reinstating Orient Air as general
sales agent of American Air.

G.R. No. 85494 May 7, 1991
CHOITHRAM JETHMAL RAMNANI AND/OR
NIRMLA V. RAMNANI and MOTI G.
RAMNANI, petitioners,
vs.
COURT OF APPEALS, SPOUSES ISHWAR
JETHMAL RAMNANI, SONYA JETHMAL
RAMNANI and OVERSEAS HOLDING CO.,
LTD., respondents.
G.R. No. 85496 May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI
AND SONYA JET RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS,
ORTIGAS & CO., LTD. PARTNERSHIP, and
OVERSEAS HOLDING CO.,
LTD., respondents.
GANCAYCO, J.:
This case involves the bitter quarrel of two
brothers over two (2) parcels of land and its
improvements now worth a fortune. The bone
of contention is the apparently conflicting
factual findings of the trial court and the
appellate court, the resolution of which will
materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed
Jethmal Ramnani, are brothers of the full
blood. Ishwar and his spouse Sonya had their
main business based in New York. Realizing
the difficulty of managing their investments in
the Philippines they executed a general power
of attorney on January 24, 1966 appointing
Navalrai and Choithram as attorneys-in-fact,
empowering them to manage and conduct their
business concern in the Philippines.1
On February 1, 1966 and on May 16, 1966,
Choithram, in his capacity as aforesaid
attorney-in-fact of Ishwar, entered into two
agreements for the purchase of two parcels of
land located in Barrio Ugong, Pasig, Rizal,
from Ortigas & Company, Ltd. Partnership
(Ortigas for short) with a total area of
approximately 10,048 square meters.2Per
agreement, Choithram paid the down payment
and installments on the lot with his personal
AGENCY ACJUCO 2nd MEETING 64
checks. A building was constructed thereon by
Choithram in 1966 and this was occupied and
rented by Jethmal Industries and a wardrobe
shop called Eppie's Creation. Three other
buildings were built thereon by Choithram
through a loan of P100,000.00 obtained from
the Merchants Bank as well as the income
derived from the first building. The buildings
were leased out by Choithram as attorney-in-
fact of Ishwar. Two of these buildings were later
burned.
Sometime in 1970 Ishwar asked Choithram to
account for the income and expenses relative
to these properties during the period 1967 to
1970. Choithram failed and refused to render
such accounting. As a consequence, on
February 4, 1971, Ishwar revoked the general
power of attorney. Choithram and Ortigas were
duly notified of such revocation on April 1, 1971
and May 24, 1971, respectively. 3 Said notice
was also registered with the Securities and
Exchange Commission on March 29,
19714 and was published in the April 2, 1971
issue of The Manila Times for the information
of the general public.5
Nevertheless, Choithram as such attorney-in-
fact of Ishwar, transferred all rights and
interests of Ishwar and Sonya in favor of his
daughter-in-law, Nirmla Ramnani, on February
19, 1973. Her husband is Moti, son of
Choithram. Upon complete payment of the lots,
Ortigas executed the corresponding deeds of
sale in favor of Nirmla.6 Transfer Certificates of
Title Nos. 403150 and 403152 of the Register
of Deeds of Rizal were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya
(spouses Ishwar for short) filed a complaint in
the Court of First Instance of Rizal against
Choithram and/or spouses Nirmla and Moti
(Choithram et al. for brevity) and Ortigas for
reconveyance of said properties or payment of
its value and damages. An amended complaint
for damages was thereafter filed by said
spouses.
After the issues were joined and the trial on the
merits, a decision was rendered by the trial
court on December 3, 1985 dismissing the
complaint and counterclaim. A motion for
reconsideration thereof filed by spouses Ishwar
was denied on March 3, 1986.

An appeal therefrom was interposed by
spouses Ishwar to the Court of Appeals
wherein in due course a decision was
promulgated on March 14, 1988, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby
rendered reversing and setting aside the
appealed decision of the lower court
dated December 3, 1985 and the Order
dated March 3, 1986 which denied
plaintiffs-appellants' Motion for
Reconsideration from aforesaid
decision. A new decision is hereby
rendered sentencing defendants-
appellees Choithram Jethmal Ramnani,
Nirmla V. Ramnani, Moti C. Ramnani,
and Ortigas and Company Limited
Partnership to pay, jointly and severally,
plaintiffs-appellants the following:
1. Actual or compensatory damages to
the extent of the fair market value of the
properties in question and all
improvements thereon covered by
Transfer Certificate of Title No. 403150
and Transfer Certificate of Title No.
403152 of the Registry of Deeds of
Rizal, prevailing at the time of the
satisfaction of the judgment but in no
case shall such damages be less than
the value of said properties as
appraised by Asian Appraisal, Inc. in its
Appraisal Report dated August 1985
(Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be
paid for the use and occupancy of the
properties in question and all
improvements thereon consisting of
buildings, and to be computed as
follows:
a) On Building C occupied by
Eppie's Creation and Jethmal
Industries from 1967 to 1973,
inclusive, based on the 1967 to
1973 monthly rentals paid by
Eppie's Creation;
b) Also on Building C above,
occupied by Jethmal Industries
and Lavine from 1974 to 1978,
the rental incomes based on then
rates prevailing as shown under
AGENCY ACJUCO 2nd MEETING 65
Exhibit "P"; and from 1979 to
1981, based on then prevailing
rates as indicated under Exhibit
"Q";
c) On Building A occupied by
Transworld Knitting Mills from
1972 to 1978, the rental incomes
based upon then prevailing rates
shown under Exhibit "P", and
from 1979 to 1981, based on
prevailing rates per Exhibit "Q";
d) On the two Bays Buildings
occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals
based on the Lease Contract,
Exhibit "P", and from 1979 to
1980, the rentals based on the
Lease Contract, Exhibit "Q",
and thereafter commencing 1982, to
account for and turn over the rental
incomes paid or ought to be paid for the
use and occupancy of the properties
and all improvements totalling 10,048
sq. m based on the rate per square
meter prevailing in 1981 as indicated
annually cumulative up to 1984. Then,
commencing 1985 and up to the
satisfaction of the judgment, rentals
shall be computed at ten percent (10%)
annually of the fair market values of the
properties as appraised by the Asian
Appraisal, Inc. in August 1985 (Exhibits
T to T-14, inclusive.)
3. Moral damages in the sum of
P200,000.00;
4. Exemplary damages in the sum of
P100,000.00;
5. Attorney's fees equivalent to 10% of
the award herein made;
6. Legal interest on the total amount
awarded computed from first demand in
1967 and until the full amount is paid
and satisfied; and
7. The cost of suit.7
Acting on a motion for reconsideration filed by
Choithram, et al. and Ortigas, the appellate
 AGENCY ACJUCO 2nd MEETING 66

court promulgated an amended decision on THE COURT OF APPEALS ACTED IN

October 17, 1988 granting the motion for EXCESS OF JURISDICTION IN
reconsideration of Ortigas by affirming the AWARDING DAMAGES BASED ON
dismissal of the case by the lower court as THE VALUE OF THE PROPERTIES
against Ortigas but denying the motion for AND THE FRUITS OF THE
reconsideration of Choithram, et al.8 IMPROVEMENTS THEREON.9

Choithram, et al. thereafter filed a petition for Similarly, spouses Ishwar filed a petition for
review of said judgment of the appellate court review of said amended decision of the
alleging the following grounds: appellate court exculpating Ortigas of liability
based on the following assigned errors
1. The Court of Appeals gravely abused
its discretion in making a factual finding I
not supported by and contrary, to the
evidence presented at the Trial Court. THE RESPONDENT HONORABLE
COURT OF APPEALS COMMITTED
2. The Court of Appeals acted in excess GRAVE ERROR AND HAS DECIDED A
of jurisdiction in awarding damages QUESTION OF SUBSTANCE NOT IN
based on the value of the real properties ACCORD WITH LAW AND/OR WITH
in question where the cause of action of APPLICABLE DECISIONS OF THIS
private respondents is recovery of a HONORABLE COURT—
sum of money.
A) IN PROMULGATING THE
ARGUMENTS QUESTIONED AMENDED
DECISION (ANNEX "A")
I RELIEVING RESPONDENT
ORTIGAS FROM LIABILITY AND
THE COURT OF APPEALS ACTED IN DISMISSING PETITIONERS'
GRAVE ABUSE OF ITS DISCRETION AMENDED COMPLAINT IN
IN MAKING A FACTUAL FINDING THAT CIVIL CASE NO. 534-P, AS
PRIVATE RESPONDENT ISHWAR AGAINST SAID RESPONDENT
REMITTED THE AMOUNT OF US ORTIGAS;
$150,000.00 TO PETITIONER
CHOITHRAM IN THE ABSENCE OF B) IN HOLDING IN SAID
PROOF OF SUCH REMITTANCE. AMENDED DECISION THAT AT
ANY RATE NO ONE EVER
II TESTIFIED THAT ORTIGAS
WAS A SUBSCRIBER TO THE
THE COURT OF APPEALS ACTED MANILA TIMES PUBLICATION
WITH GRAVE ABUSE OF DISCRETION OR THAT ANY OF ITS
AND MANIFEST PARTIALITY IN OFFICERS READ THE NOTICE
DISREGARDING THE TRIAL COURTS AS PUBLISHED IN THE MANILA
FINDINGS BASED ON THE DIRECT TIMES, THEREBY
DOCUMENTARY AND TESTIMONIAL ERRONEOUSLY CONCLUDING
EVIDENCE PRESENTED BY THAT FOR RESPONDENT
CHOITHRAM IN THE TRIAL COURT ORTIGAS TO BE
ESTABLISHING THAT THE CONSTRUCTIVELY BOUND BY
PROPERTIES WERE PURCHASED THE PUBLISHED NOTICE OF
WITH PERSONAL FUNDS OF REVOCATION, ORTIGAS
PETITIONER CHOITHRAM AND NOT AND/OR ANY OF ITS OFFICERS
WITH MONEY ALLEGEDLY REMITTED MUST BE A SUBSCRIBER
BY RESPONDENT ISHWAR. AND/OR THAT ANY OF ITS
OFFICERS SHOULD READ THE
III NOTICE AS ACTUALLY
PUBLISHED;

C) IN HOLDING IN SAID
AMENDED DECISION THAT
ORTIGAS COULD NOT BE
HELD LIABLE JOINTLY AND
SEVERALLY WITH THE
DEFENDANTS-APPELLEES
CHOITHRAM, MOTI AND
NIRMLA RAMNANI, AS
ORTIGAS RELIED ON THE
WORD OF CHOITHRAM THAT
ALL ALONG HE WAS ACTING
FOR AND IN BEHALF OF HIS
BROTHER ISHWAR WHEN IT
TRANSFERRED THE RIGHTS
OF THE LATTER TO NIRMLA V.
RAMNANI;
D) IN IGNORING THE
EVIDENCE DULY PRESENTED
AND ADMITTED DURING THE
TRIAL THAT ORTIGAS WAS
PROPERLY NOTIFIED OF THE
NOTICE OF REVOCATION OF
THE GENERAL POWER OF
ATTORNEY GIVEN TO
CHOITHRAM, EVIDENCED BY
THE PUBLICATION IN THE
MANILA TIMES ISSUE OF
APRIL 2, 1971 (EXH. F) WHICH
CONSTITUTES NOTICE TO THE
WHOLE WORLD; THE RECEIPT
OF THE NOTICE OF SUCH
REVOCATION WHICH WAS
SENT TO ORTIGAS ON MAY 22,
1971 BY ATTY. MARIANO P.
MARCOS AND RECEIVED BY
ORTIGAS ON MAY 24, 1971
(EXH. G) AND THE FILING OF
THE NOTICE WITH THE
SECURITIES AND EXCHANGE
COMMISSION ON MARCH
29,1971 (EXH. H);
E) IN DISCARDING ITS
FINDINGS CONTAINED IN ITS
DECISION OF 14 MARCH 1988
(ANNEX B) THAT ORTIGAS
WAS DULY NOTIFIED OF THE
REVOCATION OF THE POWER
OF ATTORNEY OF
CHOITHRAM, HENCE ORTIGAS
ACTED IN BAD FAITH IN
EXECUTING THE DEED OF
SALE TO THE PROPERTIES IN
AGENCY ACJUCO 2nd MEETING 67
QUESTION IN FAVOR OF
NIRMLA V. RAMNANI;
F) IN SUSTAINING
RESPONDENT ORTIGAS
VACUOUS REHASHED
ARGUMENTS IN ITS MOTION
FOR RECONSIDERATION THAT
IT WOULD NOT GAIN ONE
CENTAVO MORE FROM
CHOITHRAM FOR THE SALE
OF SAID LOTS AND THE
SUBSEQUENT TRANSFER OF
THE SAME TO THE MATTER'S
DAUGHTER-IN-LAW, AND THAT
IT WAS IN GOOD FAITH WHEN
IT TRANSFERRED ISHWAR'S
RIGHTS TO THE LOTS IN
QUESTION.
II
THE RESPONDENT HONORABLE
COURT OF APPEALS HAS SO FAR
DEPARTED FROM THE ACCEPTED
AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE
QUESTIONED AMENDED DECISION
OF 17 NOVEMBER 1988 (ANNEX A)
THAT RESPONDENT ORTIGAS & CO.,
LTD., IS NOT JOINTLY AND
SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES
CHOITHRAM, MOTI AND NIRMLA
RAMNANI IN SPITE OF ITS ORIGINAL
DECISION OF 14 MARCH 1988 THAT
ORTIGAS WAS DULY NOTIFIED OF
THE REVOCATION OF THE POWER
OF ATTORNEY OF CHOITHRAM
RAMNANI.10
The center of controversy is the testimony of
Ishwar that during the latter part of 1965, he
sent the amount of US $150,000.00 to
Choithram in two bank drafts of US$65,000.00
and US$85,000.00 for the purpose of investing
the same in real estate in the Philippines. The
trial court considered this lone testimony
unworthy of faith and credit. On the other hand,
the appellate court found that the trial court
misapprehended the facts in complete
disregard of the evidence, documentary and
testimonial.

Another crucial issue is the claim of Choithram
that because he was then a British citizen, as a
temporary arrangement, he arranged the
purchase of the properties in the name of
Ishwar who was an American citizen and who
was then qualified to purchase property in the
Philippines under the then Parity Amendment.
The trial court believed this account but it was
debunked by the appellate court.
As to the issue of whether of not spouses
Ishwar actually sent US$150,000.00 to
Choithram precisely to be used in the real
estate business, the trial court made the
following disquisition —
After a careful, considered and
conscientious examination of the
evidence adduced in the case at bar,
plaintiff Ishwar Jethmal Ramanani's
main evidence, which centers on the
alleged payment by sending through
registered mail from New York two (2)
US$ drafts of $85,000.00 and
$65,000.00 in the latter part of 1965
(TSN 28 Feb. 1984, p. 10-11). The
sending of these moneys were before
the execution of that General Power of
Attorney, which was dated in New York,
on January 24, 1966. Because of these
alleged remittances of US $150,000.00
and the subsequent acquisition of the
properties in question, plaintiffs averred
that they constituted a trust in favor of
defendant Choithram Jethmal
Ramnani. This Court can be in full
agreement if the plaintiffs were only able
to prove preponderantly these
remittances. The entire record of this
case is bereft of even a shred of proof to
that effect. It is completely barren. His
uncorroborated testimony that he
remitted these amounts in the "later part
of 1965" does not engender enough
faith and credence. Inadequacy of
details of such remittance on the two (2)
US dollar drafts in such big amounts is
completely not positive, credible,
probable and entirely not in accord with
human experience. This is a classic
situation, plaintiffs not exhibiting any
commercial document or any document
and/or paper as regard to these alleged
remittances. Plaintiff Ishwar Ramnani is
not an ordinary businessman in the strict
AGENCY ACJUCO 2nd MEETING 68
sense of the word. Remember his main
business is based in New York, and he
should know better how to send these
alleged remittances. Worst, plaintiffs did
not present even a scum of proof, that
defendant Choithram Ramnani received
the alleged two US dollar drafts.
Significantly, he does not know even the
bank where these two (2) US dollar
drafts were purchased. Indeed, plaintiff
Ishwar Ramnani's lone testimony is
unworthy of faith and credit and,
therefore, deserves scant consideration,
and since the plaintiffs' theory is built or
based on such testimony, their cause of
action collapses or falls with it.
Further, the rate of exchange that time
in 1966 was P4.00 to $1.00. The alleged
two US dollar drafts amounted to
$150,000.00 or about P600,000.00.
Assuming the cash price of the two (2)
lots was only P530,000.00 (ALTHOUGH
he said: "Based on my knowledge I
have no evidence," when asked if he
even knows the cash price of the two
lots). If he were really the true and
bonafide investor and purchaser for
profit as he asserted, he could have
paid the price in full in cash directly and
obtained the title in his name and not
thru "Contracts To Sell" in installments
paying interest and thru an attorney-in
fact (TSN of May 2, 1984, pp. 10-11)
and, again, plaintiff Ishwar Ramnani told
this Court that he does not know
whether or not his late father-in-law
borrowed the two US dollar drafts from
the Swiss Bank or whether or not his
late father-in-law had any debit memo
from the Swiss Bank (TSN of May 2,
1984, pp. 9-10).11
On the other hand, the appellate court, in
giving credence to the version of Ishwar, had
this to say —
While it is true, that generally the
findings of fact of the trial court are
binding upon the appellate courts, said
rule admits of exceptions such as when
(1) the conclusion is a finding grounded
entirely on speculations, surmises and
conjectures; (2) when the inferences
made is manifestly mistaken, absurd

and impossible; (3) when there is grave
abuse of discretion; (4) when the
judgment is based on a Witness can answer.
misapprehension of facts and when the
court, in making its findings, went
beyond the issues of the case and the
same are contrary to the admissions of
both appellant and appellee (Ramos vs.
Court of Appeals, 63 SCRA 33;
Philippine American Life Assurance Co.
vs. Santamaria, 31 SCRA 798; Aldaba
vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t
court acted under a misapprehension of
facts and the inferences made on the
evidence palpably a mistake.
The trial court's observation that "the
entire records of the case is bereft of
even a shred of proof" that plaintiff-
appellants have remitted to defendant-
appellee Choithram Ramnani the
amount of US $ 150,000.00 for
investment in real estate in the
Philippines, is not borne by the evidence
on record and shows the trial court's
misapprehension of the facts if not a
complete disregard of the evidence,
both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal
Ramnani testifying in his own behalf,
declared that during the latter part of
1965, he sent the amount of US
$150,000.00 to his brother Choithram in
two bank drafts of US $65,000.00 and
US $85,000.00 for the purpose of
investing the same in real estate in the
Philippines. His testimony is as follows:
ATTY. MARAPAO:
Mr. Witness, you said that your
attorney-in-fact paid in your
behalf. Can you tell this
Honorable Court where your
attorney-in-fact got the money to
pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes
incompetent or hearsay.
AGENCY ACJUCO 2nd MEETING 69
COURT:
A I paid through my attorney-in-
fact. I am the one who gave him
the money.
ATTY. MARAPAO:
Q You gave him the money?
A That's right.
Q How much money did you give
him?
A US $ 150,000.00.
Q How was it given then?
A Through Bank drafts. US
$65,000.00 and US $85,000.00
bank drafts. The total amount
which is $ 150,000.00 (TSN, 28
February 1984, p. 10; Emphasis
supplied.)
xxx xxx xxx
ATTY. CRUZ:
Q The two bank drafts which you
sent I assume you bought that
from some banks in New York?
A No, sir.
Q But there is no question those
two bank drafts were for the
purpose of paying down payment
and installment of the two parcels
of land?
A Down payment, installment and
to put up the building.
Q I thought you said that the
buildings were constructed . . .
subject to our continuing
objection from rentals of first
building?
ATTY. MARAPAO:

Your Honor, that is misleading.
COURT;
Witness (may) answer.
A Yes, the first building was
immediately put up after the
purchase of the two parcels of
land that was in 1966 and the
finds were used for the
construction of the building from
the US $150,000.00 (TSN, 7
March 1984, page 14; Emphasis
supplied.)
xxx xxx xxx
Q These two bank drafts which
you mentioned and the use for it
you sent them by registered mail,
did you send them from New
Your?
A That is right.
Q And the two bank drafts which
were put in the registered mail,
the registered mail was
addressed to whom?
A Choithram Ramnani. (TSN, 7
March 1984, pp. 14-15).
On cross-examination, the witness
reiterated the remittance of the money
to his brother Choithram, which was
sent to him by his father-in-law,
Rochiram L. Mulchandoni from
Switzerland, a man of immense wealth,
which even defendants-appellees'
witness Navalrai Ramnani admits to be
so (tsn., p. 16, S. Oct. 13, 1985). Thus,
on cross-examination, Ishwar testified
as follows:
Q How did you receive these two
bank drafts from the bank the
name of which you cannot
remember?
A I got it from my father-in-law.
Q From where did your father- in-
law sent these two bank drafts?
AGENCY ACJUCO 2nd MEETING 70
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these
two drafts from Switzerland.
(TSN, 7 March 1984, pp. 16-17;
Emphasis supplied.)
This positive and affirmative testimony
of plaintiff-appellant that he sent the two
(2) bank drafts totalling US $
150,000.00 to his brother, is proof of
said remittance. Such positive testimony
has greater probative force than
defendant-appellee's denial of receipt of
said bank drafts, for a witness who
testifies affirmatively that something did
happen should be believed for it is
unlikely that a witness will remember
what never happened (Underhill's Cr.
Guidance, 5th Ed., Vol. 1, pp. 10-11).
That is not all. Shortly thereafter,
plaintiff-appellant Ishwar Ramnani
executed a General Power of Attorney
(Exhibit "A") dated January 24, 1966
appointing his brothers, defendants-
appellees Navalrai and Choithram as
attorney-in-fact empowering the latter to
conduct and manage plaintiffs-
appellants' business affairs in the
Philippines and specifically—
No. 14. To acquire, purchase for
us, real estates and
improvements for the purpose of
real estate business anywhere in
the Philippines and to develop,
subdivide, improve and to resell
to buying public (individual, firm
or corporation); to enter in any
contract of sale in oar behalf and
to enter mortgages between the
vendees and the herein grantors
that may be needed to finance
the real estate business being
undertaken.
Pursuant thereto, on February 1, 1966
and May 16, 1966, Choithram Jethmal
Ramnani entered into Agreements
(Exhibits "B' and "C") with the other
defendant. Ortigas and Company,

Ltd., for the purchase of two (2) parcels
of land situated at Barrio Ugong, Pasig,
Rizal, with said defendant-appellee
signing the Agreements in his capacity
as Attorney-in-fact of Ishwar Jethmal
Ramnani.
Again, on January 5, 1972, almost
seven (7) years after Ishwar sent the US
$ 150,000.00 in 1965, Choithram
Ramnani, as attorney-in fact of Ishwar
entered into a Contract of Lease with
Sigma-Mariwasa (Exhibit "P") thereby
re-affirming the ownership of Ishwar
over the disputed property and the trust
relationship between the latter as
principal and Choithram as attorney-in-
fact of Ishwar.
All of these facts indicate that if plaintiff-
appellant Ishwar had not earlier sent the
US $ 150,000.00 to his brother,
Choithram, there would be no purpose
for him to execute a power of attorney
appointing his brothers as s attorney-in-
fact in buying real estate in the
Philippines.
As against Choithram's denial that he
did not receive the US $150,000.00
remitted by Ishwar and that the Power of
Attorney, as well as the Agreements
entered into with Ortigas & Co., were
only temporary arrangements, Ishwar's
testimony that he did send the bank
drafts to Choithram and was received by
the latter, is the more credible version
since it is natural, reasonable and
probable. It is in accord with the
common experience, knowledge and
observation of ordinary men (Gardner
vs. Wentors 18 Iowa 533). And in
determining where the superior weight
of the evidence on the issues involved
lies, the court may consider the
probability or improbability of the
testimony of the witness (Sec. 1, Rule
133, Rules of Court).
Contrary, therefore, to the trial court's
sweeping observation that 'the entire
records of the case is bereft of even a
shred of proof that Choithram received
the alleged bank drafts amounting to US
$ 150,000.00, we have not only
AGENCY ACJUCO 2nd MEETING 71
testimonial evidence but also
documentary and circumstantial
evidence proving said remittance of the
money and the fiduciary relationship
between the former and Ishwar.12
The Court agrees. The environmental
circumstances of this case buttress the claim of
Ishwar that he did entrust the amount of US $
150,000.00 to his brother, Choithram, which
the latter invested in the real property business
subject of this litigation in his capacity as
attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in
the possession of Ishwar to evidence the
same, but it is not unusual among brothers and
close family members to entrust money and
valuables to each other without any formalities
or receipt due to the special relationship of
trust between them.
And another proof thereof is the fact that
Ishwar, out of frustration when Choithram failed
to account for the realty business despite his
demands, revoked the general power of
attorney he extended to Choithram and
Navalrai. Thereafter, Choithram wrote a letter
to Ishwar pleading that the power of attorney
be renewed or another authority to the same
effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty.
immediately, because the case
has been postponed for two
weeks. The same way as it has
been send before in favor of both
names. Send it immediately
otherwise everything will be lost
unnecessarily, and then it will
take us in litigation. Now that we
have gone ahead with a case and
would like to end it immediately
otherwise squatters will take the
entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us
because we are holding the
installments, because they have

refused to give a rebate of P5.00
per meter which they have to give
us as per contract. They have
filed the law suit that since we
have not paid the installment they
should get back the land. The
hearing of this case is in the
month of July. Therefore, please
send the power immediately. In
one case DADA (Elder Brother)
will represent and in another one,
I shall.
(3) In case if you do not want to
give power then make one letter
in favor of Dada and the other
one in my favor showing that in
any litigation we can represent
you and your wife, and whatever
the court decide it will be
acceptable by me. You can ask
any lawyer, he will be able to
prepare these letters. After that
you can have these letters ratify
before P.I. Consulate. It should be
dated April 15, 1971.
(4) Try to send the power
because it will be more useful.
Make it in any manner whatever
way you have confident in it. But
please send it immediately.
You have cancelled the power. Therefore, you
have lost your reputation everywhere. What
can I further write you about it. I have told
everybody that due to certain reasons I have
written you to do this that is why you have
done this. This way your reputation have been
kept intact. Otherwise if I want to do something
about it, I can show you that inspite of the
power you have cancelled you can not do
anything. You can keep this letter because my
conscience is clear. I do not have anything in
my mind.
I should not be writing you this, but because
my conscience is clear do you know that if I
had predated papers what could you have
done? Or do you know that I have many paper
signed by you and if had done anything or do
then what can you do about it? It is not
necessary to write further about this. It does
not matter if you have cancelled the power. At
that time if I had predated and done something
AGENCY ACJUCO 2nd MEETING 72
about it what could you have done? You do not
know me. I am not after money. I can earn
money anytime. It has been ten months since I
have not received a single penny for expenses
from Dada (elder brother). Why there are no
expenses? We can not draw a single penny
from knitting (factory). Well I am not going to
write you further, nor there is any need for it.
This much I am writing you because of the way
you have conducted yourself. But remember,
whenever I hale the money I will not keep it
myself Right now I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru.
Otherwise he will discontinue because he likes
to keep his business very clean.13
The said letter was in Sindhi language. It was
translated to English by the First Secretary of
the Embassy of Pakistan, which translation
was verified correct by the Chairman,
Department of Sindhi, University of Karachi.14
From the foregoing letter what could be
gleaned is that—
1. Choithram asked for the issuance of
another power of attorney in their favor
so they can continue to represent
Ishwar as Ortigas has sued them for
unpaid installments. It also appears
therefrom that Ortigas learned of the
revocation of the power of attorney so
the request to issue another.
2. Choithram reassured Ishwar to have
confidence in him as he was not after
money, and that he was not interested in
Ishwar's money.
3. To demonstrate that he can be relied
upon, he said that he could have ante-
dated the sales agreement of the
Ortigas lots before the issuance of the
powers of attorney and acquired the
same in his name, if he wanted to, but
he did not do so.
4. He said he had not received a single
penny for expenses from Dada (their
elder brother Navalrai). Thus, confirming
that if he was not given money by

Ishwar to buy the Ortigas lots, he could
not have consummated the sale.
5. It is important to note that in said
letter Choithram never claimed
ownership of the property in question.
He affirmed the fact that he bought the
same as mere agent and in behalf of
Ishwar. Neither did he mention the
alleged temporary arrangement
whereby Ishwar, being an American
citizen, shall appear to be the buyer of
the said property, but that after
Choithram acquires Philippine
citizenship, its ownership shall be
transferred to Choithram.
This brings us to this temporary arrangement
theory of Choithram.
The appellate court disposed of this matter in
this wise
Choithram's claim that he purchased the
two parcels of land for himself in 1966
but placed it in the name of his younger
brother, Ishwar, who is an American
citizen, as a temporary arrangement,'
because as a British subject he is
disqualified under the 1935 Constitution
to acquire real property in the
Philippines, which is not so with respect
to American citizens in view of the
Ordinance Appended to the Constitution
granting them parity rights, there is
nothing in the records showing that
Ishwar ever agreed to such a temporary
arrangement.
During the entire period from 1965,
when the US $ 150,000. 00 was
transmitted to Choithram, and until
Ishwar filed a complaint against him in
1982, or over 16 years, Choithram
never mentioned of a temporary
arrangement nor can he present any
memorandum or writing evidencing
such temporary arrangement, prompting
plaintiff-appellant to observe:
The properties in question which
are located in a prime industrial
site in Ugong, Pasig, Metro
Manila have a present fair market
value of no less than
AGENCY ACJUCO 2nd MEETING 73
P22,364,000.00 (Exhibits T to T-
14, inclusive), and yet for such
valuable pieces of property,
Choithram who now belatedly
that he purchased the same for
himself did not document in
writing or in a memorandum the
alleged temporary arrangement
with Ishwar' (pp. 4-41, Appellant's
Brief).
Such verbal allegation of a temporary
arrangement is simply improbable and
inconsistent. It has repeatedly been held
that important contracts made without
evidence are highly improbable.
The improbability of such temporary
arrangement is brought to fore when we
consider that Choithram has a son
(Haresh Jethmal Ramnani) who is an
American citizen under whose name the
properties in question could be
registered, both during the time the
contracts to sell were executed and at
the time absolute title over the same
was to be delivered. At the time the
Agreements were entered into with
defendant Ortigas & Co. in 1966,
Haresh, was already 18 years old and
consequently, Choithram could have
executed the deeds in trust for his minor
son. But, he did not do this. Three (3)
years, thereafter, or in 1968 after
Haresh had attained the age of 21,
Choithram should have terminated the
temporary arrangement with Ishwar,
which according to him would be
effective only pending the acquisition of
citizenship papers. Again, he did not do
anything.
Evidence to be believed, said
Vice Chancellor Van Fleet of New
Jersey, must not only proceed
from the mouth of a credible
witness, but it must be credible in
itself—such as the common
experience and observation of
mankind can approve as
probable under the
circumstances. We have no test
of the truth of human testimony,
except its conformity to our
knowledge, observation and

experience. Whatever is
repugnant to these belongs to the
miraculous and is outside of
judicial cognizance. (Daggers vs.
Van Dyek 37 M.J. Eq. 130, 132).
Another factor that can be counted
against the temporary arrangement
excuse is that upon the revocation on
February 4, 1971 of the Power of
attorney dated January 24, 1966 in
favor of Navalrai and Choithram by
Ishwar, Choithram wrote (tsn, p. 21, S.
July 19, 1985) a letter dated June 25,
1971 (Exhibits R, R-1, R-2 and R-3)
imploring Ishwar to execute a new
power of attorney in their favor. That if
he did not want to give power, then
Ishwar could make a letter in favor of
Dada and another in his favor so that in
any litigation involving the properties in
question, both of them could represent
Ishwar and his wife. Choithram tried to
convince Ishwar to issue the power of
attorney in whatever manner he may
want. In said letter no mention was
made at all of any temporary
arrangement.
On the contrary, said letter recognize(s)
the existence of principal and attorney-
in-fact relationship between Ishwar and
himself. Choithram wrote: . . . do you
know that if I had predated papers what
could you have done? Or do you know
that I have many papers signed by you
and if I had done anything or do then
what can you do about it?' Choithram
was saying that he could have
repudiated the trust and ran away with
the properties of Ishwar by predating
documents and Ishwar would be entirely
helpless. He was bitter as a result of
Ishwar's revocation of the power of
attorney but no mention was made of
any temporary arrangement or a claim
of ownership over the properties in
question nor was he able to present any
memorandum or document to prove the
existence of such temporary
arrangement.
Choithram is also estopped in pais or by
deed from claiming an interest over the
properties in question adverse to that of
AGENCY ACJUCO 2nd MEETING 74
Ishwar. Section 3(a) of Rule 131 of the
Rules of Court states that whenever a
party has, by his own declaration, act, or
omission intentionally and deliberately
led another to believe a particular thing
true and act upon such belief, he cannot
in any litigation arising out of such
declaration, act or omission be
permitted to falsify it.' While estoppel by
deed is a bar which precludes a party to
a deed and his privies from asserting as
against the other and his privies any
right of title in derogation of the deed,
or from denying the truth of any material
fact asserted in it (31 C.J.S. 195; 19 Am.
Jur. 603).
Thus, defendants-appellees are not
permitted to repudiate their admissions
and representations or to assert any
right or title in derogation of the deeds
or from denying the truth of any material
fact asserted in the (1) power of
attorney dated January 24, 1966
(Exhibit A); (2) the Agreements of
February 1, 1966 and May 16, 1966
(Exhibits B and C); and (3) the Contract
of Lease dated January 5, 1972 (Exhibit
P).
. . . The doctrine of estoppel is
based upon the grounds of public
policy, fair dealing, good faith and
justice, and its purpose is to
forbid one to speak against his
own act, representations, or
commitments to the injury of one
to whom they were directed and
who reasonably relied thereon.
The doctrine of estoppel springs
from equitable principles and the
equities in the case. It is
designed to aid the law in the
administration of justice where
without its aid injustice might
result. It has been applied by
court wherever and whenever
special circumstances of a case
so demands' (Philippine National
Bank vs. Court of Appeals, 94
SCRA 357, 368 [1979]).
It was only after the services of counsel
has been obtained that Choithram
alleged for the first time in his Answer

that the General Power of attorney
(Annex A) with the Contracts to Sell
(Annexes B and C) were made only for
the sole purpose of assuring
defendants' acquisition and ownership
of the lots described thereon in due time
under the law; that said instruments do
not reflect the true intention of the
parties (par. 2, Answer dated May 30,
1983), seventeen (17) long years from
the time he received the money
transmitted to him by his brother,
Ishwar.
Moreover, Choithram's 'temporary
arrangement,' by which he claimed
purchasing the two (2) parcels in
question in 1966 and placing them in
the name of Ishwar who is an American
citizen, to circumvent the disqualification
provision of aliens acquiring real
properties in the Philippines under the
1935 Philippine Constitution, as
Choithram was then a British subject,
show a palpable disregard of the law of
the land and to sustain the supposed
"temporary arrangement" with Ishwar
would be sanctioning the perpetration of
an illegal act and culpable violation of
the Constitution.
Defendants-appellees likewise violated
the Anti-Dummy Law (Commonwealth
Act 108, as amended), which provides
in Section 1 thereof that:
In all cases in which any
constitutional or legal provision
requires Philippine or any other
specific citizenship as a requisite
for the exercise or enjoyment of a
right, franchise or privilege, . . .
any alien or foreigner profiting
thereby, shall be punished . . . by
imprisonment . . . and of a fine of
not less than the value of the
right, franchise or privileges,
which is enjoyed or acquired in
violation of the provisions hereof .
..
Having come to court with unclean
hands, Choithram must not be permitted
foist his 'temporary arrangement'
scheme as a defense before this court.
AGENCY ACJUCO 2nd MEETING 75
Being in delicto, he does not have any
right whatsoever being shielded from his
own wrong-doing, which is not so with
respect to Ishwar, who was not a party
to such an arrangement.
The falsity of Choithram's defense is
further aggravated by the material
inconsistencies and contradictions in his
testimony. While on January 23, 1985
he testified that he purchased the land
in question on his own behalf (tsn, p. 4,
S. Jan. 23, 1985), in the July 18, 1985
hearing, forgetting probably what he
stated before, Choithram testified that
he was only an attorney-in-fact of Ishwar
(tsn, p. 5, S. July 18, 1985). Also in the
hearing of January 23, 1985, Choithram
declared that nobody rented the building
that was constructed on the parcels of
land in question (tsn, pp. 5 and 6), only
to admit in the hearing of October 30,
1985, that he was in fact renting the
building for P12,000. 00 per annum (tsn,
p. 3). Again, in the hearing of July 19,
1985, Choithram testified that he had no
knowledge of the revocation of the
Power of Attorney (tsn, pp. 20- 21), only
to backtrack when confronted with the
letter of June 25, 1971 (Exhibits R to R-
3), which he admitted to be in "his own
writing," indicating knowledge of the
revocation of the Power of Attorney.
These inconsistencies are not minor but
go into the entire credibility of the
testimony of Choithram and the rule is
that contradictions on a very crucial
point by a witness, renders s testimony
incredible People vs. Rafallo, 80 Phil.
22). Not only this the doctrine of falsus
in uno, falsus in omnibus is fully
applicable as far as the testimony of
Choithram is concerned. The cardinal
rule, which has served in all ages, and
has been applied to all conditions of
men, is that a witness willfully falsifying
the truth in one particular, when upon
oath, ought never to be believed upon
the strength of his own testimony,
whatever he may assert (U.S. vs.
Osgood 27 Feb. Case No. 15971-a, p.
364); Gonzales vs. Mauricio, 52 Phil,
728), for what ground of judicial relief
can there be left when the party has

shown such gross insensibility to the
difference between right and wrong,
between truth and falsehood? (The
Santisima Trinidad, 7 Wheat, 283, 5
U.S. [L. ed.] 454).
True, that Choithram's testimony finds
corroboration from the testimony of his
brother, Navalrai, but the same would
not be of much help to Choithram. Not
only is Navalrai an interested and
biased witness, having admitted his
close relationship with Choithram and
that whenever he or Choithram had
problems, they ran to each other (tsn,
pp. 17-18, S. Sept. 20, 1985), Navalrai
has a pecuniary interest in the success
of Choithram in the case in question.
Both he and Choithram are business
partners in Jethmal and Sons and/or
Jethmal Industries, wherein he owns
60% of the company and Choithram,
40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question
in 1966, Navalrai was occupying 1,200
square meters thereof as a factory site
plus the fact that his son (Navalrais) was
occupying the apartment on top of the
factory with his family rent free except
the amount of P l,000.00 a month to pay
for taxes on said properties (tsn, p. 17,
S. Oct. 3, 1985).
Inherent contradictions also marked
Navalrai testimony. "While the latter was
very meticulous in keeping a receipt for
the P 10,000.00 that he paid Ishwar as
settlement in Jethmal Industries, yet in
the alleged payment of P 100,000.00 to
Ishwar, no receipt or voucher was ever
issued by him (tsn, p. 17, S. Oct. 3,
1983).15
We concur.
The foregoing findings of facts of the Court of
Appeals which are supported by the evidence
is conclusive on this Court. The Court finds that
Ishwar entrusted US$150,000.00 to Choithram
in 1965 for investment in the realty business.
Soon thereafter, a general power of attorney
was executed by Ishwar in favor of both
Navalrai and Choithram. If it is true that the
purpose only is to enable Choithram to
purchase realty temporarily in the name of
AGENCY ACJUCO 2nd MEETING 76
Ishwar, why the inclusion of their elder brother
Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar,
Choithram purchased two parcels of land
located in Barrio Ugong Pasig, Rizal, from
Ortigas in 1966. With the balance of the money
of Ishwar, Choithram erected a building on said
lot. Subsequently, with a loan obtained from a
bank and the income of the said property,
Choithram constructed three other buildings
thereon. He managed the business and
collected the rentals. Due to their relationship
of confidence it was only in 1970 when Ishwar
demanded for an accounting from Choithram.
And even as Ishwar revoked the general power
of attorney on February 4, 1971, of which
Choithram was duly notified, Choithram wrote
to Ishwar on June 25, 1971 requesting that he
execute a new power of attorney in their
favor.16 When Ishwar did not respond thereto,
Choithram nevertheless proceeded as such
attorney-in-fact to assign all the rights and
interest of Ishwar to his daughter-in-law Nirmla
in 1973 without the knowledge and consent of
Ishwar. Ortigas in turn executed the
corresponding deeds of sale in favor of Nirmla
after full payment of the purchase accomplice
of the lots.
In the prefatory statement of their petition,
Choithram pictured Ishwar to be so motivated
by greed and ungratefulness, who squandered
the family business in New York, who had to
turn to his wife for support, accustomed to
living in ostentation and who resorted to
blackmail in filing several criminal and civil
suits against them. These statements find no
support and should be stricken from the
records. Indeed, they are irrelevant to the
proceeding.
Moreover, assuming Ishwar is of such a low
character as Choithram proposes to make this
Court to believe, why is it that of all persons,
under his temporary arrangement theory,
Choithram opted to entrust the purchase of
valuable real estate and built four buildings
thereon all in the name of Ishwar? Is it not an
unconscious emergence of the truth that this
otherwise wayward brother of theirs was on the
contrary able to raise enough capital through
the generosity of his father-in-law for the
purchase of the very properties in question? As
the appellate court aptly observed if truly this

temporary arrangement story is the only
motivation, why Ishwar of all people? Why not
the own son of Choithram, Haresh who is also
an American citizen and who was already 18
years old at the time of purchase in 1966? The
Court agrees with the observation that this
theory is an afterthought which surfaced only
when Choithram, Nirmla and Moti filed their
answer.
When Ishwar asked for an accounting in 1970
and revoked the general power of attorney in
1971, Choithram had a total change of heart.
He decided to claim the property as his. He
caused the transfer of the rights and interest of
Ishwar to Nirmla. On his representation,
Ortigas executed the deeds of sale of the
properties in favor of Nirmla. Choithram
obviously surmised Ishwar cannot stake a valid
claim over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and,
as admitted by Choithram, was intended only
to place the property in her name until
Choithram acquires Philippine
citizenship.17 What appears certain is that it
appears to be a scheme of Choithram to place
the property beyond the reach of Ishwar should
he successfully claim the same. Thus, it must
be struck down.
Worse still, on September 27, 1990 spouses
Ishwar filed an urgent motion for the issuance
of a writ of preliminary attachment and to
require Choithram, et al. to submit certain
documents, inviting the attention of this Court
to the following:
a) Donation by Choithram of his 2,500
shares of stock in General Garments
Corporation in favor of his children on
December 29, 1989;18
b) Sale on August 2, 1990 by Choithram
of his 100 shares in Biflex (Phils.), Inc.,
in favor of his children;19 and
c) Mortgage on June 20, 1989 by Nirmla
through her attorney-in-fact, Choithram,
of the properties subject of this litigation,
for the amount of $3 Million in favor of
Overseas Holding, Co. Ltd., (Overseas
for brevity), a corporation which appears
to be organized and existing under and
by virtue of the laws of Cayman Islands,
AGENCY ACJUCO 2nd MEETING 77
with a capital of only $100.00 divided
into 100 shares of $1.00 each, and with
address at P.O. Box 1790, Grand
Cayman, Cayman Islands.20
An opposition thereto was filed by Choithram,
et al. but no documents were produced. A
manifestation and reply to the opposition was
filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be
fraudulent attempts to remove these properties
to the detriment of spouses Ishwar should the
latter prevail in this litigation.
On December 10, 1990 the court issued a
resolution that substantially reads as follows:
Considering the allegations of
petitioners Ishwar Jethmal Ramnani and
Sonya Ramnani that respondents
Choithram Jethmal Ramnani, Nirmla
Ramnani and Moti G. Ramnani have
fraudulently executed a simulated
mortgage of the properties subject of
this litigation dated June 20, 1989, in
favor of Overseas Holding Co., Ltd.
which appears to be a corporation
organized in Cayman Islands, for the
amount of $ 3,000,000.00, which is
much more than the value of the
properties in litigation; that said alleged
mortgagee appears to be a "shell"
corporation with a capital of only
$100.00; and that this alleged
transaction appears to be intended to
defraud petitioners Ishwar and Sonya
Jethmal Ramnani of any favorable
judgment that this Court may render in
this case;
Wherefore the Court Resolved to issue
a writ of preliminary injunction enjoining
and prohibiting said respondents
Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti G. Ramnani and the
Overseas Holding Co., Ltd. from
encumbering, selling or otherwise
disposing of the properties and
improvements subject of this litigation
until further orders of the Court.
Petitioners Ishwar and Sonya Jethmal
Ramnani are hereby required to post a
bond of P 100,000.00 to answer for any
damages d respondents may suffer by

way of this injunction if the Court finally
decides the said petitioners are not
entitled thereto.
The Overseas Holding Co., Ltd. with
address at P.O. Box 1790 Grand
Cayman, Cayman Islands, is hereby
IMPLEADED as a respondent in these
cases, and is hereby required to
SUBMIT its comment on the Urgent
Motion for the Issuance of a Writ of
Preliminary Attachment and Motion for
Production of Documents, the
Manifestation and the Reply to the
Opposition filed by said petitioners,
within Sixty (60) days after service by
publication on it in accordance with the
provisions of Section 17, Rule 14 of the
Rules of Court, at the expense of
petitioners Ishwar and Sonya Jethmal
Ramnani.
Let copies of this resolution be served
on the Register of Deeds of Pasig,
Rizal, and the Provincial Assessor of
Pasig, Rizal, both in Metro Manila, for its
annotation on the transfer Certificates of
Titles Nos. 403150 and 403152
registered in the name of respondent
Nirmla V. Ramnani, and on the tax
declarations of the said properties and
its improvements subject of this
litigation.21
The required injunction bond in the amount of
P 100,000.00 was filed by the spouses Ishwar
which was approved by the Court. The above
resolution of the Court was published in the
Manila Bulletin issue of December 17, 1990 at
the expense of said spouses.22 On December
19, 1990 the said resolution and petition for
review with annexes in G.R. Nos. 85494 and
85496 were transmitted to respondent
Overseas, Grand Cayman Islands at its
address c/o Cayman Overseas Trust Co. Ltd.,
through the United Parcel Services Bill of
Lading23 and it was actually delivered to said
company on January 23, 1991.24
On January 22, 1991, Choithram, et al., filed a
motion to dissolve the writ of preliminary
injunction alleging that there is no basis
therefor as in the amended complaint what is
sought is actual damages and not a
reconveyance of the property, that there is no
AGENCY ACJUCO 2nd MEETING 78
reason for its issuance, and that acts already
executed cannot be enjoined. They also
offered to file a counterbond to dissolve the
writ.
A comment/opposition thereto was filed by
spouses Ishwar that there is basis for the
injunction as the alleged mortgage of the
property is simulated and the other donations
of the shares of Choithram to his children are
fraudulent schemes to negate any judgment
the Court may render for petitioners.
No comment or answer was filed by Overseas
despite due notice, thus it is and must be
considered to be in default and to have lost the
right to contest the representations of spouses
Ishwar to declare the aforesaid alleged
mortgage nun and void.
This purported mortgage of the subject
properties in litigation appears to be fraudulent
and simulated. The stated amount of $3 Million
for which it was mortgaged is much more than
the value of the mortgaged properties and its
improvements. The alleged mortgagee-
company (Overseas) was organized only on
June 26,1989 but the mortgage was executed
much earlier, on June 20, 1989, that is six (6)
days before Overseas was organized.
Overseas is a "shelf" company worth only
$100.00.25 In the manifestation of spouses
Ishwar dated April 1, 1991, the Court was
informed that this matter was brought to the
attention of the Central Bank (CB) for
investigation, and that in a letter of March 20,
1991, the CB informed counsel for spouses
Ishwar that said alleged foreign loan of
Choithram, et al. from Overseas has not been
previously approved/registered with the CB. 26
Obviously, this is another ploy of Choithram, et
al. to place these properties beyond the reach
of spouses Ishwar should they obtain a
favorable judgment in this case. The Court
finds and so declares that this alleged
mortgage should be as it is hereby declared
null and void.
All these contemporaneous and subsequent
acts of Choithram, et al., betray the weakness
of their cause so they had to take an steps,
even as the case was already pending in
Court, to render ineffective any judgment that
may be rendered against them.

The problem is compounded in that respondent
Ortigas is caught in the web of this bitter fight.
It had all the time been dealing with Choithram
as attorney-in-fact of Ishwar. However,
evidence had been adduced that notice in
writing had been served not only on Choithram,
but also on Ortigas, of the revocation of
Choithram's power of attorney by Ishwar's
lawyer, on May 24, 1971.27 A publication of said
notice was made in the April 2, 1971 issue
of The Manila Times for the information of the
general public.28 Such notice of revocation in a
newspaper of general circulation is sufficient
warning to third persons including Ortigas. 29 A
notice of revocation was also registered with
the Securities and Exchange Commission on
March 29, 1 971.30
Indeed in the letter of Choithram to Ishwar of
June 25, 1971, Choithram was pleading that
Ishwar execute another power of attorney to be
shown to Ortigas who apparently learned of the
revocation of Choithram's power of
31
attorney. Despite said notices, Ortigas
nevertheless acceded to the representation of
Choithram, as alleged attorney-in-fact of
Ishwar, to assign the rights of petitioner Ishwar
to Nirmla. While the primary blame should be
laid at the doorstep of Choithram, Ortigas is not
entirely without fault. It should have required
Choithram to secure another power of attorney
from Ishwar. For recklessly believing the
pretension of Choithram that his power of
attorney was still good, it must, therefore,
share in the latter's liability to Ishwar.
In the original complaint, the spouses Ishwar
asked for a reconveyance of the properties
and/or payment of its present value and
damages.32 In the amended complaint they
asked, among others, for actual damages of
not less than the present value of the real
properties in litigation, moral and exemplary
damages, attorneys fees, costs of the suit and
further prayed for "such other reliefs as may be
deemed just and equitable in the premises .
33
The amended complaint contain the following
positive allegations:
7. Defendant Choithram Ramnani, in
evident bad faith and despite due notice
of the revocation of the General Power
of Attorney, Annex 'D" hereof, caused
the transfer of the rights over the said
parcels of land to his daughter-in-law,
AGENCY ACJUCO 2nd MEETING 79
defendant Nirmla Ramnani in
connivance with defendant Ortigas &
Co., the latter having agreed to the said
transfer despite receiving a letter from
plaintiffs' lawyer informing them of the
said revocation; copy of the letter is
hereto attached and made an integral
part hereof as Annex "H";
8. Defendant Nirmla Ramnani having
acquired the aforesaid property by fraud
is, by force of law, considered a trustee
of an implied trust for the benefit of
plaintiff and is obliged to return the
same to the latter:
9. Several efforts were made to settle
the matter within the family but
defendants (Choithram Ramnani, Nirmla
Ramnani and Moti Ramnani) refused
and up to now fail and still refuse to
cooperate and respond to the same;
thus, the present case;
10. In addition to having been deprived
of their rights over the properties
(described in par. 3 hereof), plaintiffs, by
reason of defendants' fraudulent act,
suffered actual damages by way of lost
rental on the property which defendants
(Choithram Ramnani, Nirmla Ramnani
and Moti Ramnani have collected for
themselves;34
In said amended complaint, spouses Ishwar,
among others, pray for payment of actual
damages in an amount no less than the value
of the properties in litigation instead of a
reconveyance as sought in the original
complaint. Apparently they opted not to insist
on a reconveyance as they are American
citizens as alleged in the amended complaint.
The allegations of the amended complaint
above reproduced clearly spelled out that the
transfer of the property to Nirmla was
fraudulent and that it should be considered to
be held in trust by Nirmla for spouses Ishwar.
As above-discussed, this allegation is well-
taken and the transfer of the property to Nirmla
should be considered to have created an
implied trust by Nirmla as trustee of the
property for the benefit of spouses Ishwar.35

The motion to dissolve the writ of preliminary
injunction filed by Choithram, et al. should be
denied. Its issuance by this Court is proper and
warranted under the circumstances of the
case. Under Section 3(c) Rule 58 of the Rules
of Court, a writ of preliminary injunction may be
granted at any time after commencement of
the action and before judgment when it is
established:
(c) that the defendant is doing,
threatens, or is about to do, or is
procuring or suffering to be done, some
act probably in violation of plaintiffs's
rights respecting the subject of the
action, and tending to render the
judgment ineffectual.
As above extensively discussed, Choithram, et
al. have committed and threaten to commit
further acts of disposition of the properties in
litigation as well as the other assets of
Choithram, apparently designed to render
ineffective any judgment the Court may render
favorable to spouses Ishwar.
The purpose of the provisional remedy of
preliminary injunction is to preserve the status
quo of the things subject of the litigation and to
protect the rights of the spouses Ishwar
respecting the subject of the action during the
pendency of the Suit36 and not to obstruct the
administration of justice or prejudice the
adverse party.37 In this case for damages,
should Choithram, et al. continue to commit
acts of disposition of the properties subject of
the litigation, an award of damages to spouses
Ishwar would thereby be rendered ineffectual
and meaningless.38
Consequently, if only to protect the interest of
spouses Ishwar, the Court hereby finds and
holds that the motion for the issuance of a writ
of preliminary attachment filed by spouses
Ishwar should be granted covering the
properties subject of this litigation.
Section 1, Rule 57 of the Rules of Court
provides that at the commencement of an
action or at any time thereafter, the plaintiff or
any proper party may have the property of the
adverse party attached as security for the
satisfaction of any judgment that may be
recovered, in, among others, the following
cases:
AGENCY ACJUCO 2nd MEETING 80
(d) In an action against a party who has
been guilty of a fraud in contracting the
debt or incurring the obligation upon
which the action is brought, or in
concealing or disposing of the property
for the taking, detention or conversion of
which the action is brought;
(e) In an action against a party who has
removed or disposed of his property, or
is about to do so, with intent to defraud
his creditors; . . .
Verily, the acts of Choithram, et al. of disposing
the properties subject of the litigation disclose
a scheme to defraud spouses Ishwar so they
may not be able to recover at all given a
judgment in their favor, the requiring the
issuance of the writ of attachment in this
instance.
Nevertheless, under the peculiar
circumstances of this case and despite the fact
that Choithram, et al., have committed acts
which demonstrate their bad faith and scheme
to defraud spouses Ishwar and Sonya of their
rightful share in the properties in litigation, the
Court cannot ignore the fact that Choithram
must have been motivated by a strong
conviction that as the industrial partner in the
acquisition of said assets he has as much
claim to said properties as Ishwar, the capitalist
partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied
the capital of $150,000.00 for the
business.1âwphi1 They entrusted the money to
Choithram to invest in a profitable business
venture in the Philippines. For this purpose
they appointed Choithram as their attorney-in-
fact.
Choithram in turn decided to invest in the real
estate business. He bought the two (2) parcels
of land in question from Ortigas as attorney-in-
fact of Ishwar- Instead of paying for the lots in
cash, he paid in installments and used the
balance of the capital entrusted to him, plus a
loan, to build two buildings. Although the
buildings were burned later, Choithram was
able to build two other buildings on the
property. He rented them out and collected the
rentals. Through the industry and genius of
Choithram, Ishwar's property was developed
and improved into what it is now—a valuable

asset worth millions of pesos. As of the last
estimate in 1985, while the case was pending
before the trial court, the market value of the
properties is no less than P22,304,000.00. 39 It
should be worth much more today.
We have a situation where two brothers
engaged in a business venture. One furnished
the capital, the other contributed his industry
and talent. Justice and equity dictate that the
two share equally the fruit of their joint
investment and efforts. Perhaps this Solomonic
solution may pave the way towards their
reconciliation. Both would stand to gain. No
one would end up the loser. After all, blood is
thicker than water.
However, the Court cannot just close its eyes
to the devious machinations and schemes that
Choithram employed in attempting to dispose
of, if not dissipate, the properties to deprive
spouses Ishwar of any possible means to
recover any award the Court may grant in their
favor. Since Choithram, et al. acted with
evident bad faith and malice, they should pay
moral and exemplary damages as well as
attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494
is DENIED, while the petition in G.R. No.
85496 is hereby given due course and
GRANTED. The judgment of the Court of
Appeals dated October 18, 1988 is hereby
modified as follows:
1. Dividing equally between respondents
spouses Ishwar, on the one hand, and
petitioner Choithram Ramnani, on the other, (in
G.R. No. 85494) the two parcels of land
subject of this litigation, including all the
improvements thereon, presently covered by
transfer Certificates of Title Nos. 403150 and
403152 of the Registry of Deeds, as well as the
rental income of the property from 1967 to the
present.
2. Petitioner Choithram Jethmal Ramnani,
Nirmla V. Ramnani, Moti C. Ramnani and
respondent Ortigas and Company, Limited
Partnership (in G.R. No. 85496) are ordered
solidarily to pay in cash the value of said one-
half (1/2) share in the said land and
improvements pertaining to respondents
spouses Ishwar and Sonya at their fair market
value at the time of the satisfaction of this
AGENCY ACJUCO 2nd MEETING 81
judgment but in no case less than their value
as appraised by the Asian Appraisal, Inc. in its
Appraisal Report dated August 1985 (Exhibits
T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti
Ramnani and respondent Ortigas & Co., Ltd.
Partnership shall also be jointly and severally
liable to pay to said respondents spouses
Ishwar and Sonya Ramnani one-half (1/2) of
the total rental income of said properties and
improvements from 1967 up to the date of
satisfaction of the judgment to be computed as
follows:
a. On Building C occupied by
Eppie's Creation and Jethmal
Industries from 1967 to 1973,
inclusive, based on the 1967 to
1973 monthly rentals paid by
Eppie's Creation;
b. Also on Building C above,
occupied by Jethmal Industries
and Lavine from 1974 to 1978,
the rental incomes based on then
rates prevailing as shown under
Exhibit "P"; and from 1979 to
1981, based on then prevailing
rates as indicated under Exhibit
"Q";
c. On Building A occupied by
Transworld Knitting Mills from
1972 to 1978, the rental incomes
based upon then prevailing rates
shown under Exhibit "P", and
from 1979 to 1981, based on
prevailing rates per Exhibit "Q";
d. On the two Bays Buildings
occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals
based on the Lease Contract,
Exhibit "P", and from 1979 to
1980, the rentals based on the
Lease Contract, Exhibit "Q".
and thereafter commencing 1982, to account
for and turn over the rental incomes paid or
ought to be paid for the use and occupancy of
the properties and all improvements totalling
10,048 sq. m., based on the rate per square
meter prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing
 AGENCY ACJUCO 2nd MEETING 82

1985 and up to the satisfaction of the
judgment, rentals shall be computed at ten
percent (10%) annually of the fair market
values of the properties as appraised by the
Asian Appraisals, Inc. in August 1985. (Exhibits
T to T-14, inclusive.)
Nirmla V. Ramnani, Moti C. Ramnani and
Ortigas, Co., Ltd. Partnership. Said petitioners
Choithram, et al. and respondent Ortigas shall
also pay the costs.
SO ORDERED.

4. To determine the market value of the

properties at the time of the satisfaction of this
judgment and the total rental incomes thereof,
the trial court is hereby directed to hold a
hearing with deliberate dispatch for this
purpose only and to have the judgment
immediately executed after such determination.

5. Petitioners Choithram, Nirmla and Moti, all

surnamed Ramnani, are also jointly and
severally liable to pay respondents Ishwar and
Sonya Ramnani the amount of P500,000.00 as
moral damages, P200,000.00 as exemplary
damages and attorney's fees equal to 10% of
the total award. to said respondents spouses.

6. The motion to dissolve the writ of preliminary

injunction dated December 10, 1990 filed by
petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, is hereby DENIED and
the said injunction is hereby made permanent.
Let a writ of attachment be issued and levied
against the properties and improvements
subject of this litigation to secure the payment
of the above awards to spouses Ishwar and
Sonya.

7. The mortgage constituted on the subject

property dated June 20, 1989 by petitioners
Choithram and Nirmla, both surnamed
Ramnani in favor of respondent Overseas
Holding, Co. Ltd. (in G.R. No. 85496) for the
amount of $3-M is hereby declared null and
void. The Register of Deeds of Pasig, Rizal, is
directed to cancel the annotation of d mortgage
on the titles of the properties in question.

8. Should respondent Ortigas Co., Ltd.

Partnership pay the awards to Ishwar and
Sonya Ramnani under this judgment, it shall be
entitled to reimbursement from petitioners
Choithram, Nirmla and Moti, all surnamed
Ramnani.

9. The above awards shag bear legal rate of

interest of six percent (6%) per annum from the
time this judgment becomes final until they are
fully paid by petitioners Choithram Ramnani,

G.R. No. L-41420 July 10, 1992
CMS LOGGING, INC., petitioner,
vs.
THE COURT OF APPEALS and D.R.
AGUINALDO CORPORATION, respondents.
NOCON, J.:
This is a petition for review on certiorari from
the decision dated July 31, 1975 of the Court of
Appeals in CA-G.R. No. 47763-R which
affirmed in toto the decision of the Court of
First Instance of Manila, Branch VII, in Civil
Case No. 56355 dismissing the complaint filed
by petitioner CMS Logging, Inc. (CMS, for
brevity) against private respondent D.R.
Aguinaldo Corporation (DRACOR, for brevity)
and ordering the former to pay the latter
attorney's fees in the amount of P1,000.00 and
the costs.
The facts of the case are as follows: Petitioner
CMS is a forest concessionaire engaged in the
logging business, while private respondent
DRACOR is engaged in the business of
exporting and selling logs and lumber. On
August 28, 1957, CMS and DRACOR entered
into a contract of agency 1 whereby the former
appointed the latter as its exclusive export and
sales agent for all logs that the former may
produce, for a period of five (5) years. The
pertinent portions of the agreement, which was
drawn up by DRACOR, 2 are as follows:
1. SISON [CMS] hereby appoints
DRACOR as his sole and
exclusive export sales agent with
full authority, subject to the
conditions and limitations
hereinafter set forth, to sell and
export under a firm sales contract
acceptable to SISON, all logs
produced by SISON for a period
of five (5) years commencing
upon the execution of the
agreement and upon the terms
and conditions hereinafter
provided and DRACOR hereby
accepts such appointment;
xxx xxx xxx
AGENCY ACJUCO 2nd MEETING 83
3. It is expressly agreed that
DRACOR shall handle
exclusively all negotiations of all
export sales of SISON with the
buyers and arrange the
procurement and schedules of
the vessel or vessels for the
shipment of SISON's logs in
accordance with SISON's written
requests, but DRACOR shall not
in anyway [sic] be liable or
responsible for any delay, default
or failure of the vessel or vessels
to comply with the schedules
agreed upon;
xxx xxx xxx
9. It is expressly agreed by the
parties hereto that DRACOR
shall receive five (5%) per cent
commission of the gross sales of
logs of SISON based on F.O.B.
invoice value which commission
shall be deducted from the
proceeds of any and/or all
moneys received by DRACOR for
and in behalf and for the account
of SISON;
By virtue of the aforesaid agreement, CMS was
able to sell through DRACOR a total of
77,264,672 board feet of logs in Japan, from
September 20, 1957 to April 4, 1962.
About six months prior to the expiration of the
agreement, while on a trip to Tokyo, Japan,
CMS's president, Atty. Carlos Moran Sison,
and general manager and legal counsel, Atty.
Teodoro R. Dominguez, discovered that
DRACOR had used Shinko Trading Co., Ltd.
(Shinko for brevity) as agent, representative or
liaison officer in selling CMS's logs in Japan for
which Shinko earned a commission of U.S.
$1.00 per 1,000 board feet from the buyer of
the logs. Under this arrangement, Shinko was
able to collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to
Shinko was in violation of the agreement and
that it (CMS) is entitled to this amount as part
of the proceeds of the sale of the logs. CMS
contended that since DRACOR had been paid
the 5% commission under the agreement, it is

no longer entitled to the additional commission
paid to Shinko as this tantamount to DRACOR
receiving double compensation for the services
it rendered.
After this discovery, CMS sold and shipped
logs valued at U.S. $739,321.13 or
P2,883,351.90, 4 directly to several firms in
Japan without the aid or intervention of
DRACOR.
CMS sued DRACOR for the commission
received by Shinko and for moral and
exemplary damages, while DRACOR
counterclaimed for its commission, amounting
to P144,167.59, from the sales made by CMS
of logs to Japanese firms. In its reply, CMS
averred as a defense to the counterclaim that
DRACOR had retained the sum of
P101,167.59 as part of its commission for the
sales made by CMS. 5 Thus, as its
counterclaim to DRACOR's counterclaim, CMS
demanded DRACOR return the amount it
unlawfully retained. DRACOR later filed an
amended counterclaim, alleging that the
balance of its commission on the sales made
by CMS was P42,630.82, 6 thus impliedly
admitting that it retained the amount alleged by
CMS.
In dismissing the complaint, the trial court ruled
that no evidence was presented to show that
Shinko received the commission of U.S.
$77,264.67 arising from the sale of CMS's logs
in Japan, though the trial court stated that
"Shinko was able to collect the total amount of
$77,264.67 US Dollars (Exhs. M and M-
1)." 7 The counterclaim was likewise dismissed,
as it was shown that DRACOR had waived its
rights to the balance of its commission in a
letter dated February 2, 1963 to Atty. Carlos
Moran Sison, president of CMS. 8 From said
decision, only CMS appealed to the Court of
Appeals.
The Court of Appeals, in a 3 to 2
decision, 9 affirmed the dismissal of the
complaint since "[t]he trial court could not have
made a categorical finding that Shinko
collected commissions from the buyers of
Sison's logs in Japan, and could not have held
that Sison is entitled to recover from Dracor the
amount collected by Shinko as commissions,
plaintiff-appellant having failed to prove by
competent evidence its claims." 10
AGENCY ACJUCO 2nd MEETING 84
Moreover, the appellate court held:
There is reason to believe that
Shinko Trading Co. Ltd., was paid
by defendant-appellee out of its
own commission of 5%, as
indicated in the letter of its
president to the president of
Sison, dated February 2, 1963
(Exhibit "N"), and in the
Agreement between Aguinaldo
Development Corporation
(ADECOR) and Shinko Trading
Co., Ltd. (Exhibit "9"). Daniel R.
Aguinaldo stated in his said letter:
. . . , I informed you that if you
wanted to pay me for the service,
then it would be no more than at
the standard rate of 5%
commission because in our own
case, we pay our Japanese
agents 2-1/2%. Accordingly, we
would only add a similar amount
of 2-1/2% for the service which
we would render you in the
Philippines. 11
Aggrieved, CMS appealed to this Court by way
of a petition for review on certiorari, alleging (1)
that the Court of Appeals erred in not making a
complete findings of fact; (2) that the testimony
of Atty. Teodoro R. Dominguez, regarding the
admission by Shinko's president and director
that it collected a commission of U.S. $1.00 per
1,000 board feet of logs from the Japanese
buyers, is admissible against DRACOR; (3)
that the statement of DRACOR's chief legal
counsel in his memorandum dated May 31,
1965, Exhibit "K", is an admission that Shinko
was able to collect the commission in question;
(4) that the fact that Shinko received the
questioned commissions is deemed admitted
by DRACOR by its silence under Section 23,
Rule 130 of the Rules of Court when it failed to
reply to Atty. Carlos Moran Sison's letter dated
February 6, 1962; (5) that DRACOR is not
entitled to its 5% commission arising from the
direct sales made by CMS to buyers in Japan;
and (6) that DRACOR is guilty of fraud and bad
faith in its dealings with CMS.

With regard to CMS's arguments concerning
whether or not Shinko received the
commission in question, We find the same
unmeritorious.
To begin with, these arguments question the
findings of fact made by the Court of Appeals,
which are final and conclusive and can not be
reviewed on appeal to the Supreme Court. 12
Moreover, while it is true that the evidence
adduced establishes the fact that Shinko is
DRACOR's agent or liaison in Japan, 13 there is
no evidence which established the fact that
Shinko did receive the amount of U.S.
$77,264.67 as commission arising from the
sale of CMS's logs to various Japanese firms.
The fact that Shinko received the commissions
in question was not established by the
testimony of Atty. Teodoro R. Dominguez to the
effect that Shinko's president and director told
him that Shinko received a commission of U.S.
$1.00 for every 1,000 board feet of logs sold,
since the same is hearsay. Similarly, the letter
of Mr. K. Shibata of Toyo Menka Kaisha,
Ltd. 14 is also hearsay since Mr. Shibata was
not presented to testify on his letter.
CMS's other evidence have little or no
probative value at all. The statements made in
the memorandum of Atty. Simplicio R. Ciocon
to DRACOR dated May 31, 1965, 15 the letter
dated February 2, 1963 of Daniel
16
R. Aguinaldo, president of DRACOR, and the
reply-letter dated January 9, 1964 17 by
DRACOR's counsel Atty. V. E. Del Rosario to
CMS's demand letter dated September 25,
1963 can not be categorized as admissions
that Shinko did receive the commissions in
question.
The alleged admission made by Atty. Ciocon,
to wit —
Furthermore, as per our records,
our shipment of logs to Toyo
Menka Kaisha, Ltd., is only for a
net volume of 67,747,732 board
feet which should enable Shinko
to collect a commission of US
$67,747.73 only
can not be considered as such since the
statement was made in the context of
AGENCY ACJUCO 2nd MEETING 85
questioning CMS's tally of logs delivered
to various Japanese firms.
Similarly, the statement of Daniel R. Aguinaldo,
to wit —
. . . Knowing as we do that Toyo
Menka is a large and reputable
company, it is obvious that they
paid Shinko for certain services
which Shinko must have
satisfactorily performed for them
in Japan otherwise they would
not have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper,
therefore, for CMS Logging, Inc.,
as principal, to concern itself with,
much less question, the right of
Shinko Trading Co., Ltd. with
which our client debt directly, to
whatever benefits it might have
derived form the ultimate
consumer/buyer of these logs,
Toyo Menka Kaisha, Ltd. There
appears to be no justification for
your client's contention that these
benefits, whether they can be
considered as commissions paid
by Toyo Menka Kaisha to Shinko
Trading, are to be regarded part
of the gross sales.
can not be considered admissions that
Shinko received the questioned
commissions since neither statements
declared categorically that Shinko did in
fact receive the commissions and that
these arose from the sale of CMS's logs.
As correctly stated by the appellate court:

It is a rule that "a statement is not
competent as an admission
where it does not, under a
reasonable construction, appear
to admit or acknowledge the fact
which is sought to be proved by
it". An admission or declaration to
be competent must have been
expressed in definite, certain and
unequivocal language (Bank of
the Philippine Islands vs. Fidelity
& Surety Co., 51 Phil. 57, 64). 18
CMS's contention that DRACOR had admitted
by its silence the allegation that Shinko
received the commissions in question when it
failed to respond to Atty. Carlos Moran Sison's
letter dated February 6, 1963, is not supported
by the evidence. DRACOR did in fact reply to
the letter of Atty. Sison, through the letter dated
March 5, 1963 of F.A. Novenario, 19 which
stated:
This is to acknowledge receipt of
your letter dated February 6,
1963, and addressed to Mr. D. R.
Aguinaldo, who is at present out
of the country.
xxx xxx xxx
We have no record or knowledge
of any such payment of
commission made by Toyo
Menka to Shinko. If the payment
was made by Toyo Menka to
Shinko, as stated in your letter,
we knew nothing about it and had
nothing to do with it.
The finding of fact made by the trial court, i.e.,
that "Shinko was able to collect the total
amount of $77,264.67 US Dollars," can not be
given weight since this was based on the
summary prepared by CMS itself, Exhibits "M"
and "M-1".
Moreover, even if it was shown that Shinko did
in fact receive the commissions in question,
CMS is not entitled thereto since these were
apparently paid by the buyers to Shinko for
arranging the sale. This is therefore not part of
the gross sales of CMS's logs.
AGENCY ACJUCO 2nd MEETING 86
However, We find merit in CMS's contention
that the appellate court erred in holding that
DRACOR was entitled to its commission from
the sales made by CMS to Japanese firms.
The principal may revoke a contract of agency
at will, and such revocation may be express, or
implied, 20 and may be availed of even if the
period fixed in the contract of agency as not yet
expired. 21 As the principal has this absolute
right to revoke the agency, the agent can not
object thereto; neither may he claim damages
arising from such revocation, 22 unless it is
shown that such was done in order to evade
the payment of agent's commission. 23
In the case at bar, CMS appointed DRACOR
as its agent for the sale of its logs to Japanese
firms. Yet, during the existence of the contract
of agency, DRACOR admitted that CMS sold
its logs directly to several Japanese firms. This
act constituted an implied revocation of the
contract of agency under Article 1924 of the
Civil Code, which provides:
Art. 1924 The agency is revoked
if the principal directly manages
the business entrusted to the
agent, dealing directly with third
persons.
In New Manila Lumber Company, Inc. vs.
Republic of the Philippines, 24 this Court ruled
that the act of a contractor, who, after
executing powers of attorney in favor of
another empowering the latter to collect
whatever amounts may be due to him from the
Government, and thereafter demanded and
collected from the government the money the
collection of which he entrusted to his attorney-
in-fact, constituted revocation of the agency in
favor of the attorney-in-fact.
 AGENCY ACJUCO 2nd MEETING 87

Since the contract of agency was revoked by

CMS when it sold its logs to Japanese firms
without the intervention of DRACOR, the latter
is no longer entitled to its commission from the
proceeds of such sale and is not entitled to
retain whatever moneys it may have received
as its commission for said transactions. Neither
would DRACOR be entitled to collect damages
from CMS, since damages are generally not
awarded to the agent for the revocation of the
agency, and the case at bar is not one falling
under the exception mentioned, which is to
evade the payment of the agent's commission.

Regarding CMS's contention that the Court of

Appeals erred in not finding that DRACOR had
committed acts of fraud and bad faith, We find
the same unmeritorious. Like the contention
involving Shinko and the questioned
commissions, the findings of the Court of
Appeals on the matter were based on its
appreciation of the evidence, and these
findings are binding on this Court.

In fine, We affirm the ruling of the Court of

Appeals that there is no evidence to support
CMS's contention that Shinko earned a
separate commission of U.S. $1.00 for every
1,000 board feet of logs from the buyer of
CMS's logs. However, We reverse the ruling of
the Court of Appeals with regard to DRACOR's
right to retain the amount of P101,536.77 as
part of its commission from the sale of logs by
CMS, and hold that DRACOR has no right to
its commission. Consequently, DRACOR is
hereby ordered to remit to CMS the amount of
P101,536.77.

WHEREFORE, the decision appealed from is

hereby MODIFIED as stated in the preceding
paragraph. Costs de officio.

SO ORDERED.

G.R. No. 141525 September 2, 2005
CARLOS SANCHEZ, Petitioners,
vs.
MEDICARD PHILIPPINES, INC., DR.
NICANOR MONTOYA and CARLOS
EJERCITO, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
This petition for review on certiorari seeks to
reverse the Decision1 of the Court of Appeals
dated February 24, 1999 and its Resolution
dated January 12, 2000 in CA-G.R. CV No.
47681.
The facts, as established by the trial court and
affirmed by the Court of Appeals, follow:
Sometime in 1987, Medicard Philippines, Inc.
(Medicard), respondent, appointed petitioner
as its special corporate agent. As such agent,
Medicard gave him a commission based on the
"cash brought in."
In September, 1988, through petitioner’s
efforts, Medicard and United Laboratories
Group of Companies (Unilab) executed a
Health Care Program Contract. Under this
contract, Unilab shall pay Medicard a fixed
monthly premium for the health insurance of its
personnel. Unilab paid Medicard
₱4,148,005.00 representing the premium for
one (1) year. Medicard then handed petitioner
18% of said amount or ₱746,640.90
representing his commission.
Again, through petitioner’s initiative, the agency
contract between Medicard and Unilab was
renewed for another year, or from October 1,
1989 to September 30, 1990, incorporating
therein the increase of premium from
₱4,148,005.00 to ₱7,456,896.00. Medicard
paid petitioner ₱1,342,241.00 as his
commission.
Prior to the expiration of the renewed contract,
Medicard proposed to Unilab, through
petitioner, an increase of the premium for the
next year. Unilab rejected the proposal "for the
reason that it was too high," prompting Dr.
Nicanor Montoya (Medicard’s president and
AGENCY ACJUCO 2nd MEETING 88
general manager), also a respondent, to
request petitioner to reduce his commission,
but the latter refused.
In a letter dated October 3, 1990, Unilab,
through Carlos Ejercito, another respondent,
confirmed its decision not to renew the health
program contract with Medicard.
Meanwhile, in order not to prejudice its
personnel by the termination of their health
insurance, Unilab, through respondent Ejercito,
negotiated with Dr. Montoya and other officers
of Medicard, to discuss ways in order to
continue the insurance coverage of those
personnel.
Under the new scheme, Unilab shall pay
Medicard only the amount corresponding to the
actual hospitalization expenses incurred by
each personnel plus 15% service fee for using
Medicard facilities, which amount shall not be
less than ₱780,000.00.
Medicard did not give petitioner any
commission under the new scheme.
In a letter dated March 15, 1991, petitioner
demanded from Medicard payment of
₱338,000.00 as his commission plus damages,
but the latter refused to heed his demand.
Thus, petitioner filed with the Regional Trial
Court (RTC), Branch 66, Makati City, a
complaint for sum of money against Medicard,
Dr. Nicanor Montoya and Carlos Ejercito,
herein respondents.
After hearing, the RTC rendered its Decision
dismissing petitioner’s complaint and
respondents’ counterclaim.
On appeal, the Court of Appeals affirmed the
trial court’s assailed Decision. The Appellate
Court held that there is no proof that the
execution of the new contract between the
parties under the "cost plus" system is a
strategy to deprive petitioner of his
commission; that Medicard did not commit any
fraudulent act in revoking its agency contract
with Sanchez; that when Unilab rejected
Medicard’s proposal for an increase of
premium, their Health Care Program Contract
on its third year was effectively revoked; and

that where the contract is ineffectual, then the
agent is not entitled to a commission.
Petitioner filed a motion for reconsideration, but
this was denied by the Court of Appeals on
January 12, 2000.
Hence, the instant petition for review
on certiorari.
The basic issue for our resolution is whether
the Court of Appeals erred in holding that the
contract of agency has been revoked by
Medicard, hence, petitioner is not entitled to a
commission.
It is dictum that in order for an agent to be
entitled to a commission, he must be the
procuring cause of the sale, which simply
means that the measures employed by him
and the efforts he exerted must result in a
sale.2 In other words, an agent receives his
commission only upon the successful
conclusion of a sale.3 Conversely, it follows that
where his efforts are unsuccessful, or there
was no effort on his part, he is not entitled to a
commission.
In Prats vs. Court of Appeals,4 this Court held
that for the purpose of equity, an agent who is
not the efficient procuring cause is nonetheless
entitled to his commission, where said agent,
notwithstanding the expiration of his authority,
nonetheless, took diligent steps to bring
back together the parties, such that a sale
was finalized and consummated between
them. In Manotok Borthers vs. Court of
Appeals,5 where the Deed of Sale was only
executed after the agent’s extended authority
had expired, this Court, applying its ruling
in Prats, held that the agent (in Manotok) is
entitled to a commission since he was the
efficient procuring cause of the sale,
notwithstanding that the sale took place after
his authority had lapsed. The proximate, close,
and causal connection between the agent’s
efforts and the principal’s sale of his property
can not be ignored.
It may be recalled that through petitioner’s
efforts, Medicard was able to enter into a one-
year Health Care Program Contract with
Unilab. As a result, Medicard paid petitioner his
commission. Again, through his efforts, the
contract was renewed and once more, he
AGENCY ACJUCO 2nd MEETING 89
received his commission. Before the expiration
of the renewed contract, Medicard, through
petitioner, proposed an increase in premium,
but Unilab rejected this proposal. Medicard
then requested petitioner to reduce his
commission should the contract be renewed on
its third year, but he was obstinate. Meantime,
on October 3, 1990, Unilab informed Medicard
it was no longer renewing the Health Care
Program contract.
In order not to prejudice its personnel, Unilab,
through respondent Ejercito, negotiated with
respondent Dr. Montoya of Medicard, in order
to find mutually beneficial ways of continuing
the Health Care Program. The negotiations
resulted in a new contract wherein Unilab shall
pay Medicard the hospitalization expenses
actually incurred by each employees, plus a
service fee. Under the "cost plus" system which
replaced the premium scheme, petitioner was
not given a commission.
It is clear that since petitioner refused to
reduce his commission, Medicard directly
negotiated with Unilab, thus revoking its
agency contract with petitioner. We hold that
such revocation is authorized by Article 1924 of
the Civil Code which provides:
"Art. 1924. The agency is revoked if the
principal directly manages the business
entrusted to the agent, dealing directly with
third persons."
Moreover, as found by the lower courts,
petitioner did not render services to Medicard,
his principal, to entitle him to a commission.
There is no indication from the records that he
exerted any effort in order that Unilab and
Medicard, after the expiration of the Health
Care Program Contract, can renew it for the
third time. In fact, his refusal to reduce his
commission constrained Medicard to negotiate
directly with Unilab. We find no reason in law or
in equity to rule that he is entitled to a
commission. Obviously, he was not the agent
or the "procuring cause" of the third Health
Care Program Contract between Medicard and
Unilab.
WHEREFORE, the petition is DENIED. The
challenged Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 47681
 AGENCY ACJUCO 2nd MEETING 90

are AFFIRMED IN TOTO. Costs against

petitioner. SO ORDERED.

G.R. No. 161757 January 25, 2006
SUNACE INTERNATIONAL MANAGEMENT
SERVICES, INC.Petitioner,
vs.
NATIONAL LABOR RELATIONS
COMMISSION, Second Division; HON.
ERNESTO S. DINOPOL, in his capacity as
Labor Arbiter, NLRC; NCR, Arbitration
Branch, Quezon City and DIVINA A.
MONTEHERMOZO,Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner, Sunace International Management
Services (Sunace), a corporation duly
organized and existing under the laws of the
Philippines, deployed to Taiwan Divina A.
Montehermozo (Divina) as a domestic helper
under a 12-month contract effective February
1, 1997.1 The deployment was with the
assistance of a Taiwanese broker, Edmund
Wang, President of Jet Crown International
Co., Ltd.
After her 12-month contract expired on
February 1, 1998, Divina continued working for
her Taiwanese employer, Hang Rui Xiong, for
two more years, after which she returned to the
Philippines on February 4, 2000.
Shortly after her return or on February 14,
2000, Divina filed a complaint2 before the
National Labor Relations Commission (NLRC)
against Sunace, one Adelaide Perez, the
Taiwanese broker, and the employer-foreign
principal alleging that she was jailed for three
months and that she was underpaid.
The following day or on February 15, 2000,
Labor Arbitration Associate Regina T. Gavin
issued Summons3 to the Manager of Sunace,
furnishing it with a copy of Divina’s complaint
and directing it to appear for mandatory
conference on February 28, 2000.
The scheduled mandatory conference was
reset. It appears to have been concluded,
however.
On April 6, 2000, Divina filed her Position
Paper4 claiming that under her original one-
AGENCY ACJUCO 2nd MEETING 91
year contract and the 2-year extended contract
which was with the knowledge and consent of
Sunace, the following amounts representing
income tax and savings were deducted:
Deduction for Deduction for
Year
Income Tax Savings
199
NT10,450.00 NT23,100.00
7
199
NT9,500.00 NT36,000.00
8
199
NT13,300.00 NT36,000.00;5
9
and while the amounts deducted in 1997 were
refunded to her, those deducted in 1998 and
1999 were not. On even date, Sunace, by its
Proprietor/General Manager Maria Luisa
Olarte, filed its Verified Answer and Position
Paper,6claiming as follows, quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR THE
REFUND OF HER 24 MONTHS SAVINGS
3. Complainant could not anymore claim nor
entitled for the refund of her 24 months savings
as she already took back her saving already
last year and the employer did not deduct any
money from her salary, in accordance with
a Fascimile Message from the respondent
SUNACE’s employer, Jet Crown International
Co. Ltd., a xerographic copy of which is
herewith attached as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO
REFUND OF HER 14 MONTHS TAX AND
PAYMENT OF ATTORNEY’S FEES
4. There is no basis for the grant of tax refund
to the complainant as the she finished her one
year contract and hence, was not illegally
dismissed by her employer. She could only lay
claim over the tax refund or much more be
awarded of damages such as attorney’s fees
as said reliefs are available only when the
dismissal of a migrant worker is without just
valid or lawful cause as defined by law or
contract.
The rationales behind the award of tax refund
and payment of attorney’s fees is not to enrich
the complainant but to compensate him for
actual injury suffered. Complainant did not

suffer injury, hence, does not deserve to be
compensated for whatever kind of damages.
Hence, the complainant has NO cause of
action against respondent SUNACE for
monetary claims, considering that she has
been totally paid of all the monetary benefits
due her under her Employment Contract to her
full satisfaction.
6. Furthermore, the tax deducted from her
salary is in compliance with the Taiwanese law,
which respondent SUNACE has no control and
complainant has to obey and this Honorable
Office has no authority/jurisdiction to intervene
because the power to tax is a sovereign power
which the Taiwanese Government is supreme
in its own territory. The sovereign power of
taxation of a state is recognized under
international law and among sovereign states.
7. That respondent SUNACE respectfully
reserves the right to file supplemental Verified
Answer and/or Position Paper to substantiate
its prayer for the dismissal of the above case
against the herein respondent. AND BY WAY
OF -
x x x x (Emphasis and underscoring supplied)
Reacting to Divina’s Position Paper, Sunace
filed on April 25, 2000 an ". . . answer to
complainant’s position paper"7alleging that
Divina’s 2-year extension of her contract was
without its knowledge and consent, hence, it
had no liability attaching to any claim arising
therefrom, and Divina in fact executed a
Waiver/Quitclaim and Release of Responsibility
and an Affidavit of Desistance, copy of each
document was annexed to said ". . . answer to
complainant’s position paper."
To Sunace’s ". . . answer to complainant’s
position paper," Divina filed a 2-page
reply,8 without, however, refuting Sunace’s
disclaimer of knowledge of the extension of her
contract and without saying anything about the
Release, Waiver and Quitclaim and Affidavit of
Desistance.
The Labor Arbiter, rejected Sunace’s claim that
the extension of Divina’s contract for two more
years was without its knowledge and consent
in this wise:
AGENCY ACJUCO 2nd MEETING 92
We reject Sunace’s submission that it should
not be held responsible for the amount
withheld because her contract was extended
for 2 more years without its knowledge and
consent because as Annex "B"9 shows, Sunace
and Edmund Wang have not stopped
communicating with each other and yet the
matter of the contract’s extension
and Sunace’s alleged non-consent thereto has
not been categorically established.
What Sunace should have done was to write to
POEA about the extension and its objection
thereto, copy furnished the complainant
herself, her foreign employer, Hang Rui Xiong
and the Taiwanese broker, Edmund Wang.
And because it did not, it is presumed to have
consented to the extension and should be
liable for anything that resulted thereform
(sic).10 (Underscoring supplied)
The Labor Arbiter rejected too Sunace’s
argument that it is not liable on account of
Divina’s execution of a Waiver and Quitclaim
and an Affidavit of Desistance. Observed the
Labor Arbiter:
Should the parties arrive at any agreement as
to the whole or any part of the dispute, the
same shall be reduced to writing and signed by
the parties and their respective counsel (sic), if
any, before the Labor Arbiter.
The settlement shall be approved by the Labor
Arbiter after being satisfied that it was
voluntarily entered into by the parties and after
having explained to them the terms and
consequences thereof.
A compromise agreement entered into by the
parties not in the presence of the Labor Arbiter
before whom the case is pending shall be
approved by him, if after confronting the
parties, particularly the complainants, he is
satisfied that they understand the terms and
conditions of the settlement and that it was
entered into freely voluntarily (sic) by them and
the agreement is not contrary to law, morals,
and public policy.
And because no consideration is indicated in
the documents, we strike them down as
contrary to law, morals, and public policy.11

He accordingly decided in favor of Divina, by
decision of October 9, 2000,12 the dispositive
portion of which reads:
Wherefore, judgment is hereby rendered
ordering respondents SUNACE
INTERNATIONAL SERVICES and its owner
ADELAIDA PERGE, both in their personal
capacities and as agent of Hang Rui
Xiong/Edmund Wang to jointly and severally
pay complainant DIVINA A.
MONTEHERMOZO the sum of NT91,950.00 in
its peso equivalent at the date of payment, as
refund for the amounts which she is hereby
adjudged entitled to as earlier discussed plus
10% thereof as attorney’s fees since compelled
to litigate, complainant had to engage the
services of counsel.
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution
of April 30, 2002,14 affirmed the Labor Arbiter’s
decision.
Via petition for certiorari,15 Sunace elevated the
case to the Court of Appeals which dismissed it
outright by Resolution of November 12,
2002,16 the full text of which reads:
The petition for certiorari faces outright
dismissal.
The petition failed to allege facts constitutive of
grave abuse of discretion on the part of the
public respondent amounting to lack of
jurisdiction when the NLRC affirmed the Labor
Arbiter’s finding that petitioner Sunace
International Management Services impliedly
consented to the extension of the contract of
private respondent Divina A. Montehermozo. It
is undisputed that petitioner was continually
communicating with private respondent’s
foreign employer (sic). As agent of the foreign
principal, "petitioner cannot profess ignorance
of such extension as obviously, the act of the
principal extending
complainant (sic) employment contract
necessarily bound it." Grave abuse of
discretion is not present in the case at bar.
ACCORDINGLY, the petition
hereby DENIED DUE
COURSE and DISMISSED.17
AGENCY ACJUCO 2nd MEETING 93
SO ORDERED.
(Emphasis on words in capital letters in the
original; emphasis on words in small letters
and underscoring supplied)
Its Motion for Reconsideration having been
denied by the appellate court by Resolution of
January 14, 2004,18Sunace filed the present
petition for review on certiorari.
The Court of Appeals affirmed the Labor Arbiter
and NLRC’s finding that Sunace knew of and
impliedly consented to the extension of Divina’s
2-year contract. It went on to state that "It is
undisputed that [Sunace] was continually
communicating with [Divina’s] foreign
employer." It thus concluded that "[a]s agent of
the foreign principal, ‘petitioner cannot profess
ignorance of such extension as obviously, the
act of the principal extending complainant (sic)
employment contract necessarily bound it.’"
Contrary to the Court of Appeals finding, the
alleged continuous communication was with
the Taiwanese brokerWang, not with the
foreign employer Xiong.
The February 21, 2000 telefax message from
the Taiwanese broker to Sunace,
the only basis of a finding of continuous
communication, reads verbatim:
xxxx
Regarding to Divina, she did not say
anything about her saving in police
station. As we contact with her employer,
she took back her saving already last
years. And they did not deduct any money
from her salary. Or she will call back her
employer to check it again. If her
employer said yes! we will get it back for
her.
Thank you and best regards.
(Sgd.)
Edmund Wang
President19
is
The finding of the Court of Appeals solely on
the basis of the above-quoted telefax

message, that Sunace continually
communicated with the foreign "principal"
(sic) and therefore was aware of and had
consented to the execution of the extension of
the contract is misplaced. The message does
not provide evidence that Sunace was privy to
the new contract executed after the expiration
on February 1, 1998 of the original contract.
That Sunace and the
Taiwanese broker communicated regarding
Divina’s allegedly withheld savings does not
necessarily mean that Sunace ratified the
extension of the contract. As Sunace points out
in its Reply20 filed before the Court of Appeals,
As can be seen from that letter communication,
it was just an information given to the petitioner
that the private respondent had t[aken] already
her savings from her foreign employer and that
no deduction was made on her salary. It
contains nothing about the extension or the
petitioner’s consent thereto.21
Parenthetically, since the telefax message is
dated February 21, 2000, it is safe to assume
that it was sent to enlighten Sunace who had
been directed, by Summons issued on
February 15, 2000, to appear on February 28,
2000 for a mandatory conference following
Divina’s filing of the complaint on February 14,
2000.
Respecting the Court of Appeals
following dictum:
As agent of its foreign principal, [Sunace]
cannot profess ignorance of such an extension
as obviously, the act of its principal extending
[Divina’s] employment contract necessarily
bound it,22
it too is a misapplication, a misapplication of
the theory of imputed knowledge.
The theory of imputed knowledge ascribes the
knowledge of the agent, Sunace, to the
principal, employer Xiong, not the other way
around.23 The knowledge of the principal-
foreign employer cannot, therefore, be imputed
to its agent Sunace.
There being no substantial proof that Sunace
knew of and consented to be bound under the
2-year employment contract extension, it
cannot be said to be privy thereto. As such, it
AGENCY ACJUCO 2nd MEETING 94
and its "owner" cannot be held solidarily liable
for any of Divina’s claims arising from the 2-
year employment extension. As the New Civil
Code provides,
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.24
Furthermore, as Sunace correctly points out,
there was an implied revocation of its agency
relationship with its foreign principal when,
after the termination of the original employment
contract, the foreign principal directly
negotiated with Divina and entered into a new
and separate employment contract in Taiwan.
Article 1924 of the New Civil Code reading
The agency is revoked if the principal directly
manages the business entrusted to the agent,
dealing directly with third persons.
thus applies.
In light of the foregoing discussions,
consideration of the validity of the Waiver and
Affidavit of Desistance which Divina executed
in favor of Sunace is rendered unnecessary.
WHEREFORE, the petition is GRANTED. The
challenged resolutions of the Court of Appeals
are hereby REVERSED and SET ASIDE. The
complaint of respondent
Divina A. Montehermozo against petitioner
is DISMISSED.
SO ORDERED.

G.R. No. 175885 February 13, 2009
ZENAIDA G. MENDOZA, Petitioner,
vs.
ENGR. EDUARDO PAULE, ENGR.
ALEXANDER COLOMA and NATIONAL
IRRIGATION ADMINISTRATION (NIA
MUÑOZ, NUEVA ECIJA), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176271 February 13, 2009
MANUEL DELA CRUZ Petitioner,
vs.
ENGR. EDUARDO M. PAULE, ENGR.
ALEXANDER COLOMA and NATIONAL
IRRIGATION ADMINISTRATION (NIA
MUÑOZ, NUEVA ECIJA), Respondents.
DECISION
YNARES-SANTIAGO, J.:
These consolidated petitions assail the August
28, 2006 Decision1 of the Court of Appeals in
CA-G.R. CV No. 80819 dismissing the
complaint in Civil Case No. 18-SD (2000),2 and
its December 11, 2006 Resolution 3 denying the
herein petitioners’ motion for reconsideration.
Engineer Eduardo M. Paule (PAULE) is the
proprietor of E.M. Paule Construction and
Trading (EMPCT). On May 24, 1999, PAULE
executed a special power of attorney (SPA)
authorizing Zenaida G. Mendoza (MENDOZA)
to participate in the pre-qualification and
bidding of a National Irrigation Administration
(NIA) project and to represent him in all
transactions related thereto, to wit:
1. To represent E.M. PAULE
CONSTRUCTION & TRADING of which
I (PAULE) am the General Manager in
all my business transactions with
National Irrigation Authority, Muñoz,
Nueva Ecija.
2. To participate in the bidding, to secure
bid bonds and other documents pre-
requisite in the bidding of Casicnan
Multi-Purpose Irrigation and Power Plant
(CMIPPL 04-99), National Irrigation
Authority, Muñoz, Nueva Ecija.
AGENCY ACJUCO 2nd MEETING 95
3. To receive and collect payment in
check in behalf of E.M. PAULE
CONSTRUCTION & TRADING.
4. To do and perform such acts and
things that may be necessary and/or
required to make the herein authority
effective.4
On September 29, 1999, EMPCT, through
MENDOZA, participated in the bidding of the
NIA-Casecnan Multi-Purpose Irrigation and
Power Project (NIA-CMIPP) and was awarded
Packages A-10 and B-11 of the NIA-CMIPP
Schedule A. On November 16, 1999,
MENDOZA received the Notice of Award which
was signed by Engineer Alexander M. Coloma
(COLOMA), then Acting Project Manager for
the NIA-CMIPP. Packages A-10 and B-11
involved the construction of a road system,
canal structures and drainage box culverts with
a project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that
MENDOZA is in need of heavy equipment for
use in the NIA project, he met up with
MENDOZA in Bayuga, Muñoz, Nueva Ecija, in
an apartment where the latter was holding
office under an EMPCT signboard. A series of
meetings followed in said EMPCT office among
CRUZ, MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and
CRUZ signed two Job Orders/Agreements 5 for
the lease of the latter’s heavy equipment
(dump trucks for hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked6 the SPA he
previously issued in favor of MENDOZA;
consequently, NIA refused to make payment to
MENDOZA on her billings. CRUZ, therefore,
could not be paid for the rent of the equipment.
Upon advice of MENDOZA, CRUZ addressed
his demands for payment of lease rentals
directly to NIA but the latter refused to
acknowledge the same and informed CRUZ
that it would be remitting payment only to
EMPCT as the winning contractor for the
project.

In a letter dated April 5, 2000, CRUZ
demanded from MENDOZA and/or EMPCT
payment of the outstanding rentals which
amounted to P726,000.00 as of March 31,
2000.
On June 30, 2000, CRUZ filed Civil Case No.
18-SD (2000) with Branch 37 of the Regional
Trial Court of Nueva Ecija, for collection of sum
of money with damages and a prayer for the
issuance of a writ of preliminary injunction
against PAULE, COLOMA and the NIA. PAULE
in turn filed a third-party complaint against
MENDOZA, who filed her answer thereto, with
a cross-claim against PAULE.
MENDOZA alleged in her cross-claim that
because of PAULE’s "whimsical revocation" of
the SPA, she was barred from collecting
payments from NIA, thus resulting in her
inability to fund her checks which she had
issued to suppliers of materials, equipment and
labor for the project. She claimed that estafa
and B.P. Blg. 22 cases were filed against her;
that she could no longer finance her children’s
education; that she was evicted from her
home; that her vehicle was foreclosed upon;
and that her reputation was destroyed, thus
entitling her to actual and moral damages in
the respective amounts of P3 million and P1
million.
Meanwhile, on August 23, 2000, PAULE again
constituted MENDOZA as his attorney-in-fact –
1. To represent me (PAULE), in my
capacity as General Manager of the
E.M. PAULE CONSTRUCTION AND
TRADING, in all meetings, conferences
and transactions exclusively for the
construction of the projects known as
Package A-10 of Schedule A and
Package No. B-11 Schedule B, which
are 38.61% and 63.18% finished as of
June 21, 2000, per attached
Accomplishment Reports x x x;
2. To implement, execute, administer
and supervise the said projects in
whatever stage they are in as of to date,
to collect checks and other payments
due on said projects and act as the
Project Manager for E.M. PAULE
CONSTRUCTION AND TRADING;
AGENCY ACJUCO 2nd MEETING 96
3. To do and perform such acts and
things that may be necessary and
required to make the herein power and
authority effective.7
At the pre-trial conference, the other parties
were declared as in default and CRUZ was
allowed to present his evidence ex parte.
Among the witnesses he presented was
MENDOZA, who was impleaded as defendant
in PAULE’s third-party complaint.
On March 6, 2003, MENDOZA filed a motion to
declare third-party plaintiff PAULE non-suited
with prayer that she be allowed to present her
evidence ex parte.
However, without resolving MENDOZA’s
motion to declare PAULE non-suited, and
without granting her the opportunity to present
her evidence ex parte, the trial court rendered
its decision dated August 7, 2003, the
dispositive portion of which states, as follows:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff as follows:
1. Ordering defendant Paule to pay the
plaintiff the sum of P726,000.00 by way
of actual damages or compensation for
the services rendered by him;
2. Ordering defendant Paule to pay
plaintiff the sum of P500,000.00 by way
of moral damages;
3. Ordering defendant Paule to pay
plaintiff the sum of P50,000.00 by way of
reasonable attorney’s fees;
4. Ordering defendant Paule to pay the
costs of suit; and
5. Ordering defendant National Irrigation
Administration (NIA) to withhold the
balance still due from it to defendant
Paule/E.M. Paule Construction and
Trading under NIA-CMIPP Contract
Package A-10 and to pay plaintiff
therefrom to the extent of defendant
Paule’s liability herein adjudged.
SO ORDERED.8

In holding PAULE liable, the trial court found
that MENDOZA was duly constituted as
EMPCT’s agent for purposes of the NIA project
and that MENDOZA validly contracted with
CRUZ for the rental of heavy equipment that
was to be used therefor. It found unavailing
PAULE’s assertion that MENDOZA merely
borrowed and used his contractor’s license in
exchange for a consideration of 3% of the
aggregate amount of the project. The trial court
held that through the SPAs he executed,
PAULE clothed MENDOZA with apparent
authority and held her out to the public as his
agent; as principal, PAULE must comply with
the obligations which MENDOZA contracted
within the scope of her authority and for his
benefit. Furthermore, PAULE knew of the
transactions which MENDOZA entered into
since at various times when she and CRUZ
met at the EMPCT office, PAULE was present
and offered no objections. The trial court
declared that it would be unfair to allow PAULE
to enrich himself and disown his acts at the
expense of CRUZ.
PAULE and MENDOZA both appealed the trial
court’s decision to the Court of Appeals.
PAULE claimed that he did not receive a copy
of the order of default; that it was improper for
MENDOZA, as third-party defendant, to have
taken the stand as plaintiff CRUZ’s witness;
and that the trial court erred in finding that an
agency was created between him and
MENDOZA, and that he was liable as principal
thereunder.
On the other hand, MENDOZA argued that the
trial court erred in deciding the case without
affording her the opportunity to present
evidence on her cross-claim against PAULE;
that, as a result, her cross-claim against
PAULE was not resolved, leaving her unable to
collect the amounts of P3,018,864.04,
P500,000.00, and P839,450.88 which allegedly
represent the unpaid costs of the project and
the amount PAULE received in excess of
payments made by NIA.
On August 28, 2006, the Court of Appeals
rendered the assailed Decision which
dismissed CRUZ’s complaint, as well as
MENDOZA’s appeal. The appellate court held
that the SPAs issued in MENDOZA’s favor did
not grant the latter the authority to enter into
AGENCY ACJUCO 2nd MEETING 97
contract with CRUZ for hauling services; the
SPAs limit MENDOZA’s authority to only
represent EMPCT in its business transactions
with NIA, to participate in the bidding of the
project, to receive and collect payment in
behalf of EMPCT, and to perform such acts as
may be necessary and/or required to make the
said authority effective. Thus, the engagement
of CRUZ’s hauling services was done beyond
the scope of MENDOZA’s authority.
As for CRUZ, the Court of Appeals held that he
knew the limits of MENDOZA’s authority under
the SPAs yet he still transacted with her.
Citing Manila Memorial Park Cemetery, Inc. v.
Linsangan,9 the appellate court declared that
the principal (PAULE) may not be bound by the
acts of the agent (MENDOZA) where the third
person (CRUZ) transacting with the agent
knew that the latter was acting beyond the
scope of her power or authority under the
agency.
With respect to MENDOZA’s appeal, the Court
of Appeals held that when the trial court
rendered judgment, not only did it rule on the
plaintiff’s complaint; in effect, it resolved the
third-party complaint as well;10 that the trial
court correctly dismissed the cross-claim and
did not unduly ignore or disregard it; that
MENDOZA may not claim, on appeal, the
amounts of P3,018,864.04, P500,000.00, and
P839,450.88 which allegedly represent the
unpaid costs of the project and the amount
PAULE received in excess of payments made
by NIA, as these are not covered by her cross-
claim in the court a quo, which seeks
reimbursement only of the amounts of P3
million and P1 million, respectively, for actual
damages (debts to suppliers, laborers, lessors
of heavy equipment, lost personal property)
and moral damages she claims she suffered as
a result of PAULE’s revocation of the SPAs;
and that the revocation of the SPAs is a
prerogative that is allowed to PAULE under
Article 192011 of the Civil Code.
CRUZ and MENDOZA’s motions for
reconsideration were denied; hence, these
consolidated petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in
sustaining the trial court’s failure to

resolve her motion praying that PAULE
be declared non-suited on his third-party
complaint, as well as her motion seeking
that she be allowed to present
evidence ex parte on her cross-claim;
b) The Court of Appeals erred when it
sanctioned the trial court’s failure to
resolve her cross-claim against PAULE;
and,
c) The Court of Appeals erred in its
application of Article 1920 of the Civil
Code, and in adjudging that MENDOZA
had no right to claim actual damages
from PAULE for debts incurred on
account of the SPAs issued to her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of
Appeals is contrary to the provisions of law on
agency, and conflicts with the Resolution of the
Court in G.R. No. 173275, which affirmed the
Court of Appeals’ decision in CA-G.R. CV No.
81175, finding the existence of an agency
relation and where PAULE was declared as
MENDOZA’s principal under the subject SPAs
and, thus, liable for obligations (unpaid
construction materials, fuel and heavy
equipment rentals) incurred by the latter for the
purpose of implementing and carrying out the
NIA project awarded to EMPCT.
CRUZ argues that MENDOZA was acting
within the scope of her authority when she
hired his services as hauler of debris because
the NIA project (both Packages A-10 and B-11
of the NIA-CMIPP) consisted of construction of
canal structures, which involved the clearing
and disposal of waste, acts that are necessary
and incidental to PAULE’s obligation under the
NIA project; and that the decision in a civil case
involving the same SPAs, where PAULE was
found liable as MENDOZA’s principal already
became final and executory; that in Civil Case
No. 90-SD filed by MENDOZA against
PAULE,12 the latter was adjudged liable to the
former for unpaid rentals of heavy equipment
and for construction materials which
MENDOZA obtained for use in the subject NIA
project. On September 15, 2003, judgment was
rendered in said civil case against PAULE, to
wit:
AGENCY ACJUCO 2nd MEETING 98
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff (MENDOZA) and against
the defendant (PAULE) as follows:
1. Ordering defendant Paule to pay
plaintiff the sum of P138,304.00
representing the obligation incurred by
the plaintiff with LGH Construction;
2. Ordering defendant Paule to pay
plaintiff the sum of P200,000.00
representing the balance of the
obligation incurred by the plaintiff with
Artemio Alejandrino;
3. Ordering defendant Paule to pay
plaintiff the sum of P520,000.00 by way
of moral damages, and further sum of
P100,000.00 by way of exemplary
damages;
4. Ordering defendant Paule to pay
plaintiff the sum of P25,000.00 as for
attorney’s fees; and
5. To pay the cost of suit.13
PAULE appealed14 the above decision, but it
was dismissed by the Court of Appeals in a
Decision15 which reads, in part:
As to the finding of the trial court that the
principle of agency is applicable in this case,
this Court agrees therewith. It must be
emphasized that appellant (PAULE) authorized
appellee (MENDOZA) to perform any and all
acts necessary to make the business
transaction of EMPCT with NIA effective.
Needless to state, said business transaction
pertained to the construction of canal
structures which necessitated the utilization of
construction materials and
equipments.1avvphi1 Having given said
authority, appellant cannot be allowed to turn
its back on the transactions entered into by
appellee in behalf of EMPCT.
The amount of moral damages and attorney’s
fees awarded by the trial court being justifiable
and commensurate to the damage suffered by
appellee, this Court shall not disturb the same.
It is well-settled that the award of damages as
well as attorney’s fees lies upon the discretion
of the court in the context of the facts and
circumstances of each case.

WHEREFORE, the appeal is DISMISSED and
the appealed Decision is AFFIRMED.
SO ORDERED.16
PAULE filed a petition to this Court docketed as
G.R. No. 173275 but it was denied with finality
on September 13, 2006.
MENDOZA, for her part, claims that she has a
right to be heard on her cause of action as
stated in her cross-claim against PAULE; that
the trial court’s failure to resolve the cross-
claim was a violation of her constitutional right
to be apprised of the facts or the law on which
the trial court’s decision is based; that PAULE
may not revoke her appointment as attorney-
in-fact for and in behalf of EMPCT because, as
manager of their partnership in the NIA project,
she was obligated to collect from NIA the funds
to be used for the payment of suppliers and
contractors with whom she had earlier
contracted for labor, materials and equipment.
PAULE, on the other hand, argues in his
Comment that MENDOZA’s authority under the
SPAs was for the limited purpose of securing
the NIA project; that MENDOZA was not
authorized to contract with other parties with
regard to the works and services required for
the project, such as CRUZ’s hauling services;
that MENDOZA acted beyond her authority in
contracting with CRUZ, and PAULE, as
principal, should not be made civilly liable to
CRUZ under the SPAs; and that MENDOZA
has no cause of action against him for actual
and moral damages since the latter exceeded
her authority under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more
appropriately, EMPCT) and MENDOZA had
entered into a partnership in regard to the NIA
project. PAULE‘s contribution thereto is his
contractor’s license and expertise, while
MENDOZA would provide and secure the
needed funds for labor, materials and services;
deal with the suppliers and sub-contractors;
and in general and together with PAULE,
oversee the effective implementation of the
project. For this, PAULE would receive as his
share three per cent (3%) of the project cost
while the rest of the profits shall go to
AGENCY ACJUCO 2nd MEETING 99
MENDOZA. PAULE admits to this arrangement
in all his pleadings.17
Although the SPAs limit MENDOZA’s authority
to such acts as representing EMPCT in its
business transactions with NIA, participating in
the bidding of the project, receiving and
collecting payment in behalf of EMPCT, and
performing other acts in furtherance thereof,
the evidence shows that when MENDOZA and
CRUZ met and discussed (at the EMPCT office
in Bayuga, Muñoz, Nueva Ecija) the lease of
the latter’s heavy equipment for use in the
project, PAULE was present and interposed no
objection to MENDOZA’s actuations. In his
pleadings, PAULE does not even deny this.
Quite the contrary, MENDOZA’s actions were
in accord with what she and PAULE originally
agreed upon, as to division of labor and
delineation of functions within their partnership.
Under the Civil Code, every partner is an agent
of the partnership for the purpose of its
business;18 each one may separately execute
all acts of administration, unless a specification
of their respective duties has been agreed
upon, or else it is stipulated that any one of
them shall not act without the consent of all the
others.19 At any rate, PAULE does not have
any valid cause for opposition because his only
role in the partnership is to provide his
contractor’s license and expertise, while the
sourcing of funds, materials, labor and
equipment has been relegated to MENDOZA.
Moreover, it does not speak well for PAULE
that he reinstated MENDOZA as his attorney-
in-fact, this time with broader powers to
implement, execute, administer and supervise
the NIA project, to collect checks and other
payments due on said project, and act as the
Project Manager for EMPCT, even after CRUZ
has already filed his complaint. Despite
knowledge that he was already being sued on
the SPAs, he proceeded to execute another in
MENDOZA’s favor, and even granted her
broader powers of administration than in those
being sued upon. If he truly believed that
MENDOZA exceeded her authority with
respect to the initial SPA, then he would not
have issued another SPA. If he thought that his
trust had been violated, then he should not
have executed another SPA in favor of
MENDOZA, much less grant her broader
authority.

Given the present factual milieu, CRUZ has a
cause of action against PAULE and
MENDOZA. Thus, the Court of Appeals erred
in dismissing CRUZ’s complaint on a finding of
exceeded agency. Besides, that PAULE could
be held liable under the SPAs for transactions
entered into by MENDOZA with laborers,
suppliers of materials and services for use in
the NIA project, has been settled with finality in
G.R. No. 173275. What has been adjudged in
said case as regards the SPAs should be made
to apply to the instant case. Although the said
case involves different parties and
transactions, it finally disposed of the matter
regarding the SPAs – specifically their effect as
among PAULE, MENDOZA and third parties
with whom MENDOZA had contracted with by
virtue of the SPAs – a disposition that should
apply to CRUZ as well. If a particular point or
question is in issue in the second action, and
the judgment will depend on the determination
of that particular point or question, a former
judgment between the same parties or their
privies will be final and conclusive in the
second if that same point or question was in
issue and adjudicated in the first suit. Identity
of cause of action is not required but merely
identity of issues.20
There was no valid reason for PAULE to
revoke MENDOZA’s SPAs. Since MENDOZA
took care of the funding and sourcing of labor,
materials and equipment for the project, it is
only logical that she controls the finances,
which means that the SPAs issued to her were
necessary for the proper performance of her
role in the partnership, and to discharge the
obligations she had already contracted prior to
revocation. Without the SPAs, she could not
collect from NIA, because as far as it is
concerned, EMPCT – and not the PAULE-
MENDOZA partnership – is the entity it had
contracted with. Without these payments from
NIA, there would be no source of funds to
complete the project and to pay off obligations
incurred. As MENDOZA correctly argues, an
agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling
an obligation already contracted, or if a partner
is appointed manager of a partnership in the
contract of partnership and his removal from
the management is unjustifiable.21
PAULE’s revocation of the SPAs was done in
evident bad faith. Admitting all throughout that
AGENCY ACJUCO 2nd MEETING 100
his only entitlement in the partnership with
MENDOZA is his 3% royalty for the use of his
contractor’s license, he knew that the rest of
the amounts collected from NIA was owing to
MENDOZA and suppliers of materials and
services, as well as the laborers. Yet, he
deliberately revoked MENDOZA’s authority
such that the latter could no longer collect from
NIA the amounts necessary to proceed with the
project and settle outstanding
obligations.lawphil.net
From the way he conducted himself, PAULE
committed a willful and deliberate breach of his
contractual duty to his partner and those with
whom the partnership had contracted. Thus,
PAULE should be made liable for moral
damages.
Bad faith does not simply connote bad
judgment or negligence; it imputes a dishonest
purpose or some moral obliquity and conscious
doing of a wrong; a breach of a sworn duty
through some motive or intent or ill-will; it
partakes of the nature of fraud (Spiegel v.
Beacon Participation, 8 NE 2nd Series, 895,
1007). It contemplates a state of mind
affirmatively operating with furtive design or
some motive of self-interest or ill will for ulterior
purposes (Air France v. Carrascoso, 18 SCRA
155, 166-167). Evident bad faith connotes a
manifest deliberate intent on the part of the
accused to do wrong or cause damage.22
Moreover, PAULE should be made civilly liable
for abandoning the partnership, leaving
MENDOZA to fend for her own, and for unduly
revoking her authority to collect payments from
NIA, payments which were necessary for the
settlement of obligations contracted for and
already owing to laborers and suppliers of
materials and equipment like CRUZ, not to
mention the agreed profits to be derived from
the venture that are owing to MENDOZA by
reason of their partnership agreement. Thus,
the trial court erred in disregarding and
dismissing MENDOZA’s cross-claim – which is
properly a counterclaim, since it is a claim
made by her as defendant in a third-party
complaint – against PAULE, just as the
appellate court erred in sustaining it on the
justification that PAULE’s revocation of the
SPAs was within the bounds of his discretion
under Article 1920 of the Civil Code.
 AGENCY ACJUCO 2nd MEETING 101

Where the defendant has interposed a

counterclaim (whether compulsory or
permissive) or is seeking affirmative relief by a
cross-complaint, the plaintiff cannot dismiss the
action so as to affect the right of the defendant
in his counterclaim or prayer for affirmative
relief. The reason for that exception is clear.
When the answer sets up an independent
action against the plaintiff, it then becomes an
action by the defendant against the plaintiff,
and, of course, the plaintiff has no right to ask
for a dismissal of the defendant’s action. The
present rule embodied in Sections 2 and 3 of
Rule 17 of the 1997 Rules of Civil Procedure
ordains a more equitable disposition of the
counterclaims by ensuring that any judgment
thereon is based on the merit of the
counterclaim itself and not on the survival of
the main complaint. Certainly, if the
counterclaim is palpably without merit or
suffers jurisdictional flaws which stand
independent of the complaint, the trial court is
not precluded from dismissing it under the
amended rules, provided that the judgment or
order dismissing the counterclaim is premised
on those defects. At the same time, if the
counterclaim is justified, the amended rules
now unequivocally protect such counterclaim
from peremptory dismissal by reason of the
dismissal of the complaint.23

Notwithstanding the immutable character of

PAULE’s liability to MENDOZA, however, the
exact amount thereof is yet to be determined
by the trial court, after receiving evidence for
and in behalf of MENDOZA on her
counterclaim, which must be considered
pending and unresolved.

WHEREFORE, the petitions are GRANTED.

The August 28, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 80819 dismissing
the complaint in Civil Case No. 18-SD (2000)
and its December 11, 2006 Resolution denying
the motion for reconsideration are REVERSED
and SET ASIDE. The August 7, 2003 Decision
of the Regional Trial Court of Nueva Ecija,
Branch 37 in Civil Case No. 18-SD (2000)
finding PAULE liable is REINSTATED, with the
MODIFICATION that the trial court is
ORDERED to receive evidence on the
counterclaim of petitioner Zenaida G.
Mendoza.

SO ORDERED.

G.R. No. 83122 October 19, 1990
ARTURO P. VALENZUELA and
HOSPITALITA N. VALENZUELA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS,
BIENVENIDO M. ARAGON, ROBERT E.
PARNELL, CARLOS K. CATOLICO and THE
PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., respondents.
Albino B. Achas for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for
private respondents.
GUTIERREZ, JR., J.:
This is a petition for review of the January 29,
1988 decision of the Court of Appeals and the
April 27, 1988 resolution denying the
petitioners' motion for reconsideration, which
decision and resolution reversed the decision
dated June 23,1986 of the Court of First
Instance of Manila, Branch 34 in Civil Case No.
121126 upholding the petitioners' causes of
action and granting all the reliefs prayed for in
their complaint against private respondents.
The antecedent facts of the case are as
follows:
Petitioner Arturo P. Valenzuela (Valenzuela for
short) is a General Agent of private respondent
Philippine American General Insurance
Company, Inc. (Philamgen for short) since
1965. As such, he was authorized to solicit and
sell in behalf of Philamgen all kinds of non-life
insurance, and in consideration of services
rendered was entitled to receive the full agent's
commission of 32.5% from Philamgen under
the scheduled commission rates (Exhibits "A"
and "1"). From 1973 to 1975, Valenzuela
solicited marine insurance from one of his
clients, the Delta Motors, Inc. (Division of
Electronics Airconditioning and Refrigeration)
in the amount of P4.4 Million from which he
was entitled to a commission of 32% (Exhibit
"B"). However, Valenzuela did not receive his
full commission which amounted to P1.6 Million
from the P4.4 Million insurance coverage of the
Delta Motors. During the period 1976 to 1978,
AGENCY ACJUCO 2nd MEETING 102
premium payments amounting to
P1,946,886.00 were paid directly to Philamgen
and Valenzuela's commission to which he is
entitled amounted to P632,737.00.
In 1977, Philamgen started to become
interested in and expressed its intent to share
in the commission due Valenzuela (Exhibits
"III" and "III-1") on a fifty-fifty basis (Exhibit
"C"). Valenzuela refused (Exhibit "D").
On February 8, 1978 Philamgen and its
President, Bienvenido M. Aragon insisted on
the sharing of the commission with Valenzuela
(Exhibit E). This was followed by another
sharing proposal dated June 1, 1978. On June
16,1978, Valenzuela firmly reiterated his
objection to the proposals of respondents
stating that: "It is with great reluctance that I
have to decline upon request to signify my
conformity to your alternative proposal
regarding the payment of the commission due
me. However, I have no choice for to do
otherwise would be violative of the Agency
Agreement executed between our goodselves."
(Exhibit B-1)
Because of the refusal of Valenzuela,
Philamgen and its officers, namely: Bienvenido
Aragon, Carlos Catolico and Robert E. Parnell
took drastic action against Valenzuela. They:
(a) reversed the commission due him by not
crediting in his account the commission earned
from the Delta Motors, Inc. insurance (Exhibit
"J" and "2"); (b) placed agency transactions on
a cash and carry basis; (c) threatened the
cancellation of policies issued by his agency
(Exhibits "H" to "H-2"); and (d) started to leak
out news that Valenzuela has a substantial
account with Philamgen. All of these acts
resulted in the decline of his business as
insurance agent (Exhibits "N", "O", "K" and "K-
8"). Then on December 27, 1978, Philamgen
terminated the General Agency Agreement of
Valenzuela (Exhibit "J", pp. 1-3, Decision Trial
Court dated June 23, 1986, Civil Case No.
121126, Annex I, Petition).
The petitioners sought relief by filing the
complaint against the private respondents in
the court a quo (Complaint of January 24,
1979, Annex "F" Petition). After due
proceedings, the trial court found:
 AGENCY ACJUCO 2nd MEETING 103
xxx xxx xxx
Defendants tried to justify the
termination of plaintiff Arturo P.
Valenzuela as one of defendant
PHILAMGEN's General Agent by
making it appear that plaintiff
Arturo P. Valenzuela has a
substantial account with
defendant PHILAMGEN
particularly Delta Motors, Inc.'s
Account, thereby prejudicing
defendant PHILAMGEN's interest
(Exhibits 6,"11","11- "12-
A"and"13-A").
Defendants also invoked the
provisions of the Civil Code of the
Philippines (Article 1868) and the
provisions of the General Agency
Agreement as their basis for
terminating plaintiff Arturo P.
Valenzuela as one of their
General Agents.
That defendants' position could
have been justified had the
termination of plaintiff Arturo P.
Valenzuela was (sic) based solely
on the provisions of the Civil
Code and the conditions of the
General Agency Agreement. But
the records will show that the
principal cause of the termination
of the plaintiff as General Agent
of defendant PHILAMGEN was
his refusal to share his Delta
commission.
That it should be noted that there
were several attempts made by
defendant Bienvenido M. Aragon
to share with the Delta
commission of plaintiff Arturo P.
Valenzuela. He had persistently
pursued the sharing scheme to
the point of terminating plaintiff
Arturo P. Valenzuela, and to
make matters worse, defendants
made it appear that plaintiff Arturo
P. Valenzuela had substantial
accounts with defendant
PHILAMGEN.
Not only that, defendants have
also started (a) to treat separately
the Delta Commission of plaintiff
Arturo P. Valenzuela, (b) to
reverse the Delta commission
due plaintiff Arturo P. Valenzuela
by not crediting or applying said
commission earned to the
account of plaintiff Arturo P.
Valenzuela, (c) placed plaintiff
Arturo P. Valenzuela's agency
transactions on a "cash and carry
basis", (d) sending threats to
cancel existing policies issued by
plaintiff Arturo P. Valenzuela's
agency, (e) to divert plaintiff
Arturo P. Valenzuela's insurance
business to other agencies, and
(f) to spread wild and malicious
rumors that plaintiff Arturo P.
Valenzuela has substantial
account with defendant
PHILAMGEN to force plaintiff
Arturo P. Valenzuela into
agreeing with the sharing of his
Delta commission." (pp. 9-10,
Decision, Annex 1, Petition).
xxx xxx xxx
These acts of harrassment done
by defendants on plaintiff Arturo
P. Valenzuela to force him to
agree to the sharing of his Delta
commission, which culminated in
the termination of plaintiff Arturo
P. Valenzuela as one of
defendant PHILAMGEN's
General Agent, do not justify said
termination of the General
Agency Agreement entered into
by defendant PHILAMGEN and
plaintiff Arturo P. Valenzuela.
That since defendants are not
justified in the termination of
plaintiff Arturo P. Valenzuela as
one of their General Agents,
defendants shall be liable for the
resulting damage and loss of
business of plaintiff Arturo P.
Valenzuela. (Arts. 2199/2200,
Civil Code of the Philippines).
(Ibid, p. 11)

The court accordingly rendered judgment, the
dispositive portion of which reads:
WHEREFORE, judgment
hereby rendered in favor of the
plaintiffs and against defendants
ordering the latter to reinstate
plaintiff Arturo P. Valenzuela as its
General Agent, and to pay
plaintiffs, jointly and severally, the
following:
1. The amount of five hundred
twenty-one thousand nine
hundred sixty four and 16/100
pesos (P521,964.16)
representing plaintiff Arturo P.
Valenzuela's Delta Commission
with interest at the legal rate from
the time of the filing of the
complaint, which amount shall be
adjusted in accordance with
Article 1250 of the Civil Code of
the Philippines;
2. The amount of seventy-five
thousand pesos (P75,000.00) per
month as compensatory
damages from 1980 until such
time that defendant Philamgen
shall reinstate plaintiff Arturo P.
Valenzuela as one of its general
agents;
3. The amount of three hundred
fifty thousand pesos
(P350,000.00) for each plaintiff as
moral damages;
4. The amount of seventy-five
thousand pesos (P75,000.00) as
and for attorney's fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of
the trial court, Bienvenido
Aragon, Robert E. Parnell, Carlos
K. Catolico and PHILAMGEN
respondents herein, and
defendants-appellants below,
interposed an appeal on the
following:
ASSIGNMENT OF ERRORS
AGENCY ACJUCO 2nd MEETING 104
I
THE LOWER COURT ERRED IN
is HOLDING THAT PLAINTIFF
ARTURO P. VALENZUELA HAD
NO OUTSTANDING ACCOUNT
WITH DEFENDANT
PHILAMGEN AT THE TIME OF
THE TERMINATION OF THE
AGENCY.
II
THE LOWER COURT ERRED IN
HOLDING THAT PLAINTIFF
ARTURO P. VALENZUELA IS
ENTITLED TO THE FULL
COMMISSION OF 32.5% ON
THE DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN
HOLDING THAT THE
TERMINATION OF PLAINTIFF
ARTURO P. VALENZUELA WAS
NOT JUSTIFIED AND THAT
CONSEQUENTLY
DEFENDANTS ARE LIABLE
FOR ACTUAL AND MORAL
DAMAGES, ATTORNEYS FEES
AND COSTS.
IV
ASSUMING ARGUENDO THAT
THE AWARD OF DAMAGES
AGAINST DEFENDANT
PHILAMGEN WAS PROPER,
THE LOWER COURT ERRED IN
AWARDING DAMAGES EVEN
AGAINST THE INDIVIDUAL
DEFENDANTS WHO ARE MERE
CORPORATE AGENTS ACTING
WITHIN THE SCOPE OF THEIR
AUTHORITY.
V
ASSUMING ARGUENDO THAT
THE AWARD OF DAMAGES IN
FAVOR OF PLAINTIFF ARTURO
P. VALENZUELA WAS PROPER,
THE LOWER COURT ERRED IN
AWARDING DAMAGES IN

FAVOR OF HOSPITALITA
VALENZUELA, WHO, NOT
BEING THE REAL PARTY IN
INTEREST IS NOT TO OBTAIN
RELIEF.
On January 29, 1988, respondent Court of
Appeals promulgated its decision in the
appealed case. The dispositive portion of the
decision reads:
WHEREFORE, the decision
appealed from is hereby modified
accordingly and judgment is
hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to
pay defendant-appellant
Philamgen the sum of one million
nine hundred thirty two thousand
five hundred thirty-two pesos and
seventeen centavos
(P1,902,532.17), with legal
interest thereon from the date of
finality of this judgment until fully
paid.
2. Both plaintiff-appellees to pay
jointly and severally defendants-
appellants the sum of fifty
thousand pesos (P50,000.00) as
and by way of attorney's fees.
No pronouncement is made as to
costs. (p. 44, Rollo)
There is in this instance irreconcilable
divergence in the findings and conclusions of
the Court of Appeals, vis-a-visthose of the trial
court particularly on the pivotal issue whether
or not Philamgen and/or its officers can be held
liable for damages due to the termination of the
General Agency Agreement it entered into with
the petitioners. In its questioned decision the
Court of Appeals observed that:
In any event the principal's power
to revoke an agency at will is so
pervasive, that the Supreme
Court has consistently held that
termination may be effected even
if the principal acts in bad faith,
subject only to the principal's
liability for damages (Danon v.
Antonio A. Brimo & Co., 42 Phil.
AGENCY ACJUCO 2nd MEETING 105
133; Reyes v. Mosqueda, 53
O.G. 2158 and Infante V.
Cunanan, 93 Phil. 691, cited in
Paras, Vol. V, Civil Code of the
Philippines Annotated [1986]
696).
The lower court, however,
thought the termination of
Valenzuela as General Agent
improper because the record will
show the principal cause of the
termination of the plaintiff as
General Agent of defendant
Philamgen was his refusal to
share his Delta commission.
(Decision, p. 9; p. 13, Rollo, 41)
Because of the conflicting conclusions, this
Court deemed it necessary in the interest of
substantial justice to scrutinize the evidence
and records of the cases. While it is an
established principle that the factual findings of
the Court of Appeals are final and may not be
reviewed on appeal to this Court, there are
however certain exceptions to the rule which
this Court has recognized and accepted,
among which, are when the judgment is based
on a misapprehension of facts and when the
findings of the appellate court, are contrary to
those of the trial court (Manlapaz v. Court of
Appeals, 147 SCRA 236 [1987]); Guita v. Court
of Appeals, 139 SCRA 576 [1986]). Where the
findings of the Court of Appeals and the trial
court are contrary to each other, this Court may
scrutinize the evidence on record (Cruz v.
Court of Appeals, 129 SCRA 222 [1984];
Mendoza v. Court of Appeals, 156 SCRA 597
[1987]; Maclan v. Santos, 156 SCRA 542
[1987]). When the conclusion of the Court of
Appeals is grounded entirely on speculation,
surmises or conjectures, or when the inference
made is manifestly mistaken, absurd or
impossible, or when there is grave abuse of
discretion, or when the judgment is based on a
misapprehension of facts, and when the
findings of facts are conflict the exception also
applies (Malaysian Airline System Bernad v.
Court of Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records
of the case and the findings of facts of both the
court a quo and respondent appellate court, we
are constrained to affirm the trial court's
findings and rule for the petitioners.

We agree with the court a quo that the principal
cause of the termination of Valenzuela as
General Agent of Philamgen arose from his
refusal to share his Delta commission. The
records sustain the conclusions of the trial
court on the apparent bad faith of the private
respondents in terminating the General Agency
Agreement of petitioners. It is axiomatic that
the findings of fact of a trial judge are entitled
to great weight (People v. Atanacio, 128 SCRA
22 [1984]) and should not be disturbed on
appeal unless for strong and cogent reasons,
because the trial court is in a better position to
examine the evidence as well as to observe
the demeanor of the witnesses while testifying
(Chase v. Buencamino, Sr., 136 SCRA 365
[1985]; People v. Pimentel, 147 SCRA 25
[1987]; and Baliwag Trans., Inc. v. Court of
Appeals, 147 SCRA 82 [1987]). In the case at
bar, the records show that the findings and
conclusions of the trial court are supported by
substantial evidence and there appears to be
no cogent reason to disturb them (Mendoza v.
Court of Appeals. 156 SCRA 597 [1987]).
As early as September 30,1977, Philamgen
told the petitioners of its desire to share the
Delta Commission with them. It stated that
should Delta back out from the agreement, the
petitioners would be charged interests through
a reduced commission after full payment by
Delta.
On January 23, 1978 Philamgen proposed
reducing the petitioners' commissions by 50%
thus giving them an agent's commission of
16.25%. On February 8, 1978, Philamgen
insisted on the reduction scheme followed on
June 1, 1978 by still another insistence on
reducing commissions and proposing two
alternative schemes for reduction. There were
other pressures. Demands to settle accounts,
to confer and thresh out differences regarding
the petitioners' income and the threat to
terminate the agency followed. The petitioners
were told that the Delta commissions would not
be credited to their account (Exhibit "J"). They
were informed that the Valenzuela agency
would be placed on a cash and carry basis
thus removing the 60-day credit for premiums
due. (TSN., March 26, 1979, pp. 54-57).
Existing policies were threatened to be
cancelled (Exhibits "H" and "14"; TSN., March
26, 1979, pp. 29-30). The Valenzuela business
was threatened with diversion to other
AGENCY ACJUCO 2nd MEETING 106
agencies. (Exhibit "NNN"). Rumors were also
spread about alleged accounts of the
Valenzuela agency (TSN., January 25, 1980, p.
41). The petitioners consistently opposed the
pressures to hand over the agency or half of
their commissions and for a treatment of the
Delta account distinct from other accounts. The
pressures and demands, however, continued
until the agency agreement itself was finally
terminated.
It is also evident from the records that the
agency involving petitioner and private
respondent is one "coupled with an interest,"
and, therefore, should not be freely revocable
at the unilateral will of the latter.
In the insurance business in the Philippines,
the most difficult and frustrating period is the
solicitation and persuasion of the prospective
clients to buy insurance policies. Normally,
agents would encounter much embarrassment,
difficulties, and oftentimes frustrations in the
solicitation and procurement of the insurance
policies. To sell policies, an agent exerts great
effort, patience, perseverance, ingenuity, tact,
imagination, time and money. In the case of
Valenzuela, he was able to build up an Agency
from scratch in 1965 to a highly productive
enterprise with gross billings of about Two
Million Five Hundred Thousand Pesos
(P2,500,000.00) premiums per annum. The
records sustain the finding that the private
respondent started to covet a share of the
insurance business that Valenzuela had built
up, developed and nurtured to profitability
through over thirteen (13) years of patient work
and perseverance. When Valenzuela refused
to share his commission in the Delta account,
the boom suddenly fell on him.
The private respondents by the simple
expedient of terminating the General Agency
Agreement appropriated the entire insurance
business of Valenzuela. With the termination of
the General Agency Agreement, Valenzuela
would no longer be entitled to commission on
the renewal of insurance policies of clients
sourced from his agency. Worse, despite the
termination of the agency, Philamgen
continued to hold Valenzuela jointly and
severally liable with the insured for unpaid
premiums. Under these circumstances, it is
clear that Valenzuela had an interest in the
continuation of the agency when it was

unceremoniously terminated not only because
of the commissions he should continue to
receive from the insurance business he has
solicited and procured but also for the fact that
by the very acts of the respondents, he was
made liable to Philamgen in the event the
insured fail to pay the premiums due. They are
estopped by their own positive averments and
claims for damages. Therefore, the
respondents cannot state that the agency
relationship between Valenzuela and
Philamgen is not coupled with interest. "There
may be cases in which an agent has been
induced to assume a responsibility or incur a
liability, in reliance upon the continuance of the
authority under such circumstances that, if the
authority be withdrawn, the agent will be
exposed to personal loss or liability" (See MEC
569 p. 406).
Furthermore, there is an exception to the
principle that an agency is revocable at will and
that is when the agency has been given not
only for the interest of the principal but for the
interest of third persons or for the mutual
interest of the principal and the agent. In these
cases, it is evident that the agency ceases to
be freely revocable by the sole will of the
principal (See Padilla, Civil Code Annotated, 56
ed., Vol. IV p. 350). The following citations are
apropos:
The principal may not defeat the
agent's right to indemnification by
a termination of the contract of
agency (Erskine v. Chevrolet
Motors Co. 185 NC 479, 117 SE
706, 32 ALR 196).
Where the principal terminates or
repudiates the agent's
employment in violation of the
contract of employment and
without cause ... the agent is
entitled to receive either the
amount of net losses caused and
gains prevented by the breach, or
the reasonable value of the
services rendered. Thus, the
agent is entitled to prospective
profits which he would have
made except for such wrongful
termination provided that such
profits are not conjectural, or
speculative but are capable of
AGENCY ACJUCO 2nd MEETING 107
determination upon some fairly
reliable basis. And a principal's
revocation of the agency
agreement made to avoid
payment of compensation for a
result which he has actually
accomplished (Hildendorf v.
Hague, 293 NW 2d 272; Newhall
v. Journal Printing Co., 105 Minn
44,117 NW 228; Gaylen
Machinery Corp. v. Pitman-Moore
Co. [C.A. 2 NY] 273 F 2d 340)
If a principal violates a
contractual or quasi-contractual
duty which he owes his agent,
the agent may as a rule bring an
appropriate action for the breach
of that duty. The agent may in a
proper case maintain an action at
law for compensation or
damages ... A wrongfully
discharged agent has a right of
action for damages and in such
action the measure and element
of damages are controlled
generally by the rules governing
any other action for the
employer's breach of an
employment contract. (Riggs v.
Lindsay, 11 US 500, 3L Ed 419;
Tiffin Glass Co. v. Stoehr, 54 Ohio
157, 43 NE 2798)
At any rate, the question of whether or not the
agency agreement is coupled with interest is
helpful to the petitioners' cause but is not the
primary and compelling reason. For the pivotal
factor rendering Philamgen and the other
private respondents liable in damages is that
the termination by them of the General Agency
Agreement was tainted with bad faith. Hence, if
a principal acts in bad faith and with abuse of
right in terminating the agency, then he is liable
in damages. This is in accordance with the
precepts in Human Relations enshrined in our
Civil Code that "every person must in the
exercise of his rights and in the performance of
his duties act with justice, give every one his
due, and observe honesty and good faith: (Art.
19, Civil Code), and every person who,
contrary to law, wilfully or negligently causes
damages to another, shall indemnify the latter
for the same (Art. 20, id). "Any person who
wilfully causes loss or injury to another in a

manner contrary to morals, good customs and
public policy shall compensate the latter for the
damages" (Art. 21, id.).
As to the issue of whether or not the petitioners
are liable to Philamgen for the unpaid and
uncollected premiums which the respondent
court ordered Valenzuela to pay Philamgen the
amount of One Million Nine Hundred Thirty-
Two Thousand Five Hundred Thirty-Two and
17/100 Pesos (P1,932,532,17) with legal
interest thereon until fully paid (Decision-
January 20, 1988, p. 16; Petition, Annex "A"),
we rule that the respondent court erred in
holding Valenzuela liable. We find no factual
and legal basis for the award. Under Section
77 of the Insurance Code, the remedy for the
non-payment of premiums is to put an end to
and render the insurance policy not binding —
Sec. 77 ... [N]otwithstanding any
agreement to the contrary, no
policy or contract of insurance is
valid and binding unless and until
the premiums thereof have been
paid except in the case of a life or
industrial life policy whenever the
grace period provision applies
(P.D. 612, as amended otherwise
known as the Insurance Code of
1974)
In Philippine Phoenix Surety and Insurance,
Inc. v. Woodworks, Inc. (92 SCRA 419 [1979])
we held that the non-payment of premium does
not merely suspend but puts an end to an
insurance contract since the time of the
payment is peculiarly of the essence of the
contract. And in Arce v. The Capital Insurance
and Surety Co. Inc. (117 SCRA 63, [1982]), we
reiterated the rule that unless premium is paid,
an insurance contract does not take effect.
Thus:
It is to be noted that Delgado
(Capital Insurance & Surety Co.,
Inc. v. Delgado, 9 SCRA 177
[1963] was decided in the light of
the Insurance Act before Sec. 72
was amended by the
underscored portion. Supra. Prior
to the Amendment, an insurance
contract was effective even if the
premium had not been paid so
that an insurer was obligated to
AGENCY ACJUCO 2nd MEETING 108
pay indemnity in case of loss and
correlatively he had also the right
to sue for payment of the
premium. But the amendment to
Sec. 72 has radically changed
the legal regime in that unless
the premium is paid there is no
insurance. " (Arce v. Capitol
Insurance and Surety Co., Inc.,
117 SCRA 66; Emphasis
supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat
a contract as valid for the
purpose of collecting premiums
and invalid for the purpose of
indemnity. (Citing Insurance Law
and Practice by John Alan
Appleman, Vol. 15, p. 331;
Emphasis supplied)
The foregoing findings are
buttressed by Section 776 of the
insurance Code (Presidential
Decree No. 612, promulgated on
December 18, 1974), which now
provides that no contract of
Insurance by an insurance
company is valid and binding
unless and until the premium
thereof has been paid,
notwithstanding any agreement
to the contrary (Ibid., 92 SCRA
425)
Perforce, since admittedly the premiums have
not been paid, the policies issued have lapsed.
The insurance coverage did not go into effect
or did not continue and the obligation of
Philamgen as insurer ceased. Hence, for
Philamgen which had no more liability under
the lapsed and inexistent policies to demand,
much less sue Valenzuela for the unpaid
premiums would be the height of injustice and
unfair dealing. In this instance, with the lapsing
of the policies through the nonpayment of
premiums by the insured there were no more
insurance contracts to speak of. As this Court
held in the Philippine Phoenix
Surety case, supra "the non-payment of
premiums does not merely suspend but puts
an end to an insurance contract since the time

of the payment is peculiarly of the essence of
the contract."
The respondent appellate court also seriously
erred in according undue reliance to the report
of Banaria and Banaria and Company,
auditors, that as of December 31, 1978,
Valenzuela owed Philamgen P1,528,698.40.
This audit report of Banaria was commissioned
by Philamgen after Valenzuela was almost
through with the presentation of his evidence.
In essence, the Banaria report started with an
unconfirmed and unaudited beginning balance
of account of P1,758,185.43 as of August 20,
1976. But even with that unaudited and
unconfirmed beginning balance of
P1,758,185.43, Banaria still came up with the
amount of P3,865.49 as Valenzuela's balance
as of December 1978 with Philamgen (Exh.
"38-A-3"). In fact, as of December 31, 1976,
and December 31, 1977, Valenzuela had no
unpaid account with Philamgen (Ref: Annexes
"D", "D-1", "E", Petitioner's Memorandum). But
even disregarding these annexes which are
records of Philamgen and addressed to
Valenzuela in due course of business, the facts
show that as of July 1977, the beginning
balance of Valenzuela's account with
Philamgen amounted to P744,159.80. This was
confirmed by Philamgen itself not only once but
four (4) times on different occasions, as shown
by the records.
On April 3,1978, Philamgen sent Valenzuela a
statement of account with a beginning balance
of P744,159-80 as of July 1977.
On May 23, 1978, another statement of
account with exactly the same beginning
balance was sent to Valenzuela.
On November 17, 1978, Philamgen sent still
another statement of account with P744,159.80
as the beginning balance.
And on December 20, 1978, a statement of
account with exactly the same figure was sent
to Valenzuela.
It was only after the filing of the complaint that
a radically different statement of accounts
surfaced in court. Certainly, Philamgen's own
statements made by its own accountants over
a long period of time and covering
examinations made on four different occasions
AGENCY ACJUCO 2nd MEETING 109
must prevail over unconfirmed and unaudited
statements made to support a position made in
the course of defending against a lawsuit.
It is not correct to say that Valenzuela should
have presented its own records to refute the
unconfirmed and unaudited finding of the
Banaria auditor. The records of Philamgen
itself are the best refutation against figures
made as an afterthought in the course of
litigation. Moreover, Valenzuela asked for a
meeting where the figures would be reconciled.
Philamgen refused to meet with him and,
instead, terminated the agency agreement.
After off-setting the amount of P744,159.80,
beginning balance as of July 1977, by way of
credits representing the commission due from
Delta and other accounts, Valenzuela had
overpaid Philamgen the amount of
P530,040.37 as of November 30, 1978.
Philamgen cannot later be heard to complain
that it committed a mistake in its computation.
The alleged error may be given credence if
committed only once. But as earlier stated, the
reconciliation of accounts was arrived at four
(4) times on different occasions where
Philamgen was duly represented by its account
executives. On the basis of these admissions
and representations, Philamgen cannot later
on assume a different posture and claim that it
was mistaken in its representation with respect
to the correct beginning balance as of July
1977 amounting to P744,159.80. The Banaria
audit report commissioned by Philamgen is
unreliable since its results are admittedly
based on an unconfirmed and unaudited
beginning balance of P1,758,185.43 as of
August 20,1976.
As so aptly stated by the trial court in its
decision:
Defendants also conducted an
audit of accounts of plaintiff
Arturo P. Valenzuela after the
controversy has started. In fact,
after hearing plaintiffs have
already rested their case.
The results of said audit were
presented in Court to show
plaintiff Arturo P. Valenzuela's
accountability to defendant
PHILAMGEN. However, the

auditor, when presented as
witness in this case testified that
the beginning balance of their
audit report was based on an
unaudited amount of
P1,758,185.43 (Exhibit 46-A) as
of August 20, 1976, which was
unverified and merely supplied by
the officers of defendant
PHILAMGEN.
Even defendants very own
Exhibit 38- A-3, showed that
plaintiff Arturo P. Valenzuela's
balance as of 1978 amounted to
only P3,865.59, not P826,128.46
as stated in defendant
Bienvenido M. Aragon's letter
dated December 20,1978 (Exhibit
14) or P1,528,698.40 as reflected
in defendant's Exhibit 46 (Audit
Report of Banaria dated
December 24, 1980).
These glaring discrepancy (sic) in
the accountability of plaintiff
Arturo P. Valenzuela to defendant
PHILAMGEN only lends
credence to the claim of plaintiff
Arturo P. Valenzuela that he has
no outstanding account with
defendant PHILAMGEN when the
latter, thru defendant Bienvenido
M. Aragon, terminated the
General Agency Agreement
entered into by plaintiff (Exhibit A)
effective January 31, 1979 (see
Exhibits "2" and "2-A"). Plaintiff
Arturo P. Valenzuela has shown
that as of October 31, 1978, he
has overpaid defendant
PHILAMGEN in the amount of
P53,040.37 (Exhibit "EEE", which
computation was based on
defendant PHILAMGEN's
balance of P744,159.80 furnished
on several occasions to plaintiff
Arturo P. Valenzuela by
defendant PHILAMGEN (Exhibits
H-1, VV, VV-1, WW, WW-1 , YY ,
YY-2 , ZZ and , ZZ-2).
Prescinding from the foregoing, and
considering that the private respondents
terminated Valenzuela with evident mala fide it
AGENCY ACJUCO 2nd MEETING 110
necessarily follows that the former are liable in
damages. Respondent Philamgen has been
appropriating for itself all these years the gross
billings and income that it unceremoniously
took away from the petitioners. The
preponderance of the authorities sustain the
preposition that a principal can be held liable
for damages in cases of unjust termination of
agency. In Danon v. Brimo, 42 Phil. 133
[1921]), this Court ruled that where no time for
the continuance of the contract is fixed by its
terms, either party is at liberty to terminate it at
will, subject only to the ordinary requirements
of good faith. The right of the principal to
terminate his authority is absolute and
unrestricted, except only that he may not do so
in bad faith.
The trial court in its decision awarded to
Valenzuela the amount of Seventy Five
Thousand Pesos (P75,000,00) per month as
compensatory damages from June 1980 until
its decision becomes final and executory. This
award is justified in the light of the evidence
extant on record (Exhibits "N", "N-10", "0", "0-
1", "P" and "P-1") showing that the average
gross premium collection monthly of
Valenzuela over a period of four (4) months
from December 1978 to February 1979,
amounted to over P300,000.00 from which he
is entitled to a commission of P100,000.00
more or less per month. Moreover, his annual
sales production amounted to P2,500,000.00
from where he was given 32.5% commissions.
Under Article 2200 of the new Civil Code,
"indemnification for damages shall
comprehend not only the value of the loss
suffered, but also that of the profits which the
obligee failed to obtain."
The circumstances of the case, however,
require that the contractual relationship
between the parties shall be terminated upon
the satisfaction of the judgment. No more
claims arising from or as a result of the agency
shall be entertained by the courts after that
date.
ACCORDINGLY, the petition is GRANTED.
The impugned decision of January 29, 1988
and resolution of April 27, 1988 of respondent
court are hereby SET ASIDE. The decision of
the trial court dated January 23, 1986 in Civil
Case No. 121126 is REINSTATED with the
MODIFICATIONS that the amount of FIVE
 AGENCY ACJUCO 2nd MEETING 111

HUNDRED TWENTY ONE THOUSAND NINE

HUNDRED SIXTY-FOUR AND 16/100 PESOS
(P521,964.16) representing the petitioners
Delta commission shall earn only legal
interests without any adjustments under Article
1250 of the Civil Code and that the contractual
relationship between Arturo P. Valenzuela and
Philippine American General Insurance
Company shall be deemed terminated upon
the satisfaction of the judgment as modified.

SO ORDERED.

G.R. No. 163720 December 16, 2004
GENEVIEVE LIM, petitioner,
vs.
FLORENCIO SABAN, respondents.
DECISION
TINGA, J.:
Before the Court is a Petition for Review on
Certiorari assailing the Decision1 dated October
27, 2003 of the Court of Appeals, Seventh
Division, in CA-G.R. V No. 60392.2
The late Eduardo Ybañez (Ybañez), the owner
of a 1,000-square meter lot in Cebu City (the
"lot"), entered into an Agreement and Authority
to Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on
February 8, 1994. Under the Agency
Agreement, Ybañez authorized Saban to look
for a buyer of the lot for Two Hundred
Thousand Pesos (P200,000.00) and to mark
up the selling price to include the amounts
needed for payment of taxes, transfer of title
and other expenses incident to the sale, as
well as Saban’s commission for the sale.3
Through Saban’s efforts, Ybañez and his wife
were able to sell the lot to the petitioner
Genevieve Lim (Lim) and the spouses
Benjamin and Lourdes Lim (the Spouses Lim)
on March 10, 1994. The price of the lot as
indicated in the Deed of Absolute Sale is Two
Hundred Thousand Pesos (P200,000.00).4 It
appears, however, that the vendees agreed to
purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of
taxes and other incidental expenses of the
sale. After the sale, Lim remitted to Saban the
amounts of One Hundred Thirteen Thousand
Two Hundred Fifty Seven Pesos (P113,257.00)
for payment of taxes due on the transaction as
well as Fifty Thousand Pesos (P50,000.00) as
broker’s commission.5 Lim also issued in the
name of Saban four postdated checks in the
aggregate amount of Two Hundred Thirty Six
Thousand Seven Hundred Forty Three Pesos
(P236,743.00). These checks were Bank of the
Philippine Islands (BPI) Check No. 1112645
dated June 12, 1994 for P25,000.00; BPI
Check No. 1112647 dated June 19, 1994
AGENCY ACJUCO 2nd MEETING 112
for P18,743.00; BPI Check No. 1112646 dated
June 26, 1994 for P25,000.00; and Equitable
PCI Bank Check No. 021491B dated June 20,
1994 for P168,000.00.
Subsequently, Ybañez sent a letter dated June
10, 1994 addressed to Lim. In the letter
Ybañez asked Lim to cancel all the checks
issued by her in Saban’s favor and to "extend
another partial payment" for the lot in his
(Ybañez’s) favor.6
After the four checks in his favor were
dishonored upon presentment, Saban filed
a Complaint for collection of sum of money and
damages against Ybañez and Lim with the
Regional Trial Court (RTC) of Cebu City on
August 3, 1994.7 The case was assigned to
Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and
the Spouses Lim agreed to purchase the lot
for P600,000.00, i.e., with a mark-up of Four
Hundred Thousand Pesos (P400,000.00) from
the price set by Ybañez. Of the total purchase
price of P600,000.00, P200,000.00 went to
Ybañez, P50,000.00 allegedly went to Lim’s
agent, and P113,257.00 was given to Saban to
cover taxes and other expenses incidental to
the sale. Lim also issued four (4) postdated
checks8 in favor of Saban for the
9
remaining P236,743.00.
Saban alleged that Ybañez told Lim that he
(Saban) was not entitled to any commission for
the sale since he concealed the actual selling
price of the lot from Ybañez and because he
was not a licensed real estate broker. Ybañez
was able to convince Lim to cancel all four
checks.
Saban further averred that Ybañez and Lim
connived to deprive him of his sales
commission by withholding payment of the first
three checks. He also claimed that Lim failed to
make good the fourth check which was
dishonored because the account against which
it was drawn was closed.
In his Answer, Ybañez claimed that Saban was
not entitled to any commission because he
concealed the actual selling price from him and
because he was not a licensed real estate
broker.

Lim, for her part, argued that she was not privy
to the agreement between Ybañez and Saban,
and that she issued stop payment orders for
the three checks because Ybañez requested
her to pay the purchase price directly to him,
instead of coursing it through Saban. She also
alleged that she agreed with Ybañez that the
purchase price of the lot was
only P200,000.00.
Ybañez died during the pendency of the case
before the RTC. Upon motion of his counsel,
the trial court dismissed the case only against
him without any objection from the other
parties.10
On May 14, 1997, the RTC rendered
its Decision11 dismissing Saban’s complaint,
declaring the four (4) checks issued by Lim as
stale and non-negotiable, and absolving Lim
from any liability towards Saban.
Saban appealed the trial court’s Decision to the
Court of Appeals.
On October 27, 2003, the appellate court
promulgated its Decision12 reversing the trial
court’s ruling. It held that Saban was entitled to
his commission amounting to P236,743.00.13
The Court of Appeals ruled that Ybañez’s
revocation of his contract of agency with Saban
was invalid because the agency was coupled
with an interest and Ybañez effected the
revocation in bad faith in order to deprive
Saban of his commission and to keep the
profits for himself.14
The appellate court found that Ybañez and Lim
connived to deprive Saban of his commission.
It declared that Lim is liable to pay Saban the
amount of the purchase price of the lot
corresponding to his commission because she
issued the four checks knowing that the total
amount thereof corresponded to Saban’s
commission for the sale, as the agent of
Ybañez. The appellate court further ruled that,
in issuing the checks in payment of Saban’s
commission, Lim acted as an accommodation
party. She signed the checks as drawer,
without receiving value therefor, for the
purpose of lending her name to a third person.
As such, she is liable to pay Saban as the
holder for value of the checks.15
AGENCY ACJUCO 2nd MEETING 113
Lim filed a Motion for Reconsideration of the
appellate court’s Decision, but her Motion was
denied by the Court of Appeals in
a Resolution dated May 6, 2004.16
Not satisfied with the decision of the Court of
Appeals, Lim filed the present petition.
Lim argues that the appellate court ignored the
fact that after paying her agent and remitting to
Saban the amounts due for taxes and transfer
of title, she paid the balance of the purchase
price directly to Ybañez.17
She further contends that she is not liable for
Ybañez’s debt to Saban under the Agency
Agreement as she is not privy thereto, and that
Saban has no one but himself to blame for
consenting to the dismissal of the case against
Ybañez and not moving for his substitution by
his heirs.18
Lim also assails the findings of the appellate
court that she issued the checks as an
accommodation party for Ybañez and that she
connived with the latter to deprive Saban of his
commission.19
Lim prays that should she be found liable to
pay Saban the amount of his commission, she
should only be held liable to the extent of one-
third (1/3) of the amount, since she had two co-
vendees (the Spouses Lim) who should share
such liability.20
In his Comment, Saban maintains that Lim
agreed to purchase the lot for P600,000.00,
which consisted of the P200,000.00 which
would be paid to Ybañez, the P50,000.00 due
to her broker, the P113,257.00 earmarked for
taxes and other expenses incidental to the sale
and Saban’s commission as broker for Ybañez.
According to Saban, Lim assumed the
obligation to pay him his commission. He
insists that Lim and Ybañez connived to
unjustly deprive him of his commission from
the negotiation of the sale.21
The issues for the Court’s resolution are
whether Saban is entitled to receive his
commission from the sale; and, assuming that
Saban is entitled thereto, whether it is Lim who
is liable to pay Saban his sales commission.

The Court gives due course to the petition, but
agrees with the result reached by the Court of
Appeals.
The Court affirms the appellate court’s finding
that the agency was not revoked since Ybañez
requested that Lim make stop payment orders
for the checks payable to Saban only after the
consummation of the sale on March 10, 1994.
At that time, Saban had already performed his
obligation as Ybañez’s agent when, through his
(Saban’s) efforts, Ybañez executed the Deed
of Absolute Sale of the lot with Lim and the
Spouses Lim.
To deprive Saban of his commission
subsequent to the sale which was
consummated through his efforts would be a
breach of his contract of agency with Ybañez
which expressly states that Saban would be
entitled to any excess in the purchase price
after deducting the P200,000.00 due to Ybañez
and the transfer taxes and other incidental
expenses of the sale.22
In Macondray & Co. v. Sellner,23 the Court
recognized the right of a broker to his
commission for finding a suitable buyer for the
seller’s property even though the seller himself
consummated the sale with the buyer. 24 The
Court held that it would be in the height of
injustice to permit the principal to terminate the
contract of agency to the prejudice of the
broker when he had already reaped the
benefits of the broker’s efforts.
25
In Infante v. Cunanan, et al., the Court upheld
the right of the brokers to their commissions
although the seller revoked their authority to
act in his behalf after they had found a buyer
for his properties and negotiated the sale
directly with the buyer whom he met through
the brokers’ efforts. The Court ruled that the
seller’s withdrawal in bad faith of the brokers’
authority cannot unjustly deprive the brokers of
their commissions as the seller’s duly
constituted agents.
The pronouncements of the Court in the
aforecited cases are applicable to the present
case, especially considering that Saban had
completely performed his obligations under his
contract of agency with Ybañez by finding a
suitable buyer to preparing the Deed of
Absolute Sale between Ybañez and Lim and
AGENCY ACJUCO 2nd MEETING 114
her co-vendees. Moreover, the contract of
agency very clearly states that Saban is
entitled to the excess of the mark-up of the
price of the lot after deducting Ybañez’s share
of P200,000.00 and the taxes and other
incidental expenses of the sale.
However, the Court does not agree with the
appellate court’s pronouncement that Saban’s
agency was one coupled with an interest.
Under Article 1927 of the Civil Code, an
agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling
an obligation already contracted, or if a partner
is appointed manager of a partnership in the
contract of partnership and his removal from
the management is unjustifiable. Stated
differently, an agency is deemed as one
coupled with an interest where it is established
for the mutual benefit of the principal and of the
agent, or for the interest of the principal and of
third persons, and it cannot be revoked by the
principal so long as the interest of the agent or
of a third person subsists. In an agency
coupled with an interest, the agent’s interest
must be in the subject matter of the power
conferred and not merely an interest in the
exercise of the power because it entitles him to
compensation. When an agent’s interest is
confined to earning his agreed compensation,
the agency is not one coupled with an interest,
since an agent’s interest in obtaining his
compensation as such agent is an ordinary
incident of the agency relationship.26
Saban’s entitlement to his commission having
been settled, the Court must now determine
whether Lim is the proper party against whom
Saban should address his claim.
Saban’s right to receive compensation for
negotiating as broker for Ybañez arises from
the Agency Agreement between them. Lim is
not a party to the contract. However, the record
reveals that she had knowledge of the fact that
Ybañez set the price of the lot at P200,000.00
and that the P600,000.00—the price agreed
upon by her and Saban—was more than the
amount set by Ybañez because it included the
amount for payment of taxes and for Saban’s
commission as broker for Ybañez.
According to the trial court, Lim made the
following payments for the lot: P113,257.00 for
taxes, P50,000.00 for her broker,

and P400.000.00 directly to Ybañez, or a total
of Five Hundred Sixty Three Thousand Two
Hundred Fifty Seven Pesos
(P563,257.00).27 Lim, on the other hand, claims
that on March 10, 1994, the date of execution
of the Deed of Absolute Sale, she paid directly
to Ybañez the amount of One Hundred
Thousand Pesos (P100,000.00) only, and gave
to Saban P113,257.00 for payment of taxes
and P50,000.00 as his commission,28 and One
Hundred Thirty Thousand Pesos (P130,000.00)
on June 28, 1994,29 or a total of Three Hundred
Ninety Three Thousand Two Hundred Fifty
Seven Pesos (P393,257.00). Ybañez, for his
part, acknowledged that Lim and her co-
vendees paid him P400,000.00 which he said
was the full amount for the sale of the lot. 30 It
thus appears that he received P100,000.00 on
March 10, 1994, acknowledged receipt
(through Saban) of the P113,257.00 earmarked
for taxes and P50,000.00 for commission, and
received the balance of P130,000.00 on June
28, 1994. Thus, a total of P230,000.00 went
directly to Ybañez. Apparently, although the
amount actually paid by Lim was P393,257.00,
Ybañez rounded off the amount
to P400,000.00 and waived the difference.
Lim’s act of issuing the four checks amounting
to P236,743.00 in Saban’s favor belies her
claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. If
she did not agree thereto, there would be no
reason for her to issue those checks which is
the balance of P600,000.00 less the amounts
of P200,000.00 (due to Ybañez), P50,000.00
(commission), and the P113,257.00 (taxes).
The only logical conclusion is that Lim changed
her mind about agreeing to purchase the lot
at P600,000.00 after talking to Ybañez and
ultimately realizing that Saban’s commission is
even more than what Ybañez received as his
share of the purchase price as vendor.
Obviously, this change of mind resulted to the
prejudice of Saban whose efforts led to the
completion of the sale between the latter, and
Lim and her co-vendees. This the Court cannot
countenance.
The ruling of the Court in Infante v. Cunanan,
et al., cited earlier, is enlightening for the facts
therein are similar to the circumstances of the
present case. In that case, Consejo Infante
asked Jose Cunanan and Juan Mijares to find
a buyer for her two lots and the house built
AGENCY ACJUCO 2nd MEETING 115
thereon for Thirty Thousand Pesos
(P30,000.00) . She promised to pay them five
percent (5%) of the purchase price plus
whatever overprice they may obtain for the
property. Cunanan and Mijares offered the
properties to Pio Noche who in turn expressed
willingness to purchase the properties.
Cunanan and Mijares thereafter introduced
Noche to Infante. However, the latter told
Cunanan and Mijares that she was no longer
interested in selling the property and asked
them to sign a document stating that their
written authority to act as her agents for the
sale of the properties was already cancelled.
Subsequently, Infante sold the properties
directly to Noche for Thirty One Thousand
Pesos (P31,000.00). The Court upheld the right
of Cunanan and Mijares to their commission,
explaining that—
…[Infante] had changed her mind even
if respondent had found a buyer who
was willing to close the deal, is a matter
that would not give rise to a legal
consequence if [Cunanan and Mijares]
agreed to call off the transaction in
deference to the request of [Infante]. But
the situation varies if one of the parties
takes advantage of the benevolence of
the other and acts in a manner that
would promote his own selfish interest.
This act is unfair as would amount to
bad faith. This act cannot be sanctioned
without according the party prejudiced
the reward which is due him. This is the
situation in which [Cunanan and Mijares]
were placed by [Infante]. [Infante] took
advantage of the services rendered by
[Cunanan and Mijares], but believing
that she could evade payment of their
commission, she made use of a ruse by
inducing them to sign the deed of
cancellation….This act of subversion
cannot be sanctioned and cannot serve
as basis for [Infante] to escape payment
of the commission agreed upon.31
The appellate court therefore had sufficient
basis for concluding that Ybañez and Lim
connived to deprive Saban of his commission
by dealing with each other directly and
reducing the purchase price of the lot and
leaving nothing to compensate Saban for his
efforts.
 AGENCY ACJUCO 2nd MEETING 116

Considering the circumstances surrounding the purchase price in consideration for the sale of
case, and the undisputed fact that Lim had not the lot to her and her co-vendees. In other
yet paid the balance of P200,000.00 of the words, the amounts covered by the checks
purchase price of P600,000.00, it is just and form part of the cause or consideration from
proper for her to pay Saban the balance Ybañez’s end, as vendor, while the lot
of P200,000.00. represented the cause or consideration on the
side of Lim, as vendee.35 Ergo, Lim received
Furthermore, since Ybañez received a total value for her signature on the checks.
of P230,000.00 from Lim, or an excess
of P30,000.00 from his asking price Neither is there any indication that Lim issued
of P200,000.00, Saban may claim such excess the checks for the purpose of enabling Ybañez,
from Ybañez’s estate, if that remedy is still or any other person for that matter, to obtain
available,32 in view of the trial court’s dismissal credit or to raise money, thereby totally
of Saban’s complaint as against Ybañez, with debunking the presence of the third requisite of
Saban’s express consent, due to the latter’s an accommodation party.
demise on November 11, 1994.33
WHEREFORE, in view of the foregoing, the
The appellate court however erred in ruling that petition is DISMISSED.
Lim is liable on the checks because she issued
them as an accommodation party. Section 29 SO ORDERED.
of the Negotiable Instruments Law defines an
accommodation party as a person "who has
signed the negotiable instrument as maker,
drawer, acceptor or indorser, without receiving
value therefor, for the purpose of lending his
name to some other person." The
accommodation party is liable on the
instrument to a holder for value even though
the holder at the time of taking the instrument
knew him or her to be merely an
accommodation party. The accommodation
party may of course seek reimbursement from
the party accommodated.34

As gleaned from the text of Section 29 of the

Negotiable Instruments Law, the
accommodation party is one who meets all
these three requisites, viz: (1) he signed the
instrument as maker, drawer, acceptor, or
indorser; (2) he did not receive value for the
signature; and (3) he signed for the purpose of
lending his name to some other person. In the
case at bar, while Lim signed as drawer of the
checks she did not satisfy the two other
remaining requisites.

The absence of the second requisite becomes

pellucid when it is noted at the outset that Lim
issued the checks in question on account of
her transaction, along with the other
purchasers, with Ybañez which was a sale and,
therefore, a reciprocal contract. Specifically,
she drew the checks in payment of the balance
of the purchase price of the lot subject of the
transaction. And she had to pay the agreed

G.R. No. 151218 January 28, 2003
NATIONAL SUGAR TRADING and/or the
SUGAR REGULATORY
ADMINISTRATION, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.
YNARES-SANTIAGO, J.:
This is a petition for review which seeks to set
aside the decision of the Court of Appeals
dated August 10, 2001 in CA-G.R. SP. No.
58102, 1 upholding the decision of the Office of
the President dated September 17, 1999, 2 as
well as the resolution dated December 12,
2001 denying petitioners' motion for
reconsideration.
The antecedent facts, as culled from the
records, are as follows:
Sometime in February 1974, then President
Ferdinand E. Marcos issued Presidential
Decree No. 388 3 constituting the Philippine
Sugar Commission (PHILSUCOM), as the sole
buying and selling agent of sugar on the
quedan permit level. In November of the same
year, PD 579 4 was issued, authorizing the
Philippine Exchange Company, Inc.
(PHILEXCHANGE), a wholly owned subsidiary
of Philippine National Bank (PNB) to serve as
the marketing agent of PHILSUCOM. Pursuant
to PD 579, PHILEXCHANGE's purchases of
sugar shall be financed by PNB and the
proceeds of sugar trading operations of
PHILEXCHANGE shall be used to pay its
liabilities with PNB. 5
Similarly, in February 1975, PD 659 was
issued, constituting PHILEXCHANGE and/or
PNB as the exclusive sugar trading agencies of
the government for buying sugar from planters
or millers and selling or exporting them. 6 PNB
then extended loans to PHILEXCHANGE for
the latter's sugar trading operations. At first,
PHILEXCHANGE religiously paid its
obligations to PNB by depositing the proceeds
of the sale of sugar with the bank.
Subsequently, however, with the fall of sugar
prices in the world market, PHILEXCHANGE
defaulted in the payments of its loans
amounting to P206,070,172.57. 7
AGENCY ACJUCO 2nd MEETING 117
In July 1977, the National Sugar Trading
Corporation (NASUTRA) replaced
PHILEXCHANGE as the marketing agent of
PHILSUCOM. Accordingly, PHILEXCHANGE
sold and turned over all sugar quedans to
NASUTRA. However, no physical inventory of
the sugar covered by the quedans was
made. 8 Neither NASUTRA nor PHILSUCOM
was required to immediately pay
PHILEXCHANGE. Notwithstanding this
concession, NASUTRA and PHILSUCOM still
failed to pay the sugar stocks covered by
quedans to PHILEXCHANGE which, as of
June 30, 1984, amounted to P498,828,845.03.
As a consequence, PHILEXCHANGE was not
able to pay its obligations to PNB.
To finance its sugar trading operations,
NASUTRA applied for and was granted 9 a
P408 Million Revolving Credit Line by PNB in
1981. Every time NASUTRA availed of the
credit line, 10 its Executive Vice-President, Jose
Unson, executed a promissory note in favor of
PNB.
In order to stabilize sugar liquidation prices at a
minimum of P300.00 per picul, PHILSUCOM
issued on March 15, 1985 Circular Letter No.
EC-4-85, considering all sugar produced during
crop year 1984–1985 as domestic sugar.
Furthermore, PHILSUCOM's Chairman of
Executive Committee, Armando C. Gustillo
proposed on May 14, 1985 the following
liquidation scheme of the sugar
quedans 11 assigned to PNB by the sugar
planters:
Upon notice from NASUTRA, PNB shall credit
the individual producer and millers loan
accounts for their sugar proceeds and shall
treat the same as loans of NASUTRA.
Such loans shall be charged interest at the
prevailing rates and it shall commence five (5)
days after receipt by PNB of quedans from
NASUTRA. 12
PNB, for its part, issued Resolution No. 353
dated May 20, 1985 approving 13 the
PHILSUCOM/NASUTRA proposal for the
payment of the sugar quedans assigned to it.
Pursuant to said resolution, NASUTRA would
assume the interest on the planter/mill loan
 AGENCY ACJUCO 2nd MEETING 118

accounts. The pertinent portion of the

Resolution states: July 31, 1988

Five (5) days after receipt of the quedans,

NASUTRA shall absorb the accruing interest
REMITTANCES
on that portion of the planter/mill loan with PNB
commensurate to the net liquidation value of
the sugar delivered, or in other words,
NASUTRA proposes to assume interest that Date Remitting Bank Amount
will run on the planter/mill loan equivalent to
the net proceeds of the sugar quedans,
reckoned five (5) days after quedan delivery to 11-19-85 Bankers Trust-New York P259,253,573.46
PNB. 14

Despite such liquidation scheme,

NASUTRA/PHILSUCOM still failed to remit the 11-26-85 Bankers Trust-New York 144,459,242.84
interest payments to PNB and its branches,
which interests amounted to P65,412,245.84 in
1986. 15 As a result thereof, then President 03-06-86 Credit Lyonnais-Manila 209,880,477.07
Marcos issued PD 2005 dissolving NASUTRA
effective January 31, 1986. NASUTRA's
records of its sugar trading operations, 04-22-86 Societé Generalé-Manila 82,151,953.10
however, were destroyed during the Edsa
Revolution in February 1986.

On May 28, 1986, then President Corazon C. 06-09-86 Credit Lyonnais-Manila 536,158.62
Aquino issued Executive Order (EO) No. 18
creating the Sugar Regulatory Administration
(SRA) and abolishing PHILSUCOM. All the Total P696,281,405.09
assets and records of PHILSUCOM 16including
its beneficial interests over the assets of
NASUTRA were transferred to SRA. 17 On APPLICATIONS
January 24, 1989, before the completion of the
three-year winding up period, NASUTRA
established a trusteeship to liquidate and settle
its accounts. 18 This notwithstanding, Date Applied to Amount
NASUTRA still defaulted in the payment of its
loans amounting to P389,246,324.60 (principal
and accrued interest) to PNB. NASUTRA account with
1986 PNB P389,246,324.60
In the meantime, PNB received remittances
from foreign banks totaling US$36,564,558.90
or the equivalent of P696,281,405.09 Claims of various CAB
representing the proceeds of NASUTRA's 1986 planters 15,863,898.79
sugar exports. 19 Said remittances were then
applied by PNB to the unpaid accounts of
NASUTRA/PHILSUCOM with PNB and
PHILEXCHANGE. The schedule of remittances Claims of various PNB
and applications are as follows: branches for interest or
the unpaid CY 1984–85
SCHEDULE OF REMITTANCES & 1987 sugar proceeds 65,412,245.84
APPLICATIONS

Account of NASUTRA 1987& Philsucom account 206,070,172.57

carried in the books of

1988 Philexchange P676,592,641.80
Unapplied Remittance P19,688,763.29" 20
Subsequently, PNB applied the
P19,688,763.29 to PHILSUCOM's account with
PHILEXCHANGE which in turn was applied to
PHILEXCHANGE's account with PNB. 21
Accordingly, NASUTRA requested 22 PNB to
furnish it with the necessary documents and/or
explanation 23concerning the
disposition/application, accounting and
restitution of the remittances in question.
Dissatisfied, and believing that PNB failed to
provide them with said documents, NASUTRA
and SRA filed a petition for arbitration 24with the
Department of Justice on August 13, 1991.
After due proceedings, the Secretary of Justice
rendered a decision, to wit:
WHEREFORE, judgment is hereby
rendered —
1. Declaring that of the amount of Six
Hundred Ninety Six Million Two Hundred
Eighty One Thousand Four Hundred
Five and 09/100 Pesos
(P696,281,405.09) equivalent of
US$36,564,558.90, foreign remittances
received by respondent PNB, for and in
behalf of petitioner NASUTRA—
a) the amount of Three Hundred
Eighty Nine Million Two Hundred
Forty Six Thousand Three
Hundred Twenty Four and 60/100
Pesos (P389,246,324.60) was
validly applied to outstanding
account of NASUTRA to PNB;
b) the amount of Sixty Five Billion
Four Hundred Twelve Thousand
Two Hundred Forty Five and
84/100 Pesos (P65,412,245.84)
was validly applied to claims of
various PNB branches for interest
on the unpaid CY 1984–85 sugar
proceeds;
AGENCY ACJUCO 2nd MEETING 119
Or a total of Four Hundred Fifty Four
Million Six Hundred Fifty Eight
Thousand Five Hundred Seventy and
44/100 Pesos (P454,658,570.44).
2. Ordering respondent PNB to pay
petitioners —
a) the amount of Two Hundred
Six Million Seventy Thousand
One Hundred Seventy Two and
57/100 Pesos (P206,070,172.57)
representing the amount of
remittance applied to
PHILSUCOM account carried in
the books of Philexchange;
b) the amount of Fifteen Million
Eight Hundred Sixty Three
Thousand Eight Hundred Ninety
Eight and 79/100 Pesos
(P15,863,898.79) representing
the amount applied to settle
Claims of Various CAB Planters;
and to pay interest on both items,
at legal rate from date of filing of
this case.
Costs of suit will be shared equally by
the parties.
SO ORDERED. 25
Both parties appealed before the Office of the
President. On September 17, 1999, the Office
of the President modified the decision of the
Secretary of Justice, to wit:
IN VIEW OF ALL THE FOREGOING,
the decision of the Secretary of Justice
is hereby AFFIRMED with the
MODIFICATION that the application by
the Philippine National Bank of the
amounts of P225,758,935.86 and
P15,863,898.79 as payment of the
Philippine Sugar Commission's account
carried in the books of Philippine
Exchange Co., Inc. and the claims of
various CAB planters, respectively, is
hereby declared legal and valid.
SO ORDERED. 26
Petitioners' subsequent Motion for
Reconsideration was denied by the Office of

the President. 27 Thereafter, petitioners filed a
petition for review with the Court of Appeals,
alleging, inter alia, that the Office of the
President erred when it relied solely on the
documents submitted by PNB to determine the
amount of the subject remittances and in not
ordering PNB to render an accounting of the
said remittances; in declaring as valid and legal
PNB's application of the subject remittances to
alleged NASUTRA's accounts with PNB and
PHILEXCHANGE without NASUTRA's
knowledge, consent and authority.
On August 10, 2001, Court of Appeals
rendered judgment dismissing the
28
petition. Petitioners filed a Motion for
Reconsideration, which was denied on
December 12, 2001.
Hence this petition, raising the lone issue:
THE CA DECIDED NOT IN ACCORD
WITH LAW AND WITH THE
APPLICABLE DECISION OF THIS
HONORABLE COURT, AND GRAVELY
ABUSED ITS DISCRETION, WHEN IT
UPHELD THE LEGALITY AND
VALIDITY OF THE OFFSETTING OR
COMPENSATION OF THE SUBJECT
REMITTANCES TO ALLEGED
ACCOUNTS OF NASUTRA WITH PNB
AND PHILEX DESPITE THE FACT
THAT NO CREDITOR-DEBTOR
RELATIONSHIP EXISTED BETWEEN
PNB AND NASUTRA WITH RESPECT
TO THE SAID REMITTANCES.
In essence, NASUTRA and SRA aver that no
compensation involving the subject remittances
can take effect by operation of law since the
relationship created between PNB and
NASUTRA was one of trustee-beneficiary and
not one of creditor and debtor. They also claim
that no legal compensation can take place in
favor of PHILEXCHANGE since the subject
remittances were received by PNB and not
PHILEXCHANGE, a corporation clothed with a
separate and distinct corporate personality
from PNB. They added that PHILEXCHANGE's
account had already prescribed.
Moreover, NASUTRA and SRA contend that,
assuming arguendo that creditor-debtor
relationship existed between PNB and
NASUTRA, compensation was still illegal,
AGENCY ACJUCO 2nd MEETING 120
since PNB has not proven the existence of the
P408 million revolving credit line and the CAB
Planters Account. Petitioners also assert that
the CAB Planters Account is an unliquidated
account considering that it still has to be
recomputed pursuant to the Sugar
29
Reconstitution Law.
Respondent PNB counters that it can apply the
foreign remittances on the long-overdue
obligations of NASUTRA. They were entered
into by NASUTRA with the blessing, if not with
express mandate, of the National Government
in the pursuit of national interest and policy.
PNB invokes also the Letter of Intent submitted
by the National Government to the
International Monetary Fund (IMF), wherein the
government made specific reference to the
immediate payment by NASUTRA and
PHILSUCOM of their outstanding obligations
with PNB to buoy up the country's sagging
economy. 30
Petitioners' arguments are specious.
Article 1306 of the New Civil Code provides:
Contracting parties may establish such
stipulations, clauses terms and conditions as
they may deem convenient provided they are
not contrary to law, morals, good customs,
public order or public policy.
In the instant case, NASUTRA applied for a
P408 million credit line with PNB in order to
finance its trading operations. PNB, on the
other hand, approved said credit line in its
Resolution No. 68. Thereafter, NASUTRA
availed of the credit and in fact drew
P389,246,324.60, in principal and accrued
interest, from the approved credit line.
Evidence shows that every time NASUTRA
availed of the credit, its Executive Vice
President, Jose Unson, executed a promissory
note 31 in favor of PNB with the following
proviso:
In the event that this note is not paid at
maturity or when the same becomes due under
any of the provisions hereof, I/We hereby
authorize the Bank, at its option and without
notice, to apply to the payment of this note, any
and all moneys, securities and things of values
which may be in the hands on deposit or
otherwise belonging to me/us and for this

purpose, I/We hereby, jointly and severally,
irrevocably constitute and appoint the Bank to
be my/our true Attorney-in-Fact with full power
and authority for me/us and in my/our name
and behalf and without prior notice to
negotiate, sell and transfer any moneys,
securities and things of value which it may
hold, by public or private sale and apply the
proceeds thereof to the payment of this note.
(Italics ours)
While we agree with petitioners that the
application of subject remittances cannot be
justified under Article 1278 in relation to Article
1279 of the Civil Code, considering that some
elements of legal compensation were lacking,
application of the subject remittances to
NASUTRA's account with PNB and the claims
of various PNB branches for interest on the
unpaid CY 1984–1985 sugar proceeds is
authorized under the above-quoted stipulation.
PNB correctly treated the subject remittances
for the account of NASUTRA as moneys in its
hands which may be applied for the payment of
the note.
Also, the relationship between NASUTRA/SRA
and PNB when the former constituted the latter
as its attorney-in-fact is not a simple agency.
NASUTRA/SRA has assigned and practically
surrendered its rights in favor of PNB for a
substantial consideration. 32 To reiterate,
NASUTRA/SRA executed promissory notes in
favor of PNB every time it availed of the credit
line. The agency established between the
parties is one coupled with interest which
cannot be revoked or cancelled at will by any
of the parties. 33
Notwithstanding its availment of the approved
credit, NASUTRA, for reasons only known to
itself, insisted in claiming for refund of the
remittances. NASUTRA's posture is untenable.
NASUTRA's actuation runs counter to the good
faith covenant in contractual relations, required
under Article 1159 of the Civil Code, to wit:
Obligations arising from contract have the force
of law between the contracting parties and
should be complied with in good faith.
Verily, parties may freely stipulate their duties
and obligations which perforce would be
binding on them. Not being repugnant to any
legal proscription, the agreement entered into
AGENCY ACJUCO 2nd MEETING 121
by NASUTRA/SRA and PNB must be
respected and have the force of law between
them.
With respect to the application of the sum of
P65,412,245.84, 34 the record shows that
NASUTRA failed to remit the interest payments
to PNB despite its obligation under the
liquidation scheme proposed by the Chairman
of its Executive Committee, Armando C.
Gustillo, to stabilize sugar liquidation prices.
Certainly, the authority granted by NASUTRA
to Armando Gustillo to propose such liquidation
scheme was an authority to represent
NASUTRA. Undisputedly, any obligation or
liability arising from such agreement shall be
binding on the parties. NASUTRA, for its part,
cannot now renege on its duties, considering
that it took advantage of the loan.
Having established that PNB validly applied the
subject remittances to the interest of
NASUTRA's loan in the amount of
P65,412,245.84, the application of the
remainder of the remittance amounting to
P15,863,898.79 to the principal is proper.
With respect to the Central Azucarera de Bais
(CAB) Planters account, petitioners maintained
that the subject remittances cannot be applied
to payment thereof, considering that it is
unliquidated and needs recomputation,
pursuant to Section 3 of Republic Act No. 7202
or the Sugar Reconstitution Law, which
provides:
The Philippine National Bank of the Philippines
and other government-owned and controlled
financial institutions which have granted loans
to the sugar producers shall extend to
accounts of said sugar producers incurred from
Crop Year 1974–1975 up to and including Crop
Year 1984–1985 the following:
(a) Condonation of interest charged by
the banks in excess of twelve percent
(12%) per annum and all penalties and
surcharges:
(b) The recomputed loans shall be
amortized for a period of thirteen (13)
years inclusive of a three-year grace
period on principal portion of the loan
will carry an interest rate of twelve
(12%) and on the outstanding balance
 AGENCY ACJUCO 2nd MEETING 122

effective when the original promissory Petitioners' contention is not well-taken.

notes were signed and funds released
to the producer.
Section 6 of Rules and Regulations
implementing RA No. 7202 also provides:
SECTION 2. In cases, however, where
sugar producers have no outstanding
loan balance with said financial
institutions as of the date of effectivity of
RA No. 7202 (i.e. sugar producers who
have fully paid their loans either through
actual payment or foreclosure of
collateral, or who have partially paid
their loans and after the computation of
the interest charges, they end up with
excess payment to said financial
institutions), said producers shall be
entitled to the benefits of recomputation
in accordance with Sections 3 and 4 of
RA No. 7202, but the said financial
institutions, instead of refunding the
interest in excess of twelve (12%)
percent per annum, interests, penalties
and surcharges apply the excess
payment as an offset and/or as payment
for the producers' outstanding loan
obligations. Applications of restructuring
banks under Section 6 of RA No. 7202
shall be filed with the Central Monetary
Authority of the Philippines within one
(1) year from application of excess
payment.
There exist clear indications that insofar as
sugar trading was concerned,
PHILEXCHANGE and PNB were treated as
one entity. Purchases of sugar of
PHILEXCHANGE as the exclusive sugar
trading arm of PHILSUCOM were financed by
PNB pursuant to PD 579. More importantly,
PNB, a wholly owned bank of the government
at that time, in turn wholly owned and
controlled PHILEXCHANGE. Also, Section 2
(a), PD 659 declared as illegal the sale,
transfer and assignment of sugar by any
planter, producer, miller, central, or refinery to
any person or entity other than Philippine
Exchange, Inc. and/or the PNB. To reiterate,
PHILEXCHANGE failed to pay its loans with
PNB because of the fall of the sugar prices in
the world market. When NASUTRA substituted
PHILEXCHANGE as marketing agent of
PHILSUCOM, 1,485,532.47 metric tons 36 of
export sugar were turned over by
PHILEXCHANGE to NASUTRA. To reiterate,
the foreign remittances constituted proceeds of
the sale of the sugar covered by quedans
transferred by PHILEXCHANGE to NASUTRA.
WHEREFORE, in view of the foregoing, the
instant petition for review is DENIED. The
decision of the Court of Appeals dated August
10, 2001 is AFFIRMED.
SO ORDERED.

Although it appears from said provision that

PNB was directed to condone interest,
penalties and surcharges charged in excess of
12% per annum, the passage of said law did
not forestall legal compensation that had taken
place before its effectivity. The loan had been
definitely ascertained, assessed and
determined by PNB. Pursuant to Section 4 35 of
RA 7202, there would be condonation of
interest whether the accounts were fully or
partially paid.

With regard to the application of the amount of

P206,070,172.57 to the PHILSUCOM account
carried in the books of PHILEXCHANGE,
petitioners maintain that there could be no
application of the subject remittance,
considering that the remittances were received
by PNB and not PHILEXCHANGE which has a
personality separate and distinct from PNB.

A.C. No. 5182 August 12, 2004
SUSANA DE GUZMAN BUADO and NENA
LISING, complainants,
vs.
ATTY. EUFRACIO T. LAYAG, respondent.
RESOLUTION
PER CURIAM:
The instant case arose from a verified Letter-
Complaint1 for malpractice filed with this Court
on December 9, 1999, against respondent Atty.
Eufracio T. Layag by Susana de Guzman
Buado and Nena Lising. The complaint stated
that de Guzman Buado and Lising had
instituted a criminal action for estafa 2 against
Atty. Layag with the Office of the City
Prosecutor of Caloocan City and that the City
Prosecutor had resolved that there was prima
facie evidence to justify the filing in court of
informations for two (2) counts of estafa
against Atty. Layag.3 Accordingly, two cases for
estafa, docketed as Criminal Cases Nos. C-
58087 and C-58088 were filed with the
Regional Trial Court (RTC) of Caloocan City,
Branch 124.4
In our Resolution of January 31, 2000, we
directed that Atty. Layag be furnished a copy of
the complaint for his comment.
In his Comment dated April 11, 2000, Atty.
Layag denied committing any malpractice,
saying that he merely complied with the wishes
of his client, the late Rosita de Guzman, to
deliver any money judgment in Civil Case No.
C-14265 before the RTC of Caloocan City,
Branch 121, to her attorney-in-fact, one Marie
Paz P. Gonzales. Respondent prayed that the
complaint be dismissed for want of merit.
Thereafter, this Court resolved on July 10,
2000 to refer the matter to the Integrated Bar of
the Philippines (IBP) for investigation, report,
and recommendation.5
As culled from the report and
6
recommendation dated September 25, 2003 of
the IBP Investigating Commissioner, Atty.
Milagros V. San Juan, the facts in this case are
as follows:
AGENCY ACJUCO 2nd MEETING 123
Herein complainant Lising and her sister,
Rosita de Guzman (mother of herein
complainant Susana de Guzman Buado), were
the plaintiffs in Civil Case No. C-14265,
entitled Rosita de Guzman, et al., v. Inland
Trailways, Inc.,which was decided by the RTC
of Caloocan City, Branch 121, in favor of the
plaintiffs on May 16, 1991. Both Lising and de
Guzman were represented in said case by
herein respondent, Atty. Layag. The losing
party, Inland Trailways, Inc., appealed the trial
court's judgment to the Court of Appeals, said
appeal being docketed as CA-G.R. CV No.
34012.
In its decision dated January 5, 1995, the
appellate court affirmed the judgment of the
trial court. However, on July 3, 1993, or while
CA-G.R. CV No. 34012 was pending before
the appellate court, de Guzman died.
Pursuant to the judgment against it, Inland
Trailways, Inc., issued the following checks: (1)
Traders Royal Bank Check No. 0000790549
dated February 15, 1996 for P15,000 payable
to Atty. Layag; (2) Traders Royal Bank Check
No. 0000790548 dated March 8, 1996 in the
amount of P30,180 payable to Lising; and (3)
Traders Royal Bank Check No. 0000790547
dated March 8, 1996 for the sum of P49,000
payable to de Guzman who had by then
already passed away. The aforementioned
checks were received by respondent lawyer
from Pablo Gernale, Jr., the deputy sheriff of
the RTC in February 1996. Atty. Layag did not
inform Lising and the heirs of de Guzman
about the checks. Instead he gave the checks
to one Marie Paz Gonzales for encashment on
the strength of a Special Power of Attorney,
purportedly executed by de Guzman
constituting Gonzales as her attorney-in-fact.
The Special Power of Attorney supposedly
authorized Gonzales, among others, to
encash, indorse, and/or deposit any check or
bill of exchange received in settlement of Civil
Case No. C-14265.
It was only in February 1998 that Lising and de
Guzman Buado, while checking the status of
Civil Case No. C-14265, found that judgment
had been rendered in the said case and that
the losing party had paid the damages
awarded by issuing checks which were
received by their counsel, Atty. Layag, two

years earlier. De Guzman Buado and Lising
then made demands upon Atty. Layag to give
them the proceeds of the checks, but to no
avail. Marie Paz Gonzales eventually gave
Lising P10,000. No further amounts were
remitted to either Lising or de Guzman Buado
despite demands by them.
After the parties presented their oral and
documentary evidence before the IBP
Commissioner, the matter was deemed
submitted for resolution. On September 25,
2003, the IBP Investigating Commissioner
made the following recommendations:
It is submitted that respondent has
betrayed the trust of her (sic) clients. It
is recommended that respondent be
suspended from the practice of law for
the maximum period allowed under the
law and that he be ordered to turn over
to the Complainants the amounts he
received in behalf of the complainants
Susana de Guzman Buado and Nena
Lising.
Respectfully submitted.7
The IBP Investigating Commissioner, in her
recommendation, found that in giving the
checks to a party not entitled to them, Atty.
Layag disregarded the rights and interests of
his clients in violation of Canons 15,8 16,9 and
1710 of the Code of Professional Responsibility.
On the Special Power of
11
Attorney purportedly executed by Rosita de
Guzman in favor of Marie Paz Gonzales, the
Investigating Commissioner held that even
assuming arguendo that there was indeed a
Special Power of Attorney, it nonetheless had
no force and effect after the death of Rosita de
Guzman. Hence, any authority she had
conferred upon Gonzales was already
extinguished. According to the IBP
Investigating Commissioner, since respondent
represented de Guzman in Civil Case No. C-
14265, upon her death, respondent had the
obligation to preserve whatever benefits
accrued to the decedent on behalf of and for
the benefit of her lawful heirs.
On October 25, 2003, the IBP Board of
Governors passed its resolution on the case,
AGENCY ACJUCO 2nd MEETING 124
affirming with modification the recommendation
by the Investigating Commissioner, thus:
RESOLVED to ADOPT and APPROVE,
as it is hereby ADOPTED and
APPROVED, the Report and
Recommendation of the Investigating
Commissioner of the above-entitled
case, herein made part of this
Resolution/Decision as Annex "A"; and,
finding the recommendation fully
supported by the evidence on record
and the applicable laws and rules, with
modification, and considering that
Respondent has betrayed the trust of
her (sic) clients in violation of Canon 15,
16 and 17 of the Code of Professional
Responsibility, Atty. Eufracio T. Layag is
hereby DISBARRED and Ordered to
turn over immediately to the
Complainants the amounts received in
their behalf.12
Respondent then moved for reconsideration of
the foregoing resolution before this Court. In
view of the recommended penalty of
disbarment, the Court En Banc accepted the
respondent's motion for our consideration.
Placed in issue are: (1) the sufficiency of the
evidence to prove the respondent's liability for
violation of the Code of Professional
Responsibility; and (2) the propriety of the
recommended penalty.
After careful scrutiny of the proceedings
conducted by the IBP Investigating
Commissioner, we find that the factual findings
made in her report and recommendation are
well supported by the evidence on record.
Respondent Atty. Layag does not deny
receiving the checks in question, but he
claimed he turned over said checks to Marie
Paz Gonzales, pursuant to the alleged Special
Power of Attorney executed by Rosita de
Guzman in favor of Gonzales, authorizing the
latter to encash, indorse, or deposit any check
received as a result of the judgment in Civil
Case No. C-14265. Respondent contended
that in so doing, he was being true to the
wishes and desires of his client, the late Rosita
de Guzman.
The respondent's arguments fail to persuade
us. As a lawyer, with more than thirty (30)

years in practice, respondent is charged with
knowledge of the law. He should know that it
was error for him to rely on a Special Power of
Attorney after the death of the principal, Rosita
de Guzman. As pointed out by the IBP
Investigating Commissioner, even assuming
there was a Special Power of Attorney,
although respondent could not produce a copy
nor prove its existence, when de Guzman died
that document ceased to be operative. This is
clear from Article 191913 of the Civil Code.
While there are instances, as provided in
Article 1930, 14 where the agency is not
extinguished by the death of the principal, the
instant case does not fall under the exceptions.
Clearly, at the time Atty. Layag received and
turned over the checks corresponding to the
award of damages in Civil Case No. C-14265
in February 1996, there was no longer any
valid Special Power of Attorney. Again, as
pointed out by the IBP Investigating
Commissioner, respondent's duty when the
award of damages was made, was to preserve
and deliver the amount received to the heirs of
his client, de Guzman, and not to any other
person.
With respect to the check from Inland
Trailways, Inc., and made payable to Lising,
respondent should have delivered it directly to
Lising. The Special Power of Attorney, which
he keeps on harping on, did not cover Lising's
case. Its coverage -- assuming again that the
document existed -- pertained only to de
Guzman. Respondent certainly could not take
refuge in any provision of said Special Power
of Attorney insofar as Lising's check is
concerned.
Respondent now denies any attorney-client
relationship with Lising because, as he insists,
he was only engaged by de Guzman. But in
his Comment to the Complaint, respondent
admits that he included Lising when they filed
suit against Inland Trailways, Inc., before the
RTC of Caloocan City, upon the request of de
Guzman. Absent any showing on record that
Lising was represented by another counsel in
Civil Case No. C-14265 and the subsequent
appeal, CA-G.R. CV No. 34012, the only
conclusion we could reach is that she was also
represented by Atty. Layag. But even if granted
the opposite conclusion that he was not
Lising's lawyer, it cannot exonerate the
respondent with respect to Lising's check. It
AGENCY ACJUCO 2nd MEETING 125
would only make things worse for him, for it
would show that he misappropriated the
monetary award of a party whom he did not
represent. In our view, respondent's insistence
that Lising was not his client is more damaging
to his cause.
In the course of his professional relationship
with his client, a lawyer may receive money or
property for or from the client. He shall hold
such property in trust, and he is under
obligation to make an accounting thereof as
required by Rule 16.0115 of the Code of
Professional Responsibility. This obligation to
hold property in trust includes money received
by a lawyer as a result of a judgment favorable
to his client.16 In the present case, Atty. Layag
did not make an accounting of the judgment
awards he received and the checks he
allegedly turned over to Marie Paz Gonzales.
Further, when complainants demanded that he
deliver to them the checks pertaining to de
Guzman Buado and Lising for the judgment in
Civil Case No. C-14265, Atty. Layag did not do
so, in violation of Rule 16.03.17
The inescapable conclusion we can make,
given the circumstances in this case, is that by
his actions, respondent failed to observe the
utmost good faith, loyalty, candor and fidelity
required of an attorney in his dealings with his
clients. His acts of misappropriating the money
of his clients are grossly immoral and
unprofessional. There is no doubt in our mind
that he deserves severe punishment.
But is disbarment the proper penalty for Atty.
Layag?
Disbarment is the most severe form of
disciplinary sanction. The power to disbar must
always be exercised with great caution, for only
the most imperative reasons,18 and in clear
cases of misconduct affecting the standing and
moral character of the lawyer as an officer of
the court and a member of the
bar.19 Accordingly, disbarment should not be
decreed where any punishment less severe –
such as a reprimand, suspension, or fine -
would accomplish the end desired. 20 In the
instant case, what we seek to exact from the
respondent is strict compliance and fidelity with
his duties to his clients. Accordingly, we agree
with the recommendation of the IBP
Investigating Commissioner that suspension,
 AGENCY ACJUCO 2nd MEETING 126

rather than disbarment, of respondent would

suffice. In our view, however, such suspension
should be indefinite, subject to further orders
by this Court.

WHEREFORE, the IBP Board of Governors

Resolution No. XVI-2003-230 in Administrative
Case No. 5182 finding respondent LIABLE for
violation of the Canons 15, 16, and 17 of the
Code of Professional Responsibility is hereby
AFFIRMED with the MODIFICATION that
instead of the recommended penalty of
disbarment, respondent Atty. Eufracio T. Layag
is hereby INDEFINITELY SUSPENDED from
the practice of law. Respondent is further
DIRECTED to immediately turn over to
complainants Susana de Guzman Buado and
Nena Lising the amounts of P49,000.00
and P30,180.00, respectively, as well as all
other amounts if any, he might have received
for and on their behalf. Respondent is also
ORDERED to REPORT to the Office of the Bar
Confidant his compliance within fifteen (15)
days from receipt hereof. Let a copy of this
Resolution be attached to the personal record
of Atty. Eufracio T. Layag and copies be
furnished the Integrated Bar of the Philippines
and the Office of the Court Administrator for
dissemination to all lower courts. This
Resolution is immediately executory.

SO ORDERED.