Hahn v. Court of Appeals [266 SCRA 537 (January 22, 1997)]Jurisdiction Over Foreign CorporationDoing Business in the Philippines Without a License

Facts: Petitioner is a Filipino citizen doing business under the name of “Hahn-Manila”. Private respondent BMW is a non-resident corporation incorporated in Germany. Petitioner executed in favor of private respondent a “Deed of Assignment with a Special Power of Attorney” which constituted petitioner as the exclusive dealer of private respondent as long as the assignment of its trademark and device subsisted. However, no formal contract was drawn between the two parties. Thereafter, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to Columbia Motors Corp. (CMC). BMW expressed dissatisfaction with various aspect of petitioner’s business but nonetheless also expressed willingness to continue business relations with petitioner on the basis of a standard BMW contract otherwise, if said offer was unacceptable to petitioner then BMW would terminate petitioner’s exclusive dealership. Petitioner refused BMWs offer in which case BMW withdrew its alternative offer and terminated petitioner’s exclusive dealership. Petitioner therefore filed an action for specific performance and damages against BMW to compel it to continue the exclusive dealership.BMW moved to dismiss the case contending that the trial court did not acquire jurisdiction over it through the service of summons on DTI because BMW is a foreign corporation and is not doing business in the Philippines. The trial court deferred the resolution of the motion for dismissal until after trial on the merits for the reason that the grounds advanced by BMW did not seem indubitable. BMW appealed said order to the CA. The CA resolved that BMW was not doing business in the country and therefore jurisdiction over it could not have been acquired through the service of summons on DTI and it dismissed the petition.

Issue: W/N BMW is doing business in the Philippines so as to enable the court to acquire jurisdiction over it through the service of summons on the DTI.

HeId: RA 7042 enumerates what acts are considered as “doing business”. Section 3(d) enumerating such acts includes the phrase “appointing representatives or distributors in the Philippines” but not when the representative or distributor “transacts” business in his own name for his own account. In the case at bar, petitioner is private respondent BMW’s agent and not merely a broker. The record reveals that private respondent exercised control over petitioner’s activities as a dealer and made regular inspections of petitioner’s premises to enforce its standards. Since BMW is considered as doing business in the Philippines, the trial court validly acquired jurisdiction over it by virtue of the service of summons on the DTI. Furthermore, it is now settled that, for purposes of having summons served on a foreign corporation in accordance with the Rules of Court, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations in the complaint in order to determine whether or not it acquired jurisdiction. Such determination that the foreign corporation is doing business in the Philippines is only tentative and only for the purpose of enabling the court to acquire jurisdiction. A contrary determination may be made based on the court’s findings or evidence presented.

G.R. No. 110668 February 6, 1997

SMITH, BELL & CO., INC., petitioner, vs. COURT OF APPEALS and JOSEPH BENGZON CHUA, 1 respondents.

The main issue raised in this case is whether a local claim or settling agent is personally and/or solidarily liable upon a marine insurance policy issued by its disclosed foreign principal.

This is a petition for review on certiorari of the Decision of respondent Court 2 promulgated on January 20, 1993 in CA-G.R. CV No. 31812 affirming the decision 3 of the trial court 4 which disposed as follows: 5

Wherefore, the Court renders judgment condemning the defendants (petitioner and First Insurance Co. Ltd.) jointly and severally to pay the plaintiff (private respondent) the amount of US$7,359.78. plus 24% interest thereon annually until the claim is fully paid, 10% as and for attorney's fees, and the cost.

The Facts

. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin Chiong, Importer, bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at US$13,000.00 CIF Manila. These were contained in 1,250 bags and shipped from the Port of Kaohsiung, Taiwan on Board S.S. "GOLDEN WEALTH" for the Port on ( sic) Manila. On July 27, 1982, this shipment was insured by the defendant First Insurance Co. for US$19,500.00 "against all risks" at port of departure under Marine Policy No. 1000M82070033219, with the note "Claim, if any, payable in U.S. currency at Manila (Exh. "1", 'D" for the plaintiff) and with defendant Smith, Bell, and Co. stamped at the lower left side of the policy as "Claim Agent."

The cargo arrived at the Port of Manila on September 1, 1982 aboard the above-mentioned carrying vessel and landed at port on September 2, 1982. thereafter, the entire cargo was discharged to the local arrastre contractor, Metroport Services Inc. with a number of the cargo in apparent bad order condition. On September 27, 1982, the plaintiff secured the services of a cargo surveyor to conduct a survey of the damaged cargo which were (sic) delivered by plaintiff's broker on said date to the plaintiffs premises at 12th Avenue, Grace Park, Caloocan City. The surveyor's report (Exh. "E") showed that of the 1,250 bags of the imported material, 600 were damaged by tearing at the sides of the container bags and the contents partly empty. Upon weighing, the contents of the damaged bags were found to be 18,546.0 kg short. Accordingly, on October 16 following, the plaintiff filed with Smith, Bell, and Co., Inc. a formal statement of claim (Exh. "G") with proof of loss and a demand for settlement of the corresponding value of the losses, in the sum of US$7,357.78.00. (sic) After purportedly conveying the claim to its principal, Smith, Bell, and Co., Inc. informed the plaintiff by letter dated February 15, 1983 (Exh."G-2") that its principal offered only 50% of the claim or US$3,616.17 as redress, on the alleged ground of discrepancy between the amounts contained in the shipping agent's reply to the claimant of only US$90.48 with that of

1

Metroport's. The offer not being acceptable to the plaintiff, the latter wrote Smith, Bell, & Co. expressing his refusal to the "redress" offer. contending that the discrepancy was a result of loss from vessel to arrastre to consignees' warehouse\which losses were still within the "all risk" insurance cover. No settlement of the claim having been made, the plaintiff then caused the instant case to be filed. (p. 2, RTC Decision; p. 142, Record).

Denying any liability, defendant-appellant averred in its answer that it is merely a settling or claim agent of defendant insurance company and as SUCH agent, it is not personally liable under the policy in which it has not even taken part of. It then alleged that plaintiff-appellee has no cause of action against it.

Defendant The First Insurance Co. Ltd. did not file an Answer, hence it was declared in default.

After due trial and proceeding, the lower court rendered a decision favorable to plaintiff-appellee. It ruled that plaintiff-appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete evidence of the amount of losses resulting from the risks insured against which were supported, by reliable report and assessment of professional cargo surveyor. As regards defendant-appellant, the lower court held that since it is admittedly a claim agent of the foreign insurance firm doing business in the Philippines justice is better served if said agent is made liable without prejudice to its right of action against its principal, the insurance firm. . . .

The Issue

"Whether or not a local settling or claim agent of a disclosed principal — a foreign insurance company — can be held jointly and severally liable with said principal under the latter's marine cargo insurance policy, given that the agent is not a party to the insurance contract" 8 — is the sole issue-raised by petitioner.

Petitioner rejects liability under the said insurance contract, claiming that: (1) it is merely an agent and thus not personally liable to the party with whom it contracts on behalf of its principal; (2) it had no participation at all in the contract of insurance; and (3) the suit is not brought against the real party-in-interest. 9

On the other hand, respondent Court in ruling against petitioner disposed of the main issue by citing a case it decided in 1987, where petitioner was also a party-litigant. 10 In that case, respondent Court held that petitioner as resident agent of First Insurance Co. Ltd. was "authorized to settle claims against its principal. Its defense that its authority excluded personal liability must be proven satisfactorily. There is a complete dearth of evidence supportive of appellant's non-responsibility as resident agent." The ruling continued with the statement that "the interest of justice is better served by holding the settling or claim agent jointly and severally liable with its principal." 11

Likewise, private respondent disputed the applicability of the cases of E Macias & Co. vs. Warner, Barnes & Co. 12 and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by petitioner in its appeal. According to private respondent, these two cases impleaded only the "insurance agent" and did not include the principal. While both the foreign principal — which was declared in default by the trial court — and petitioner, as claim agent, were found to be solidarily liable in this case, petitioner still had "recourse" against its foreign principal. Also, being a contract of adhesion, an insurance agreement must be strictly construed against the insurer. 14

The Court's Ruling

There are three reasons why we find for petitioner.

First Reason: Existing Jurisprudence

Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot be held personally and/or solidarily liable for the obligations of its disclosed principal merely because there is allegedly a need for a speedy settlement of the claim of private respondent. In the leading case of Salonga vs. Warner, Barnes & Co., Ltd. this Court ruled in this wise: 15

We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal, but we disagree with counsel in his contention that as such adjustment and settlement agent, the defendant has assumed personal liability under said policies, and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibility ( sic), for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but upon his principal. And here again, the ordinary rule of agency applies. The following authorities bear this out:

"An insurance adjuster is ordinarily a special agent for the person or company for whom he acts, and his authority is prima facie coextensive with the business intrusted to him. . . ."

"An adjuster does not discharge functions of a quasi-judicial nature, but represents his employer, to whom he owes faithful service, and for his acts, in the employer's interest, the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment." (45 C.J.S., 1338- 1340.)

2

It, therefore, clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the claim is disputed or is disapproved by the principal, like in the instant case, the agent does not assume any personal liability . The recourse of the insured is to press his claim against the principal. (Emphasis supplied).

The foregoing doctrine may have been enunciated by this Court in 1951, but the passage of time has not eroded its value or merit. It still applies with equal force and vigor.

Private respondent's contention that Salonga does not apply simply because only the agent was sued therein while here both agent and principal were impleaded and found solidarily liable is without merit.

Such distinction is immaterial. The agent can not be sued nor held liable whether singly or solidarily with its principal.

Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. 16 The only "involvement" of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the policy as "Claim Agent." Without anything else to back it up, such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated in the preparation of said contract. Hence, there is no privity of contract, and correspondingly there can be no obligation or liability, and thus no Cause of action against petitioner attaches. Under Article 1311 17 of the Civil Code, contracts are binding only upon the parties (and their assigns and heirs) who execute them. The subject cargo insurance was between the First Insurance Company, Ltd. and the Chin Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the president of the First Insurance Company, Ltd. and the president of the Chin Gact Co., Ltd. 18 There is absolutely nothing in the contract which mentions the personal liability of petitioner.

Second Reason: Absence of Solidarity Liability

May then petitioner, in its capacity as resident agent (as found in the case cited by the respondent Court 19) be held solidarily liable with the foreign insurer? Article 1207 of the Civil Code clearly provides that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." The well-entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and clearly expressed. The contention that, in the end, it would really be First Insurance Company, Ltd. which would be held liable is specious and cannot be accepted. Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from the principal which disapproved such claim, in the first place. More importantly, such ,position would have absolutely no legal basis.

The Insurance Code is quite clear as to the Purpose and role of a resident agent. Such agent, as a representative of the foreign insurance company, is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance claims. We quote:

Sec. 190. The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by any foreign insurance company, that such company file in his office a written power of attorney designating some person who shall be a resident of the Philippines as its general agent, on whom any notice provided by law or by any insurance policy, proof summons and other legal processes may be served in all actions or other legal proceedings against such company, and consenting that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office. Any such foreign company shall, as further condition precedent to the transaction of insurance business in the Philippines, make and file with the Commissioner an agreement or stipulation, executed by the proper authorities of said company in form and substance as follows:

The (name of company) does hereby stipulate and agree in consideration of the permission granted by the Insurance Commissioner to transact business in the Philippines, that if at any time such company shall leave the Philippines, or cease to transact business therein, or shall be without any agent in the Philippines on whom any notice, proof of loss, summons, or legal process may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any notice provided by law, or insurance policy, proof of loss, summons, or other legal process may be made upon the Insurance Commissioner shall have the same force and effect as if made upon the company.

Whenever such service of notice, proof of loss, summons or other legal process shall be made upon the Commissioner he must, within ten days thereafter, transmit by mail, postage paid, a copy of such notice, proof of loss, summons, or other legal process to the company at its home or principal office. The sending of such copy of the Commissioner shall be necessary part of the service of the notice, proof of loss, or other legal process. (Emphasis supplied).

Further, we note that in the case cited by respondent Court, petitioner was found to be a resident agent of First Insurance Co. Ltd. In the instant case however, the trial court had to order the service of summons upon First Insurance Co., Ltd. which would not have been necessary if petitioner was its resident agent. Indeed, from our reading of the records of this case, we find no factual and legal bases for the finding of respondent Court that petitioner is the resident agent of First Insurance Co., Ltd.

Third Reason: Not Real Party-In-Interest

Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest in this case. An action is brought for a practical purpose, that is, to obtain actual and positive relief. If the party sued is not the proper party, any decision that may be rendered against him would

3

be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of the Rules of Court identifies who the real parties-in-interest are, thus:

Sec. 2. Parties in interest. — Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the, plaintiff, or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants.

The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by petitioner. It is not a "person who claim(s) an interest adverse to the plaintiff" nor is said respondent "necessary to a complete determination or settlement of the questions involved" in the controversy. Petitioner is improperly impleaded for not being a real-party-interest. It will not benefit or suffer in case the action prospers. 20

Resort to Equity Misplaced

Finally, respondent Court also contends that "the interest of justice is better served by holding the settling agent jointly and severally liable with its principal." As no law backs up such pronouncement, the appellate Court is thus resorting to equity. However, equity which has been aptly described as "justice outside legality," is availed of only in the absence of, and never against, statutory law or judicial pronouncements. 21 Upon the other hand the liability of agents is clearly provided for by our laws and existing jurisprudence.

WHEREFORE, in view of the foregoing considerations, the Petition is GRANTED and the Decision appealed from is REVERSED and SET ASIDE.

No costs. SO ORDERED.

W. G. PHILPOTTS ,vs. PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY ,

G.R. No. L-15568 November 8, 1919

W.G. Philpotts (Petitioner) , a stockholder in Philippine Manufacturing Company sought to compel respondents to permit plaintiff, a person or by some authorized agent or attorney to inspect and examine the records of the business transacted by said company since January 1, 1918.

Respondent corporation or any of its officials has refused to allow the petitioner himself to examine anything relating to the affairs of the company, and the petitioner prays for an order commanding respondents to place records of all business transactions of the company, during a specific period, at the disposal of the plaintiff or his duly authorized agent or attorney. Petitioner desires to exercise said right through agent or attorney.

Petition is filed originally in the Supreme Court under authority of Section 515 of Code of Civil Procedure, which gives SC concurrent jurisdiction with then Court of First Instance in cases where any corporation or person unlawfully excludes the plaintiff from use and enjoyment and some right he is entitled.

ISSUE:

Whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney of the stockholder as well as by stockholder in person

HELD: Yes. Right of inspection of records can be exercised by proper agent or attorney of the stockholder as well as by stockholder in person.

The right of inspection / examination into corporate affairs given to a stockholder in section 51 of the Corporation Law which states: “The records of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member, or stockholder of the corporation at reasonable hour” can be exercised either by himself or by any duly authorized representative or attorney in fact, and either with or without the attendance of the stockholder. This is in conformity with the general rule that what a man may do in person he may do through another.

Gelano vs. Court of Appeals

[GR L-39050, 24 February 1981]

Facts: Insular Sawmill, Inc. (ISI) is a corporation organized on 17 September 1945 with a corporate life of 50 years, or up to 17 September 1995, with the primary purpose of carrying on a general lumber and sawmill business. To carry on this business, ISI leased the paraphernal property of Carlos Gelano's wife Guillermina Mendoza-Gelano at the corner of Canonigo and Otis, Paco, Manila for P1,200.00 a month. It was while ISI was leasing the aforesaid property that its officers and directors had come to know Carlos Gelano who received from the corporation cash advances on account of rentals to be paid by the corporation on the land. Between 19 November 1947 to 26 December 1950 Carlos Gelano obtained from ISI cash advances of P25,950.00. The said sum was taken and received by Carlos Gelano on the agreement that ISI could deduct the same from the monthly rentals of the leased premises until said cash advances are fully paid. Out of the aforementioned cash advances in the total sum of P25,950.00, Carlos Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance of P20,000.00 which he refused to pay despite

4

repeated demands by ISI. Guillermina M. Gelano refused to pay on the ground that said amount was for the personal account of her husband asked for by, and given to him, without her knowledge and consent and did not benefit the family.

On various occasions from 4 May 1948 to 11 September 1949 the Spouses Gelano also made credit purchases of lumber materials from ISI with a total price of P1,120.46 in connection with the repair and improvement of the spouses' residence. On 9 November 1949 partial payment was made by the spouses in the amount of P91.00 and in view of the cash discount in favor of the spousesin the amount of P83.00, the amount due ISI on account of credit purchases of lumber materials is P946.46 which the spouses failed to pay. On 14 July 1952, in order to accommodate and help the spouses renew previous loans obtained by them from the China Banking Corporation, ISI, through Joseph Tan Yoc Su, executed a joint and several promissory note with Carlos Gelano in favor of said bank in the amount of P8,000.00 payable in 60 days. For failure of Carlos Gelano to pay the promissory note upon maturity, the bank collected from the ISI the amount of P9,106.00 including interests, by debiting it from the corporation's current account with the bank. Carlos Gelano was able to pay ISI the amount of P5,000.00 but the balance of P4,106.00 remained unsettled. Guillermina M. Gelano refused to pay on the ground that she had no knowledge about the accommodation made by ISI in favor of her husband.

On 29 May 1959, ISI, thru Atty. German Lee, filed a complaint for collection against the spouses before the Court of First Instance of Manila. Trial was held and when the case was at the stage of submitting memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde took over and prepared memorandum. In the meantime, ISI amended its Articles of Incorporation to shorten its term of existence up to 31 December 1960 only. The amended Articles of Incorporation was filed with, and approved by the Securities and Exchange Commission, but the trial court was not notified of the amendment shortening the corporate existence and no substitution of party was ever made. On 20 November 1964 and almost 4 years after the dissolution of the corporation, the trial court rendered a decision in favor of ISI ordering Carlos Gelano to pay ISI the sum of P19,650.00 with interest thereon at the legal rate from the date of the filing of the complaint on 29 May 1959 until said sum is fully paid; and P4,106.00, with interest thereon at the legal rate from the date of the filing of the complaint until said sum is fully paid; and the sum of P2,000.00 attorney's fees. The Court also ordered the spouses to solidarily pay ISI the sum of P946.46, with interest thereon at the agreed rate of 12% per annum from 6 October 1946, until said sum is fully paid; P550.00, with interest thereon at the legal rate from the date of the filing of the complaint until the said sum is fully paid; and costs of the suit.

The court dismissed the counterclaims of the spouses. Both parties appealed to the Court of Appeals, with ISI ppealing because it insisted that both Carlos Gelano and Guillermina Gelano should be held liable for the substantial portion of the claim. On 23 August 1973, the Court of Appeals rendered a decision modifying the judgment of the trial court by holding the spouses jointly and severally liable on ISI's claim and increasing the award of P4,106.00 to P8,160.00. After the spouses received a copy of the decision on 24 August 1973, they came to know that the ISI was dissolved way back on 31 December 1960.

Hence, the spouses filed a motion to dismiss the case and or reconsideration of the decision of the Court of Appeals on grounds that the case was prosecuted even after dissolution of ISI as a corporation and that a defunct corporation cannot maintain any suit for or against it without first complying with the requirements of the winding up of the affairs of the corporation and the assignment of its property rights within the required period. Incidentally, after the receipt of the spouses' motion to dismiss and/or reconsideration or on 28 October 1973, ISI thru its former directors filed a Petition for Receivership before the Court of First Instance of Manil (Special Proceedings 92303), which petition is still pending before said court. On 5 November 1973, ISI filed a comment on the motion to dismiss and/or reconsideration and after the parties have filed reply and rejoinder, the Court of Appeals on 5 July 1974 issued a resolution denying the aforesaid motion. The spouses filed the petition for review.

Issue: Whether a corporation, whose corporate life had ceased by the expiration of its terms of existence, could still continue prosecuting and defending suits after its dissolution and beyond the period of 3 years provided for under Act 1459, otherwise known as the Corporation Law, to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or assignee.

Held: When ISI was dissolved on 31 December 1960, under Section 77 of the Corporation Law, it still has the right until 31 December 1963 to prosecute in its name the present case. After the expiration of said period, the corporation ceased to exist for all purposes and it can no longer sue or be sued. However, a corporation that has a pending action and which cannot be terminated within the 3-year period after its dissolution is authorized under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the 3-year period. Although ISI did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation in the present case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had been handling the case when the same was pending before the trial court until it was appealed before the Court of Appeals and finally to the Supreme Court. Therefore, there was a substantial compliance with Section 78 of the Corporation Law and as such, ISI could still continue prosecuting the present case even beyond the period of 3 years from the time of its dissolution. Further, the case was instituted on 29 May 1959, during the time when the corporation was still very much alive. Any litigation filed by or against it instituted within the period, but which could not be terminated, must necessarily prolong that period until the final termination of said litigation as otherwise corporations in liquidation would lose what should justly belong to them or would be exempt from the payment of just obligations through a mere technicality, something that courts should prevent.

Shell Co. v. Firemen’s Insurance Company of Newark G.R. No. L-8169 January 29, 1957

Facts: This is an action for recovery of sum of money, based on alleged negligence of the defendants

A car was brought to a Shell gasoline station owned by dela Fuente for washing and greasing. The car was placed on a hydraulic lifter for greasing. As some parts of the car couldn’t be reached by the greaseman, the lifter was lowered. Unfortunately, for unknown reasons (probably due to mechanical failure or human error), while the lifter was being lowered, the car swung and fell from the platform.

5

Said car was insured against loss or damage by Firemen's Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance Company jointly for the sum of P10,000

The insurance companies after paying the sum of P1,651.38 for the damage and charging the balance of P100.00 to Salvador Sison in accordance with the terms of the insurance contract, have filed this action together with said Salvador Sison for the recovery of the total amount of the damage from the defendants on the ground of negligence

Issue: WON dela Fuente is merely an agent of Shell Co.

Held: Yes. De la Fuente was the operator of the station "by grace" of the Defendant Company which could and did remove him as it pleased; that all the equipments needed to operate the station was owned by the Defendant Company which took charge of their proper care and maintenance, despite the fact that they were loaned to him; that the Defendant company did not leave the fixing of price for gasoline to De la Fuente;

That the service station belonged to the company and bore its tradename and the operator sold only the products of the company; that the equipment used by the operator belonged to the company and were just loaned to the operator and the company took charge of their repair and maintenance

As the act of the agent or his employees acting within the scope of his authority is the act of the principal, the breach of the undertaking by the agent is one for which the principal is answerable

The latter was negligent and the company must answer for the negligent act of its mechanic which was the cause of the fall of the car from the hydraulic lifter.

Andres Quiroga v. Parsons Hardware Co., G.R. No. L-11491 August 23, 1918

FACTS: Quiroga and Parsons entered into a contract for the exclusive sale of Quiroga beds in the Visayan Islands. They agreed on the following terms: a) Quiroga shall furnish the beds and shall give a 25% discount on the invoiced prices as commission sales and Parsons shall order by the dozen; b) Payment shall be made within 60 days from date of shipment; c) Transportation and shipment expenses shall be borne by Quiroga while freight, insurance, and cost of unloading by Parsons; d) If before an invoice falls due, Quiroga should request payment, payment made shall be prompt payment and a deduction of 2% shall be given; same discount if payment is in cash; e) Notice from Quiroga shall be given at least 15 days before any change in price; f) Parsons binds himself not to sell any other kind of bed; and g) Contract is for an unlimited period.

Parsons violated some of the conditions such as not to sell the beds at higher prices, pay for the advertisement expenses, and to order beds by the dozen. Quiroga alleged that Parsons was his agent and that the obligations are implied in a commercial agency contract.

ISSUE: w/n Parsons, by reason of the contract, was a purchaser or an agent of Quiroga for the sale of the latter’s beds.

HELD: NO, Parsons was not an agent.In order to classify a contract, due regard must be given to the essential clauses. In this case, there was an obligation on Quiroga’s part to supply beds while an obligations on Parson’s part to pay the price. These are essential features of a contract of purchase and sale. None of the clauses conveys the idea of an agency where an agent received the thing to sell it and does not pay the price but delivers to the principal the price he obtains from the sale to a third person, and if he does not sell it, he returns it.

The word ‘agency’ used in the contract only expresses that Parsons was the only one who could sell the petitioner’s beds in the Visayan Islands. A contract is what the law defines it to be and not what the parties call it.

Quiroga vs. Parsons Hardware (G.R. No. L-11491 August 23, 1918) Was it a contract of agency or a contract of sale? CONTRACT OF SALE.

Payment was to be made at the end of sixty days, or before, at the plaintiff’s request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds.

Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff’s beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale.

GONZALO PUYAT & SONS v. ARCO AMUSEMENT COMPANY G.R. No. L-47538 June 20, 1941

Keywords: discounted price of sound reproducing equipment not disclosed; Arco Amusement seeks reimbursement.

6

Facts: - In 1929, Arco Amusement Company (formerly known as Teatro Arco) was engaged in the business of operating cinematographs.- Around 1930, Arco Amusement approached Gonzalo Puyat & Sons, Inc., the exclusive agents in the Phils of the Starr Piano Company (of

Richmond, Indiana, USA) to negotiate with them their intent to buy sound reproducing equipment from Starr Piano through Gonzalo Puyat & Sons.

- After some negotiations, the parties agreed that Gonzalo Puyat & Sons would order the equipment from Starr Piano and Arco Amusement would pay Gonzalo Puyat, in addition to the price of the equipment, a 10% commission, plus expenses, such as freight, insurance, banking charges, cables etc.

- In ordering the equipment, Gonzalo Puyat & Sons was able to get a discounted price from Starr Piano. However, Gonzalo Puyat did not inform Arco Amusement of the discounted price, and still billed them the list price of $ 1,700 plus the 10% commission and the expenses incurred in ordering the equipment.

- Arco Amusement paid the bills and then placed another order for a second sound reproducing equipment, which was quoted at $1,600 plus commission and other expenses. Arco paid the amount assessed by Gonzalo Puyat.

- 3 years later, Arco Amusement discovered that the price quoted to them by Gonzalo Puyat was not the net price but was rather the list price and that Gonzalo Puyat obtained a discount from Starr Piano.

- They sought for reimbursement of what they have paid Gonzalo Puyat by filing a case for reimbursement.- CFI of Manila held that the contract between the petitioner and the respondent was one of outright purchase and sale, and absolved

Gonzalo Puyat from the complaint.- CA reversed the decision of the CFI, holding that the relation between Gonzalo Puyat and Arco Amusement was that of an agent and a

principal, and sentenced Gonzalo Puyat to reimburse Arco Amusement of all the alleged overpayments in the total sum of $1,335.52 or Php 2,671.04

Issue: WON the contract between Gonzalo Puyat and Arco Amusement is an Agency to merit Arco Amusement a reimbursement or is an Outright Purchase and Sale Contract that would absolve Gonzalo Puyat of the case.

Held: The contract between Gonzalo Puyat and Arco Amusement is an Outright Purchase and Sale Contract

Ratio: The contract is the law between the parties and should include all the things they are supposed to have agreed upon. The letters, by which Arco accepted the prices of $1,700 and S1,600 plus the commission and other expenses for the sound reproducing equipment are clear in their terms and admit of no other interpretation than that Arco agreed to purchase from Gonzalo Puyat the equipment in question at the prices indicated which are fixed and determinate. Arco admitted in its complaint filed with the CFI that Gonzalo Puyat agreed to sell to it the first sound reproducing equipment and machinery.

Whatever unforeseen events might have taken place unfavorable to Arco, such as change in prices, mistake in their quotation, or failure of Starr Piano to properly fill the orders as per specifications, Gonzalo Puyat might still legally hold Arco to the prices fixed. This is incompatible with the pretended relation of agency between the petitioner and the respondent, because in agency, the agent is exempted from all liability in the discharge of his commission provided that he acts in accordance with the instructions received from his principal and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part.

To hold the petitioner an agent of the respondent in the purchase of the equipment from Starr Piano is incompatible with the fact that the petitioner is the exclusive agent of the same company in the Phils. It is out of the ordinary for one to be the agent of both the vendor and the vendee.

It follows that Gonzalo Puyat as a vendor is not bound to reimburse Arco as vendee for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middlemen would not exist.

Puyat and Sons vs. Arco Amusement (G.R. No. L-47538 June 20, 1941)

Was the contract a contract of sale or contract of agency to sell? CONTRACT OF SALE.

The contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as “dealer’s” or “trader’s talk”, which can not bind either party.

While Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale.

Puyat and Sons is the exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances indicated do not point to anything but plain ordinary transaction where the respondent enters into a contract of purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano Company in the United States.

The respondent, therefore, could not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an

7

exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone.

LOURDES LIM vs. PEOPLE G.R. No. L-34338, November 21, 1984

In 1966, petitioner offered to sell respondent’s tobacco (Maria Ayroso), and they agreed to the proposition to sell tobacco consisting of 615kg at P1.30/kg. The petitioner was to receive the overprice for which she could sell the tobacco. The total value was P799.50 and P240 was paid by petitioner to Ayroso. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. As no further amount was paid, the complainant filed a complaint against the appellant for estafa. The RTC and CA ruled in favor of the respondent, convicting Lim for estafa.

Issue: Whether there exists a contract of agency to sell or a contract of sale. As defined under contract of agency, see ibid.

Held: There was no transfer of ownership of the goods to the petitioner. The agreement constituted her as an agent with the obligation to give something to Ayroso upon sale of the tobacco or return the tobacco if the same was not sold. Therefore, the court’s ruling in convicting Lim for estafa is not to be contested

G.R. No. L-34338 November 21, 1984

LOURDES VALERIO LIM, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo)

From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum, to indemnify the complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo)

The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged.

The findings of facts of the appellate court are as follows:

... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:

To Whom It May Concern:

This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was sold.

This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was loaded in the jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three different times. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further testified that she had gone to the house of the appellant several times, but the appellant often eluded her; and that the "camarin" the appellant was empty. Although the appellant denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug which reads as follows:

Dear Salud,

Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera.

Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita.

8

Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Ludy

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo)

In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit:

1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended in which case the only action that can be maintained is a petition to ask the court to fix the duration thereof;

2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New Civil Code does not apply" as against the alternative theory of the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the debtor in which case the only action that can be maintained is a petition to ask the court to fix the duration of the period; and

3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply.

Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows:

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.

SO ORDERED.

GREGORIO JIMENEZ v. PEDRO RABOT G.R. No. L-12579 July 27, 1918

Facts: Gregorio Jimenez was an assignee of parcels of land located in Damayat Tancaran, Alaminos, Pangasinan. He confided the property to the care of his sister, Nicolasa Jimenez. Sometime in February 1911, he wrote to his sister requesting her to sell one of his parcels of land because he was pressed for money.

She sold the parcel of land in contention to Pedro Rabot for P500 but she did not convey the money to her brother. She did not show her authorization to Rabot and she made the sale under her own name. Gerogorio instituted an action against Nicolaca. Rabot, meanwhile, took possession of the property.

Issue: WON Nicolasa’s actuations can bind his brother to the contract of sale. YES

Ratio: The Civil Code and the Code of Civil Procedure requires that the authority to alienate land shall be contained in an express mandate and that the authority of the agent must be in writing and subscribed by the party to be charged. There is a substantial compliance with the requirement.

The purpose of giving a power of attorney (POA) is to substitute the mind and hand of the agent for the mind and hand of the principal. As a matter of formality, a POA to convey rela property ought to appear in a public instrument. But in as much as it is established doctrine that a private instrument is competent to create, transmit, modify, or extinguish a right in real property, it follows that a POA to convey such property, eventhough in the form of a private document will operate with effect.

[G.R. No. L-8669. May 25, 1956.]

9

VICENTA REYES, ET AL., Petitioners , vs. GUARDALINO C. MOSQUEDA and THE COURT OF APPEALS, Respondents .

On February 18, 1949, Guardalino C. Mosqueda sold to Jose Marquez Lim his parcel of land in the City of Iloilo, containing 9,460 square meters, covered by Transfer Certificate of Title No. T-2794 issued by the Register of Deeds of the province of Iloilo, for the sum of P65,605. Claiming that Mosqueda had previously contracted her services to sell the same land with a commission of 5 per cent on the sales price, and that thru her efforts she could bring together Mosqueda and Lim who finally agreed upon and consummated the sale of the land, and because Mosqueda refused to pay her commission of 5 per cent she commenced this action in the Court of First Instance of Iloilo to recover from Mosqueda the sum of P3,280.25 representing 5 per cent of the sales price with interest from the date of the filing of the complaint. After hearing, the trial court rendered judgment in her favor ordering Defendant Mosqueda to pay to her P3,280.25 with interest of 6 per cent from March 7, 1949, with costs. On appeal to the Court of Appeals, said Tribunal reversed the appealed decision and dismissed the complaint without costs. Plaintiff Reyes is now petitioning for the revision of said decision of the Court of Appeals.

The Court of Appeals thru Justice Dionisio de Leon states the position taken and the evidence presented by both parties in support of their respective claims as follows:chanroblesvirtuallawlibrary

“Plaintiff Vicente Reyes alleges that on February 16, 1949, she was contracted by Defendant Guardalino Mosqueda to sell the land of the latter, with an area of 9,460 square meters, situated in Iloilo City, and covered by transfer certificate of title No. 2794, for the sum of P7.50 per square meter, at a commission of 5 per cent on the total purchase price (Exhibits A and D). She offered the sale of the land to Jose Marquez Lim who, after an ocular inspection of the premises, said that the price of P7.50 per square meter was high as the land was covered with water, but he was willing to buy the land for a lower price. Reyes went back to Mosqueda and informed him about what her buyer had told her about the land. Mosqueda reduced the price to P7.30 per square meter. On this occasion, Reyes told Mosqueda that inasmuch as the purchase price has already been settled, she was now free to disclose, as she did that her buyer was Jose Marquez Lim who would see Mosqueda personally about the consummation of the sale.

“Appellant Mosqueda said that on February 16, 1949, he went to see Jose Marquez Lim, Manager of the Philippine-American Insurance Co. in Iloilo City, about a loan offering his land covered by transfer certificate of title 2794 as security, as he was in urgent need of money to pay his debt with a bank which was due on February 18, 1949. Lim informed Mosqueda that only the Manila office of the Company could grant loans. Lim, however, offered to buy Mosqueda’s land as it adjoined his own land. Mosqueda replied that he was willing to sell his land to him at P8 per square meter. Lim asked for time to think it over as Mosqueda’s price was high. Anxious to buy the land, Lim requested Vicente Reyes, who, together with her husband, were employees in his office, to approach Mosqueda on his behalf and exact from him the last price he could offer for his land. Reyes went to see Dr. Mosqueda and told him that she had a buyer for his land without divulging the identity of her said buyer, resulting in the execution of Exhibits A and D. Also on that same day, Vicenta Reyes informed Lim that the price on Mosqueda was now P7.50 per square meter. Lim still considered this as high, so that he again sent Vicenta Reyes to ask for a lower price from Mosqueda. Mosqueda reduced it to P7.30. Reyes told Lim about Mosqueda’s last quotation. Apparently, Lim was still not agreeable to the price of P7.30 per square meter, so that he told Vicenta Reyes to desist from further contracting Mosqueda on his behalf as he, himself, would deal directly with Mosqueda as he had initially done earlier on the same day. Lim offered to pay P500 to Reyes for her efforts, but the latter demanded P1,000, after which she left Lim’s office evidently in an angry mood. Reyes went back to Mosqueda and told him that her buyer was not willing to buy his land at P7.30 per square meter, and that she would not sell any more the land because of the disagreement between her and her buyer, whom she disclosed for the first time to be Jose Marquez Lim. Mosqueda wanted to withdraw the authority which he had given Vicenta Reyes, but the latter pleaded that she be given until the afternoon of the following days, February 17, within which to find another buyer. The following day, due to the failure of Reyes to find another buyer for his land, Mosqueda informed Reyes that he was definitely canceling her authority to find a buyer for his land. The following day, February 18, Lim went personally to the clinic of Dr. Mosqueda, resulting in the execution of the deed of sale (Exhibit 1 or F).”

Then said Court makes the following findings or observations:chanroblesvirtuallawlibrary

“We have gone carefully over the evidence of record, and we have arrived at the conclusion that the same fairly preponderates in favor of the Appellant. Jose Marquez Lim and Alejandro Santiago companion of the Appellant when the latter went to see Lim about a loan, corroborated the claim of the Appellant that Lim had offered to buy the Appellant’s land. Vicenta Reyes did not testify how she came to learn that Mosqueda was looking for a buyer of his land. Perhaps, when she was requested by him to intercede in his behalf with respect to the sale of Mosqueda’s land, Vicenta Reyes grabbed this opportunity to make spare money as a sideline. It must also be noted that while Reyes said Lim was willing to buy the land for a price less than P7.50 per square meter, she did not testify that Lim was willing to buy the property for P7.30, or that Lim authorized her to close the deal with Mosqueda at any price lower than P7.50 per square meter.

“There is no dispute that the Appellee was contracted by the Appellant to find a buyer for his land, with a commission of 5 per cent. Mosqueda reduced his original price of P8 to P7.80 per square meter through the intervention of Vicenta Reyes. The question, however, is whether it was also through the efforts of the Appellee that the sale (Exhibit 1 or F) was finally effected at the price of P65,605, or less than P7 per square meter, on February 18, 1949.

“Vicente Reyes was hired as a broker, not as commercial agent cralaw . At the time the contract of sale (Exhibit 1 or F) was signed by the parties on February 18, 1949, the authority of Reyes as a broker for Mosqueda has already been withdrawn by the latter cralaw At the time the authority of the Appellee was withdrawn, there was still no meeting of the minds between Mosqueda and Lim with respect to the price and terms of the sale. Again, the land was sold at price and terms arrived at by the contracting parties without the Appellee’s intervention and Lim bought the property independently of the efforts of Reyes. Vicenta Reyes was told by Lim to leave him alone in the transaction. We have every reason to believe Lim’s testimony as this action for recovery of a sum of money is not directed against him, and he has nothing to lose or gain by telling the truth.”

Accepting, as we have to, the findings of the Court of Appeals, we find its judgment of reversal to be supported by the facts and the law. If as found

10

by the Court of Appeals Plaintiff Reyes was engaged only as a broker, then in order to earn her commission, it was not sufficient for her to find a prospective buyer but to find one who will actually buy the property on the terms and conditions imposed by the owner. In the case of Danon vs. Brimo & Co., 42 Phil., 133, we said:chanroblesvirtuallawlibrary

“The broker must be the efficient agent or the procuring cause of the sale. The means employed by him and his efforts must result in the sale. He must find the purchaser, and the sale must proceed from his efforts acting as a broker. (Cases cited.)

Besides, according to the findings of the Court of Appeals, the actual sale was perfected and consummated without the intervention of Plaintiff Reyes, and what is more, before that, her authority to sell the property had been withdrawn, at a time when there was still no meeting of the minds of buyer and seller.

We realize that there are times when the owner of a property for sale may not legally cancel or revoke the authority given by him to a broker when the negotiations through the broker’s efforts have reached such a stage that it would be unfair to deny the commission earned, especially when the property owner acts in bad faith and cancels the authority only to evade the payment of said commission. Such was our holding in the same case of Danon vs. Brimo & Co., supra:chanroblesvirtuallawlibrary

“ cralaw the right of the principal to terminate his authority is absolute and unrestricted, except only that he may not do it in bad faith, and as a mere device to escape the payment of the broker’s commissions. Thus, if in the midst of negotiations instituted by the broker, and which were plainly and evidently approaching success, the seller should revoke the authority of the broker, with the view of concluding the bargain without his aid, and avoiding the payment of commission about to be earned, it might be well said that the due performance of his obligation by the broker was purposely prevented by the principal. But if the latter acts in good faith, not seeking to escape the payment of commissions, but moved fairly by a view of his own interest, he has the absolute right before a bargain is made while negotiations remain unsuccessful, before commissions are earned, to revoke the broker’s authority, and the latter cannot thereafter claim compensation for a sale made by the principal even though it be to a customer with whom the broker unsuccessfully negotiated, and even though, to some extent, the seller might justly be said to have availed himself of the fruits of the broker’s labor.” (Danon vs. Brimo, 42 Phil., 133, 141-142, citing Sibbald vs. Bethlehem Iron Co., 83 N.Y. 378, 38 Am. Rep. 441, 444-446.)

In the present case, there is nothing to show that bad faith was involved in the cancellation of the authority of Plaintiff Reyes before the consummation of the sale. Not only this, but the actuations of Plaintiff Reyes are not entirely above suspicion. As observed by the Court of Appeals she did not explain how she came to know that Defendant Mosqueda was interested in selling his land and was looking for a buyer thereof. It is highly possible that after Reyes was commissioned by her employer Lim to approached Mosqueda with a view to reducing the price of P8 per square meter, it was then and only then that Reyes came to know about the desire of Mosqueda to sell his land to cover his obligations with the bank inasmuch as he failed to secure a loan from the Insurance Company, and as said by the Court of Appeals —

“ cralaw Perhaps, when she was requested by Lim to intercede in his behalf with respect to the sale of Mosqueda’s land, Vicenta Reyes grabbed this opportunity to make spare money as a sideline.”

In view of the foregoing, the decision of the Court of Appeals appealed from is hereby affirmed, with costs in both instances.

[G. R. No. 129919. February 6, 2002]

DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents .

The Case

This is an appeal via certiorari[1] from the decision of the Court of Appeals[2] affirming the decision[3] of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment of the claims of Dominion’s clients.

The Facts

The facts, as found by the Court of Appeals, are as follows:

“On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendant’s clients.

“In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit.

“On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area.

“In due time, third-party defendant Austria filed his answer.

“Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The

11

record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties.

“On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendant’s counsel which instructed him to request for postponement. Plaintiff’s counsel objected to the desired postponement and moved to have defendant declared as in default. This was granted by the trial court in the following order:

“ORDER

“When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default for its failure to appear in court despite due notice.

“Finding the verbal motion of plaintiff’s counsel to be meritorious and considering that the pre-trial conference has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 o’clock in the morning.

“The plaintiff and his counsel are notified of this order in open court.

“SO ORDERED.

“Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992.

“On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’ It alleged therein that the failure of counsel to attend the pre-trial conference was ‘due to an unavoidable circumstance’ and that counsel had sent his representative on that date to inform the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff.

“On August 25, 1992 the trial court denied defendant’s motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious defense.

“On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion.

“On November 18, 1992, the court a quo rendered judgment as follows:

“WHEREFORE, premises considered, judgment is hereby rendered ordering:

“1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendant’s clients;“2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;“3. The dismissal of the counter-claim of the defendant and the third-party complaint;“4. The defendant to pay the costs of suit.”[4]

On December 14, 1992, Dominion appealed the decision to the Court of Appeals.[5]

On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court.[6] On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration.[7] On July 16, 1997, the Court of Appeals denied the motion.[8]

Hence, this appeal.[9]

The Issues

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured.

The Court's Ruling

The petition is without merit.

By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.[10] The basis for agency is representation.[11] On the part of the principal, there must be an actual intention to

12

appoint[12] or an intention naturally inferrable from his words or actions;[13] and on the part of the agent, there must be an intention to accept the appointment and act on it,[14] and in the absence of such intent, there is generally no agency.[15]

A perusal of the Special Power of Attorney[16] would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word “special” in the title of the document, the contents reveal that what was constituted was actually a general agency. The terms of the agreement read:

“That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[17] a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, xxx represented by the undersigned as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and perform the following acts and things:

“1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.“2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf.“3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter become due, owing payable or transferable to said Corporation by reason of or in connection with the above-mentioned appointment.“4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said Corporation.”[19] [Emphasis supplied]

The agency comprises all the business of the principal,[20] but, couched in general terms, it is limited only to acts of administration.[21]

A general power permits the agent to do all acts for which the law does not require a special power.[22] Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not require a special power of attorney.

Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case provides that:

“Article 1878. Special powers of attorney are necessary in the following cases:

“(1) To make such payments as are not usually considered as acts of administration; “(15) Any other act of strict dominion.”

The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured.

Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of Management Agreement[23] dated February 18, 1987 which enumerates the scope of respondent Guevarra’s duties and responsibilities as agency manager for San Fernando, Pampanga, as follows:

“1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office.“2. Full authority is given you on TPPI claims settlement.

In settling the claims mentioned above, respondent Guevarra’s authority is further limited by the written standard authority to pay,[25] which states that the payment shall come from respondent Guevarra’s revolving fund or collection. The authority to pay is worded as follows:

“This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________ (P ) representing the payment on the _________________ claim of assured _______________ under Policy No. ______ in that accident of ___________ at ____________.

“It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after effecting payment of the claim.

“(sgd.) FERNANDO C. AUSTRIA Regional Manager”[26]

The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession.

Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that:

“The principal is not liable for the expenses incurred by the agent in the following cases:

13

“(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the benefits derived from the contract;

“xxx xxx xxx”

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts.

Article 1236, second paragraph, Civil Code, provides:

“Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.”

In this case, when the risk insured against occurred, petitioner’s liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner.

The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of Claim Loss and Subrogation Receipts[27] which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.

However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount.

The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of Appeals[28] and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga,[29] in that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims of petitioner’s clients.

No costs in this instance.

SO ORDERED.

[G.R. No. 137471. January 16, 2002]

GUILLERMO ADRIANO, petitioner, vs. ROMULO PANGILINAN, respondent.

Loss brought about by the concurrent negligence of two persons shall be borne by the one who was in the immediate, primary and overriding position to prevent it. In the present case, the mortgagee -- who is engaged in the business of lending money secured by real estate mortgages -- could have easily avoided the loss by simply exercising due diligence in ascertaining the identity of the impostor who claimed to be the registered owner of the property mortgaged.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the November 11, 1998 Decision[1] of the Court of Appeals (CA) in CA-GR CV No. 44558. The dispositive portion of the CA Decision reads as follows:

“WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE, and another entered dismissing the complaint instituted in the court below. Without costs in this instance.”[2]

Also questioned is the February 5, 1999 CA Resolution[3] denying petitioner’s Motion for Reconsideration.

The CA reversed the Regional Trial Court (RTC) of San Mateo, Rizal (Branch 76) in Civil Case No. 845, which disposed as follows:

“WHEREFORE, premises considered, judgment is hereby rendered declaring the real estate mortgage constituted on the property described in and covered by TCT No. 337942 of the Registry of Deeds for the Province of Rizal, in the name of Guillermo Adriano, to be null and void and of no force and effect, and directing defendant Romulo Pangilinan to reconvey or deliver to herein plaintiff Guillermo Adriano the aforesaid title after causing and effecting a discharge and cancellation of the real estate mortgage annotated on the said title. No pronouncement as to costs.

“Defendant’s counterclaim is dismissed for want of basis.”[4]

14

The Facts

The undisputed facts of the case are summarized by the Court of Appeals as follows:

“[Petitioner] Guillermo Adriano is the registered owner of a parcel of land with an area of three hundred four (304) square meters, more or less, situated at Col. S. Cruz, Geronimo, Montalban, Rizal and covered by Transfer Certificate of Title No. 337942.

“Sometime on November 23, 1990[, petitioner] entrusted the original owner’s copy of the aforesaid Transfer Certificate of Title to Angelina Salvador, a distant relative, for the purpose of securing a mortgage loan.

“Without the knowledge and consent of [petitioner], Angelina Salvador mortgaged the subject property to the [Respondent] Romulo Pangilinan. After a time, [petitioner] verified the status of his title with the Registry of Deeds of Marikina, Metro Manila, and was surprised to discover that upon the said TCT No. 337942 was already annotated or inscribed a first Real Estate Mortgage purportedly executed by one Guillermo Adriano over the aforesaid parcel of land, together with the improvements thereon, in favor of the [Respondent] Romulo Pangilinan, in consideration of the sum of Sixty Thousand Pesos (P60,000.00). [Petitioner] denied that he ever executed the deed of mortgage, and denounced his signature thereon as a forgery; he also denied having received the consideration of P60,000.00 stated therein.

“[Petitioner] thereafter repeatedly demanded that [respondent] return or reconvey to him his title to the said property and when these demands were ignored or disregarded, he instituted the present suit.

“[Petitioner] likewise filed a criminal case for estafa thru falsification of public document against [Respondent] Romulo Pangilinan, as well as against Angelina Salvador, Romy de Castro and Marilen Macanaya, in connection with the execution of the allegedly falsified deed of real estate mortgage: this was docketed as Criminal Case No. 1533-91 of the Regional Trial Court of San Mateo, Rizal, Branch 76.

“[Respondent] in his defense testified that he [was] a businessman engaged in the buying and selling as well as in the mortgage of real estate properties; that sometime in the first week of December, 1990 Angelina Salvador, together with Marilou Macanaya and a person who introduced himself as Guillermo Adriano, came to his house inquiring on how they could secure a loan over a parcel of land; that he asked them to submit the necessary documents, such as the owner’s duplicate of the transfer certificate of title to the property, the real estate tax declaration, its vicinity location plan, a photograph of the property to be mortgaged, and the owner’s residence certificate; that when he conducted an ocular inspection of the property to be mortgaged, he was there met by a person who had earlier introduced himself as Guillermo Adriano, and the latter gave him all the original copies of the required documents to be submitted; that after he (defendant) had verified from the Registry of Deeds of Marikina that the title to the property to be mortgaged was indeed genuine, he and that person Guillermo Adriano executed the subject real estate mortgage, and then had it notarized and registered with the Registry of Deeds. After that, the alleged owner, Guillermo Adriano, together with Marilou Macanaya and another person signed the promissory note in the amount of Sixty Thousand Pesos (P60,000.00) representing the appraised value of the mortgage property. This done, he (defendant) gave them the aforesaid amount in cash.

“[Respondent] claimed that [petitioner] voluntarily entrusted his title to the subject property to Angelina Salvador for the purpose of securing a loan, thereby creating a principal-agent relationship between the plaintiff and Angelina Salvador for the aforesaid purpose. Thus, according to [respondent], the execution of the real estate mortgage was within the scope of the authority granted to Angelina Salvador; that in any event TCT No. 337942 and the other relevant documents came into his possession in the regular course of business; and that since the said transfer certificate of title has remained with [petitioner], the latter has no cause of action for reconveyance against him.”[5]

In his appeal before the CA,[6] respondent contended that the RTC had erred (1) in holding that petitioner’s signature on the Real Estate Mortgage was a forgery and (2) in setting aside and nullifying the Mortgage.

Ruling of the Court of Appeals

The CA ruled that “when a mortgagee relies upon a Torrens title and lends money in all good faith on the basis of the title standing in the name of the mortgagor, only to discover one defendant to be an alleged forger and the other defendant to have by his negligence or acquiescence made it possible for fraud to transpire, as between two innocent persons, the mortgagee and one of the mortgagors, the latter who made the fraud possible by his act of confidence must bear the loss.”[7]

It further explained that “even conceding for the sake of argument that the appellant’s signature on the Deed of First Real Estate Mortgage was a forgery, and even granting that the appellee did not participate in the execution of the said deed of mortgage, and was not as well aware of the alleged fraud committed by other persons relative to its execution, the undeniable and irrefutable fact remains that the appellee did entrust and did deliver his Transfer Certificate of Title No. 337942 covering the subject property, to a distant relative, one Angelina Salvador, for the avowed purpose of using the said property as a security or collateral for a real estate mortgage debt of loan.”[8]

Hence, this present recourse.[9]

The Issues

In his Memorandum,[10] petitioner raises the following issues for our consideration:

I “Whether or not consent is an issue in determining who must bear the loss if a mortgage contract is sought to be declared a nullity

15

II “Whether or not the Motion for Reconsideration filed by the petitioner before the Court of Appeals should have been dismissed

This Court’s Ruling

The Petition is meritorious.

First Issue: Effect of Mortgage by Non-Owner

Petitioner contends that because he did not give his consent to the real estate mortgage (his signature having been forged), then the mortgage is void and produces no force and effect.

Article 2085 of the Civil Code enumerates the essential requisites of a mortgage, as follows:

“Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

“(1) That they be constituted to secure the fulfillment of a principal obligation;“(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;“(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for that purpose.“Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (1857)” (Italics supplied)

In the case at bar, not only was it proven in the trial court that the signature of the mortgagor had been forged, but also that somebody else -- an impostor -- had pretended to be the former when the mortgagee made an ocular inspection of the subject property. On this point, the RTC held as follows:

“The falsity attendant to the subject real estate mortgage is evidenced not only by herein plaintiff’s vehement denial of having entered into that contract with defendant, but also by a comparison between the signature of the debtor-mortgagor appearing in the said mortgage contract, and plaintiff’s signatures appearing in the records of this case. Even to the naked eye, the difference is glaring, and there can be no denying the fact that both signatures were not written or affixed by one and the same person. The falsity is further infe[r]able from defendant’s admission that the plaintiff in this case who appeared in court [was] not the same person who represented himself as the owner of the property (TSN, pp. 7, 11, June 21, 1993 hearing) and who therefore was the one who signed the contract as the debtor-mortgagor.”[12]

The CA did not dispute the foregoing finding, but faulted petitioner for entrusting to Angelina Salvador the TCT covering the property. Without his knowledge or consent, however, she caused or abetted an impostor’s execution of the real estate mortgage.

“Even conceding for the sake of argument that the appellee’s signature on the Deed of First Real Estate Mortgage (Exh. B; Original Record, pp. 56-58) was a forgery, and even granting that the appellee did not participate in the execution of the said deed of mortgage, and was not as well aware of the alleged fraud committed by other persons relative to its execution, the undeniable and irrefutable fact remains that the appellee did entrust and did deliver his Transfer Certificate of Title No. 337942 (Exh. A; Original Record, pp. 53-55) covering the subject property, to a distant relative, one Angelina Salvador, for the avowed purpose of using the said property as a security or collateral for a real estate mortgage debt of loan. x x x”[13]

Be that as it may, it is clear that petitioner – who is undisputedly the property owner -- did not mortgage the property himself. Neither did he authorize Salvador or anyone else to do so.

In Parqui v. Philippine National Bank,[14] this Court affirmed the trial court’s ruling that a mortgage was invalid if the mortgagor was not the property owner:

“After carefully considering the issue, we reach the conclusion that His Honor’s decision was correct. One of the essential requisites of a valid mortgage, under the Civil Code is ‘that the thing pledged or mortgaged be owned by the person who pledges or mortgages it’ (Art. 1857, par. 2); and there is no question that Roman Oliver who pledged the property to the Philippine National Bank did not own it. The mortgage was consequently void.”[15]

Second Issue: Concurrent Negligence of the Parties

The CA reversed the lower court, because petitioner had been negligent in entrusting and delivering his TCT No. 337942 to his “distant relative” Angelina Salvador, who undertook to find a money lender. Citing Blondeau v. Nano[16] and Philippine National Bank v. CA,[17] it then applied the “bona fide purchaser for value” principle.

Both cases cited involved individuals who, by their negligence, enabled other persons to cause the cancellation of the original TCT of the disputed property and the issuance of a new one in their favor. Having obtained TCTs in their names, they conveyed the subject property to third persons, who in Blondeau was a bona fide purchaser while in Philippine National Bank was an innocent mortgagee for value. It should be stressed that in both these cases, the seller and the mortgagor were the registered owners of the subject property; whereas in the present case, the mortgagor was an impostor, not the registered owner.

16

It must be noted that a Torrens certificate “serves as evidence of an indefeasible title to the property in favor of the person whose name appears therein.”[18] Moreover, the Torrens system “does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich himself at the expense of another.”[19]

Thus, we ask these questions: Was petitioner negligent in entrusting and delivering his TCT to a relative who was supposed to help him find a money lender? And if so, was such negligence sufficient to deprive him of his property?

To be able to answer these questions and apply the holding in Philippine National Bank, it is crucial to determine whether herein respondent was an “innocent mortgagee for value.” After a careful review of the records and pleadings of the case, we hold that he is not, because he failed to observe due diligence in the grant of the loan and in the execution of the real estate mortgage.[20]

Respondent testified that he was engaged in the real estate business, including the grant of loans secured by real property mortgages. Thus, he is expected to ascertain the status and condition of the properties offered to him as collaterals, as well as to verify the identities of the persons he transacts business with. Specifically, he cannot simply rely on a hasty examination of the property offered to him as security and the documents backing them up.[21] He should also verify the identity of the person who claims to be the registered property owner.

Respondent stated in his testimony that he had been engaged in the real estate business for almost seven years.[22] Before the trial court, he testified on how he had approved the loan sought and the property mortgaged:

It is quite clear from the testimony of respondent that he dismally failed to verify whether the individual executing the mortgage was really the owner of the property.

The ocular inspection respondent conducted was primarily intended to appraise the value of the property in order to determine how much loan he would grant. He did not verify whether the mortgagor was really the owner of the property sought to be mortgaged. Because of this, he must bear the consequences of his negligence.

In Uy v. CA,[25] the Court through Mr. Justice Jose A. R. Melo made the following significant observations:

“Thus, while it is true, as asserted by petitioners, that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to face up to the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.”[26]

Indeed, there are circumstances that should put a party on guard and prompt an investigation of the property being mortgaged. Citing Torres v. CA,[27] the Court continued as follows:

“x x x [T]he value of the property, its principal value being its income potential in the form of monthly rentals being located at the corner of Quezon Boulevard and Raon Street, Manila, and the registered title not yielding any information as to the amount of rentals due from the building, much less on who is collecting them, or who is recognized by the tenants as their landlord - it was held that any prospective buyer or mortgagee of such a valuable building and land at the center of Manila, if prudent and in good faith, is normally expected to inquire into all these and related facts and circumstances. For failing to conduct such an investigation, a party would be negligent in protecting his interests and cannot be held as an innocent purchaser for value.”[28]

We are not impressed by the claim of respondent that he exercised due diligence in ascertaining the identity of the alleged mortgagor when he made an ocular inspection[29] of the mortgaged property. Respondent’s testimony negated this assertion.

Since he knew that the property was being leased, respondent should have made inquiries about the rights of the actual possessors. He could have easily verified from the lessees whether the claimed owner was, indeed, their lessor.

Petitioner’s act of entrusting and delivering his TCT and Residence Certificate to Salvador was only for the purpose of helping him find a money lender. Not having executed a power of attorney in her favor, he clearly did not authorize her to be his agent in procuring the mortgage. He only asked her to look for possible money lenders. Article 1878 of the Civil Code provides:

“Art. 1878. Special powers of attorney are necessary in the following cases:

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration; (12) To create or convey real rights over immovable property;

17

As between petitioner and respondent, we hold that the failure of the latter to verify essential facts was the immediate cause of his predicament. If he were an ordinary individual without any expertise or experience in mortgages and real estate dealings, we would probably understand his failure to verify essential facts. However, he has been in the mortgage business for seven years. Thus, assuming that both parties were negligent, the Court opines that respondent should bear the loss. His superior knowledge of the matter should have made him more cautious before releasing the loan and accepting the identity of the mortgagor.[31]

Given the particular circumstances of this case, we believe that the negligence of petitioner is not enough to offset the fault of respondent himself in granting the loan. The former should not be made to suffer for respondent’s failure to verify the identity of the mortgagor and the actual status of the subject property before agreeing to the real estate mortgage. While we commiserate with respondent -- who in the end appears to have been the victim of scoundrels -- his own negligence was the primary, immediate and overriding reason that put him in his present predicament.

To summarize, we hold that both law and equity favor petitioner. First, the relevant legal provision, Article 2085 of the Civil Code, requires that the “mortgagor be the absolute owner of the thing x x x mortgaged.” Here, the mortgagor was an impostor who executed the contract without the knowledge and consent of the owner. Second, equity dictates that a loss brought about by the concurrent negligence of two persons shall be borne by one who was in the immediate, primary and overriding position to prevent it. Herein respondent – who, we repeat, is engaged in the business of lending money secured by real estate mortgages – could have easily avoided the loss by simply exercising due diligence in ascertaining the identity of the impostor who claimed to be the owner of the property being mortgaged. Finally, equity merely supplements, not supplants, the law. The former cannot contravene or take the place of the latter.

In any event, respondent is not precluded from availing himself of proper remedies against Angelina Salvador and her cohorts.

WHEREFORE, the Petition is GRANTED and the assailed Decision SET ASIDE. The November 25, 1993 Decision of the RTC of San Mateo, Rizal (Branch 76) is hereby REINSTATED. No costs.

SO ORDERED.

NAAWAN COMMUNITY RURAL BANK INC v CA

FACTS: Comayas offered to sell to the Lumo Spouses a house and lot. The property was already registered under the Torrens System that time and they made appropriate inquiries with the RD; they found out that it was mortgaged for P8,000, paid Comayas to settle the mortgage, and the release of the adverse claim was annotated in the title. Thereafter, they executed an Absolute Deed of Sale over the subject property and registered the same. However, it turns out that it was already previously sold to Naawan Community Rural Bank; it was then unregistered. The Bank foreclosed on the property, purchased the same, and registered it under Act 3344. Thus, the Bank sought to eject the spouses. However, the latter countered with an action for quieting of title.

ISSUE: Who has a better title, Naawan or Lumo spouses?

HELD: LUMO SPOUSES. Where a person claims to have superior property rights by virtue of a sheriff’s sale, the benefit of Art. 1544 applies favorably only if the property is registered under the Torrens System—not under Act 3344. Registration under the Torrens System is the operative act that gives validity to the transfer and creates lien upon the land. The spouses acquired their titles under the Torrens System and they acted in good faith by exercising due diligence; thus, they have a better right to the said property.

G.R. No. 85302 March 31, 1989

BICOL SAVINGS AND LOAN ASSOCIATION, petitioner, vs. HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE DE JESUS, AND PABLO DE JESUS, respondents.

This Petition for Review on certiorari was filed by Bicol Savings and Loan Association, seeking the reversal of the Decision ** of the respondent Court of Appeals in CA-G.R. CV No. 02213, dated 11 August 1 988, which ruled adversely against it. The pleadings disclose the following factual milieu:

Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less, situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)

By virtue thereof, Jose de Jesus obtained a loan of twenty thousand pesos (P20,000.00) from petitioner bank on 13 April 1976. To secure payment, Jose de Jesus executed a deed of mortgage on the real property referred to in the Special Power of Attorney, which mortgage contract carried, inter alia, the following stipulation:

b) If at any time the Mortgagor shall refuse to pay the obligations herein secured, or any of the amortizations of such indebtedness when due, or to comply with any of the conditions and stipulations herein agreed .... then all the obligations of the Mortgagor secured by this Mortgage, all the amortizations thereof shall immediately become due, payable and defaulted and the Mortgagee may immediately foreclose this mortgage in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended, or Act No. 1508. For the purpose of

18

extrajudicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged. . . . (CA Decision, pp. 47-48, Rollo)

Juan de Jesus died in the meantime on a date that does not appear of record.

By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed on 16 November 1978. In the subsequent public auction, the mortgaged property was sold to the bank as the highest bidder to whom a Provisional Certificate of Sale was issued.

Private respondents herein, including Jose de Jesus, who are all the heirs of the late Juan de Jesus, failed to redeem the property within one year from the date of the registration of the Provisional Certificate of Sale on 21 November 1980. Hence, a Definite Certificate of Sale was issued in favor of the bank on 7 September 1982.

Notwithstanding, private respondents still negotiated with the bank for the repurchase of the property. Offers and counter-offers were made, but no agreement was reached, as a consequence of which, the bank sold the property instead to other parties in installments. Conditional deeds of sale were executed between the bank and these parties. A Writ of Possession prayed for by the bank was granted by the Regional Trial Court.

On 31 January 1983 private respondents herein filed a Complaint with the then Court of First Instance of Naga City for the annulment of the foreclosure sale or for the repurchase by them of the property. That Court, noting that the action was principally for the annulment of the Definite Deed of Sale issued to petitioner bank, dismissed the case, ruling that the title of the bank over the mortgaged property had become absolute upon the issuance and registration of the said deed in its favor in September 1982. The Trial Court also held that herein private respondents were guilty of laches by failing to act until 31 January 1983 when they filed the instant Complaint.

On appeal, the Trial Court was reversed by respondent Court of Appeals. In so ruling, the Appellate Court applied Article 1879 of the Civil Code and stated that since the special power to mortgage granted to Jose de Jesus did not include the power to sell, it was error for the lower Court not to have declared the foreclosure proceedings -and auction sale held in 1978 null and void because the Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely to mortgage his property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the said extrajudicial foreclosure. The Appellate Court was also of the opinion that petitioner bank should have resorted to judicial foreclosure. A Decision was thus handed down annulling the extrajudicial foreclosure sale, the Provisional and Definite Deeds of Sale, the registration thereof, and the Writ of Possession issued to petitioner bank.

From this ruling, the bank filed this petition to which the Court gave due course.

The pivotal issue is the validity of the extrajudicial foreclosure sale of the mortgaged property instituted by petitioner bank which, in turn hinges on whether or not the agent-son exceeded the scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could extrajudicially foreclose the mortgaged property.

Article 1879 of the Civil Code, relied on by the Appellate Court in ruling against the validity of the extrajudicial foreclosure sale, reads:

Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell.

We find the foregoing provision inapplicable herein.

The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The stipulation granting an authority to extrajudicially foreclose a mortgage is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential or inseparable part of that bilateral agreement (Perez v. Philippine National Bank, No. L-21813, July 30, 1966, 17 SCRA 833, 839).

The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on the authorization in the deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency. It is this right of extrajudicial foreclosure that petitioner bank had availed of, a right that was expressly upheld in the same case of Perez v. Philippine National Bank (supra), which explicitly reversed the decision in Pasno v. Ravina (54 Phil. 382) requiring a judicial foreclosure in the same factual situation. The Court in the aforesaid PNB case pointed out that the ruling in the Pasno case virtually wiped out the third alternative, which precisely includes extrajudicial foreclosure, a result not warranted by the text of the Rule.

It matters not that the authority to extrajudicially foreclose was granted by an attorney-in-fact and not by the mortgagor personally. The stipulation in that regard, although ancillary, forms an essential part of the mortgage contract and is inseparable therefrom. No creditor will agree to enter into a mortgage contract without that stipulation intended for its protection.

19

Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property, merely availed of a right conferred by law. The auction sale that followed in the wake of that foreclosure was but a consequence thereof.

WHEREFORE, the Decision of respondent Court of Appeals in CA-G.R. CV No. 02213 is SET ASIDE, and the extrajudicial foreclosure of the subject mortgaged property, as well as the Deeds of Sale, the registration thereof, and the Writ of Possession in petitioner bank's favor, are hereby declared VALID and EFFECTIVE.

SO ORDERED.

FERMIN CARAM v. CLARO LAURETA G.R. No. L-28740 February 24, 1981

FACTS: This is a petition for certiorari to review the decision of the Court of Appeals promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L. Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram, Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants," affirming the decision of the Court of First Instance of Davao in Civil Case No. 3083. On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action for nullity, recovery of ownership and/or reconveyance with damages and attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the Register of Deeds of Davao City.

On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original Certificate of Title No. 3019 in favor of Claro Laureta, plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff was not registered because it was not acknowledged before a notary public or any other authorized officer. At the time the sale was executed, there was no authorized officer before whom the sale could be acknowledged inasmuch as the civil government in Tagum, Davao was not as yet organized. However, the defendant Marcos Mata delivered to Laureta the peaceful and lawful possession of the premises of the land together with the pertinent papers thereof such as the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts and other papers related thereto. Since June 10, 1945, the plaintiff Laureta had been and is stin in continuous, adverse and notorious occupation of said land, without being molested, disturbed or stopped by any of the defendants or their representatives. In fact, Laureta had been paying realty taxes due thereon and had introduced improvements worth not less than P20,000.00 at the time of the filing of the complaint.

On May 5, 1947, the same land covered by Original Certificate of Title No. 3019 was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The deed of sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On May 22, 1947, Marcos Mata, through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed with the Court of First Instance of Davao a petition for the issuance of a new Owner's Duplicate of Original Certificate of Title No. 3019, alleging as ground therefor the loss of said title in the evacuation place of defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5, 1947, the Court of First Instance of Davao issued an order directing the Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of Marcos Mata and declaring the lost title as null and void. On December 9, 1947, the second sale between Marcos Mata and Fermin Caram, Jr. was registered with the Register of Deeds. On the same date, Transfer Certificate of Title No. 140 was issued in favor of Fermin Caram Jr.

On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with counterclaim admitting the existence of a private absolute deed of sale of his only property in favor of Claro L. Laureta but alleging that he signed the same as he was subjected to duress, threat and intimidation for the plaintiff was the commanding officer of the 10th division USFIP operating in the unoccupied areas of Northern Davao with its headquarters at Project No. 7 (Km. 60, Davao Agusan Highways), in the Municipality of Tagum, Province of Davao; that Laureta's words and requests were laws; that although the defendant Mata did not like to sell his property or sign the document without even understanding the same, he was ordered to accept P650.00 Mindanao Emergency notes; and that due to his fear of harm or danger that will happen to him or to his family, if he refused he had no other alternative but to sign the document.

The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the Registry of Deeds regarding a document allegedly signed by him in favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed the document for he knew before hand that he had signed a deed of sale in favor of the plaintiff and that the plaintiff was in possession of the certificate of title; that if ever his thumb mark appeared in the document purportedly alienating the property to Fermin Caram, did his consent was obtained through fraud and misrepresentation for the defendant Mata is illiterate and ignorant and did not know what he was signing; and that he did not receive a consideration for the said sale.

The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has no knowledge or information about the previous encumbrances, transactions, and alienations in favor of plaintiff until the filing of the complaints.

The trial court rendered a decision declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of Claro L. Laureta stands and prevails over the deed of sale, in favor of Fermin Caram, Jr.

The defendants appealed from the judgment to the Court of Appeals which promulgated its decision affirming the judgment of the trial court.

ISSUE: Whether there is a valid sale of the property was made through his representatives, Pedro Irespe and Atty. Abelardo Aportadera.

HELD: The contention of the petitioner has no merit. The facts of record show that Mata, the vendor, and Caram, the second vendee had never met. During the trial, Marcos Mata testified that he knows Atty. Aportadera but did not know Caram. Thus, the sale of the property could have only been through Caram's representatives, Irespe and Aportadera. The petitioner, in his answer, admitted that Atty. Aportadera acted as his notary public and attorney-in-fact at the same time in the purchase of the property.

20

The petitioner contends that he cannot be considered to have acted in bad faith because there is no direct proof showing that Irespe and Aportadera, his alleged agents, had knowledge of the first sale to Laureta. This contention is also without merit.

Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their actions have not satisfied the requirement of good faith. Bad faith is not based solely on the fact that a vendee had knowledge of the defect or lack of title of his vendor.

In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to have put them an inquiry. Both of them knew that Mata's certificate of title together with other papers pertaining to the land was taken by soldiers under the command of Col. Claro L. Laureta. 16

Added to this is the fact that at the time of the second sale Laureta was already in possession of the land. Irespe and Aportadera should have investigated the nature of Laureta's possession. If they failed to exercise the ordinary care expected of a buyer of real estate they must suffer the consequences. The rule of caveat emptor requires the purchaser to be aware of the supposed title of the vendor and one who buys without checking the vendor's title takes all the risks and losses consequent to such failure.

The principle that a person dealing with the owner of the registered land is not bound to go behind the certificate and inquire into transactions the existence of which is not there intimated should not apply in this case. It was of common knowledge that at the time the soldiers of Laureta took the documents from Mata, the civil government of Tagum was not yet established and that there were no officials to ratify contracts of sale and make them registerable. Obviously, Aportadera and Irespe knew that even if Mata previously had sold t he Disputed such sale could not have been registered.

There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad faith. Applying the principle of agency, Caram as principal, should also be deemed to have acted in bad faith.

Since Caram was a registrant in bad faith, the situation is as if there was no registration at all.

The question to be determined now is, who was first in possession in good faith? A possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. Laureta was first in possession of the property. He is also a possessor in good faith. It is true that Mata had alleged that the deed of sale in favor of Laureta was procured by force. 21 Such defect, however, was cured when, after the lapse of four years from the time the intimidation ceased, Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the contract as a defense in an action to enforce the same.

Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit "F", is a voidable contract. Being a voidable contract, the action for annulment of the same on the ground of fraud must be brought within four (4) years from the discovery of the fraud. In the case at bar, Laureta is deemed to have discovered that the land in question has been sold to Caram to his prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded and entered in the Original Certificate of Title by the Register of Deeds and a new Certificate of Title No. 140 was issued in the name of Caram. Therefore, when the present case was filed on June 29, 1959, plaintiff's cause of action had long prescribed.

The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is not correct. I n order that fraud can be a ground for the annulment of a contract, it must be employed prior to or simultaneous to the, consent or creation of the contract. The fraud or dolo causante must be that which determines or is the essential cause of the contract. Dolo causante as a ground for the annulment of contract is specifically described in Article 1338 of the New Civil Code of the Philippines as "insidious words or machinations of one of the contracting parties" which induced the other to enter into a contract, and "without them, he would not have agreed to".

The second deed of sale in favor of Caram is not a voidable contract. No evidence whatsoever was shown that through insidious words or machinations, the representatives of Caram, Irespe and Aportadera had induced Mata to enter into the contract.

Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the Philippines which provides that the action for annulment shall be brought within four (4) years from the time of the discovery of fraud does not apply. Moreover, Laureta has been in continuous possession of the land since he bought it in June 1945.

A more important reason why Laureta's action could not have prescribed is that the second contract of sale, having been registered in bad faith, is null and void. Article 1410 of the Civil Code of the Philippines provides that any action or defense for the declaration of the inexistence of a contract does not prescribe.

In a Memorandum of Authorities submitted to this Court on March 13, 1978, the petitioner insists that the action of Laureta against Caram has prescribed because the second contract of sale is not void under Article 1409 23 of the Civil Code of the Philippines which enumerates the kinds of contracts which are considered void. Moreover, Article 1544 of the New Civil Code of the Philippines does not declare void a second sale of immovable registered in bad faith.

The fact that the second contract is not considered void under Article 1409 and that Article 1544 does not declare void a deed of sale registered in bad faith does not mean that said contract is not void. Article 1544 specifically provides who shall be the owner in case of a double sale of an immovable property. To give full effect to this provision, the status of the two contracts must be declared valid so that one vendee may contract must be declared void to cut off all rights which may arise from said contract. Otherwise, Article 1544 win be meaningless.

The first sale in favor of Laureta prevails over the sale in favor of Caram.

21

WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is affirmed, without pronouncement as to costs. SO ORDERED.

Philippine Bank of Commerce vs. Aruego GR L-25836-37, 31 January 1981

Facts: Jose Aruego publishes a periodical called “World Current Events.” To facilitate payment of the printing, Aruego obtained a credit accommodation from the Philippine Bank of Commerce. For every printing of the periodical, the printer (Encal Press and Photo-Engraving) collected the cost of printing by drawing a draft against the bank, said draft being sent later to Aruego for acceptance. As an added security for the payment of the amounts advanced to the printer, the bank also required Aruego to execute a trust receipt in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to sell the same with the promise to turn over to the bank the proceeds of the sale to answer for the payment of all obligations arising from the draft. The bank instituted an action against Aruego to recover the cost of printing of the latter’s periodical for the period of 28 August 1950 to 14 March 1951.

Issue [1]: Whether the drafts were bills of exchange or mere pieces of evidence of indebtedness.

Held [1]: Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

Issue [2]: Whether Aruego is an agent of Philippine Education Foundation Company when he signed the supposed bills of exchange.

Held [2]: Nowhere in the drafts accepted by Aruego that he disclosed that he was signing as representative of the Philippine Education Foundation Company. For failure to disclose his principal, Aruego is personally liable for the drafts he accepted, pursuant to Section 20 of the Negotiable Instruments Law.

Issue [3]: Whether Aruego is primarily liable.

Held [3]: An accommodation party is one who has signed the instrument as maker, drawer, acceptor, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Herein, Aruego signed as a drawee / acceptor. Under the Negotiable Instruments Law, a drawee is primarily liable. If Aruego intended to be secondarily liable only, he should not have signed as an acceptor / drawee. In doing so, he became primarily and personally liable for the drafts.

VICENTE DOMINGO v. GREGORIO DOMINGO G.R. No. L-30573 October 29, 1971

FACTS: In a document, Vicente M. Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the 30-day duration of the agency or if the property is sold by Vicente within three months from the termination of the agency to apurchaser to whom it was submitted by Gregorio during the continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy was given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer, promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.

After several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on June 20, 1956 , to which Vicente agreed by signing. Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another letter. Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him. Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the United States, for which reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three months after the expiration of the 30-day period of the exclusive agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente

22

sold his property to the same buyer, Oscar de Leon and his wife, he demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have common or identical interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission.

ISSUE: (1) whether the failure on the part of Gregorio to disclose to Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price.

HELD: In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his prospective buyer to purchase the property on the most advantageous terms desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his principal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's accepting such a gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

JOVITO R. SALONGA, vs. WARNER, BARNES AND CO., LTD G.R. No. L-2246 January 31, 1951

Facts:

23

On August 28, 1946, Westchester Fire Insurance Company of New York entered into a contract with Gamboa whereby said company insured one case of rayon yardage which said Gamboa shipped from San Francisco, California, on steamer Clovis Victory, to Manila and consigned to Salonga.

According to the contract of insurance, the insurance company undertook to pay to the sender or her consignee the damages that may be caused to the goods shipped subject to the condition that the liability of the company will be limited to the actual loss which the insured may suffer not to the exceed the sum of P2,000

The ship arrived in Manila on September 10, 1946. On October 7, the shipment was examined by C. B. Nelson and Co., marine surveyors, at the request of the plaintiff, and in their examination

the surveyors found a shortage in the shipment in the amount of P1,723,12. On October 9, plaintiff filed a claim for damages in the amount of P1,723.12 against the American President Lines, agents of the ship Clovis

Victory, demanding settlement When apparently no action was taken on this claim, plaintiff demanded payment thereof from Warner, Barnes and Co., Ltd., as agent of the

insurance company in the Philippines Warner having refused to pay the claim, on April 17, 1947, plaintiff instituted the present action. American President Lines, in a letter dated November 25, 1946, agreed to pay to the plaintiff the amount of P476.17 under its liability in the

bill of lading When this offer was rejected, the claim was finally settled in the amount of P1,021.25 As a result, the amount claimed in the complaint as

the ultimate liability of Warner under the insurance contract was reduced to P717.82 only. CFI: ordered Warner, as agent of Westchester Fire Insurance Company of New York, to pay to the plaintiff the sum of P727. 82 with legal

interest thereon from the filing of the complaint until paid, and the costsIssue: Main issue: WON the trial court erred in holding that Warner, as agent of Westchester Fire Insurance Company of New York, United States of America, is responsible upon the insurance claim subject to the suit

Sub-issues:

(1) WON Warner has no contractual relation with either the plaintiff or his consignor(2) WON Warner is not the real party in interest against whom the suit should be brought(3) WON a judgment for or against an agent in no way binds the real party in interest.

Held: YES (the main issue is answered by answering the sub-issues)

1. YES. It is a well known rule that a contractual obligation or liability, or an action ex-contractu, must be founded upon a contract, oral or written, either express or implied. If there is no contract, there is no corresponding liability, and no cause of action may arise therefrom. This is what is provided for in article 1257 of the Civil Code. This article provides that contracts are binding upon the parties who make them and their heirs, excepting, with respect to the latter, where the rights and obligations are not transmissible, and when the contract contains a stipulation in favor of a third person, he may demand its fulfillment if he gives notice of his acceptance before it is revoked.

Warner has not taken part, directly or indirectly, in the contract in question. The evidence shows that Warner did not enter into any contract either with the plaintiff or his consignor Gamboa. The contract of marine insurance was made and executed only by and between the Westchester Fire Insurance Company of New York and Gamboa. The contract was entered in New York. There is nothing therein which may affect, in favor or adversely, Warner, the fulfillment of which may be demanded by or against it. That contract is purely bilateral, binding only upon Gamboa and the insurance company. When the lower court, therefore, imposed upon Warner an obligation which it has never assumed, either expressly or impliedly, or when it extended to Warner the effects of a contract which was entered into exclusively by and between the Westchester Fire Insurance Company of New York and Gamboa, the error it has committed is evident. This is contrary to law.

There is no material variance between this case and the case of E. Macias and Co. vs. Warner, Barnes and Co. in so far as the principle herein considered is concerned. Both cases involve similar facts which call for the application of a similar ruling. In both cases the issue is whether an agent, who acts within the scope of his authority, can assume personal liability for a contract entered into by him in behalf of his principal. And in the Macias case we said that the agent did not assume personal liability because the only party bound was the principal. And in this case this principle acquires added force and effect when we consider the fact that Warner did not sign the contract as agent of the foreign insurance company as Warner did in the Macias case. The Macias case, therefore, is on all fours with this case and is decisive of the question under consideration.

2. YES. Section 2, Rule 3 of the Rules of Court requires that "every action must be prosecuted in the name of the real party in interest." A corollary proposition to this rule is that an action must be brought against the real party in interest, or against a party which may be bound by the judgment to be rendered therein. The real party in interest is the party who would be benefited or injured by the judgment, or the "party entitled to the avails of the suit". In the case at bar, Warner is sued upon in its capacity as agent of Westchester Fire Insurance Company of New York in spite of the fact that the insurance contract has not been signed by it. Warner did not assume any obligation thereunder either as agent or as a principal. It cannot, therefore, be made liable under said contract, and hence it can be said that this case was filed against one who is not the real party in interest.

While Warner is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the

24

instructions it may receive from time to time from its principal, it cannot be that as such adjustment and settlement agent, Warner has assumed personal liability under said policies, and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibility, for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but upon his principal. And here again, the ordinary rule of agency applies. It, therefore, clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the claim is disputed or is disapproved by the principal, like in the instant case, the agent does not assume any personal liability. The recourse of the insured is to press his claim against the principal.

3. YES. An action is brought for a practical purpose, nay to obtain actual and positive relief. If the party sued upon is not the proper party, any decision that may be rendered against him would be futile, for it cannot be enforced or executed. The effort that may be employed will be wasted. Such would be the result of this case if it will be allowed to proceed against Warner, for even if a favorable judgment is obtained against it, it cannot be enforced because the real party is not involved. Warner cannot be made to pay for something it is not responsible.

LAURO CRUZ, vs. THE HONORABLE COURT OF APPEALS and PURE FOODS CORP., G.R. No. 85685 September 11, 1991

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 Appeals 1 affirming 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. 49672 2 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 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, 3 petitioner 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 complaint 4 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

25

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 default 6 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 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 reconsider 13 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 errors 15 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 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.

26

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. 17 There 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 Card 21 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 appellant 23 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 appellee 24 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

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

27

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.

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.

G.R. No. L-49395 December 26, 1984

GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., vs. THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS PHILIPPINE CORPORATION,

This is a petition to review a decision of the defunct Court of Appeals which affirmed the judgment of the trial court whereby:

... judgment is hereby rendered in favor of the plaintiff [E.R. Squibb & Sons Philippine Corporation], ordering the defendant [Green Valley Poultry & Allied Products, Inc.] to pay the sum of P48,374.74 plus P96.00 with interest at 6% per annum from the filing of this action; plus attorney's fees in the amount of P5,000.00 and to pay the costs.

On November 3, 1969, Squibb and Green Valley entered into a letter agreement the text of which reads as follows:

E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green Valley Poultry & Allied Products, Inc. as a non-exclusive distributor for Squibb Veterinary Products, as recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division Sales Supervisor.

As a distributor, Green Valley Poultry & Allied Products, Inc. wig be entitled to a discount as follows:

Feed Store Price (Catalogue)

Less 10% Wholesale Price

Less 10% Distributor Price

There are exceptions to the above price structure. At present, these are:

1. Afsillin Improved — 40 lbs. bagThe distributor commission for this product size is 8% off P120.00

2. Narrow — Spectrum Injectible AntibioticsThese products are subject to price fluctuations. Therefore, they are invoiced at net price per vial.

3. Deals and Special Offers are not subject to the above distributor price structure. A 5% distributor commission is allowed when the distributor furnishes copies for each sale of a complete deal or special offer to a feedstore, drugstore or other type of account.

Deals and Special Offers purchased for resale at regular price invoiced at net deal or special offer price.

Prices are subject to change without notice. Squibb will endeavor to advise you promptly of any price changes. However, prices in effect at the tune orders are received by Squibb Order Department will apply in all instances.

Green Valley Poultry & Allied Products, Inc. win distribute only for the Central Luzon and Northern Luzon including Cagayan Valley areas. We will not allow any transfer or stocks from Central Luzon and Northern Luzon including Cagayan Valley to other parts of Luzon, Visayas or Mindanao which are covered by our other appointed Distributors. In line with this, you will follow strictly our stipulations that the maximum discount you can give to your direct and turnover accounts will not go beyond 10%.

28

It is understood that Green Valley Poultry and Allied Products, Inc. will accept turn-over orders from Squibb representatives for delivery to customers in your area. If for credit or other valid reasons a turn-over order is not served, the Squibb representative will be notified within 48 hours and hold why the order will not be served.

It is understood that Green Valley Poultry & Allied Products, Inc. will put up a bond of P20,000.00 from a mutually acceptable bonding company.

Payment for Purchases of Squibb Products will be due 60 days from date of invoice or the nearest business day thereto. No payment win be accepted in the form of post-dated checks. Payment by check must be on current dating.

It is mutually agreed that this non-exclusive distribution agreement can be terminated by either Green Valley Poultry & Allied Products, Inc. or Squibb Philippines on 30 days notice.

I trust that the above terms and conditions will be met with your approval and that the distributor arrangement will be one of mutual satisfaction.

If you are agreeable, please sign the enclosed three (3) extra copies of this letter and return them to this Office at your earliest convenience.

Thank you for your interest and support of the products of E.R. Squibb & Sons Philippines Corporation. (Rollo, pp. 12- 13.)

For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court as aforesaid gave judgment in favor of Squibb which was affirmed by the Court of Appeals.

In both the trial court and the Court of Appeals, the parties advanced their respective theories.

Green Valley claimed that the contract with Squibb was a mere agency to sell; that it never purchased goods from Squibb; that the goods received were on consignment only with the obligation to turn over the proceeds, less its commission, or to return the goods ff not sold, and since it had sold the goods but had not been able to collect from the purchasers thereof, the action was premature.

Upon the other hand, Squibb claimed that the contract was one of sale so that Green Valley was obligated to pay for the goods received upon the expiration of the 60-day credit period.

Both courts below upheld the claim of Squibb that the agreement between the parties was a sales contract.

We do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of sale, the liability of Green Valley is indubitable. Adopting Green Valley's theory that the contract is an agency to sell, it is liable because it sold on credit without authority from its principal. The Civil Code has a provision exactly in point. It reads:

Art. 1905. The commission agent cannot, without the express or implied consent of the principal, sell on credit. Should he do so, the principal may demand from him payment in cash, but the commission agent shall be entitled to any interest or benefit, which may result from such sale.

WHEREFORE, the petition is hereby dismissed; the judgment of the defunct Court of Appeals is affirmed with costs against the petitioner.

SO ORDERED.

G.R. No. L-42465 November 19, 1936

INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant, vs. THE LYRIC FILM EXCHANGE, INC., defendant-appellee.

This is an appeal taken by the plaintiff company International Films (China), Ltd. from the judgment of the Court of First Instance of Manila dismissing the complaint filed by it against the defendant company the Lyric Film Exchange, Inc., with costs to said plaintiff.

In support of its appeal the appellant assigns six alleged errors as committed by the court a quo in its said judgment, which will be discussed in the course of this decision.

The record shows that Bernard Gabelman was the Philippine agent of the plaintiff company International Films (China), Ltd. by virtue of a power of attorney executed in his favor on April 5, 1933 (Exhibit 1). On June 2, 1933, the International Films (China), Ltd., through its said agent, leased the film entitled "Monte Carlo Madness" to the defendant company, the Lyric Film Exchange, Inc., to be shown in Cavite for two consecutive days, that is, on June 1 and 2, 1933, for 30 per cent of the receipts; in the Cuartel de España for one day, or on June 6, 1933, for P45; in the University Theater for two consecutive days, or on June 8, and 9, 1933, for 30 per cent of the receipts; in Stotsenburg for two consecutive days, or on June 18 and 19, 1933, for 30 per cent of the receipts, and in the Paz Theater for two consecutive days, or on June 21 and 22, 1933, for 30 per cent of the receipts (Exhibit C). One of the conditions of the contract was that the defendant company would answer for the loss of the film in question whatever the cause. On June 23, 1933, following the last showing of the film in question in the Paz Theater, Vicente Albo, then chief of the film department of the Lyric Film Exchange, Inc., telephoned said agent of the plaintiff company informing him that the showing of said film had already finished and asked, at the same time, where he wished to have the film returned to him. In answer, Bernard Gabelman informed Albo that he wished to see him personally in the latter's office. At about 11 o'clock the next morning, Gabelman went to Vicente Albo's office and asked whether he could deposit the film in question in the vault of the Lyric Film Exchange, Inc., as the International Films (China) Ltd. did not yet have a safety vault, as required by the regulations of the fire department. After the case had been referred to O'Malley, Vicente Albo's chief, the former

29

answered that the deposit could not be made inasmuch as the film in question would not be covered by the insurance carried by the Lyric Film Exchange, Inc. Bernard Gabelman then requested Vicente Albo to permit him to deposit said film in the vault of the Lyric Film Exchange, Inc., under Gabelman's own responsibility. As there was a verbal contract between Gabelman and the Lyric Film Exchange Inc., whereby the film "Monte Carlo Madness" would be shown elsewhere, O'Malley agreed and the film was deposited in the vault of the defendant company under Bernard Gabelman's responsibility.

About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff company, being succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the agency to the new agent, informed the latter of the deposit of the film "Monte Carlo Madness" in the vault of the defendant company as well as of the verbal contract entered into between him and the Lyric Film Exchange, Inc., whereby the latter would act as a subagent of the plaintiff company, International Films (China) Ltd., with authority to show this film "Monte Carlo Madness" in any theater where said defendant company, the Lyric Film Exchange, Inc., might wish to show it after the expiration of the contract Exhibit C. As soon as Lazarus Joseph had taken possession of the Philippine agency of the International Films (China) Ltd., he went to the office of the Lyric Film Exchange, Inc., to ask for the return not only of the film "Monte Carlo Madness" but also of the films "White Devils" and "Congress Dances". On August 13 and 19, 1933, the Lyric Film Exchange, Inc., returned the films entitled "Congress Dances" and "White Devils" to Lazarus Joseph, but not the film "Monte Carlo Madness" because it was to be shown in Cebu on August 29 and 30, 1933. Inasmuch as the plaintiff would profit by the showing of the film "Monte Carlo Madness", Lazarus Joseph agreed to said exhibition. It happened, however, that the bodega of the Lyric Film Exchange, Inc., was burned on August 19, 1933, together with the film "Monte Carlo Madness" which was not insured.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the court a quo erred in allowing the defendant company to amend its answer after both parties had already rested their respective cases.

In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through Justice Malcolm, said:

Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the subjects of Variance and Amendments in General, should be equitably applied to the end that cases may be favorably and fairly presented upon their merits, and that equal and exact justice may be done between the parties. Under code practice, amendments to pleadings are favored, and should be liberally allowed in furtherance of justice. This liberality, it has been said, is greatest in the early stages of a lawsuit, decreases as it progresses, and changes at times to a strictness amounting to a prohibition. The granting of leave to file amended pleadings is a matter peculiarly within the sound discretion of the trial court. The discretion will not be disturbed on appeal, except in case of an evident abuse thereof. But the rule allowing amendments to pleadings is subject to the general but not inflexible limitation that the cause of action or defense shall not be substantially changed, or that the theory of the case shall not be altered. (21 R. C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes of California, sections 469, 470 and 473; Ramirez vs. Murray [1855], 5 Cal., 222; Hayden vs. Hayden [1873], 46 Cal., 332; Hackett vs. Bank of California [1881], 57 Cal., 335; Hancock vs. Board of Education of City of Santa Barbara [1903], 140 Cal., 554; Dunphy vs. Dunphy [1911], 161 Cal., 87; 38 L. R. A. [N. S.], 818.)lawphi1.net

In the case of Gould vs. Stafford (101 Cal., 32, 34), the Supreme Court of California, interpreting section 473 of the Code of Civil Procedure of said State, from which section 110 of our Code was taken, stated as follows:

The rule is that courts will be liberal in allowing an amendment to a pleading when it does not seriously impair the rights of the opposite party — and particularly an amendment to an answer. A defendant can generally set up as many defenses as he may have. Appellant contends that the affidavits upon which the motion to amend was made show that it was based mainly on a mistake of law made by respondent's attorney; but, assuming that to be, so, still the power of a court to allow an amendment is not limited by the character of the mistake which calls forth its exercise. The general rule that a party cannot be relieved from an ordinary contract which is in its nature final, on account of a mistake of law, does not apply to proceedings in an action at law while it is pending and undetermined. Pleadings are not necessarily final until after judgment. Section 473 of the Code of Civil Procedure provides that the court may allow an amendment to a pleading to correct certain enumerated mistakes or "a mistake in any other respect," and "in other particulars." The true rule is well stated in Ward vs. Clay (62 Cal. 502). In the case at bar evidence of the lease was given at the first trial; and we cannot see that the amendment before the second trial put plaintiff in a position any different from that which he would have occupied if the amendment had been made before the first trial.

In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:

The principal purpose of vesting the court with this discretionary power is to enable it "to mold and direct its proceedings so as to dispose of cases upon their substantial merits," when it can be done without injustice to either party, whether the obstruction to such a disposition of cases be a mistake of fact or a mistake as to the law; although it may be that the court should require a stronger showing to justify relief from the effect of a mistake in law than in case of a mistake as to matter of fact. The exercise of the power conferred by section 473 of the code, however, should appear to have, been "in furtherance of justice," and the relief, if any, should be granted upon just terms.

Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of California said:

In an action to recover property which had vested in plaintiff's trustee in bankruptcy prior to the suit, an amendment to the answer, made after both parties had rested, but before the cause was submitted, pleading plaintiff's bankruptcy in bar to the action, was properly allowed in the discretion of the court.

Under the above-cited doctrines, it is discretionary in the court which has cognizance of a case to allow or not the amendment of an answer for the purpose of questioning the personality of the plaintiff to bring the action, even after the parties had rested their cases, as it causes no

30

injustice to any of the parties, and this court will not interfere in the exercise of said discretion unless there is an evident abuse thereof, which does not exist in this case.

The second question to be decided is whether or not the defendant company, the Lyric Film Exchange, Inc., is responsible to the plaintiff, International Films (China) Ltd., for the destruction by fire of the film in question, entitled "Monte Carlo Madness".

The plaintiff company claims that the defendant's failure to return the film "Monte Carlo Madness" to the former was due to the fact that the period for the delivery thereof, which expired on June 22, 1933, had been extended in order that it might be shown in Cebu on August 29 and 30, 1933, in accordance with an understanding had between Lazarus Joseph, the new agent of the plaintiff company, and the defendant. The defendant company, on the other hand, claims that when it wanted to return the film "Monte Carlo Madness" to Bernard Gabelman, the former agent of the plaintiff company, because of the arrival of the date for the return thereof, under the contract Exhibit C, said agent, not having a safety vault, requested Vicente Albo, chief of the film department of the defendant company, to keep said film in the latter's vault under Gabelman's own responsibility, verbally stipulating at the same time that the defendant company, as subagent of the International Films (China) Ltd., might show the film in question in its theaters.

It does not appear sufficiently proven that the understanding had between Lazarus Joseph, second agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was that the defendant company would continue showing said film under the same contract Exhibit C. The preponderance of evidence shows that the verbal agreement had between Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was that said film "Monte Carlo Madness" would remain deposited in the safety vault of the defendant company under the responsibility of said former agent and that the defendant company, as his subagent, could show it in its theaters, the plaintiff company receiving 5 per cent of the receipts up to a certain amount, and 15 per cent thereof in excess of said amount.

If, as it has been sufficiently proven in our opinion, the verbal contract had between Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was a sub-agency or a submandate, the defendant company is not civilly liable for the destruction by fire of the film in question because as a mere submandatary or subagent, it was not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by his failure to do so (art. 1718, Civil Code). The fact that the film was not insured against fire does not constitute fraud or negligence on the part of the defendant company, the Lyric Film Exchange, Inc., because as a subagent, it received no instruction to that effect from its principal and the insurance of the film does not form a part of the obligation imposed upon it by law.

As to the question whether or not the defendant company having collected the entire proceeds of the fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in question which was deposited therein, the evidence shows that the film "Monte Carlo Madness" under consideration was not included in the insurance of the defendant company's films, as this was one of the reasons why O'Malley at first refused to receive said film for deposit and he consented thereto only when Bernard Gabelman, the former agent of the plaintiff company, insisted upon his request, assuming all responsibility. Furthermore, the defendant company did not collect from the insurance company an amount greater than that for which its films were insured, notwithstanding the fact that the film in question was included in the vault, and it would have collected the same amount even if said film had not been deposited in its safety vault. Inasmuch as the defendant company, The Lyric Film Exchange, Inc., had not been enriched by the destruction by fire of the plaintiff company's film, it is not liable to the latter.

For the foregoing considerations, we are of the opinion and so hold: (1) That the court a quo acted within its discretionary power in allowing the defendant company to amend its answer by pleading the special defense of the plaintiff company's lack of personality to bring the action, after both parties had already rested their respective cases; (2) that the defendant company, as subagent of the plaintiff in the exhibition of the film "Monte Carlo Madness", was not obliged to insure it against fire, not having received any express mandate to that effect, and it is not liable for the accidental destruction thereof by fire.

Wherefore, and although on a different ground, the appealed judgment is affirmed, with the costs to the appellant. So ordered.

GR No. L-46472 January 23, 1940

TIONG TAN TECK, appellant, vs. THE SECURITIES AND EXCHANGE COMMISSION, and CUA OH & CO., Appealed.

The point of issue here is whether the respondent Cua Oh & Co. is obligated to pay to the plaintiff the difference between the value of 10,000 shares of certain property Gold Shares, which had betrayed him to the sell, computed at the price of P0.15 each, and the actual price at which sold them. It was then a runner contested action, registered as such in the records of the Securities and Exchange Commission.

In the administrative record No. 31 of the Securities and Exchange Commission, which was to promote the appellant appealed against to complain against her and force her to pay the difference, for refusing to do so voluntarily, the last admitted receiving in effect to sell these shares at a price not fixed but at a price not less than P0.15 each.

Received test the appellant's complaint, the Commission issued its decision on June 25, 1938 in which, after declaring that the appellant's complaint was not based on more than a prima facie case that did not sell their shares, sobresyo the record, no action, because, despite having asked for reconsideration of its decision, not reconsidered.

Against the decision of the Securities and Exchange Commission, the appellant filed an appeal, so that it can be reviewed.

31

Without ignoring the provisions of Law No. 35 aritculo 83 of the Commonwealth, who say that the findings of fact of the Securities and Exchange Commission in matters of this nature should be taken as conclusive on appeal, we are compelled to declare that the decision is not appealed according to law for the following reasons: there was error on the part of the Commission to consider the pleadings of the parties to consider the facts in the act of sight, and to interpret the scope and meaning of the documents exhibits about A and B which are mainly based on its decision, considering like an absolutely true.

It must be said at the outset that in the written complaint of the appellant, in that administrative record No. 31, comprised the following allegations:

1. That the complainant is of legal age, married, and a resident of the City of Manila, Philippines, with mailing address at 142 Rosario, Manila;2. That the respondent is a stock broker duly registered in the Register of Brokers of this Commission and a member of the International Stock Exchange with mailing address at 119 Crystal Arcade, Manila;3. That on June 15, 1937, the complainant Gave an order to sell 10.000 Gold Shares at a minimum price of P0.15 to the respondent thru And his salesman Mr. Eng Ho, and That said respondent delivered to him (complainant) a copy of That confirmation slip showing its 10.000 Gold Shares of the complainant Have Been sold at P0.15 each;4. That said sale of said 10.000 Gold Shares at P0.15 Also Appeared in the Statement of Account of the complainant sent to him on or About June 30, 1937;5. That the complainant subsequently discovered That there was no such transaction appearing in the Quotation issued by the International Stock Exchange on June 15, 1937, nor any Gold Shares Were sold at P0.15 each.

And also consists in the response to the appeal, in a manner not in doubt, the following unequivocal admission:

That I admits Paragraphs 1, 2, 3, 4 and the first part of paragraph 5.

The facts stated and detach from those pleadings are things that we can not do without when conducting the review of the decision appealed, because it refers to those papers and make for themselves the best evidence and the best story that can be of the true facts.

The appeal, claiming to comply with rule # 3 of the Provisional Regulations of the Securities and Exchange Commission, pursuant to the provisions of Article 33 of Law No. 83 of the Commonwealth have the force of law, the appellant sent its report or report Exhibit A, the day June 15, 1937, saying there have sold their 10,000 shares at a price of P0.15 a time, in the morning of that day, subject to the rules of the International Stock Exchange. However consists in Exhibit B which is the report that the International Stock Exchange presented to the Securities and Exchange Commission to show the transactions that took in that day, June 15, 1937, pursuant to the mandate in Rule 22 of those regulations, if then sold, 1,195,000 shares of Gold Shares, none was sold at the price of P0.15. All sales were at the following prices: 25,000 shares at P0.16 one; 45.000 shares at P0.163 one; 420.000 shares at P0.17 one; 275.000 shares at P0.185 one; 25,000 shares at P0.19 one, and 40.000 shares P.0195 one. Therefore should be rejected, the claim that the contested sold the 10,000 shares at a price of P0.15 recurring one, because, if so, such a transaction would consist in Exhibit B, and the truth is that none of this has there . Must also rejected the idea that those 10,000 shares were sold by the appellant's intervention Securities another office, because the appeal being member of the International Stock Exchange, was where I had to make the sale, in addition, there was intelligence between her and the appellant, according to Exhibit A, was that the sale would be subject to the rules of the International Stock Exchange. Moreover, there is nothing to indicate that the sale was made with another office intervention Securities.

If we accept, as we can not do so, the figures stated in Exhibit B, we necessarily come to the conclusion that day that referred morning there were 20 sales of shares of the Gold Shares and pursuant thereto 725.000 shares changed hands at prices ranging from P0.16 and P0.195, dominated by the price of P0.175 because nearly half of these sales were made at that price, closely following those made to P0 17 because it was at that price as sold 215.000 shares. In afternoon trading the same day, there was only 7 sales, and together were of 470,000 shares, at a price that has ranged from P0.17 and P0.185.

This justified, therefore, the conclusion that the appeal of the appellant sold the shares at a price not less than P0.16, or P0.175 at least one.

Bearing in mind the facts admitted by the respondent in its defense, it is clear that it is wrong to lay the conclusion that to give the appellant to appeal the order to sell 10,000 shares, by attaching the price did unalterable P0.15 each action. Is not this, as seen, which the parties agreed, but precisely what has been said. There is therefore no reason to state that the appeal should have made the sale at the highest price at which the shares were quoted on the day in question, in other words, as having had the necessary authority to sell the shares of the appellant to a higher price of P0.15 each, is but fair to make him answer for the difference between the price at which such shares admitted selling the higher price and that, on the evidence, or as prima facie qualify the Securities and Exchange Commission, the sold. And there is no reason not to adopt and apply in this jurisdiction rule "Highest Intermediate Value" adopted in the United States, which is a fair rule that is universally accepted (8 Am Jur, Brokers, Damages in Stock Transactions , sec. 217; Galigher v. Jones, 129 U.S. 193, 9 Sup Ct. 335, 32 Law. ed. 658; Ling v. Malcom, 77 Conn. 517, 59 A. 598; Wiggin v. Federal Stock, etc. . Co., 77 Conn. 507, 59 A. 627; Shaefer v. Dickinson, 141 Ill.. A. 234; Rickerts v. Crittenden, 2 Ky. Op. 499; Dancy v. Hayward, 4 LA [Orleans] 111; Mullen v. Quinlan, 195 NY 109, 87 NE 1078, 23 LRANS 511; Gruman v. Smith, 81 NY 25; Baker v. Drake, 53 NY 211, 13 Am Rep. 507; Barber v. Ellingwood, 144 App Div 512, 129 NYS 414; Rosenbaum v. Stiebel, 137 App Div 912 mem., 122 NYS 131; Keller v. Halsey, 130 App Div 389, 103 NY Super. 430; Peschke v. Wright, 93 Misc. 145, 156 NYS 773; Burridge v. Anthony, 1 NY City Ct. 244; Miller v. Lyons, 113 Va. 275, 74 SE 194; Wahl v. Tracy, 139 Misc. 668, 121 NW 660, Carnegie v . Federal Bank, 5 Ont. 418), and also not in conflict with any principle or provision of law in force in our country.

32

But while prescindiesemos of that rule, anyway arrive at the same conclusion because here we have laws that require us to resolve the matter in that sense.

Article 255 of the Commercial Code provides that a broker must act with prudence and tact to be expected of a good father of a family, taking care of business entrusted to him as if it were your own. With this provision of law, trading as the market was trading in the shares of Gold Shares, at the material time, a lot more than P0.15 action was expected to sell shares contested by the appellant at the lowest high as possible, and not at the price of P0.15 which certainly did not register on that occasion. It would be absurd to suppose that the appeal even obrase differently. At the indicated date (June 15, 1937), sales made of Gold Shares shares to 1,195,000 shares mounted, according to figures showing its face in the Exhibit B, whose authenticity has not been disputed by the parties.

He says that Article 255 of the Commercial Code, the following:

In matters not covered and expressly prescribed by the principal, the agent shall consult, if permitted by the nature of business.

But if person was authorized to act at will, or not possible consultation, will do what prudence dictates and use it but after the trade, taking care of business as their own. . . .

As a rule we have in Articles 1714 and 1715 of the Civil Code. Says the first of these articles that the president should not transpasar term limits, and says the last transferred not considered term limits, if fulfilled in a more advantageous for the client that specified by him. What is the rules prohibit the commission agent or broker sells the things you get from your client to set a lower price of this, do not prevent those sold at a higher price if such a price can be obtained.

To all this must be added that another consideration: having sold the shares of the appellant contested at a price less than P0.16, then had buyers for wholesale price, we would have the unusual case of the respondent worked or worked against their own interests, because the right, by law, to charge the appellant according to the relevant committee of the resulting work, commission would have been greater if the sale had been also at a higher price, has waived that right.

The facts underlying the observations and considerations made are not contrary or different from those expressed and clearly follow from the decision of the Securities and Exchange Commissioner, subject to review. Having made mention the Commissioner, in his decision, the demand of the appellant in its answer to the appeal and exhibits about A and B, the four must necessarily be regarded not only as a complement to that decision, as to the facts that each of them contains and shows on its face, but also as part of the story or narrative of the true facts, made by the Commissioner. Therefore, the possible objection that can not be taken into account more facts declared proven that the Commissioner, pursuant to the aforementioned Article 35 of Act No. 83, has no reason to exist.

In conclusion, we modify the judgment of the Securities and Exchange Commissioner, ordering the respondent to pay to the plaintiff, in addition to the sum of P1, 500 to the sum of 10,000 shares of Gold Shares, property, based on P0 15 each share, the difference between that amount and the P1, 750 the latter total of 10,000 shares at the rate referred to P0.175 each, or the amount of P250.

Tasense coasts from Cua contested Oh & Co. so ordered.

FELISA NEPOMUCENO AND MARCIANA CANON, vs. GENARO HEREDIA, G.R. No. 3298 February 27, 1907

The complaint alleges that on the 24th of September, 1904, the defendant had in his possession for administration 500 pesos, the property of Felisa Nepomuceno, and 1,500 pesos, the property of Marciana Canon; that on that day he entered into an agreement with them, in accordance with which he was to invest this money in a mortgage, or conditional purchase of good real estate, the investment to bring in 1 per centum per month, and the principal to be payable in one year; and that the defendant has failed to make the investment in accordance with his agreement and has refused, and continues to refuse, to return the money.

The following facts are fully established by the evidence of record, and are substantially uncontroverted: That the defendant is the business adviser of the plaintiff, Marciana Canon, and as such had in his hands 1,500 pesos paid to him on her account on the 22d of September, 1904; that about the same time Felisa Nepomuceno, the other plaintiff, had an unsecured debt due her of 500 pesos from one Marcelo Leaño; that on demand for security her debtor proposed to give her a deed of conditional sale (venta con pacto de retro) to a certain tract of land, together with the buildings and improvements thereon, in consideration of 2,000 pesos, she to be credited with 500 pesos on the purchase price and that to advance the balance of 1,500 pesos; that knowing that the defendant had in his hands that amount of money, the property of her coplaintiff, Marciana Canon, she proposed to the said Marciana Canon that they make a joint investment in the land; that together they discussed the proposition with the defendant and later directed him to draw up the necessary documents; that a deed of conditional sale of the land was executed on the 24th of September, 1904, the vendor reserving the privilege of repurchasing the land at the end of one year and obligating himself to make monthly payments in considerations of the right to retain the land in possession in sufficient amount to bring the plaintiffs' interest on their money at the rate of 17 per centum per annum, and the vendees, the plaintiffs in this action, paying to the vendor the sum of 1,500 pesos, cash, and discharging the above mentioned credit of 500 pesos due the plaintiff, Felisa Nepomuceno; that the title to the land under the deed was placed in the name of the defendant, Genaro Heredia; and that a few days thereafter the defendant, at the request of the plaintiffs, executed before a notary public a formal memorandum of the fact that the plaintiff had furnished the money with which the land had been purchased, said memorandum setting forth the amount furnished by each and their proportionate interest in the investment.

33

The plaintiffs insists that the defendant took the deed to the land in his own name without their knowledge or consent, but we think that the weight of the evidence sustains the defendant's claim that he did so by their express direction as their agent, and for their convenience, and that in any event his action in this regard was ratified and approved by their request for and acceptance of the memorandum setting out the facts and by their continuance in the enjoyment of the profits of the transaction after the purchase and without making any effort to have the title transferred in their own names.

The plaintiffs also allege that the defendant, without express authority from them, undertook to extend, and did extend, the period within which the vendor had the privilege or repurchase, but we think that this action in this contention was also ratified, approved, and acquiesced in by the plaintiffs and that in any event it can have no bearing on the merits of the question submitted on appeal.

More than a year after the transactions above set out, during which time the vendor of the land continued to pay, and the plaintiff to receive, the stipulated payments in consideration of the right to retain possession, a cloud was cast on the title to the land by the institution of proceedings for the recovery of possession by third parties, which proceedings are still pending on appeal from the judgment of the Court of First Instance, and the plaintiffs thereupon brought this action in which they are seeking to recover from the defendant the whole of the amount of money invested, with interest from the date of the investment, alleging with that purchase of the land was not made in accordance with their instructions, or on their account.

The trial court gave judgment in favor of the plaintiffs for the full amount claimed on the ground that while acting as their agent the defendant invested their money in land to which the vendor had not a good and sufficient title, contrary to the tenor of his instructions. On appeal the plaintiffs ask that this judgment be affirmed, not on the grounds assigned by the trial judge, but because, as they insists, their money was invested by the defendant in his own name and on his account, and not as their agent, or on behalf. The judgment can not be sustained on either ground.

It was clearly established at the trial that the defendant was acting merely as the agent for the plaintiffs throughout the entire transaction; that the purchase of the land was made not only with their full knowledge and consent, but at their suggestion; and that after the purchase had been effected, the plaintiffs, with full knowledge of the facts, approved and ratified the actions of their agent in the premises. There is nothing in the record which would indicate that the defendant failed to exercise reasonable care and diligence in the performance of his duty as such agent, or that he undertook to guarantee the vendors title to the land purchased by direction of the plaintiffs.

The judgment of the lower court should be, and is hereby, reversed, with the costs against the plaintiffs in the first instance and without special condemnation of costs in this instance. After the expiration of twenty days let judgment be entered in accordance herewith, and ten days thereafter let the record be returned to the court wherein it originated for execution. So ordered.

Gutierrez Hermanos v. Oria Hermanos & Co G.R. No. L-8346 March 30, 1915

FACTS: ALLEGATIONS by defendant ORIA HERMANOS & CO.: By reason of mercantile relations and the opening of a mutual current account from May 1, 1900, the plaintiff (Gutierrez Hermanos) had obligated itself periodically to send to the defendant firm a memorandum or statement of the current account, and further obligated itself, in case the said mercantile relations should be finally terminated, to present a general and complete account, duly supported by vouchers and other proofs; that plaintiff, Gutierrez Hermanos, had contended itself by sending to Oria Hermanos and Co. some memoranda or abstracts of account, accepted by defendant as such "abstract of account," without the latter's having waived its right to demand the presentation, as agreed upon, of the vouchers and other proofs upon the closing of the current account, a stipulation which Gutierrez Hermanos had failed to comply with. Defendant therefore prayed that the plaintiff, Gutierrez Hermanos, be sentenced to render and present the said final account, duly accompanied by vouchers, in conformity with the agreement made.

PLAINTIFF’S ALLEGATIONS: Gutierrez Hermanos denied in its answer the allegations made by Oria Hermanos & Co. in its cross-complaint, and set forth that, in consequence of the mutual current account opened between the parties from the year 1900, plaintiff transmitted weekly or fortnightly, according to circumstances, a specific statement of the transactions effected, as well as, semiannually, a general account of the business done during the six months last elapsed, and that defendant, after an examination of such semiannual account together with its details and vouchers, and after some objections thereto had been explained, was accustomed to prove the same. This was the produre carried on for more than nine years during which Oria Hermanos & Co. from time to time approved each one of the 17 account that were presented to it, and upon Gutierrez Hermanos closing the current account from January to June, 1909, it also presented to defendant a general detailed account, which, nothwithstanding that no objection whatever was made to it, was not approved. Therefore the complaint was filed that initiated this litigation.

ISSUE: Whether or Not Gutierrez Hermanos actually bound itself to present to Oria Hermanos and Co., besides the semiannual accounts rendered, a general account comprising all the business undertaken between 1900 and June, 1909, on which latter date it was considered by Gutierrez Hermanos as terminated.

HELD: The allegation made by defendant relative to this point had not been substantiated by any evidence whatever, and therefore there is no reason nor legal ground whereby plaintiff could be compelled to present that general account requested in the first cross-complaint.

It is, in our opinion, appropriate it insert hereinafter what the trial court, in the judgment rendered, says with respect to this matter: "If commission agents be obliged to render to their principals itemized accounts, supported by vouchers, of the sums they collect as commission and of the transactions effected by them in relation with their principals, as often as the latter may desire, in cases where there arises some trouble, some difference of opinion or a conflict of interests, or where the commission agents close the account, as occurs in the case at bar because the principals did not pay what they were owing or because, instead of the debt being diminished, it was increased, the commission contract would

34

become an inexhaustible and never ending source of litigation and of claims without number, a formidable arm for spiteful principals against which it would be insufficient to oppose an arsenal of vouchers such as might be treasured by the most prescient commission agent, because there could be avoided neither the brother resulting from their necessary examination, nor the heavy expenses and loss of time that are the inevitable accompaniment of this class of work."

When an account has been presented or rendered and has been approved by the party whom it concerns or interests, it is not proper to revise it, unless it should be proved that in its approval there was deceit, fraud, or error seriously prejudicial to the party who gave such approval. Arts. 1265 and 1266, Civil Code.)

In the decision rendered in the case of Pastor vs. Nicasio, (6 Phil. Rep., 152), the following doctrine was laid down;

When accounts of the agent to the principal are once approved by the principal, the latter has no right to ask afterwards for a revision of the same or for a detailed account of the business, unless he can show that there was fraud, deceit, error or mistake in the approval of the accounts — facts not proven in this case.

The record does not show it to have been duly proven that upon Oria Hermanos & Co. giving its approval to the 17 accounts presented by Gutierrez Hermanos there was deceit, fraud, or mistake prejudicial to the former's interests. For the sole reason that Gutierrez Hermanos, upon closing the current account with Oria Hermanos & Co. was obliged, certainly an unwarranted obligation, to render a general account comprehensive of all the business transacted between both parties during more than nine years, and there being no proof of the alleged agreement between them, it would be improper to hold that the plaintiff is obliged to render and present a general account in the sense requested by Oria Hermanos & Co. in its first cross-complaint.

Guillermo Austria vs. CA G.R. No. L-29640 June 10, 1971

Facts:

Maria G. Abad received from Guillermo Austria one pendant with diamonds valued at 4,500phph to be sold on commission basis or to be returned on demand. Said transaction was acknowledged in a receipt dated Jan 30, 1961.

On Feb 1,1961, while walking home to her residence in Mandaluyong, Abad was said to have been accosted by two men, one of whom hit her on the face, while the other snatched her purse containing cash and pieces of jewelry, which included the pendant. The incident became a subject of a criminal case for robbery filed in the CFI of Rizal.

As Abad failed to return the jewelry or pay its value despite demands, Austria filed an action against her and her husband for recovery of the pendant or of its value, and damages before the CFI of Manila.

The Abads set up the defense that the alleged robbery had extinguished their obligation. Trial Court ruled in favor of Austria, ordering the Abads to jointly and severally pay the sum of 4,500, with legal interests, plus 450 for

attorney’s fees, and costs. It was held that the Abads failed to prove the fact of the robbery, or, if indeed it was committed, that Maria Abad was guilty of negligence when she went home without any companion, given that it was already getting dark and she was carrying a large amount of cash and valuables on the day in question, and such negligence did not free her from liability for damages.

The Abads appealed to the Court of Appeals, which rendered a decision in favor of the defendants, ruling that the facts of the robbery and Maria Abad’s possession of the pendant on that day had been duly established. The CA declared the Abads were not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them from liability for damages.

Issues:

1. WON the alleged robbery falls under the category of fortuitous event and relieved the obligor from his obligation under the contract of agency (consignment of goods for sale), pursuant to Article 1174 of the Civil Code, even though there has been no final judgment of conviction in the robbery case.

2. WON Abad, as an agent, is guilty of concurrent or contributory fault or negligence, making her liable for damages.

Held/Ratio:

1. Yes, the robbery was a fortuitous event that relieved the Abads from liability. To constitute a fortuitous event that would exempt a person from responsibility, it is necessary that (1) the event must be

independent of the human will (or rather, of the debtor’s or obligor’s); (2) the occurrence must render it impossible for the obligor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in, or aggravation of, injury to the creditor.

It must be noted that in Article 11741, the emphasis of the provision is on the event, not on the factors responsible for them. To avail of the exemption granted in law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to establish that the unforeseeable event, the robbery in this case, did take place without any concurrent fault on the debtor’s part, and this can be done by preponderant evidence. To require in the present action for

1 Art. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the

obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

35

the prior conviction of the culprits in the criminal case in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt.

2. No, Maria Abad is not guilty of concurrent or contributory fault or negligence.

As stated in Article 11702, in order to completely exonerate the obligor from liabilities, such obligor must be free of any concurrent or contributory fault or negligence.

In 1961, when the robbery in question did take place, criminality had not by far reached the level attained in the present day (1971). Given this, Maria Abad could not be held negligent. Should the incident had happen at present time, where there is high incidence of crimes against persons and property, that renders travel after nightfall a matter to be sedulously avoided without suitable precaution and protection, the conduct of Maria, carrying jewelry of considerable value, would be negligent per se and would not exempt her from responsibility in the case of a robbery.

Dispositive: Petition for review DISMISSED.

G.R. No. L-29640 June 10, 1971

GUILLERMO AUSTRIA, vs. THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. ABAD,

Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods for sale) it is necessary that there be prior conviction for robbery before the loss of the article shall exempt the consignee from liability for such loss.

In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or to be returned on demand. On 1 February 1961, however, while walking home to her residence in Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her on the face, while the other snatched her purse containing jewelry and cash, and ran away. Among the pieces of jewelry allegedly taken by the robbers was the consigned pendant. The incident became the subject of a criminal case filed in the Court of First Instance of Rizal against certain persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).

As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought in the Court of First Instance of Manila an action against her and her husband for recovery of the pendant or of its value, and damages. Answering the allegations of the complaint, defendants spouses set up the defense that the alleged robbery had extinguished their obligation.

After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held that defendants failed to prove the fact of robbery, or, if indeed it was committed, that defendant Maria Abad was guilty of negligence when she went home without any companion, although it was already getting dark and she was carrying a large amount of cash and valuables on the day in question, and such negligence did not free her from liability for damages for the loss of the jewelry.

Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a reversal of the judgment. The appellate court overruling the finding of the trial court on the lack of credibility of the two defense witnesses who testified on the occurrence of the robbery, and holding that the facts of robbery and defendant Maria Abad's possesion of the pendant on that unfortunate day have been duly published, declared respondents not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them from liability for damages to the owner. Plaintiff thereupon instituted the present proceeding.

It is now contended by herein petitioner that the Court of Appeals erred in finding that there was robbery in the case, although nobody has been found guilty of the supposed crime. It is petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve the obligor from his obligation under a contract, pursuant to Article 1174 of the new Civil Code, there ought to be prior finding on the guilt of the persons responsible therefor. In short, that the occurrence of the robbery should be proved by a final judgment of conviction in the criminal case. To adopt a different view, petitioner argues, would be to encourage persons accountable for goods or properties received in trust or consignment to connive with others, who would be willing to be accused in court for the robbery, in order to be absolved from civil liability for the loss or disappearance of the entrusted articles.

We find no merit in the contention of petitioner.

It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in or aggravation of the injury to the creditor. 1 A fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by bandits, robbery, 2

etc., provided that the event has all the characteristics enumerated above.

2 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner

contravene the tenor thereof, are liable for damages.

36

It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were really true that the pendant, which she was obliged either to sell on commission or to return to petitioner, were taken during the robbery, then the occurrence of that fortuitous event would have extinguished her liability. The point at issue in this proceeding is how the fact of robbery is to be established in order that a person may avail of the exempting provision of Article 1174 of the new Civil Code, which reads as follows:

ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

It may be noted the reform that the emphasis of the provision is on the events, not on the agents or factors responsible for them. To avail of the exemption granted in the law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to established that the enforceable event, the robbery in this case did take place without any concurrent fault on the debtor's part, and this can be done by preponderant evidence. To require in the present action for recovery the prior conviction of the culprits in the criminal case, in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a civil case.

It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event, such debtor must, in addition to the cams itself, be free of any concurrent or contributory fault or negligence. 3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing that:

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

It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs, with their high incidence of crimes against persons and property that renders travel after nightfall a matter to be sedulously avoided without suitable precaution and protection, the conduct of respondent Maria G. Abad, in returning alone to her house in the evening, carrying jewelry of considerable value would be negligent per se and would not exempt her from responsibility in the case of a robbery. We are not persuaded, however, that the same rule should obtain ten years previously, in 1961, when the robbery in question did take place, for at that time criminality had not by far reached the levels attained in the present day.

There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized in the civil case before conviction is secured in the criminal action, would prejudice the latter case, or would result in inconsistency should the accused obtain an acquittal or should the criminal case be dismissed. It must be realized that a court finding that a robbery has happened would not necessarily mean that those accused in the criminal action should be found guilty of the crime; nor would a ruling that those actually accused did not commit the robbery be inconsistent with a finding that a robbery did take place. The evidence to establish these facts would not necessarily be the same.

WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in this case is hereby dismissed with costs against the petitioner.

G.R. No. 106929 September 21, 1993

ANITA CAOILE and ERLINDA GATCHALIAN, petitioners, vs. THE COURT OF APPEALS and SOLEDAD F. DE JESUS, respondents.

Petitioner Erlinda Gatchalian * seeks to set aside the Decision of the Court of Appeals in CA-G.R. CV No. 26439 1 which modified the Decision of Branch 53 of the Regional Trial Court of Manila in Civil Case No. 86-36543 2 by holding her "jointly and severally liable with Anita Caoile to the appellants in the sum of P61,000.00 with its interest of 12% per annum from the date of the filing of the complaint until full payment."

The facts of the case as found by the trial court and adopted by the public respondent are as follows:

Sometime in January 1986, Soledad de Jesus met Erlinda Domingo (hereinafter, Domingo), a resident of Sterling Life Homes, Las Piñas, Metro Manila. Soledad de Jesus intimated to Domingo that she was interested in buying a residential lot. Upon reaching home, Domingo got in touch with her "kumadre," Erlinda Gatchalian (hereinafter Gatchalian), also a resident of Sterling Life Homes, and informed her of Soledad de Jesus' desire to buy a residential lot. Gatchalian told Domingo that she knew of a lot for sale in the subdivision. A Caridad Rameta also informed Soledad about the said lot. Soledad, together with Tess Tameta (sister of Caridad), Domingo and Gatchalian, inspected the lot, which was identified as Lot No. 5, Block 8 of the subdivision. She decided to buy it.

Thereafter, accompanied by Domingo and Gatchalian, Soledad went to the office of Sterling Life Assurance Corporation, the developer of Sterling Life Homes Subdivision, at the Sterling Life Condominium, Legaspi Village, Makati, Metro Manila. Soledad was introduced to Anita Caoile, Chief Accountant and Assistant Vice-President of Sterling Life Assurance Corporation. Anita assured Soledad that the lot was for sale and gave the latter a photocopy of the certificate of title over the lot (TCT No. S-16655) in the name of the corporation. The lot has an area of two hundred forty (240) square meters. Anita required Soledad to pay P10,000.00 as a deposit for the lot on 3 February 1986, which the latter paid as evidenced by a receipt signed by Anita Caoile as "agent." 3 The total agreed price for the lot was P120,000.00 or P500.00 per square meter. 4 Soledad verified the status of the property from the Register of Deeds of Makati and was informed that the lot was not mortgaged and was still in the name of the Sterling Life Assurance Corporation. On 5 February 1986, Soledad paid a second installment in the amount of P61,000.00 to Anita Caoile at the office, receipt for which was signed by Anita as "agent" and by Gatchalian, also as "agent." 5 On 18 March 1986, Soledad paid another installment in the amount of P39,000.00 to Anita Caoile when the latter when alone to the former's house. Anita issued a receipt therefore. 6 Soledad paid the balance of P10,000.00 to Anita Caoile on 21 March 1986 and the latter issued a consolidated receipt, under oath, in the total sum of P120,000.00 "as full payment of Lot 5, Block 8, Sterling Life Homes Subdivision, Pamplona, Las Piñas." 7

37

After she had fully paid the price of the lot, Soledad de Jesus demanded from Anita Caoile the delivery of the corresponding Deed of Sale and the Transfer Certificate of Title but the latter could not comply. Soledad then discovered upon inquiry from Alberto N. Villareal, Vice-President of Sterling Life Assurance Corporation, that Anita was not authorized to sell the lot, that Lot No. 5 was sold to one Ruben Rodis under a Memorandum of Agreement dated 29 December 1977 and a Contract to Sell, that Anita was forced to resign from Sterling Life Assurance Corporation because of the anomalies she committed in the corporation, and she had no been reporting for work since May 1986. Soledad thus filed a complaint for a sum of money against Caoile, Domingo, Gatchalian and Sterling Life Assurance Corporation with the Regional Trial Court of Manila, which was docketed as Civil Case No. 86-36543 and raffled off to Branch 53 of the said court. 8

In due course, the trial court rendered a judgment on 12 January 1990 against defendant Anita Caoile only. The dispositive portion thereof reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendant Anita Caoile, ordering the latter to pay the plaintiff the amount of P120,000.00, plus interest thereon at the rate of twelve (12%) percent per annum from the date of the filing of the complaint until the same is fully paid; attorney's fees equivalent to twenty percent (20%) of the amount due, plus costs of suit.

Plaintiff's complaint with respect to the other defendants Erlinda Domingo and Sterling Life Assurance Corporation are hereby dismissed for lack of sufficient evidence.

The respective counterclaims filed by the defendants Erlinda Gatchalian and Erlinda Domingo, and the defendant Sterling Life Assurance Corporation, are likewise dismissed. 9

In dismissing the complaint against Domingo and Gatchalian, the trial court made the following findings:

The Court does not also find sufficient evidence to hold defendants Erlinda Gatchalian and Erlinda Domingo liable to the plaintiff for the transaction involved herein. It does not appear that Domingo and Gatchalian knew that the said lot was no longer available for sale ... at the time they tried to help the plaintiff buy the lot from the defendant Sterling Life Assurance Corporation. While it is true that defendant Gatchalian co-signed with defendant Caoile the receipt, dated February 5, 1986, for P61,000.00 (Exh. A-1; Exh. 2-A), there is no evidence to show that she received a commission and how much, if any, from the defendant Caoile who acknowledged having received the total amount of P120,000.00 from the plaintiff shows that she actually received the said amount, and must take full responsibility therefore. As a matter of fact, when the plaintiff testified on cross-examination on August 6, 1987, in answer to questions prop[o]unded by counsel for defendants Domingo and Gatchalian, she stated that defendant Domingo did not receive any amount from her, and that she does not know if defendants Domingo and Gatchalian are actually lot owners in the Sterling Life Homes Subdivision and were trying to help the plaintiff purchase the lot in question from the defendant Sterling Life Assurance Corporation.

The defendant Gatchalian is a mere third grader. It was the defendant Caoile who prepared the receipt for P61,000.00. According to defendant Gatchalian, she was asked by the defendant Caoile to sign the said receipt for P61,000.00 as a witness thereof. Defendant Gatchalian did not sign any other receipts (See: Exhs. A, A-2, A-3, and B). It would not also be amiss to state that while the plaintiff filed a complaint for Estafa against the defendant Anita Caoile y Sison, she did not include the two (2) other defendants Domingo and Gatchalian, and that an Information for Estafa, dated June 16, 1986, was filed only against the defendant Caoile in Criminal case No. 86-45988 of the Regional Trial Court of Manila (Exh. E). Why? Evidently, the plaintiff herself was not convinced that defendants Domingo and Gatchalian conspired with the defendant Caoile.

The evidence also shows that the plaintiff never asked for reimbursement of any amount form the defendants Domingo and Gatchalian before filing this case, unlike in the case of defendant Caoile whom [s]he asked to reimburse the said amount of P120,000.00 when the latter could not deliver the corresponding Deed of Sale in her favor, as well as the aforementioned Transfer Certificate of Title No. S-16655. 10

Not satisfied with the decision of the trial court, Soledad de Jesus appealed to the Court of Appeals on the lone issue of whether or not defendants Domingo, Gatchalian and Sterling Life Assurance Corporation are jointly and severally liable with Anita Caoile for the sum of P120,000.00. The appeal was docketed as CA-G.R. CV No. 26349. As adverted to in the beginning, the Court of Appeals, in its Decision of 10 June 1992, 11 modified the appealed decision by holding Gatchalian jointly and severally liable with Anita Caoile in the amount of P61,000.00. The dispositive portion of the decision reads:

PREMISES CONSIDERED, the appealed decision is AFFIRMED but with the modification consisting of declaring Erlinda (sic) Gatchalian jointly and severally liable with Anita Caoile to the appellants in the sum of P61,000.00 with its interest of 12% per annum from the date of the filing of the complaint until full payment.

The reason for the said modification is stated by the Court of Appeals thus:

We note that Erlinda Gatchalian must be held accountable for at least a part of the money paid by appellants. A receipt, Exh. A, A-1; Exh. 4, 4-A, and dated February 5, 1986, reads:

Received from Mrs. Soledad F. de Jesus of 1811 G. Rivera St., Kahilom, Pandacan, Manila, the sum of SIXTY ONE THOUSAND PESOS only as partial payment on Block 8, Lot 5 of Sterling Life Homes Subdivision in Pamplona, Las Piñas.

Received by:(Sgd.) Anita S. Caoile Agent and(Sgd.) Erlinda Gatchalian Agent 12

38

In her motion for reconsideration, Gatchalian alleged that there was a misapprehension of facts on the part of the Court of Appeals because there is no evidence that she received a commission or any amount from Soledad de Jesus or from Anita Caoile, for which reason the trial court did not hold her liable.

On 3 September 1992, the Court of Appeals denied the motion for reconsideration in this wise:

The premise for the finding of liability was not that Gatchalian "actually received a commission . . . ." The receipt, EXH. A dated February 5, 1986 clearly indicates that Gatchalian received jointly with Caoile, the sum of P61,000.00 from appellant (Decision, p. 10). Regardless of whether a commission was paid, there is no escaping the conclusion derived from the receipt, and admitted by Gatchalian, that she received the amount of P61,000.00. With this as premise, it was incumbent on Gatchalian to explain the disposition of the money, a burden which she failed to discharge. 13

Gatchalian then filed this petition on 24 October 1992 after obtaining an extension of time within which to do so. We resolved to give due course to the petition after the private respondents had filed the required comment.

The only issue of importance in this case is whether on the sole basis of the receipt for P61,000.00, which she signed as "agent" with Anita Caoile, the petitioner became solidarily liable with Anita. The petitioner maintains that she could not be liable thereon for the reasons explicitly stated by the trial court. Private respondents, on the other hand, urge us to uphold the judgment of the Court of Appeals.

We find the petition to be meritorious.

Both the Court of Appeals and the private respondents placed undue emphasis and reliance upon the word "agent" typed below the signature of the petitioner in the receipt in question. The trial court, however, observed and concluded that:

It was the defendant Caoile who prepared the receipt for P61,000.00. According to defendant Caoile to sign the said receipt for P61,000.00 as a witness thereof. Defendant Gatchalian did not sign any other receipts. 14

There is as well no evidence to show that it was Gatchalian who received the P61,000.00. That Soledad did not include Gatchalian as a co-respondent of Anita in the estafa case and did not demand reimbursement from Gatchalian before filing Civil Case No. 86-36543 are strong indications that the latter never received anything on account of the subject transaction.

More importantly, it was established that on 21 March 1986, Anita Caoile executed and issued to Soledad de Jesus a sworn consolidated receipt. 15

Said receipt includes the P61,000.00 indicated in Exhibit "A-1". This is an admission by Anita that the total purchase price of P120,000.00 was in fact received by her alone. As correctly found by the trial court, no conspiracy among Caoile, Domingo and Gatchalian was proven by Soledad de Jesus. We are thus unable to find any valid basis for holding Gatchalian solidarily liable with Anita Caoile in the amount of P61,000.00. The public respondent's ruling in this regard is unsupported by the evidence. It either overlooked or misapprehended some material facts established in evidence or drew incorrect inferences therefrom. Hence, there is every reason for us to depart from the general rule that the findings of fact of the Court of Appeals are binding upon us. 16

WHEREFORE, the instant petition is GRANTED. The decision appealed from is SET ASIDE and the decision of Branch 53 of the Regional trial Court of Manila in Civil Case No. 86-36543 is REINSTATED.

Costs against the private respondents.

SO ORDERED.

39