NATIONAL FOOD AUTHORITY, (NFA), PETITIONER, VS.

INTERMEDIATE
APPELLATE COURT, SUPERIOR (SG) SHIPPING CORPORATION,
RESPONDENTS.
184 SCRA 166, G.R. No. 75640 April 5, 1990

Civil Law; Agency; Agent’s apparent representation yields to the principal’s true
representation and the contract is considered as entered into between the principal and
third person.—Consequently when things belonging to the principal (in this case,
Superior Shipping Corporation) are dealt with, the agent is bound to the principal
although he does not assume the character of such agent and appears acting in his own
name. In other words, the agent’s apparent representation yields to the principal’s true
representation and that, in reality and in effect, the contract must be considered as
entered into between the principal and the third person (Sy Juco and Viardo v. Sy Juco,
40 Phil. 634). Corollarily, if the principal can be obliged to perform his duties under the
contract, then it can also demand the enforcement of its rights arising from the contract.

DECISION

PARAS, J.:

This is a petition for review on certiorari made by National Food

Authority (NFA for brevity) then known as the National Grains
Authority or NGA from the decision* of the Intermediate Appellate
Court affirming the decision* of the trial court, the decretal portion of
which reads:

"WHEREFORE, defendants Gil Medalla and National Food Authority are

ordered to pay jointly and severally the plaintiff:

"a. the sum of P25,974.90, with interest at the legal rate from
October 17, 1979 until the same is fully paid; and,

"b. the sum of P10,000.00 as and for attorney's fees.

"Costs against both defendants.

"SO ORDERED." (p. 22, Rollo)

Hereunder are the undisputed facts as established by the then Intermediate Appellate
Court (now Court of Appeals), viz:
"On September 6, 1979 Gil Medalla, as commission agent of the plaintiff
Superior Shipping Corporation, entered into a contract for hire of ship
known as "MV Sea Runner" with defendant National Grains
Authority. Under the said contract Medalla obligated to transport on the

1
 "MV Sea Runner" 8,550 sacks of rice belonging to defendant National
Grains Authority from the port of San Jose, Occidental Mindoro, to
Malabon, Metro Manila.

"Upon completion of the delivery of rice at its destination, plaintiff on

October 17, 1979, wrote a letter requesting defendant NGA that it be
allowed to collect the amount stated in its statement of account (Exhibit
"D"). The statement of account included not only a claim for freightage
but also claims for demurrage and stevedoring charges amounting to
P93,538.70.

"On November 5, 1979, plaintiff wrote again defendant NGA, this time
specifically requesting that the payment for freightage and other charges
be made to it and not to defendant Medalla because plaintiff was the
owner of the vessel "MV Sea Runner" (Exhibit "E"). In reply, defendant
NGA on November 16, 1979 informed plaintiff that it could not grant its
request because the contract to transport the rice was entered into by
defendant NGA and defendant Medalla who did not disclose that he was
acting as a mere agent of plaintiff (Exhibit "F"). Thereupon on
November 19, 1979, defendant NGA paid defendant Medalla the sum of
P25,974.90, for freight services in connection with the shipment of 8,550
sacks of rice (Exhibit "A").

"On December 4, 1979, plaintiff wrote defendant Medalla demanding that

he turn over to plaintiff the amount of P27,000.00 paid to him by
defendant NFA. Defendant Medalla, however, 'ignored the demand.'

"Plaintiff was therefore constrained to file the instant complaint.

"Defendant-appellant National Food Authority admitted that it entered

into a contract with Gil Medalla whereby plaintiff's vessel 'MV Sea
Runner' transported 8,550 sacks of rice of said defendant from San Jose,
Mindoro to Manila.

“For services rendered, the National Food Authority paid Gil Medalla
P27,000.00 for freightage.

"Judgment was rendered in favor of the plaintiff. Defendant National

Food Authority appealed to this court on the sole issue as to whether it is
jointly and severally liable with defendant Gil Medalla for freightage."
(pp. 61-62, Rollo)
The appellate court affirmed the judgment of the lower court, hence this appeal by way
of certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant

2
case falls within the exception of the general rule provided for in Art. 1883 of the Civil
Code of the Philippines.

It is contended by petitioner NFA that it is not liable under the exception to the rule (Art.
1883) since it had no knowledge of the fact of agency between respondent Superior
Shipping and Medalla at the time when the contract was entered into between them
(NFA and Medalla). Petitioner submits that "(A)n undisclosed principal cannot
maintain an action upon a contract made by his agent unless such principal was disclosed
in such contract. One who deals with an agent acquires no right against the undisclosed
principal."

Petitioner NFA's contention holds no water. It is an undisputed fact that Gil Medalla
was a commission agent of respondent Superior Shipping Corporation which owned the
vessel "MV Sea Runner" that transported the sacks of rice belonging to petitioner
NFA. The context of the law is clear. Art. 1883, which is the applicable law in the case
at bar provides:
"Art. 1883. If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has contracted; neither
have such persons against the principal.

"In such case the agent is the one directly bound in favor of the person
with whom he has contracted, as if the transaction were his own, except
when the contract involves things belonging to the principal.

"The provision of this article shall be understood to be without prejudice

to the actions between the principal and agent.”
Consequently when things belonging to the principal (in this case, Superior Shipping
Corporation) are dealt with, the agent is bound to the principal although he does not
assume the character of such agent and appears acting in his own name. In other words,
the agent's apparent representation yields to the principal's true representation and that, in
reality and in effect, the contract must be considered as entered into between the
principal and the third person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily,
if the principal can be obliged to perform his duties under the contract, then it can also
demand the enforcement of its rights arising from the contract.

WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the

appealed decision is hereby AFFIRMED.

SO ORDERED.

3
 201 SCRA 157, G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, PETITIONER, VS. HON. COURT OF
APPEALS, HON. PRESIDING JUDGE OF REGIONAL TRIAL COURT OF
MANILA, BRANCH 43, MANUEL CUADY AND LILIA CUADY,
RESPONDENTS.

Civil Law; Subrogation; B.A. Finance Corporation was deemed subrogated to the rights
and obligations of Supercars, Inc. when the latter assigned the promissory note together
with the chattel mortgage constituted on the motor vehicle in question in favor of the
former.—B.A. Finance Corporation was deemed subrogated to the rights and obligations
of Supercars, Inc. when the latter assigned the promissory note, together with the chattel
mortgage constituted on the motor vehicle in question, in favor of the former.
Consequently, B.A. Finance Corporation is bound by the terms and conditions of the
chattel mortgage executed between the Cuadys and Supercars, Inc. Under the deed of
chattel mortgage, B.A. Finance Corporation was constituted attorneyin-fact with full
power and authority to file, follow-up, prosecute, compromise or settle insurance claims;
to sign, execute and deliver the corresponding papers, receipts and documents to the
Insurance Company as may be necessary to prove the claim, and to collect from the latter
the proceeds of insurance to the extent of its interests, in the event that the mortgaged car
suffers any loss or damage.

Same; Same; Agency; In granting B.A Finance Corporation the aforementioned powers
and prerogatives, the Cuady spouses created in the former’s favor an agency.—In
granting B.A. Finance Corporation the aforementioned powers and prerogatives, the
Cuady spouses created in the former’s favor an agency. Thus, under Article 1884 of the
Civil Code of the Philippines, B.A. Finance Corporation is bound by its acceptance to
carry out the agency, and is liable for damages which, through its non-performance, the
Cuadys, the principal in the case at bar, may suffer.

Civil Procedure; Evidence; Judgment of the Court of Appeals is conclusive as to the

facts and may not ordinarily be reviewed by the Supreme Court.—Moreover, B.A.
Finance Corporation would have this Court review and reverse the factual findings of the
respondent appellate court. This, of course, the Court cannot and will not generally do. It
is axiomatic that the judgment of the Court of Appeals is conclusive as to the facts and
may not ordinarily be reviewed by the Supreme Court. The doctrine is, to be sure,
subject to certain specific exceptions none of which, however, obtains in the instant case.

Same; Appeals; Issues not raised and/or ventilated in the trial court, let alone in the Court
of Appeals, cannot be raised for the first time on appeal.—Finally, B.A. Finance
Corporation contends that respondent trial court committed grave abuses of discretion in
two instances: First, when it denied the petitioner’s motion for reconsideration praying
that the counsel be allowed to cross-examine the affiant, and; second, when it seriously
considered the evidence adduced ex-parte by the Cuadys, and heavily relied thereon,
when in truth and in fact, the same was not formally admitted as part of the evidence for
the private respondents (Memorandum for the Petitioner, p. 10). This Court does not

4
have to unduly dwell on this issue which was only raised by B.A. Finance Corporation
for the first time on appeal. A review of the records of the case shows that B.A. Finance
Corporation failed to directly raise or ventilate in the trial court nor in the respondent
appellate court the validity of the evidence adduced exparte by private respondents. It
was only when the petitioner filed the instant petition with this Court that it later raised
the aforementioned issue. As ruled by this Court in a long line of cases, issues not raised
and/or ventilated in the trial court, let alone in the Court of Appeals, cannot be raised for
the first time on appeal as it would be offensive to the basic rules of fair play, justice and
due process.

DECISION

PARAS, J.:

This is a petition for review on certiorari which seeks to reverse and set
aside (1) the decision of the Court of Appeals dated July 21, 1987 in
CA-G.R. No. CV-06522 entitled "B.A. Finance Corporation,
Plaintiff-Appellant, vs. Manuel Cuady and Lilia Cuady,
Defendants-Appellees," affirming the decision of the Regional Trial
Court of Manila, Branch 43, which dismissed the complaint in Civil Case
No. 82-10478, and (2) the resolution dated February 9, 1988 denying
petitioner's motion for reconsideration.

As gathered from the records, the facts are as follows:

On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady
obtained from Supercars, Inc. a credit of P39,574.80, which amount
covered the cost of one unit of Ford Escort 1300, four-door sedan. Said
obligation was evidenced by a promissory note executed by private
respondents in favor of Supercars, Inc., obligating themselves to pay the
latter or order the sum of P39,574.80, inclusive of interest at 14% per
annum, payable on monthly installments of P1,098.00 starting August 16,
1977, and on the 16th day of the next 35 months from September 16,
1977 until full payment thereof. There was also stipulated a penalty of
P10.00 for every month of late installment payment. To secure the
faithful and prompt compliance of the obligation under the said
promissory note, the Cuady spouses constituted a chattel mortgage on the
aforementioned motor vehicle. On July 25, 1977, Supercars, Inc.
assigned the promissory note, together with the chattel mortgage, to B.A.
Finance Corporation. The Cuadys paid a total of P36,730.15 to the B.A.
Finance Corporation, thus leaving an unpaid balance of P2,344.65 as of
July 18, 1980. In addition thereto, the Cuadys owe B.A. Finance
Corporation P460.00 representing penalties or surcharges for tardy

5
monthly installments (Rollo, pp. 27-29).

Parenthetically, the B.A. Finance Corporation, as the assignee of the

mortgage lien, obtained the renewal of the insurance coverage over the
aforementioned motor vehicle for the year 1980 with Zenith Insurance
Corporation, when the Cuadys failed to renew said insurance coverage
themselves. Under the terms and conditions of the said insurance
coverage, any loss under the policy shall be payable to the B.A. Finance
Corporation (Memorandum For Private Respondents, pp. 3-4).

On April 18, 1980, the aforementioned motor vehicle figured in an

accident and was badly damaged. The unfortunate happening was
reported to the B.A. Finance Corporation and to the insurer, Zenith
Insurance Corporation. The Cuadys asked the B.A. Finance Corporation
to consider the same as a total loss, and to claim from the insurer the face
value of the car insurance policy and apply the same to the payment of
their remaining account and give them the surplus thereof, if any. But
instead of heeding the request of the Cuadys, B.A. Finance Corporation
prevailed upon the former to just have the car repaired. Not long
thereafter, however, the car bogged down. The Cuadys wrote B.A.
Finance Corporation requesting the latter to pursue their prior instruction
of enforcing the total loss provision in the insurance coverage. When
B.A. Finance Corporation did not respond favorably to their request, the
Cuadys stopped paying their monthly installments on the promissory note
(Ibid., pp. 4-5).

On June 29, 1982, in view of the failure of the Cuadys to pay the
remaining installments on the note, B.A. Finance Corporation sued them
in the Regional Trial Court of Manila, Branch 43, for the recovery of the
said remaining installments (Memorandum for the Petitioner, p. 1).

After the termination of the pre-trial conference, the case was set for trial
on the merits on April 25, 1984. B.A. Finance Corporation's evidence
was presented on even date and the presentation of Cuady's evidence was
set on August 15, 1984. On August 7, 1984, Atty. Noel Ebarle, counsel
for the petitioner, filed a motion for postponement, the reason being that
the 'handling' counsel, Atty. Ferdinand Macibay was temporarily
assigned in Cebu City and would not be back until after August 15,
1984. Said motion was, however, denied by the trial court on August 10,
1984. On August 15, 1984, the date of hearing, the trial court allowed
private respondents to adduce evidence ex-parte in the form of an
affidavit to be sworn to before any authorized officer. B.A. Finance
Corporation filed a motion for reconsideration of the order of the trial

6
 court denying its motion for postponement. Said motion was granted in
an order dated September 26, 1984, thus:

"The Court grants plaintiff's motion for reconsideration dated August 22,
1984, in the sense that plaintiff is allowed to adduce evidence in the form
of counter-affidavits of its witnesses, to be sworn to before any person
authorized to administer oaths, within ten days from notice hereof." (Ibid.,
pp. 1-2).
B.A. Finance Corporation, however, never complied with the above-mentioned order,
paving the way for the trial court to render its decision on January 18, 1985, the
dispositive portion of which reads as follows:
"IN VIEW WHEREOF, the Court DISMISSES the complaint without
costs.

SO ORDERED." (Rollo, p. 143)

On appeal, the respondent appellate court[*] affirmed the decision of the trial court. The
decretal portion of the said decision reads as follows:
"WHEREFORE, after consultation among the undersigned members of
this Division, in compliance with the provision of Section 13, Article VIII
of the Constitution; and finding no reversible error in the judgment
appealed from, the same is hereby AFFIRMED, without any
pronouncement as to costs." (Ibid. p. 33)
B.A. Finance Corporation moved for the reconsideration of the above decision, but the
motion was denied by the respondent appellate court in a resolution dated February 9,
1988 (Ibid., p. 38).

Hence, this present recourse.

On July 11, 1990, this Court gave due course to the petition and required the parties to
submit their respective memoranda. The parties having complied with the submission
of their memoranda, the case was submitted for decision.

The real issue to be resolved in the case at bar is whether or not B.A. Finance
Corporation has waived its right to collect the unpaid balance of the Cuady spouses on
the promissory note for failure of the former to enforce the total loss provision in the
insurance coverage of the motor vehicle subject of the chattel mortgage.

It is the contention of B.A. Finance Corporation that even if it failed to enforce the total
loss provision in the insurance policy of the motor vehicle subject of the chattel
mortgage, said failure does not operate to extinguish the unpaid balance on the
promissory note, considering that the circumstances obtaining in the case at bar do not
fall under Article 1231 of the Civil Code relative to the modes of extinguishment of
obligations (Memorandum for the Petitioner, p. 11).

7
On the other hand, the Cuadys insist that owing to its failure to enforce the total loss
provision in the insurance policy, B.A. Finance Corporation lost not only its opportunity
to collect the insurance proceeds on the mortgaged motor vehicle in its capacity as the
assignee of the said insurance proceeds pursuant to the memorandum in the insurance
policy which states that the "LOSS: IF ANY, under this policy shall be payable to BA
FINANCE CORP., as their respective rights and interest may appear." (Rollo, p. 91) but
also the remaining balance on the promissory note (Memorandum for the Respondents,
pp. 16-17).

The petition is devoid of merit.

B.A. Finance Corporation was deemed subrogated to the rights and obligations of
Supercars, Inc. when the latter assigned the promissory note, together with the chattel
mortgage constituted on the motor vehicle in question, in favor of the
former. Consequently, B.A. Finance Corporation is bound by the terms and conditions
of the chattel mortgage executed between the Cuadys and Supercars, Inc. Under the
deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with
full power and authority to file, follow-up, prosecute, compromise or settle insurance
claims; to sign, execute and deliver the corresponding papers, receipts and documents to
the Insurance Company as may be necessary to prove the claim, and to collect from the
latter the proceeds of insurance to the extent of its interests, in the event that the
mortgaged car suffers any loss or damage (Rollo, p. 89). In granting B.A. Finance
Corporation the aforementioned powers and prerogatives, the Cuady spouses created in
the former's favor an agency. Thus, under Article 1884 of the Civil Code of the
Philippines, B.A. Finance Corporation is bound by its acceptance to carry out the agency,
and is liable for damages which, through its non-performance, the Cuadys, the principal
in the case at bar, may suffer.

Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the
motor vehicle in question, not to mention the amount equivalent to the unpaid balance on
the promissory note, when B.A. Finance Corporation steadfastly refused and refrained
from proceeding against the insurer for the payment of a clearly valid insurance claim,
and continued to ignore the yearning of the Cuadys to enforce the total loss provision in
the insurance policy, despite the undeniable fact that Rea Auto Center, the auto repair
shop chosen by the insurer itself to repair the aforementioned motor vehicle, misrepaired
and rendered it completely useless and unserviceable (Ibid., p. 31).

Accordingly, there is no reason to depart from the ruling set down by the respondent
appellate court. In this connection, the Court of Appeals said:
"x x x Under the established facts and circumstances, it is unjust, unfair
inequitable to require the chattel mortgagors, appellees herein, to still pay
the unpaid balance of their mortgage debt on the said car, the
non-payment of which account was due to the stubborn refusal and failure
of appellant mortgagee to avail of the insurance money which became due
and demandable after the insured motor vehicle was badly damaged in a
vehicular accident covered by the insurance risk. x x x." (Ibid.).

8
On the allegation that the respondent court's findings that B.A. Finance Corporation
failed to claim for the damage to the car was not supported by evidence, the records
show that instead of acting on the instruction of the Cuadys to enforce the total loss
provision in the insurance policy, the petitioner insisted on just having the motor vehicle
repaired, to which private respondents reluctantly acceded. As heretofore mentioned,
the repair shop chosen was not able to restore the aforementioned motor vehicle to its
condition prior to the accident. Thus, the said vehicle bogged down shortly
thereafter. The subsequent request of the Cuadys for the B.A. Finance Corporation to
file a claim for total loss with the insurer fell on deaf ears, prompting the Cuadys to stop
paying the remaining balance on the promissory note (Memorandum for the Respondents,
pp. 4-5).

Moreover, B.A. Finance Corporation would have this Court review and reverse the
factual findings of the respondent appellate court. This, of course, the Court cannot and
will not generally do. It is axiomatic that the judgment of the Court of Appeals is
conclusive as to the facts and may not ordinarily be reviewed by the Supreme
Court. The doctrine is, to be sure, subject to certain specific exceptions none of which,
however, obtains in the instant case (Luzon Brokerage Corporation v. Court of Appeals,
176 SCRA 483 [1989]).

Finally, B.A. Finance Corporation contends that respondent trial court committed grave
abuses of discretion in two instances: First, when it denied the petitioner's motion for
reconsideration praying that the counsel be allowed to cross-examine the affiant, and;
second, when it seriously considered the evidence adduced ex-parte by the Cuadys, and
heavily relied thereon, when in truth and in fact, the same was not formally admitted as
part of the evidence for the private respondents (Memorandum for the Petitioner, p.
10). This Court does not have to unduly dwell on this issue which was only raised by
B.A. Finance Corporation for the first time an appeal. A review of the records of the
case shows that B.A. Finance Corporation failed to directly raise or ventilate in the trial
court nor in the respondent appellate court the validity of the evidence adduced ex-parte
by private respondents. It was only when the petitioner filed the instant petition with
this Court that it later raised the aforementioned issue. As ruled by this Court in a long
line of cases, issues not raised and/or ventilated in the trial court, let alone in the Court of
Appeals, cannot be raised for the first time on appeal as it would be offensive to the basic
rules of fair play, justice and due process (Galicia v. Polo, 179 SCRA 375 [1989];
Ramos v. Intermediate Appellate Court, 175 SCRA 70 [1989]; Dulos Realty &
Development Corporation v. Court of Appeals, 157 SCRA 425 [1988]; Dihiansan, et al.
v. Court of Appeals, et al., 153 SCRA 712 [1987]; De la Santa v. Court of Appeals, et al.,
140 SCRA 44 [1985]).

PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed
from is AFFIRMED.

SO ORDERED.

9
 G.R. No. 70789. October 19, 1992.*
RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and
ROMEO S. VERGARA, petitioners, vs. THE INTERMEDIATE APPELLATE
COURT AND ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH
and ROBERTO G. BORROMEO, respondents.

Civil Law; Obligations and Contracts; It is a truism in legal jurisprudence that a

condition which is both potestative (or facultative) and resolutory may be valid even
though the saving clause is left to the will of the obligor.—A purely potestative
imposition of this character must be obliterated from the face of the contract without
affecting the rest of the stipulations considering that the condition relates to the
fulfillment of an already existing obligation and not to its inception (Civil Code
Annotated, by Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a truism in
legal jurisprudence that a condition which is both potestative (or facultative) and
resolutory may be valid, even though the saving clause is left to the will of the obligor.

Corporation Law; The President and Manager of a corporation who entered into and
signed a contract in his official capacity cannot be made liable thereunder in his
individual capacity in the absence of stipulation to that effect due to the personality of
the corporation being separate and distinct from the persons composing it.—We have to
agree with petitioners’ citation of authority to the effect that the President and Manager
of a corporation who entered into and signed a contract in his official capacity, cannot be
made liable thereunder in his individual capacity in the absence of stipulation to that
effect due to the personality of the corporation being separate and distinct from the
persons composing it (Banque Generale Belge vs. Walter Bull and Co., Inc., 84 Phil.
164). And because of this precept, Vergara’s supposed non-participation in the contract
of sale although he signed the letter dated September 30, 1968 is completely immaterial.
The two exceptions contemplated by Article 1897 of the New Civil Code where agents
are directly responsible are absent and wanting.

DECISION

MELO, J.:

When petitioners informed herein private respondents to stop the delivery of pulp wood
supplied by the latter pursuant to a contract of sale between them, private respondents
sued for breach of their covenant. The court of origin dismissed the complaint but at the
same time enjoined petitioners to respect the contract of sale if circumstances warrant the
full operation in a commercial scale of petitioners' Baloi plant and to continue accepting
and paying for deliveries of pulp wood products from Romeo Lluch (page 14, Petition;
page 20, Rollo). On appeal to the then Intermediate, Appellate Court, Presiding Justice
Ramon G. Gaviola, Jr., who spoke for the First Civil Cases Division, with Justices
Caguioa, Quetulio-Losa, and Luciano, concurring, modified the judgment by directing
herein petitioners to pay private respondents, jointly and severally, the sum of
P30,000.00 as moral damages and P15,000.00 as attorney's fees (pages 48-58, Rollo).

10
In the petition at bar, it is argued that the Appellate Court erred:

“A. ... IN HOLDING PERSONALLY LIABLE UNDER THE

CONTRACT OF SALE PETITIONER TANTOCO WHO SIGNED
MERELY AS REPRESENTATIVE OF PETITIONER RUSTAN, AND
PETITIONER VERGARA WHO DID NOT SIGN AT ALL;
B. … IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO
SUSPEND TAKING DELIVERY OF PULP WOOD FROM
RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS
AND UNFORESEEN DEFECTS IN THE MILL, WAS NOT IN THE
LAWFUL EXERCISE OF ITS RIGHT UNDER THE CONTRACT OF
SALE; and
C. ... IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES
IN THE ABSENCE OF FRAUD OR BAD FAITH.”
(page 18, Petition; page 24, Rollo)

The generative facts of the controversy, as gathered from the pleadings, are fairly simple.

Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lanao
del Norte. On March 20, 1967, respondent Lluch, who is a holder of a forest products
license, transmitted a letter to petitioner Rustan for the supply of raw materials by the
former to the latter. In response thereto, petitioner Rustan proposed, among other things,
in the letter-reply:

“2. That the contract to supply is not exclusive because Rustan shall have
the option to buy from other suppliers who are qualified and holder of
appropriate government authority or license to sell and dispose pulp
wood.”

These prefatory business proposals culminated in the execution, during the month of
April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan
Pulp and Paper Mill, Inc. undertook to pay the price of P30.00 per cubic meter of pulp
wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte. Of
pertinent significance to the issue at hand are the following stipulations in the bilateral
undertaking:

“3. That BUYER shall have the option to buy from other SELLERS who
are equally qualified and holders of appopriate government authority or
license to sell or dispose, that BUYER shall not buy from any other seller
whose pulp woods being sold shall have been established to have
emanated from the SELLER'S lumber and/or firewood concession. . . . ”
And that SELLER has the priority to supply the pulp wood materials
requirement of the BUYER;

11
 xxx
7. That the BUYER shall have the right to ‘stop delivery of the said raw
materials by the seller covered by this contract when supply of the same
shall become sufficient until such time when need for said raw materials
shall have become necessary provided, however, that the SELLER is
given sufficient notice.”
(pages 8-9, Petition; pages 14-15, Rollo)

In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper
Mills, Inc. recommended the acceptance of deliveries from other suppliers of the pulp
wood materials for which the corresponding deliveries were made. But during the test
run of the pulp mill, the machinery line thereat had major defects while deliveries of the
raw materials piled up, which prompted the Japanese supplier of the machinery to
recommend the stoppage of the deliveries. The suppliers were informed to stop deliveries
and the letter of similar advice sent by petitioners to private respondents reads:

“September 30, 1968

Iligan Diversified Projects, Inc.
Iligan City
Attention: Mr. Romeo A. Lluch
Dear Mr. Lluch:
This is to inform you that the supply of raw materials to us has become
sufficient and we will not be needing further delivery from you. As per
the terms of our contract, please stop delivery thirty (30) days from today.
Very truly yours,
RUSTAN PULP AND PAPER MILLS, INC.
By:
DR. ROMEO S. VERGARA
Resident Manager”

Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether
stoppage of delivery or termination of the contract of sale was intended, but the query
was not answered by petitioners. This alleged ambiguity notwithstanding, Lluch and the
other suppliers resumed deliveries after the series of talks between Romeo S. Vergara
and Romeo Lluch.

On January 23, 1969, the complaint for contractual breach was filed which, as earlier
noted, was dismissed. In the process of discussing the merits of the appeal interposed
therefrom, respondent Court clarified the eleven errors assigned below by herein
petitioners and it seems that petitioners were quite satisfied with the Appellate Court's in
seriatim response since petitioners trimmed down their discourse before this Court to
three basic matters, relative to the nature of liability, the propriety of the stoppage, and
the feasibility of awarding moral damages including attorney's fees.

12
Respondent Court found it ironic that petitioners had to exercise the prerogative
regarding the stoppage of deliveries via the letter addressed to Iligan Diversified Projects,
Inc. on September 30, 1968 because petitioners never really stopped accepting deliveries
from private respondents until December 23, 1968. Petitioners' paradoxical stance was
portrayed in this manner:

“. . . We cannot accept the reasons given by appellees as to why they were

stopping deliveries of pulp wood materials. First, We find it preposterous
for a business company like the appellee to accumulate stockpiles of cut
wood even after its letter to appellants dated September 30, 1968 stopping
the deliveries because the supply of raw materials has become sufficient.
The fact that appellees were buying and accepting pulp wood materials
from other sources other than the appellants even after September 30,
1968 belies that they have more than sufficient supply of pulp wood
materials, or that they are unable to go into full commercial operation or
that their machineries are defective or even that the pulp wood materials
coming from appellants are sub-standard. Second, We likewise find the
court a quo's finding that “even with one predicament in which defendant
Rustan found itself wherein commercial operation was delayed, it
accommodated all its suppliers of raw materials, including plaintiff,
Romeo Lluch, by allowing them to deliver all its stockpiles of cut wood”
(Decision, page 202, Record on Appeal) to be both illogical and
inconsistent. Illogical, because as appellee Rustan itself claimed “if the
plant could not be operated on a commercial scale, it would then be
illogical for defendant Rustan to continue accepting deliveries of raw
materials.” Inconsistent because this kind of “concern” or
“accommodation” is not usual or consistent with ordinary business
practice considering that this would mean adequate losses to the company.
More so, if We consider that appellee is a new company and could not
therefore afford to absorb more losses than it already allegedly incurred
by the consequent defects in the machineries.
Clearly therefore, this is a breach of the contract entered into by and
between appellees and appellants which warrants the intervention of this
Court.”
xxx
xxx
. . . The letter of September 30, 1968, Exh. “D” shows that defendants
were terminating the contract of sale (Exh. “A”), and refusing any future
or further delivery --- whether on the ground that they had sufficient
supply of pulp wood materials or that appellants cannot meet the standard
of quality of pulp wood materials that Rustan needs or that there were
defects in appellees’ machineries resulting in an inability to continue full
commercial operations.

13
 Furthermore, there is evidence on record that appellees have been
accepting deliveries of pulp wood materials from other sources, i.e. Salem
Usman, Fermin Villanueva and Pacasum even after September 30, 1968.
Lastly, it would be unjust for the court a quo to rule that the contract of
sale be temporarily suspended until Rustan, et al., are ready to accept
deliveries from appellants. This would make the resumption of the
contract purely dependent on the will of one party --- the appellees, and
they could always claim, as they did in the instant case, that they have
more than sufficient supply of pulp wood when in fact they have been
accepting the same from other sources. Added to this, the court a quo was
imposing a new condition in the contract, one that was not agreed upon by
the parties.”
(Pages 8-10, Decision; Pages 55-57, Rollo)

The matter of Tantoco's and Vergara's joint and several liability as a result of the alleged
breach of the contract is dependent, first of all, on whether Rustan Pulp and Paper Mills
may legally exercise the right of stoppage should there be a glut of raw materials at its
plant.

And insofar as the express discretion on the part of petitioners is concerned regarding the
right of stoppage, We feel that there is cogent basis for private respondents' apprehension
on the illusory resumption of deliveries inasmuch as the prerogative suggests a condition
solely dependent upon the will of petitioners. Petitioners can stop delivery of pulp wood
from private respondents if the supply at the plant is sufficient as ascertained by
petitioners, subject to re-delivery when the need arises as determined likewise by
petitioners. This is Our simple understanding of the literal import of paragraph 7 of the
obligation in question. A purely potestative imposition of this character must be
obliterated from the face of the contract without affecting the rest of the stipulations
considering that the condition relates to the fulfillment of an already existing obligation
and not to its inception (Civil Code Annotated, by Padilla, 1987 Edition, Volume 4, Page
160). It is, of course, a truism in legal jurisprudence that a condition which is both
potestative (or facultative) and resolutory may be valid, even though the saving clause is
left to the will of the obligor like what this Court, through Justice Street, said in Taylor
vs. Uy Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and
Jurisprudence on the Civil Code, by Tolentino, Volume 4, 1991 edition, page 152). But
the conclusion drawn from the Taylor case, which allowed a condition for unilateral
cancellation of the contract when the machinery to be installed on the factory did not
arrive in Manila, is certainly inappropriate for application to the case at hand because the
factual milieu in the legal tussle dissected by Justice Street conveys that the proviso
relates to the birth of the undertaking and not to the fulfillment of an existing obligation.

In support of the second ground for allowance of the petition, petitioners are of the
impression that the letter dated September 30, 1968 sent to private respondents is well

14
within the right of stoppage guaranteed to them by paragraph 7 of the contract of sale
which was construed by petitioners to be a temporary suspension of deliveries. There is
no doubt that the contract speaks loudly about petitioners' prerogative but what
diminishes the legal efficacy of such right is the condition attached to it which, as
aforesaid, is dependent exclusively on their will for which reason, We have no
alternative but to treat the controversial stipulation as inoperative (Article 1306, New
Civil Code). It is for this same reason that We are not inclined to follow the
interpretation of petitioners that the suspension of delivery was merely temporary since
the nature of the suspension itself is again conditioned upon petitioners' determination of
the sufficiency of supplies at the plant.

Neither are We prepared to accept petitioners' exculpation grounded on frustration of the

commercial object under Article 1267 of the New Civil Code, because petitioners
continued accepting deliveries from the suppliers. This conduct will estop petitioners
from claiming that the breakdown of the machinery line was an extraordinary obstacle to
their compliance to the prestation. It was indeed incongruous for petitioners to have sent
the letters calling for suspension and yet, they in effect disregarded their own advice by
accepting the deliveries from the suppliers. The demeanor of petitioners along this line
was sought to be justified as an act of generous accommodation, which entailed greater
loss to them and “was not motivated by the usual businessman's obsession with profit”
(Page 34, Petition; Page 40, Rollo). Altruism may be a noble gesture but petitioners'
stance in this respect hardly inspires belief for such an excuse is inconsistent with a
normal business enterprise which takes ordinary care of its concern in cutting down on
expenses (Section 3, (d), Rule 131, Revised Rules of Court). Knowing fully well that
they will encounter difficulty in producing output because of the defective machinery
line, petitioners opted to open the plant to greater loss, thus compounding the costs by
accepting additional supply to the stockpile. Verily, the Appellate Court emphasized the
absurdity of petitioners' action when they acknowledged that “if the plant could not be
operated on a commercial scale, it would then be illogical for defendant Rustan to
continue accepting deliveries of raw materials.” (Page 202, Record on Appeal; Page 8,
Decision; Page 55, Rollo).

Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay
moral damages and attorney's fees because Tantoco merely represented the interest of
Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract
of sale. On this score, We have to agree with petitioners' citation of authority to the effect
that the President and Manager of a corporation who entered into and signed a contract in
his official capacity, cannot be made liable thereunder in his individual capacity in the
absence of stipulation to that effect due to the personality of the corporation being
separate and distinct from the persons composing it (Bangue Generale Belge vs. Walter
Bull and Co., Inc., 84 Phil. 164). And because of this precept, Vergara's supposed
non-participation in the contract of sale although he signed the letter dated September 30,

15
1968 is completely immaterial. The two exceptions contemplated by Article 1897 of the
New Civil Code where agents are directly responsible are absent and wanting.

WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only
petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's
fees as awarded by respondent Court.

SO ORDERED.

16
 G.R. No. 109937. March 21, 1994.*
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT
OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS,
represented by CANDIDA G. DANS, and the DBP MORTGAGE
REDEMPTION INSURANCE POOL, respondents.

Civil Law; Contracts; Insurance; Where there was no perfected contract of

insurance, DBP MRI Pool cannot be held liable on the contract that does not
exist.—Undisputably, the power to approve MRI applications is lodged with the
DBP MRI Pool. The pool, however, did not approve the application of Dans.
There is also no showing that it accepted the sum of P1,476.00, which DBP
credited to its account with full knowledge that it was payment for Dans’s
premium. There was, as a result, no perfected contract of insurance; hence, the
DBP MRI Pool cannot be held liable on a contract that does not exist.

Same; Agency; Obligation of the Agent; Agent acting as such is not personally
liable unless he expressly binds himself or exceeds his authority.—Under Article
1897 of the Civil Code of the Philippines, “the agent who acts as such is not
personally liable to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such party sufficient
notice of his powers.”

Same; Same; Same; Liability of the agent who exceeds the scope of his authority
depends upon whether the 3rd person is aware of the limits of agent’s
powers.—The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of the agent’s
powers. There is no showing that Dans knew of the limitation on DBP’s
authority to solicit applications for MRI.

Same; Same; Same; If the third person dealing with an agent is unaware of the
limits of the authority conferred by the principal on the agent and the third person
has been deceived by the non-disclosure by the agent, then the latter is liable for
damages to him.—If the third person dealing with an agent is unaware of the
limits of the authority conferred by the principal on the agent and he (third
person) has been deceived by the non-disclosure thereof by the agent, then the
latter is liable for damages to him (V Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing
Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when
he acts without authority is founded upon the supposition that there has been
some wrong or omission on his part either in misrepresenting, or in affirming, or
concealing the authority under which he assumes to act (Francisco, V., Agency
307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the
non-disclosure of the limits of the agency carries with it the implication that a
deception was perpetrated on the unsuspecting client, the provisions of Articles
19, 20 and 21 of the Civil Code of the Philippines come into play.

17
Same; Damages; One is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved.—One is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has
duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be
recoverable, must not only be capable of proof, but must be actually proved with
a reasonable degree of certainty (Refractories Corporation v. Intermediate
Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing
Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in
an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37
Phil. 844 [1918]).

Same; Same; No proof of pecuniary loss is required in the assessment of moral

damages.—While Dans is not entitled to compensatory damages, he is entitled to
moral damages. No proof of pecuniary loss is required in the assessment of said
kind of damages (Civil Code of the Philippines, Art. 2216). The same may be
recovered in acts referred to in Article 2219 of the Civil Code.

DECISION

QUIASON, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and
its resolution denying reconsideration thereof.

We affirm the decision of the Court of Appeals with modification.

In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law,
applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP),
Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by
DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage
Redemption Insurance Pool (DBP MRI Pool).

A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987
and released on August 11, 1987. From the proceeds of the loan, DBP deducted the
amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the "MRI Application for Insurance" and the "Health
Statement for DBP MRI Pool."

18
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent,
was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the
DBP MRI Pool was advised of the credit.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified
DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of
60 years at the time of application.

On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late
husband's MRI application. The DBP offered to refund the premium of P1,476.00 which
the deceased had paid, but Candida Dans refused to accept the same, demanding
payment of the face value of the MRI or an amount equivalent to the loan. She, likewise,
refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered.

On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed
a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the
insurance pool for "Collection of Sum of Money with Damages." Respondent Estate
alleged that Dans became insured by the DBP MRI Pool when DBP, with full knowledge
of Dans' age at the time of application, required him to apply for MRI, and later collected
the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of
P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the
mortgage debt of the deceased be declared fully paid; and (3) that damages be awarded.

The DBP and the DBP MRI Pool separately filed their answers, with the former
asserting a cross-claim against the latter.

At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits
submitted by respondent Estate. As a result of these admissions, the trial court narrowed
down the issues and, without opposition from the parties, found the case ripe for
summary judgment. Consequently, the trial court ordered the parties to submit their
respective position papers and documentary evidence, which may serve as basis for the
judgment.

On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and
against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial
court found no privity of contract between it and the deceased. The trial court declared
DBP in estoppel for having led Dans into applying for MRI and actually collecting the
premium and the service fee, despite knowledge of his age ineligibility. The dispositive
portion of the decision reads as follows:

19
 "WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the
plaintiff and against Defendant DBP, ordering the latter:

1. To return and reimburse plaintiff the amount of P139,500.00 plus legal

rate of interest as amortization payment paid under protest;

2. To consider the mortgage loan of P300,000.00 including all interest

accumulated or otherwise to have been settled, satisfied or set-off by
virtue of the insurance coverage of the late Juan B. Dans;

3. To pay plaintiff the amount of P10,000.00 as attorney's fees;

4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and

other expenses, and other relief just and equitable.

The Counterclaims of Defendants DBP and DBP?MRI POOL are hereby

dismissed. The Cross-claim of Defendant DBP is likewise dismissed"
(Rollo, p. 79).

The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the
appellate court affirmed in toto the decision of the trial court. The DBP's motion for
reconsideration was denied in a resolution dated April 20, 1993.

Hence, this recourse.

II

When Dans applied for MRI, he filled up and personally signed a "Health Statement for
DBP MRI Pool" (Exh. "5-Bank") with the following declaration:

"I hereby declare and agree that all the statements and answers contained
herein are true, complete and correct to the best of my knowledge and
belief and form part of my application for insurance. It is understood and
agreed that no insurance coverage shall be effected unless and until this
application is approved and the full premium is paid during my continued
good health" (Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the
application shall be approved by the insurance pool; and (2) when the full premium is
paid during the continued good health of the applicant. These two conditions, being
joined conjunctively, must concur.

20
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool.
The pool, however, did not approve the application of Dans. There is also no showing
that it accepted the sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dans's premium. There was, as a result, no perfected
contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that
does not exist.

The liability of DBP is another matter.

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to
secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or
some other form of insurance policy, DBP compelled him to apply with the DBP MRI
Pool for MRI coverage. When Dans's loan was released on August 11, 1987, DBP
already deducted from the proceeds thereof the MRI premium. Four days later, DBP
made Dans fill up and sign his application for MRI, as well as his health statement. The
DBP later submitted both the application form and health statement to the DBP MRI
Pool at the DBP Main Building, Makati, Metro Manila. As service fee, DBP deducted 10
percent of the premium collected by it from Dans.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the
second as an insurance agent.

As an insurance agent, DBP made Dans go through the motion of applying for said
insurance, thereby leading him and his family to believe that they had already fulfilled all
the requirements for the MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dans's application was never going to be
approved. The maximum age for MRI acceptance is 60 years as clearly and specifically
provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in
1984 by all the insurance companies concerned (Exh. "1-Pool").

Under Article 1897 of the Civil Code of the Philippines, "the agent who acts as such is
not personally liable to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such party sufficient notice
of his powers."

The DBP is not authorized to accept applications for MRI when its clients are more than
60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI
coverage because of his advanced age, DBP exceeded the scope of its authority when it
accepted Dans's application for MRI by collecting the insurance premium, and deducting
its agent's commission and service fee.

21
The liability of an agent who exceeds the scope of his authority depends upon whether
the third person is aware of the limits of the agent's powers. There is no showing that
Dans knew of the limitation on DBP's authority to solicit applications for MRI.

If the third person dealing with an agent is unaware of the limits of the authority
conferred by the principal on the agent and he (third person) has been deceived by the
non-disclosure thereof by the agent, then the latter is liable for damages to him (V
Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422
[1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable
when he acts without authority is founded upon the supposition that there has been some
wrong or omission on his part either in misrepresenting, or in affirming, or concealing
the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing
Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the
agency carries with it the implication that a deception was perpetrated on the
unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the
Philippines come into play.

Article 19 provides:

"Every person must, in the exercise of his rights and in the performance of
his duties, act with justice give everyone his due and observe honesty and
good faith."

Article 20 provides:

"Every person who, contrary to law, willfully or negligently causes

damage to another, shall indemnify the latter for the same."

Article 21 provides:

"Any person, who willfully causes loss or injury to another in a manner

that is contrary to morals, good customs or public policy shall compensate
the latter for the damage."

The DBP's liability, however, cannot be for the entire value of the insurance policy. To
assume that were it not for DBP's concealment of the limits of its authority, Dans would
have secured an MRI from another insurance company, and therefore would have been
fully insured by the time he died, is highly speculative. Considering his advanced age,
there is no absolute certainty that Dans could obtain an insurance coverage from another
company. It must also be noted that Dans died almost immediately, i.e., on the
nineteenth day after applying for the MRI, and on the twenty-third day from the date of
release of his loan.

22
One is entitled to an adequate compensation only for such pecuniary loss suffered by him
as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be
recoverable, must not only be capable of proof, but must be actually proved with a
reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court,
176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]).
Speculative damages are too remote to be included in an accurate estimate of damages
(Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).

While Dans is not entitled to compensatory damages, he is entitled to moral damages. No

proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code
of the Philippines, Art. 2216). The same may be recovered in acts referred to in Article
2219 of the Civil Code.

The assessment of moral damages is left to the discretion of the court according to the
circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that
DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its
claim and that DBP's non-disclosure of the limits of its authority amounted to a
deception to its client, an award of moral damages in the amount of P50,000.00 would be
reasonable.

The award of attorney's fees is also just and equitable under the circumstances (Civil
Code of the Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA G.R.- CV No. 26434 is

MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate
of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of
the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand
Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos
(P10,000.00) as attorney's fees. With costs against petitioner.

SO ORDERED.

23
 G.R. No. 125138. March 2, 1999.*
NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND
THE PHILIPPINE AIRLINES, INC., respondent.

Evidence; As a rule, conclusions and findings of fact arrived at by the trial court
are entitled to great weight on appeal and should not be disturbed unless for
strong and cogent reasons.—To rule on the first issue, there is a need to quote the
findings below. As a rule, conclusions and findings of fact arrived at by the trial
court are entitled to great weight on appeal and should not be disturbed unless for
strong and cogent reasons.

Agency; Common Carriers; Air Transportation; Where a passenger was fully

aware of the need to send a letter to a particular office of an airline for the
extension of the period of validity of his ticket, he cannot subsequently use what
was done by airline agents, who acted without authority, in confirming his
flights.—From the aforestated facts, it can be gleaned that the petitioner was
fully aware that there was a need to send a letter to the legal counsel of PAL for
the extension of the period of validity of his ticket. Since the PAL agents are not
privy to the said Agreement and petitioner knew that a written request to the
legal counsel of PAL was necessary, he cannot use what the PAL agents did to
his advantage. The said agents, according to the Court of Appeals, acted without
authority when they confirmed the flights of the petitioner.

Same; Same; Same; The acts of an agent beyond the scope of his authority do not
bind the principal, unless the latter ratifies the same expressly or
impliedly.—Under Article 1898 of the New Civil Code, the acts of an agent
beyond the scope of his authority do not bind the principal, unless the latter
ratifies the same expressly or impliedly. Furthermore, when the third person
(herein petitioner) knows that the agent was acting beyond his power or authority,
the principal cannot be held liable for the acts of the agent. If the said third
person is aware of such limits of authority, he is to blame, and is not entitled to
recover damages from the agent, unless the latter undertook to secure the
principal’s ratification.

Same; Same; Same; The admission by a passenger that he had to submit a letter
to the airline’s legal counsel requesting for an extension of the validity of his
tickets is tantamount to knowledge on his part that mere employees of the airline
had no authority to extend the validity of his tickets.—The admission by
Cervantes that he was told by PAL’s legal counsel that he had to submit a letter
requesting for an extension of the validity of subject tickets was tantamount to
knowledge on his part that the PAL employees had no authority to extend the
validity of subject tickets and only PAL’s legal counsel was authorized to do so.

Same; Same; Actions; Pleadings and Practice; The failure of a defendant to raise
the defense of lack of authority of its agents in its answer or in a motion to
dismiss is cured where the said issue was litigated upon.—However,

24
notwithstanding PAL’s failure to raise the defense of lack of authority of the said
PAL agents in its answer or in a motion to dismiss, the omission was cured since
the said issue was litigated upon, as shown by the testimony of the petitioner in
the course of trial.

Same; Same; Damages; In awarding moral damages for breach of contract of

carriage, the breach must be wanton and deliberately injurious or the one
responsible acted fraudulently or with malice or bad faith.—In awarding moral
damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or
bad faith. Petitioner knew there was a strong possibility that he could not use the
subject ticket, so much so that he bought a back-up ticket to ensure his departure.
Should there be a finding of bad faith, we are of the opinion that it should be on
the petitioner. What the employees of PAL did was one of simple negligence. No
injury resulted on the part of petitioner because he had a back-up ticket should
PAL refuse to accommodate him with the use of subject ticket.

Same; Same; Same; To warrant the award of exemplary dam-ages, the wrongful
act must be accompanied by bad faith, and the guilty party acted in a wanton,
fraudulent, reckless or malevolent manner.—Neither can the claim for exemplary
damages be upheld. Such kind of damages is imposed by way of example or
correction for the public good, and the existence of bad faith is established. The
wrongful act must be accompanied by bad faith, and an award of damages would
be allowed only if the guilty party acted in a wanton, fraudulent, reckless or
malevolent manner. Here, there is no showing that PAL acted in such a manner.
An award for attorney’s fees is also improper.

DECISION

PURISIMA, J.:

This Petition for Review on certiorari assails the 25 July 1995 decision
of the Court of Appeals[1] in CA GR CV No. 41407, entitled "Nicholas Y.
Cervantes vs. Philippine Air Lines Inc.", affirming in toto the judgment
of the trial court dismissing petitioner's complaint for damages.

On March 27, 1989, the private respondent, Philippines Air Lines, Inc.
(PAL), issued to the herein petitioner, Nicholas Cervantes (Cervantes), a
round trip plane ticket for Manila-Honolulu-Los
Angeles-Honolulu-Manila, which ticket expressly provided an expiry of
date of one year from issuance, i.e., until March 27, 1990. The issuance
of the said plane ticket was in compliance with a Compromise
Agreement entered into between the contending parties in two previous
suits, docketed as Civil Case Nos. 3392 and 3451 before the Regional

25
Trial Court in Surigao City.[2]

On March 23, 1990, four days before the expiry date of subject ticket, the
petitioner used it. Upon his arrival in Los Angeles on the same day, he
immediately booked his Los Angeles-Manila return ticket with the PAL
office, and it was confirmed for the April 2, 1990 flight.

Upon learning that the same PAL plane would make a stop-over in San
Francisco, and considering that he would be there on April 2, 1990,
petitioner made arrangements with PAL for him to board the flight in San
Francisco instead of boarding in Los Angeles.

On April 2, 1990, when the petitioner checked in at the PAL counter in

San Francisco, he was not allowed to board. The PAL personnel
concerned marked the following notation on his ticket: "TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY."

Aggrieved, petitioner Cervantes filed a Complaint for Damages, for

breach of contract of carriage docketed as Civil Case No. 3807 before
Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao
City. But the said complaint was dismissed for lack of merit.[3]

On September 20, 1993, petitioner interposed an appeal to the Court of

Appeals, which came out with a Decision, on July 25, 1995, upholding
the dismissal of the case.

On May 22, 1996, petitioner came to this Court via the Petition for
Review under consideration.

The issues raised for resolution are: (1) Whether or not the act of the
PAL agents in confirming subject ticket extended the period of validity
of petitioner's ticket; (2) Whether or not the defense of lack of authority
was correctly ruled upon; and (3) Whether or not the denial of the award
for damages was proper.

To rule on the first issue, there is a need to quote the findings below. As
a rule, conclusions and findings of fact arrived at by the trial court are
entitled to great weight on appeal and should not be disturbed unless for
strong and cogent reasons.[4]

The facts of the case as found by the lower court[5] are, as follows:

26
 "The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant)
provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also
stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2)
as follows:
"8. This ticket is good for carriage for one year from
date of issue, except as otherwise provided in this ticket,
in carrier's tariffs, conditions of carriage, or related
regulations. The fare for carriage hereunder is subject to
change prior to commencement of carriage. Carrier may
refuse transportation if the applicable fare has not been
paid."[6]
The question on the validity of subject ticket can be resolved in light of the ruling in the
case of Lufthansa vs. Court of Appeals[7]. In the said case, the Tolentinos were issued
first class tickets on April 3, 1982, which will be valid until April 10,1983. On June 10,
1982, they changed their accommodations to economy class but the replacement tickets
still contained the same restriction. On May 7, 1983, Tolentino requested that subject
tickets be extended, which request was refused by the petitioner on the ground that the
said tickets had already expired. The non-extension of their tickets prompted the
Tolentinos to bring a complaint for breach of contract of carriage against the petitioner.
In ruling against the award of damages, the Court held that the "ticket constitute the
contract between the parties. It is axiomatic that when the terms are clear and leave no
doubt as to the intention of the contracting parties, contracts are to be interpreted
according to their literal meaning."

In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation
by the PAL's agents in Los Angeles and San Francisco changed the compromise
agreement between the parties.

As aptly ruled by the appellate court:

"xxx on March 23, 1990, he was aware of the risk that his ticket could
expire, as it did, before he returned to the Philippines.' (pp. 320-321,
Original Records)"[8]

"The question is: `Did these two (2) employees, in effect , extend the
validity or lifetime of the ticket in question? The answer is in the negative.
Both had no authority to do so. Appellant knew this from the very start
when he called up the Legal Department of appellee in the Philippines
before he left for the United States of America. He had first hand
knowledge that the ticket in question would expire on March 27,1990 and
that to secure an extension, he would have to file a written request for
extension at the PAL's office in the Philippines (TSN, Testimony of
Nicholas Cervantes, August 2, 1991, pp 20-23). Despite this knowledge,
appellant persisted to use the ticket in question."[9]

27
From the aforestated facts, it can be gleaned that the petitioner was fully aware that there
was a need to send a letter to the legal counsel of PAL for the extension of the period of
validity of his ticket.

Since the PAL agents are not privy to the said Agreement and petitioner knew that a
written request to the legal counsel of PAL was necessary, he cannot use what the PAL
agents did to his advantage. The said agents, according to the Court of Appeals,[10] acted
without authority when they confirmed the flights of the petitioner.

Under Article 1898[11] of the New Civil Code, the acts of an agent beyond the scope of
his authority do not bind the principal, unless the latter ratifies the same expressly or
impliedly. Furthermore, when the third person (herein petitioner) knows that the agent
was acting beyond his power or authority, the principal cannot be held liable for the acts
of the agent. If the said third person is aware of such limits of authority, he is to blame,
and is not entitled to recover damages from the agent, unless the latter undertook to
secure the principal's ratification.[12]

Anent the second issue, petitioner's stance that the defense of lack of authority on the
part of the PAL employees was deemed waived under Rule 9, Section 2 of the Revised
Rules of Court, is unsustainable. Thereunder, failure of a party to put up defenses in their
answer or in a motion to dismiss is a waiver thereof.

Petitioner stresses that the alleged lack of authority of the PAL employees was neither
raised in the answer nor in the motion to dismiss. But records show that the question of
whether there was authority on the part of the PAL employees was acted upon by the
trial court when Nicholas Cervantes was presented as a witness and the depositions of
the PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented.

The admission by Cervantes that he was told by PAL's legal counsel that he had to
submit a letter requesting for an extension of the validity of subject tickets was
tantamount to knowledge on his part that the PAL employees had no authority to extend
the validity of subject tickets and only PAL's legal counsel was authorized to do so.

However, notwithstanding PAL's failure to raise the defense of lack of authority of the
said PAL agents in its answer or in a motion to dismiss, the omission was cured since the
said issue was litigated upon, as shown by the testimony of the petitioner in the course of
trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:
"Sec. 5. Amendment to conform or authorize presentation of evidence. -
When issues not raised by the pleadings are tried with express or
implied consent of the parties, as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to amend
does not affect the result of the trial of these issues. xxx"
Thus, "when evidence is presented by one party, with the express or implied consent of
the adverse party, as to issues not alleged in the pleadings, judgment may be rendered

28
validly as regards the said issue, which shall be treated as if they have been raised in the
pleadings. There is implied consent to the evidence thus presented when the adverse
party fails to object thereto."[13]

Re: the third issue, an award of damages is improper because petitioner failed to show
that PAL acted in bad faith in refusing to allow him to board its plane in San Francisco.

In awarding moral damages for breach of contract of carriage, the breach must be wanton
and deliberately injurious or the one responsible acted fraudulently or with malice or bad
faith.[14] Petitioner knew there was a strong possibility that he could not use the subject
ticket, so much so that he bought a back-up ticket to ensure his departure. Should there
be a finding of bad faith, we are of the opinion that it should be on the petitioner. What
the employees of PAL did was one of simple negligence. No injury resulted on the part
of petitioner because he had a back-up ticket should PAL refuse to accommodate him
with the use of subject ticket.

Neither can the claim for exemplary damages be upheld. Such kind of damages is
imposed by way of example or correction for the public good, and the existence of bad
faith is established. The wrongful act must be accompanied by bad faith, and an award of
damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless
or malevolent manner.[15] Here, there is no showing that PAL acted in such a manner. An
award for attorney's fees is also improper.

WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated
July 25, 1995 AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

29
 G.R. No. 129039. September 17, 2002.*
SIREDY ENTERPRISES, INC., petitioner, vs. HON. COURT OF APPEALS and
CONRADO DE GUZMAN, respondents.

Civil Law; Agency; The authority of the agent to act emanates from the powers granted
to him by his principal, his act is the act of the principal if done within the scope of the
authority.—By the relationship of agency, one party called the principal authorizes
another called the agent to act for and in his behalf in transactions with third persons.
The authority of the agent to act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of the authority. “He
who acts through another acts himself.”

Same; Same; While third persons-are bound to inquire into the extent or scope of the
agent’s authority, they are not required to go beyond the terms of the written power of
attorney.—The scope of the agent’s authority is what appears in the written terms of the
power of attorney. While third persons are bound to inquire into the extent or scope of
the agent’s authority, they are not required to go beyond the terms of the written power
of attorney. Third persons cannot be adversely affected by an understanding between the
principal and his agent as to the limits of the latter’s authority. In the same way, third
persons need not concern themselves with instructions given by the principal to his agent
outside of the written power of attorney.

DECISION

QUISUMBING, J.:

Before us is a petition for review seeking to annul the decision[1] dated April 26, 1996 of
the Court of Appeals in CA-G.R. CV No. 30374, reversing the decision of the Regional
Trial Court of Malolos, Bulacan, and the resolution[2] dated April 22, 1997, denying
petitioner’s motion for reconsideration.

The following are the facts as found by the Court of Appeals,[3] undisputed by the parties
and adopted by petitioner:[4]

Private respondent Conrado De Guzman is an architect-contractor doing business under

the name and style of Jigscon Construction. Herein petitioner Siredy Enterprises, Inc.
(hereafter Siredy) is the owner and developer of Ysmael Village, a subdivision in Sta.
Cruz, Marilao, Bulacan.[5] The president of Siredy is Ismael E. Yanga.[6]

As stated in its Articles of Incorporation,[7] the primary corporate purpose of Siredy is to

acquire lands, subdivide and develop them, erect buildings and houses thereon, and sell,
lease or otherwise dispose of said properties to interested buyers.[8]

30
Sometime before October 1978, Yanga executed an undated Letter of Authority,[9]
hereunder reproduced verbatim:

KNOW ALL MEN BY THESE PRESENTS:

That I, DR. ISMAEL E. YANGA, SR., of legal age, Filipino, married,

resident of and with Postal address at Poblacion, Bocaue, Bulacan and
duly authorized to execute this LETTER OF AUTHORITY, do hereby
authorize MR. HERMOGENES B. SANTOS of legal age, Filipino,
married, resident of and with Postal Address at 955 Banawe St., Quezon
City to do and execute all or any of the following acts:

1. To negotiate and enter into contract or contracts to build Housing Units

on our subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan.
However, all proceeds from said contract or contracts shall be deposited
in my name, payments of all obligation in connection with the said
contract or contracts should be made and the remainder will be paid to
MR. HERMOGENES B. SANTOS.

2. To sell lots on our subdivisions and;

3. To represent us, intercede and agree for or make agreements for all
payments in our favor, provided that actual receipts thereof shall be made
by the undersigned.

(SGD) DR. ISMAEL E. YANGA, SR.

For myself and in my capacity as President

of SIREDY ENTERPRISE, INCORPORATED

PRINCIPAL

On October 15, 1978, Santos entered into a Deed of Agreement[10] with De Guzman. The
deed expressly stated that Santos was “representing Siredy Enterprises, Inc.” Private
respondent was referred to as “contractor” while petitioner Siredy was cited as
“principal”.

In said Deed of Agreement we find the following stipulations:

1.) That, the PRINCIPAL has contracts with different SSS members
employed with different domestic entities to build for them 2-bedroom
single housing units and 4-bedroom duplex housing units;

31
2.) That, the site of the said housing project is at YSMAEL VILLAGE,
Bo. Sta. Rosa, Marilao, Bulacan owned and developed by SIREDY
ENTERPRISES and Mr. Ismael E. Yanga, Sr.;

3.) That, the PRINCIPAL has contracted to build the said units at the
amount of FORTY FIVE THOUSAND (P45,000.00) PESOS for the
2-bedroom single and SIXTY NINE THOUSAND (P69,000.00) PESOS,
Philippine Currency for the duplex residences;

4.) That, the CONTRACTOR intends to build for the PRINCIPAL eighty
(80) units singles and eighteen (18) units duplex residences at the cost
above mentioned or a lump sum total of FOUR MILLION, EIGHT
HUNDRED FORTY TWO THOUSAND (P4,842,000.00) PESOS,
Philippine Currency;

5.) That, the CONTRACTOR agrees to supply all Construction Materials,

labor, tools and equipments necessary for the completion of the said
housing units;

6.) That, the PRINCIPAL agrees to pay all necessary permits and papers
in accordance with Government rules and regulations;

7.) That, the PRINCIPAL agrees to supply water and electrical facilities
needed during the time of construction;

8.) That, the manner of payment shall be in accordance with SSS releases.
Should the SSS fail to pay the PRINCIPAL, the PRINCIPAL is still in
obligation to pay the CONTRACTOR for whatever accomplishments the
CONTRACTOR have finished provided, that the failure of the SSS to pay
is not due to defective work of the CONTRACTOR;

9.) That, the CONTRACTOR promises to finish the project at the rate of
TEN (10) units in THIRTY (30) days or a total of THREE HUNDRED
(300) working days;

10.) That, the integral part of this CONTRACT are:

a. Plans and Specifications

b. Subdivision Plan indicating the Lot location of each unit

c. Authority of the National Housing Authority;

32
 11.) That, the CONTRACTOR agree[s] to start work on the housing units
thirty (30) days after signing of this CONTRACT.

NOW THEREFORE, for and in consideration of the

amount of FOUR MILLION, EIGHT HUNDRED FORTY
TWO THOUSAND (P4,842,000.00) PESOS, Philippine
Currency, the PARTIES agree and herein set their hands
on the date and place above-mentioned.

xxx

From October 1978 to April 1990, De Guzman constructed 26 residential units at

Ysmael Village. Thirteen (13) of these were fully paid but the other 13 remained unpaid.
The total contractual price of these 13 unpaid houses is P412,154.93 which was verified
and confirmed to be correct by Santos, per an Accomplishment Billing[11] that the latter
signed.

De Guzman tried but failed to collect the unpaid account from petitioner. Thus, he
instituted the action below for specific performance against Siredy, Yanga, and Santos
who all denied liability.
During the trial, Santos disappeared and his whereabouts remain unknown.

In its defense, petitioner presented testimonial evidence to the effect that Siredy had no
contract with De Guzman and had not authorized Santos to enter into a contract with
anyone for the construction of housing units at Ysmael Village.

The trial court agreed with petitioner based on the doctrine of privity of contract and
gave the following rationale:[12]

The Deed of Agreement (Exh. A and A-1) clearly reflects that the said
contract was entered into by and between plaintiff De Guzman, on one
hand, and defendant Hermogenes B. Santos as purported authorized
representative of defendant Siredy Enterprises, on the other. Plainly and
clearly enough, defendants Siredy Enterprises and Ismael Yanga, Sr. were
neither parties nor signatories to the same. It does not bear any legal
significance that Dr. Yanga appears to have signed the Letter of Authority
(Exh. B) designating defendant Santos as the authorized representative
“for myself and as president of the Siredy Enterprises, Inc.” For the
evidentiary fact remains that Siredy Enterprises and Dr. Yanga had
absolutely had nothing to do with the fulfillment of the terms and
conditions stipulated in the Deed of Agreement, much less had they
benefited in any perceptible degree therefrom.

33
 In the light of the foregoing circumstances, Siredy Enterprises and Dr.
Yanga cannot be held liable in favor of the plaintiff in any manner
whatsoever respecting the unpaid residential units constructed by the
plaintiff. This is as it should be, because “contracts take effect only
between the parties, their assigns and heirs,” except only in the cases
provided for by law. (Art. 1311, Civil Code of the Philippines). Not one
of the exceptions obtains in this case.[13]

Thus, the trial court disposed of the case as follows:

WHEREFORE, premises considered, judgment is hereby rendered:

a) directing defendant Hermogenes B. Santos to pay unto

plaintiff Conrado de Guzman the amount of P412,154.93
as actual damages with legal interest thereon from the
filing of the complaint on July 29, 1982 until the same
shall have been fully paid, and P25,000.00 as attorney’s
fees, plus costs;

b) dismissing the above-entitled case as against defendants

Siredy Enterprises, Inc. and Dr. Ismael Yanga, Sr.

SO ORDERED.[14]

On appeal, De Guzman obtained a favorable judgment from the Court of Appeals. The
appellate court held that the Letter of Authority duly signed by Yanga clearly constituted
Santos as Siredy’s agent,[15] whose authority included entering into a contract for the
building of housing units at Ysmael Village. Consequently, Siredy cannot deny liability
for the Deed of Agreement with private respondent De Guzman, since the same contract
was entered into by Siredy’s duly designated agent, Santos. There was no need for
Yanga himself to be a signatory to the contract, for him and Siredy to be bound by the
terms thereof.

Hence, the Court of Appeals held:

WHEREFORE, We find merit in the appeal and We hereby REVERSE

the appealed Decision. In its stead, we render the following verdict:
Appellee Siredy Enterprises. Inc. is ordered to pay appellant Conrado de
Guzman cost (sic) and P412,154.93 as actual damage plus legal interest
thereon from the filing of the Complaint on July 29, 1982 until full
payment thereof. All other claims and counterclaims are dismissed.

SO ORDERED.[16]

34
Petitioner Siredy Enterprises, Inc. now comes to us via a petition for review on
certiorari[17] under Rule 45 of the Rules of Court, on the following grounds:

I. RESPONDENT COURT ERRED IN HOLDING THAT A VALID

AGENCY WAS CONSTITUTED DESPITE THE FACT THAT
PETITIONER WAS NOT INVOLVED IN THE CONSTRUCTION
BUSINESS;

II. RESPONDENT COURT ERRED IN FAILING TO CONSIDER A

VITAL PROVISION IN THE DEED OF AGREEMENT (PAR. 8),
WHEN IT RENDERED ITS DECISION; and

III. RESPONDENT COURT ERRED IN FAILING TO CONSIDER

THAT PRIVATE RESPONDENT WAS NOT ENTITLED TO HIS
CLAIM AS HE WAS THE PARTY WHO VIOLATED THE
CONTRACT.[18]

We find two main issues presented for resolution: First, whether or not Hermogenes B.
Santos was a duly constituted agent of Siredy, with authority to enter into contracts for
the construction of residential units in Ysmael Village and thus the capacity to bind
Siredy to the Deed of Agreement; and Second, assuming arguendo that Siredy was
bound by the acts of Santos, whether or not under the terms of the Deed of Agreement,
Siredy can be held liable for the amount sought to be collected by private respondent De
Guzman.

By the relationship of agency, one party called the principal authorizes another called the
agent to act for and in his behalf in transactions with third persons. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act
of the principal if done within the scope of the authority. “He who acts through another
acts himself.”[19]

Was Santos then an agent of Siredy? Was he acting within the scope of his authority?

Resolution of the first issue necessitates a review of the Letter of Authority executed by
Ismael E. Yanga as president of Siredy in favor of Santos. Within its terms can be found
the nature and extent of the authority granted to Santos which, in turn, determines the
extent of Siredy’s participation in the Deed of Agreement.

On its face, the instrument executed by Yanga clearly and unequivocally constituted
Santos “to do and execute”, among other things, the act of negotiating and entering into
“contract or contracts to build Housing Units on our subdivision lots in Ysmael Village,
Sta. Rosa, Marilao, Bulacan.”[20] Nothing could be more express than the written
stipulations contained therein.

35
It was upon the authority of this document that De Guzman transacted business with
Santos that resulted in the construction contract denominated as the Deed of Agreement.

However, petitioner denies any liability by stating that: (1) the nature of Siredy’s
business did not involve the construction of housing units since it was merely engaged in
the selling of empty lots; (2) the Letter of Authority is defective, and hence needed
reformation; (3) Santos’ entering into the Deed of Agreement was invalid because the
same was in excess of his authority; and (4) there is now implied revocation of such
Letter of Authority.

Testifying on the nature of the business and the business practices of Siredy, its owner
Yanga testified[21] that Siredy was interested only in the sale of lots. It was up to the
buyers, as owners, to construct their houses in the particular style they prefer. It was
allegedly never the practice of the company to sell lots with houses already erected
thereon. On the basis of the foregoing testimony, petitioner states that “despite the letter
of authority, it is quite certain that such provision would go against the nature of the
business of Siredy as the same has absolutely no capability of undertaking such a task as
constructing houses.”

However, the self-serving contention of petitioner cannot stand against the documentary
evidence clearly showing the company’s liability to De Guzman. As we stated in the case
of Cuizon vs. Court of Appeals:[22]

…As it is, the mere denial of petitioner cannot outweigh the strength of
the documentary evidence presented by and the positive testimony of
private respondents. As a jurist once said, “I would sooner trust the
smallest slip of paper for truth than the strongest and most retentive
memory ever bestowed on moral man.”[23]

Aside from the Letter of Authority, Siredy’s Articles of Incorporation, duly approved by
the Securities and Exchange Commission, shows that Siredy may also undertake to erect
buildings and houses on the lots and sell, lease, or otherwise dispose of said properties to
interested buyers.[24] Such Articles, coupled with the Letter of Authority, is sufficient to
have given De Guzman reason to believe that Santos was duly authorized to represent
Siredy for the purpose stated in the Deed of Agreement. Petitioner’s theory that it merely
sold lots is effectively debunked.

Thus, it was error for the trial court to have ignored the Letter of Authority. As correctly
held by the Court of Appeals:

There is absolutely no question that the Letter of Authority (Exhibit B)

executed by appellee Yanga constituted defendant Santos as his and
appellee Siredy’s agent. As agent, he was empowered inter alia to enter

36
 into a contract to build housing units in the Ysmael Village. This was in
furtherance of appellees’ business of developing and subdividing lands,
erecting houses thereon, and selling them to the public.

x x x [25]

We find that a valid agency was created between Siredy and Santos, and the authority
conferred upon the latter includes the power to enter into a construction contract to build
houses such as the Deed of Agreement between Santos and De Guzman’s Jigscon
Construction. Hence, the inescapable conclusion is that Siredy is bound by the contract
through the representation of its agent Santos.

The basis of agency is representation, that is, the agent acts for and in behalf of the
principal on matters within the scope of his authority (Art, 1881) and said acts have the
same legal effect as if they were personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal is converted into his legal or
juridical presence.[26]

Moreover, even if arguendo Santos’ mandate was only to sell subdivision lots as Siredy
asserts, the latter is still bound to pay De Guzman. De Guzman is considered a third
party to the agency agreement who had no knowledge of the specific instructions or
agreements between Siredy and its agent. What De Guzman only saw was the written
Letter of Authority where Santos appears to be duly authorized. Article 1900 of the Civil
Code provides:

Art. 1900. So far as third persons are concerned, an act is deemed to have
been performed within the scope of the agent’s authority, if such act is
within the terms of the power of attorney, as written, even if the agent has
in fact exceeded the limits of his authority according to an understanding
between the principal and the agent.

The scope of the agent’s authority is what appears in the written terms of the power of
attorney. While third persons are bound to inquire into the extent or scope of the agent’s
authority, they are not required to go beyond the terms of the written power of attorney.
Third persons cannot be adversely affected by an understanding between the principal
and his agent as to the limits of the latter’s authority. In the same way, third persons need
not concern themselves with instructions given by the principal to his agent outside of
the written power of attorney.

The essence of agency being the representation of another, it is evident that the
obligations contracted are for and on behalf of the principal. This is what gives rise to the
juridical relation. A consequence of this representation is the liability of the principal for

37
the acts of his agent performed within the limits of his authority that is equivalent to the
performance by the principal himself who should answer therefor.[27]

Petitioner belatedly asserts, however, that the Letter of Authority was defective as it
allegedly failed to reduce into writing the real intentions of the parties, and insists on its
reformation.

Such an argument deserves scant consideration. As found by the Court of Appeals, being
a doctor of medicine and a businessman, Yanga knew the meaning and import of this
document and had in fact admitted having signed it. As aptly observed by the Court of
Appeals, there is no evidence that ante litem, he abrogated the Letter of Authority and
withdrew the power conferred on Santos.

Siredy’s contention that the present case is in effect a revocation of the Letter of
Authority also deserves scant consideration. This is a patently erroneous claim
considering that it was, in fact, private respondent De Guzman who instituted the civil
case before the RTC.

With regard to the second issue put forth by petitioner, this Court notes that this issue is
being raised for the first time on appeal. From the trial in the RTC to the appeal before
the Court of Appeals, the alleged violation of the Deed of Agreement by Conrado de
Guzman was never put in issue. Heretofore, the substance of petitioner’s defense before
the courts a quo consisted of its denial of any liability under the Deed of Agreement.
As we held in the case of Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc.:[28]

It must be borne in mind that a question that was never raised in the
courts below cannot be allowed to be raised for the first time on appeal
without offending basic rules of fair play, justice and due process. Such
an issue was not brought to the fore either in the trial court or the
appellate court, and would have been disregarded by the latter tribunal for
the reasons previously stated. With more reason, the same does not
deserve consideration by this Court.[29]

WHEREFORE, this petition is DENIED for lack of merit. The Decision of the Court of
Appeals dated April 26, 1996, in CA-G.R. CV No. 30374, is hereby AFFIRMED.
Petitioner Siredy Enterprises, Inc. is ordered to pay Conrado de Guzman actual damages
in the amount of P412,154.93, with legal interest thereon from the time the case was
filed until its full payment. Costs against petitioner.

SO ORDERED.

38
 G.R. No. 85685. September 11, 1991.*
LAURO CRUZ, petitioner, vs. THE HONORABLE COURT OF APPEALS and
PURE FOODS CORP., respondents.

Civil Procedure; Appeals; Conclusiveness of Court of Appeals findings of fact;

Exceptions.—We have held in a long line of cases that findings of facts of the Court of
Appeals are conclusive upon this Court. There are, however, recognized exceptions to
this rule, as where the findings are totally devoid of support in the record, or are
glaringly erroneous as to constitute serious abuse of discretion, or when the findings are
grounded entirely on speculation, surmise or conjecture. 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.

Same; Same; Same; Same.—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.

Estoppel, Essential element of; Not present in case at bar.—In Kalalo vs. Luz, 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. x x x 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 had authorized the above signatories to represent him in any transaction.
Clearly, it was error for the respondent Court to conclude that petitioner should be held
liable to private respondent on account of the credit application card on the theory that he
permitted the carrying of the business of the store.

39
 DECISION

DAVIDE, JR., J.:

In C.A.-G.R. CV No. 07859 (entitled Pure Foods Corporation versus

Lauro Cruz, doing business under the name and style Mang Uro Store), a
decision was promulgated on 9 August 1988 by respondent Court of
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
P55,246.21. 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 P55,246.21, representing his

outstanding unpaid account plus interest of 12%
percent per annum to be counted from the date of

40
 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"

41
 xxx xxx xxx
Petitioner did not sign any of the invoices attached to the complaint.

For failure to file an answer within the reglementary period, and upon motion of private
respondent, the trial court issued an Order on 29 September 1983 declaring the petitioner
in default and authorizing the private respondent to present its evidence ex parte on 4
October 1983.[5]

On 19 October 1983, petitioner filed a motion to set aside the order of 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 counterclaim, 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]

42
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

43
such terms as are just; in the instant case, it may be inferred that the trial court opted to
resolve the case without the proposed change in parties defendants.

Finally, it ruled that both oral and documentary evidence presented at the hearing on 3
October 1983 proved petitioner's unsatisfied obligation to the private respondent.

To bring this petition within Our authority, petitioner asserts, in effect, that at the bottom
of the assigned errors is the issue of whether the respondent Court has made conclusions
of fact which are not substantiated by the evidence on record. Petitioner asserts that it
did.

We have held in a long line of cases that findings of facts of the Court of Appeals are
conclusive upon this Court.[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 x x x. Also, the credit
application card accomplished in behalf of the store clearly indicates appellant as
owner/manager thereof x x x. 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 said 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]

44
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

45
represented to it as the owner of the store that he has authorized the above signatories to
represent him in any transaction. Clearly, it was error for the respondent Court to
conclude that petitioner should be held liable to private respondent on account of the
credit application card on the theory that he permitted the carrying of the business of the
store. This theory further erroneously assumes that the business of the store before the
filing of the credit application card included the sale of products of private
respondent. There is evidence on this point.

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 called for hearing 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.

46
 G.R. No. 162826. October 14, 2013.*
NARCISO DEGAÑOS,1 petitioner, vs. PEOPLE OF THE PHILIPPINES,
respondent.

Civil Law; Contract of Sale; According to the first paragraph of Article 1458 of the Civil
Code, one of the contracting parties in a contract of sale obligates himself to transfer the
ownership of and to deliver a determinate thing, while the other party obligates himself
to pay therefor a price certain in money or its equivalent.―Based on the express terms
and tenor of the Kasunduan at Katibayan, Degaños received and accepted the items
under the obligation to sell them in behalf of the complainants (“ang mga hiyas
(jewelries) na natatala sa ibaba nito upang ipagbili ko sa kapakanan ng nasabing
Ginang”), and he would be compensated with the overprice as his commission (“Ang
bilang kabayaran o pabuya sa akin ay ano mang halaga na aking mapalabis na mga
halagang nakatala sa ibaba nito.”). Plainly, the transaction was a consignment under the
obligation to account for the proceeds of sale, or to return the unsold items. As such, he
was the agent of the complainants in the sale to others of the items listed in the
Kasunduan at Katibayan. In contrast, according to the first paragraph of Article 1458 of
the Civil Code, one of the contracting parties in a contract of sale obligates himself to
transfer the ownership of and to deliver a determinate thing, while the other party
obligates himself to pay therefor a price certain in money or its equivalent. Contrary to
the contention of Degaños, there was no sale on credit to him because the ownership of
the items did not pass to him.

Same; Novation; Words and Phrases; Novation is the extinguishment of an obligation by

the substitution or change of the obligation by a subsequent one that terminates the first,
either by (a) changing the object or principal conditions; or (b) substituting the person of
the debtor; or (c) subrogating a third person in the rights of the creditor.―Degaños’
claim was again factually unwarranted and legally devoid of basis, because the partial
payments he made and his purported agreement to pay the remaining obligations did not
equate to a novation of the original contractual relationship of agency to one of sale. As
we see it, he misunderstands the nature and the role of novation in a criminal prosecution.
Novation is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one that terminates the first, either by (a) changing the object
or principal conditions; or (b) substituting the person of the debtor; or (c) subrogating a
third person in the rights of the creditor. In order that an obligation may be extinguished
by another that substitutes the former, it is imperative that the extinguishment be so
declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. Obviously, in case of only slight modifications, the old
obligation still prevails.

Same; Same; Novation is not a ground under the law to extinguish criminal
liability.―Novation is not a ground under the law to extinguish criminal liability. Article
89 (on total extinguishment) and Article 94 (on partial extinguishment) of the Revised
Penal Code list down the various grounds for the extinguishment of criminal liability.
Not being included in the list, novation is limited in its effect only to the civil aspect of
the liability, and, for that reason, is not an efficient defense in estafa. This is because

47
only the State may validly waive the criminal action against an accused. The role of
novation may only be either to prevent the rise of criminal liability, or to cast doubt on
the true nature of the original basic transaction, whether or not it was such that the breach
of the obligation would not give rise to penal responsibility, as when money loaned is
made to appear as a deposit, or other similar disguise is resorted to.

DECISION

BERSAMIN, J.:

Novation is not a mode of extinguishing criminal liability under the penal

laws of the country. Only the State may validly waive the criminal action
against an accused. Novation is relevant only to determine if the parties
have meanwhile altered the nature of the obligation prior to the
commencement of the criminal prosecution in order to prevent the
incipient criminal liability of the accused.

Antecedents

In an amended information dated March 23, 1994, the Office of the Provincial
Prosecutor of Bulacan charged Brigida D. Luz, alias Aida Luz, and Narciso Degaños in
the Regional Trial Court in Malolos, Bulacan with estafa under Article 315 paragraph
1(b) of the Revised Penal Code, allegedly committed as follows:

That on or about the 27th day of April, 1987 until July 20, 1987, in the
municipality of Meycauayan, province of Bulacan, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused
conspiring, confederating and helping one another, received from Spouses
Atty. Jose Bordador and Lydia Bordador gold and pieces of jewelry worth
P438,702.00, under express obligation to sell the same on commission
and remit the proceeds thereof or return the unsold gold and pieces of
jewelry, but the said accused, once in possession of the said merchandise
and far from complying with their aforesaid obligation, inspite of repeated
demands for compliance therewith, did then and there willfully,
unlawfully and feloniously, with intent of gain and grave abuse of
confidence misapply, misappropriate and convert to their own use and
benefit the said merchandise and/or the proceeds thereof, to the damage
and prejudice of said Sps. Atty. Jose Bordador and Lydia Bordador in the
said amount of P438,702.00.

Contrary to law.[2]

48
The decision of the Court of Appeals (CA) summarized the evidence of the parties as
follows:

Prior to the institution of the instant case, a separate civil action for the
recovery of sum of money was filed on June 25, 1990 by the private
complainants spouses Jose and Lydia Bordador against accused Brigida D.
Luz alias Aida D. Luz and Narciso Degaños. In an amended complaint
dated November 29, 1993, Ernesto Luz, husband of Brigida Luz, was
impleaded as party defendant. The case docketed as Civil Case No.
412-M-90 was raffled to Branch 15, RTC of Malolos, Bulacan. On June
23, 1995, the said court found Narciso Degaños liable and ordered him to
pay the sum of P725,463,98 as actual and consequential damages plus
interest and attorney’s fees in the amount of P10,000.00. On the other
hand, Brigida Luz alias Aida Luz was ordered to pay the amount of
P21,483.00, representing interest on her personal loan. The case against
Ernesto Luz was dismissed for insufficiency of evidence. Both parties
appealed to the Court of Appeals. On July 9, 1997, this Court affirmed the
aforesaid decision. On further appeal, the Supreme Court on December 15,
1997 sustained the Court of Appeals. Sometime in 1994, while the said
civil case was pending, the private complainants instituted the present
case against the accused.

EVIDENCE FOR THE PROSECUTION

The prosecution evidence consists of the testimonies of the private

complainants-spouses, Jose and Lydia Bordador.

Private complainant Lydia Bordador, a jeweler, testified that accused

Narciso Degaños and Brigida/Aida Luz are brother and sister. She knew
them because they are the relatives of her husband and their
Kumpadre/kumadre. Brigida/Aida Luz was the one who gave instructions
to Narciso Degaños to get gold and jewelry from Lydia for them to sell.
Lydia came to know Narciso Degaños because the latter frequently visited
their house selling religious articles and books. While in their house,
Narciso Degaños saw her counting pieces of jewelry and he asked her if
he could show the said pieces of jewelry to his sister, Brigida/Aida Luz,
to which she agreed. Thereafter, Narciso Degaños returned the jewelry
and Aida/Brigida Luz called her to ask if she could trust Narciso Degaños
to get the pieces of jewelry from her for Aida/Brigida Luz to sell. Lydia
agreed on the condition that if they could not pay it in cash, they should
pay it after one month or return the unsold jewelry within the said period.
She delivered the said jewelry starting sometime in 1986 as evidenced by
several documents entitled “Katibayan at Kasunduan”, the earliest of
which is dated March 16, 1986. Everytime Narciso Degaños got jewelry

49
from her, he signed the receipts in her presence. They were able to pay
only up to a certain point. However, receipt nos. 614 to 745 dated from
April 27, 1987 up to July 20, 1987 (Exhs. “A”-“O”) were no longer paid
and the accused failed to return the jewelry covered by such receipts.
Despite oral and written demands, the accused failed and refused to pay
and return the subject jewelry. As of October 1998, the total obligation of
the accused amounted to P725,000.00.

Private complainant Atty. Jose Bordador corroborated the testimony of

his wife, Lydia. He confirmed that their usual business practice with the
accused was for Narciso Degaños to receive the jewelry and gold items
for and in behalf of Brigida/Aida Luz and for Narciso Degaños to sign the
“Kasunduan at Katibayan” receipts while Brigida/Aida Luz will pay for
the price later on. The subject items were usually given to Narciso
Degaños only upon instruction from Brigida/Aida Luz through telephone
calls or letters. For the last one year, the “Kasunduan at Katibayan”
receipts were signed in his presence. Said business arrangement went on
for quite sometime since Narciso Degaños and Brigida/Aida Luz had been
paying religiously. When the accused defaulted in their payment, they
sent demand letters. It was the accused’s sister, Julie dela Rosa, who
responded, seeking an extension of time for the accused to settle their
obligation.

EVIDENCE FOR THE DEFENSE

The defense presented accused Brigida/Aida Luz, who testified that she
started transacting business of selling gold bars and jewelry with the
private complainants sometime in 1986 through her brother, Narciso
Degaños. It was the usual business practice for Narciso Degaños to get
the gold bars and pieces of jewelry from the private complainants after
she placed orders through telephone calls to the private complainants,
although sometimes she personally went to the private complainants’
house to get the said items. The gold bars and pieces of jewelry delivered
to her by Narciso Degaños were usually accompanied by a pink receipt
which she would sign and after which she would make the payments to
the private complainants through Narciso Degaños, which payments are
in the form of postdated checks usually with a thirty-day period. In return,
the private complainants would give the original white receipts to Narciso
Degaños for him to sign. Thereafter, as soon as the postdated checks were
honored by the drawee bank, the said white receipts were stamped “paid”
by Lydia Bordador, after which the same would be delivered to her by
Narciso Degaños.

On September 2, 1987, she sent a letter to private complainant Lydia

Bordador requesting for an accounting of her indebtedness. Lydia
Bordador made an accounting which contained the amount of

50
 P122,673.00 as principal and P21,483.00 as interest. Thereafter, she paid
the principal amount through checks. She did not pay the interest because
the same was allegedly excessive. In 1998, private complainant Atty. Jose
Bordador brought a ledger to her and asked her to sign the same. The said
ledger contains a list of her supposed indebtedness to the private
complainants. She refused to sign the same because the contents thereof
are not her indebtedness but that of his brother, Narciso Degaños. She
even asked the private complainants why they gave so many pieces of
jewelry and gold bars to Narciso Degaños without her permission, and
told them that she has no participation in the transactions covered by the
subject “Kasunduan at Katibayan” receipts.

Co-accused Narciso Degaños testified that he came to know the private

complainants when he went to the latter’s house in 1986 to sell some
Bible books. Two days later he returned to their house and was initially
given a gold bracelet and necklace to sell. He was able to sell the same
and paid the private complainants with the proceeds thereof. Since then he
started conducting similar business transactions with the private
complainants. Said transactions are usually covered by receipts
denominated as “Kasunduan at Katibayan”. All the “Kasunduan at
Katibayan” receipts were issued by the private complainants and was
signed by him. The phrase “for Brigida Luz” and for “Evely Aquino”
were written on the receipts so that in case he fails to pay for the items
covered therein, the private complainants would have someone to collect
from. He categorically admitted that he is the only one who was indebted
to the private complainants and out of his indebtedness, he already made
partial payments in the amount of P53,307.00. Included in the said partial
payments is the amount of P20,000.00 which was contributed by his
brothers and sisters who helped him and which amount was delivered by
Brigida Luz to the private complainants.[3]

Ruling of the RTC

On June 23, 1999, the RTC found Degaños guilty as charged but acquitted Luz for
insufficiency of evidence, imposing on Degaños twenty years of reclusion temporal, viz:

WHEREFORE, judgment is hereby rendered as follows:

1. finding accused Narciso Degaños GUILTY beyond reasonable doubt of

the crime of estafa penalized under Article 315, Subsection 1, paragraph
(b) of the Revised Penal code and hereby sentences him to suffer the
penalty of TWENTY YEARS (20) of reclusion temporal;

2. finding accused Brigida Luz NOT GUILTY and is hereby

ACQUITTED on the ground of insufficiency of evidence.

51
 SO ORDERED.[4]

Decision of the CA

On appeal, Degaños assailed his conviction upon the following grounds, to wit:

THE HONORABLE COURT A QUO ERRED IN NOT

FINDING THAT THE AGREEMENT BETWEEN THE
PRIVATE COMPLAINANT LYDIA BORDADOR AND
THE ACCUSED WAS ONE OF SALE ON CREDIT.

II

THE HONORABLE COURT A QUO ERRED IN NOT FINDING

THAT NOVATION HAD CONVERTED THE LIABILITY OF THE
ACCUSED INTO A CIVIL ONE.

III

THE HONORABLE COURT ERRED IN NOT APPLYING THE

INDETERMINATE SENTENCE LAW.[5]

On September 23, 2003, however, the CA affirmed the conviction of Degaños but
modified the prescribed penalty,[6] thusly:

WHEREFORE, the appealed Decision finding the accused-appellant

Narciso Degaños guilty beyond reasonable doubt of the crime of Estafa
under Article 315 (1) par. b of the Revised Penal code is hereby
AFFIRMED with the modification that the accused-appellant is
sentenced to suffer an indeterminate penalty of imprisonment of four
(4) years and two (2) months of prision correccional in its medium
period, as the minimum, to twenty (20) years of reclusion temporal as
maximum.

SO ORDERED.[7]

Issues

Hence, Degaños has appealed, again submitting that:

I.

52
 THE HONORABLE COURT A QUO ERRED IN NOT
FINDING THAT THE AGREEMENT BETWEEN THE
PRIVATE COMPLAINANT LYDIA BORDADOR AND
THE ACCUSED WAS ONE OF SALE ON CREDIT;

II.

THE HONORABLE COURT A QUO ERRED IN NOT FINDING

THAT NOVATION HAD CONVERTED THE LIABILITY OF THE
ACCUSED INTO A CIVIL ONE.[8]

Ruling

The appeal lacks merit.

I.
Transaction was an agency, not a sale on credit

Degaños contends that his agreement with the complainants relative to the items of
jewelry and gold subject of the amended information as embodied in the relevant
Kasunduan at Katibayan was a sale on credit, not a consignment to sell on commission
basis.

The contention of Degaños is devoid of factual and legal bases.

The text and tenor of the relevant Kasunduan at Katibayan follow:

KASUNDUAN AT KATIBAYAN

xxxx

Akong nakalagda sa ibaba nito ay nagpapatunay na

tinanggap ko kay Ginang LYDIA BORDADOR ng
Calvario, Meycauayan, Bulacan ang mga hiyas (jewelries)
[sic] na natatala sa ibaba nito upang ipagbili ko sa
kapakanan ng nasabing Ginang. Ang pagbibilhan ko sa
nasabing mga hiyas ay aking ibibigay sa nasabing Ginang,
sa loob ng __________ araw at ang hindi mabili ay aking
isasauli sa kanya sa loob din ng nasabing taning na
panahon sa mabuting kalagayan katulad ng aking
tanggapin. Ang bilang kabayaran o pabuya sa akin ay ano
mang halaga na aking mapalabis na mga halagang nakatala
sa ibaba nito. Ako ay walang karapatang magpautang o
kaya ay magpalako sa ibang tao ng nasabing mga hiyas.[9]

53
 xxxx

Based on the express terms and tenor of the Kasunduan at Katibayan, Degaños received
and accepted the items under the obligation to sell them in behalf of the complainants
(“ang mga hiyas (jewelries) na natatala sa ibaba nito upang ipagbili ko sa kapakanan ng
nasabing Ginang”), and he would be compensated with the overprice as his commission
(“Ang bilang kabayaran o pabuya sa akin ay ano mang halaga na aking mapalabis na
mga halagang nakatala sa ibaba nito.”). Plainly, the transaction was a consignment
under the obligation to account for the proceeds of sale, or to return the unsold items. As
such, he was the agent of the complainants in the sale to others of the items listed in the
Kasunduan at Katibayan.

In contrast, according the first paragraph of Article 1458 of the Civil Code, one of the
contracting parties in a contract of sale obligates himself to transfer the ownership of and
to deliver a determinate thing, while the other party obligates himself to pay therefor a
price certain in money or its equivalent. Contrary to the contention of Degaños, there
was no sale on credit to him because the ownership of the items did not pass to him.

II.
Novation did not transpire as to prevent
the incipient criminal liability from arising

Degaños claims that his partial payments to the complainants novated his contract with
them from agency to loan, thereby converting his liability from criminal to civil. He
insists that his failure to complete his payments prior to the filing of the
complaint-affidavit by the complainants notwithstanding, the fact that the complainants
later required him to make a formal proposal before the barangay authorities on the
payment of the balance of his outstanding obligations confirmed that novation had
occurred.

The CA rejected the claim of Degaños, opining as follows:

Likewise untenable is the accused-appellant’s argument that novation

took place when the private complainants accepted his partial payments
before the criminal information was filed in court and therefore, his
criminal liability was extinguished.

Novation is not one of the grounds prescribed by the Revised Penal Code
for the extinguishment of criminal liability. It is well settled that criminal
liability for estafa is not affected by compromise or novation of contract,
for it is a public offense which must be prosecuted and punished by the
Government on its own motion even though complete reparation should
have been made of the damage suffered by the offended party. A criminal
offense is committed against the People and the offended party may not

54
 waive or extinguish the criminal liability that the law imposes for the
commission of the offense. The criminal liability for estafa already
committed is not affected by the subsequent novation of the contract.[10]

We sustain the CA.

Degaños’ claim was again factually unwarranted and legally devoid of basis, because the
partial payments he made and his purported agreement to pay the remaining obligations
did not equate to a novation of the original contractual relationship of agency to one of
sale. As we see it, he misunderstands the nature and the role of novation in a criminal
prosecution.

Novation is the extinguishment of an obligation by the substitution or change of the

obligation by a subsequent one that terminates the first, either by (a) changing the object
or principal conditions; or (b) substituting the person of the debtor; or (c) subrogating a
third person in the rights of the creditor. In order that an obligation may be extinguished
by another that substitutes the former, it is imperative that the extinguishment be so
declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other.[11] Obviously, in case of only slight modifications, the old
obligation still prevails.[12]

The Court has further pointed out in Quinto v. People:[13]

Novation is never presumed, and the animus novandi, whether totally or

partially, must appear by express agreement of the parties, or by their acts
that are too clear and unequivocal to be mistaken.

The extinguishment of the old obligation by the new one is necessary

element of novation which may be effected either expressly or impliedly.
The term “expressly” means that the contracting parties incontrovertibly
disclose that their object in executing the new contract is to extinguish the
old one. Upon the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an incompatibility
between the two contracts. While there is really no hard and fast rule to
determine what might constitute to be a sufficient change that can bring
about novation, the touchstone for contrarity, however would be an
irreconcilable incompatibility between the old and the new obligations.

There are two ways which could indicate, in fine, the presence of
novation and thereby produce the effect of extinguishing an obligation by
another which substitutes the same. The first is when novation has been
explicitly stated and declared in unequivocal terms. The second is when
the old and the new obligations are incompatible on every point. The test
of incompatibility is whether or not the two obligations can stand together,

55
 each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first. Corollarily,
changes that breed incompatibility must be essential in nature and not
merely accidental. The incompatibility must take place in any of the
essential elements of the obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would be merely modificatory
in nature and insufficient to extinguish the original obligation.

The changes alluded to by petitioner consists only in the manner of

payment. There was really no substitution of debtors since private
complainant merely acquiesced to the payment but did not give her
consent to enter into a new contract.[14] x x x

The legal effects of novation on criminal liability were explained by the Court, through
Justice J.B.L. Reyes, in People v. Nery,[15] viz:

The novation theory may perhaps apply prior to the filing of the criminal
information in court by the state prosecutors because up to that time the
original trust relation may be converted by the parties into an ordinary
creditor-debtor situation, thereby placing the complainant in estoppel to
insist on the original trust. But after the justice authorities have taken
cognizance of the crime and instituted action in court, the offended party
may no longer divest the prosecution of its power to exact the criminal
liability, as distinguished from the civil. The crime being an offense
against the state, only the latter can renounce it (People vs. Gervacio, 54
Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montañes, 8 Phil.
620).

It may be observed in this regard that novation is not one of the means
recognized by the Penal Code whereby criminal liability can be
extinguished; hence, the role of novation may only be to either prevent
the rise of criminal liability or to cast doubt on the true nature of the
original basic transaction, whether or not it was such that its breach would
not give rise to penal responsibility, as when money loaned is made to
appear as a deposit, or other similar disguise is resorted to (cf. Abeto vs.
People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481).

Even in Civil Law the acceptance of partial payments, without further

change in the original relation between the complainant and the accused,
can not produce novation. For the latter to exist, there must be proof of
intent to extinguish the original relationship, and such intent can not be
inferred from the mere acceptance of payments on account of what is
totally due. Much less can it be said that the acceptance of partial

56
 satisfaction can effect the nullification of a criminal liability that is fully
matured, and already in the process of enforcement. Thus, this Court has
ruled that the offended party’s acceptance of a promissory note for all or
part of the amount misapplied does not obliterate the criminal offense
(Camus vs. Court of Appeals, 48 Off. Gaz. 3898).

Novation is not a ground under the law to extinguish criminal liability. Article 89 (on
total extinguishment)[16] and Article 94 (on partial extinguishment) [17] of the Revised
Penal Code list down the various grounds for the extinguishment of criminal liability.
Not being included in the list, novation is limited in its effect only to the civil aspect of
the liability, and, for that reason, is not an efficient defense in estafa. This is because
only the State may validly waive the criminal action against an accused.[18] The role of
novation may only be either to prevent the rise of criminal liability, or to cast doubt on
the true nature of the original basic transaction, whether or not it was such that the breach
of the obligation would not give rise to penal responsibility, as when money loaned is
made to appear as a deposit, or other similar disguise is resorted to.[19]

Although the novation of a contract of agency to make it one of sale may relieve an
offender from an incipient criminal liability, that did not happen here, for the partial
payments and the proposal to pay the balance the accused made during the barangay
proceedings were not at all incompatible with Degaños’ liability under the agency that
had already attached. Rather than converting the agency to sale, therefore, he even
thereby confirmed his liability as the sales agent of the complainants.

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated
on September 23, 2003; and ORDERS petitioner to pay the costs of suit.

SO ORDERED.

57
 G.R. No. 88866. February 18, 1991.*
METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. COURT OF
APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.

Civil Law; Obligations and Contracts; Agency; The agent is responsible not only for
fraud, but also for negligence, which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.—The negligence of
Metro-bank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to
withdraw the proceeds of the treasury warrants he had deposited. Metrobank misled
Golden Savings. There may have been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in any case that clearance could be
implied from its allowing Golden Savings to withdraw from its account not only once or
even twice but three times. The total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which only added to its belief that the
treasury warrants had indeed been cleared.

Mercantile Law; Negotiable Instruments; Requisites of Negotiabil-ity; An instrument to

be negotiable must contain an unconditional promise or order to pay a sum certain in
money.—SEC. 3. When promise is unconditional.—An unqualified order or promise to
pay is unconditional within the meaning of this Act though coupled with—(a) An
indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or (b) A statement of the trasaction which gives
rise to the instrument. But an order or promise to pay out of a particular fund is not
unconditional. The indication of Fund 501 as the source of the payment to be made on
the treasury warrants makes the order or promise to pay “not uncon-ditional” and the
warrants themselves non-negotiable. There should be no question that the exception on
Section 3 of the Negotiable Instruments Law is applicable in the case at bar.

DECISION

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with

branches throughout the Philippines and even abroad. Golden Savings
and Loan Association was, at the time these events happened, operating,
in Calapan, Mindoro, with the other private respondents as its principal
officers.

In January 1979, a certain Eduardo Gomez opened an account with

58
Golden Savings and deposited over a period of two months 38 treasury
warrants with a total value of P1,755,228.37. They were all drawn by
the Philippine Fish Marketing Authority and purportedly signed by its
General Manager and countersigned by its Auditor. Six of these were
directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second
indorser.[1]

On various dates between June 25 and July 16, 1979, all these warrants
were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings Account No. 2498 in the Metrobank
branch in Calapan, Mindoro. They were then sent for clearing by the
branch office to the principal office of Metrobank, which forwarded them
to the Bureau of Treasury for special clearing.[2]

More than two weeks after the deposits, Gloria Castillo went to the
Calapan branch several times to ask whether the warrants had been
cleared. She was told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however, "exasperated"
over Gloria's repeated inquiries and also as an accommodation for a
"valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the warrants.[3] The first
withdrawal was made on July 9, 1979, in the amount of P508,000.00, the
second on July 13, 1979, in the amount of P310,000.00, and the third
on July 16, 1979, in the amount of P150,000.00. The total withdrawal
was P968,000.00.[4]

In turn, Golden Savings subsequently allowed Gomez to make

withdrawals from his own account, eventually collecting the total amount
of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the

warrants had been dishonored by the Bureau of Treasury on July 19,
1979, and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the
Regional Trial Court of Mindoro.[5] After trial, judgment was rendered in
favor of Golden Savings, which, however, filed a motion for
reconsideration even as Metrobank filed its notice of appeal. On
November 4, 1986, the lower court modified its decision thus:

59
 ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of

defendant Golden Savings and Loan Association, Inc. and defendant
Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings

Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit
to such account such amount existing before the debit was made including
the amount of P812,033.37 in favor of defendant Golden Savings and
Loan Association, Inc. and thereafter, to allow defendant Golden Savings
and Loan Association, Inc. to withdraw the amount outstanding thereon
before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan
Association, Inc. attorney's fees and expenses of litigation in the amount
of P200,000.00

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo

and Lucia Castillo attorney's fees and expenses of litigation in the amount
of P100,000.00.

SO ORDERED.
On appeal to the respondent court,[6] the decision was affirmed, prompting Metrobank to
file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to
apply the clear contractual terms and conditions on the deposit slips
allowing Metrobank to charge back any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the
checks or treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of
a mere collecting agent which cannot be held liable for its failure to
collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of

Appeals, Metrobank is made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between

60
 Metrobank and Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury

warrants involved in this case are not negotiable instruments.
The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was
indeed negligent in giving Golden Savings the impression that the treasury warrants had
been cleared and that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it. Without such assurance, Golden Savings
would not have allowed the withdrawals; with such assurance, there was no reason not to
allow the withdrawal. Indeed, Golden Savings might even have incurred liability for its
refusal to return the money that to all appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing
facilities of its own. It relied on Metrobank to determine the validity of the warrants
through its own services. The proceeds of the warrants were withheld from Gomez until
Metrobank allowed Golden Savings itself to withdraw them from its own deposit.[7] It
was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in
checking the personal circumstances of Gomez before accepting his deposit does not
hold water. It was Gomez who was entrusting the warrants, not Golden Savings that
was extending him a loan; and moreover, the treasury warrants were subject to clearing,
pending which the depositor could not withdraw its proceeds. There was no question of
Gomez's identity or of the genuineness of his signature as checked by Golden
Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery
of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and
cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was

not trifling - more than one and a half million pesos (and this was 1979). There was no
reason why it should not have waited until the treasury warrants had been cleared; it
would not have lost a single centavo by waiting. Yet, despite the lack of such clearance
- and notwithstanding that it had not received a single centavo from the proceeds of the
treasury warrants, as it now repeatedly stresses - it allowed Golden Savings to withdraw
- not once, not twice, but thrice - from the uncleared treasury warrants in the total
amount of P968,000.00.

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the
clearance and it also wanted to "accommodate" a valued client. It "presumed" that the
warrants had been cleared simply because of "the lapse of one week."[8] For a bank with

61
its long experience, this explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed
on the dorsal side of the deposit slips through which the treasury warrants were deposited
by Golden Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself
only as the depositor's collecting agent, assuming no responsibility
beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies to
checks drawn on local banks and bankers and their branches as well as on
this bank, which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft or any other reason. (Underscoring supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a
collecting agent for Golden Savings and give it the right to "charge back to the
depositor's account any amount previously credited, whether or not such item is
returned. This also applies to checks “… which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft or any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on Golden
Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they
have apparently been imposed by the bank unilaterally, without the consent of the
depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does
so only to identify himself and not to agree to the conditions set forth in the given permit
at the back of the deposit slip. We do not have to rule on this matter at this time. At
any rate, the Court feels that even if the deposit slip were considered a contract, the
petitioner could still not validly disclaim responsibility thereunder in the light of the
circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank
seems to be suggesting that as a mere agent it cannot be liable to the principal. This is
not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that -
Art. 1909. --The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis,
it was the clearance given by it that assured Golden Savings it was already safe to allow
Gomez to withdraw the proceeds of the treasury warrants he had deposited. Metrobank
misled Golden Savings. There may have been no express clearance, as Metrobank
insists (although this is refuted by Golden Savings) but in any case that clearance could
be implied from its allowing Golden Savings to withdraw from its account not only once
or even twice but three times. The total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which only added to its belief that the

62
treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not
paid for any reason is not acceptable. Any reason does not mean no reason at
all. Otherwise, there would have been no need at all for Golden Savings to deposit the
treasury warrants with it for clearance. There would have been no need for it to wait
until the warrants had been cleared before paying the proceeds thereof to Gomez. Such
a condition, if interpreted in the way the petitioner suggests, is not binding for being
arbitrary and unconscionable. And it, becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not communicated to Golden
Savings before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express
or at least implied clearance to the treasury warrants and allowing payments therefrom to
Golden Savings. But that is not all. On top of this, the supposed reason for the
dishonor, to wit, the forgery of the signatures of the general manager and the auditor of
the drawer corporation, has not been established.[9] This was the finding of the lower
courts which we see no reason to disturb. And as we said in MWSS v. Court of
Appeals:[10]

Forgery cannot be presumed (Siasat, et. al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the present
case.
A no less important consideration is the circumstance that the treasury
warrants in question are not negotiable instruments. Clearly stamped on
their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to
wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored
parts, are pertinent:
SECTION 1. - Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum

certain in money;

(c) Must be payable on demand, or at a fixed or determinable future

time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named

or otherwise indicated therein with reasonable certainty.

63
 x x x

SEC. 3. When promise is unconditional. - An unqualified order or

promise to pay is unconditional within the meaning of this Act though
coupled with -

(a) An indication of a particular fund out of which reimbursement is to

be made or a particular account to be debited with the amount; or

(b) A statement of the transaction which, gives rise to the instrument.

But an order or promise to pay out of a particular fund is not

unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3
of the Negotiable Instruments Law is applicable in the case at bar. This conclusion
conforms to Abubakar vs. Auditor General[11] where the Court held:
The petitioner argues that he is a holder in good faith and for value of a
negotiable instrument and is entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is not
within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation
for food administration, is actually an Order for payment out of “a
particular fund," and is not unconditional and does not fulfill one of the
essential requirements of a negotiable instrument (Sec. 3 last sentence and
section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings
assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law. The simple reason is
that this law is not applicable to the non-negotiable treasury warrants. The indorsement
was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank for clearing. It was in fact
Metrobank that made the guarantee when it stamped on the back of the warrants: "All
prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust
Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine
Islands,[12] but we feel this case is inapplicable to the present controversy. That case
involved checks whereas this case involves treasury warrants. Golden Savings never
represented that the warrants were negotiable but signed them only for the purpose of
depositing them for clearance. Also, the fact of forgery was proved in that case but not
in the case before us. Finally, the Court found the Jai Alai Corporation negligent in
accepting the checks without question from one Antonio Ramirez notwithstanding that
the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was
authorized to indorse it. No similar negligence can be imputed to Golden Savings.

64
We find the challenged decision to be basically correct. However, we will have to
amend it insofar as it directs the petitioner to credit Golden Savings with the full amount
of the treasury checks deposited to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which
Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was notified of
the dishonor. The amount he has withdrawn must be charged not to Golden Savings but
to Metrobank, which must bear the consequences of its own negligence. But the balance
of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer
be permitted to withdraw this amount from his deposit because of the dishonor of the
warrants. Gomez has in fact disappeared. To also credit the balance to Golden Savings
would unduly enrich it at the expense of Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that

Paragraph 3 of the dispositive portion of the judgment of the lower court shall be
reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan Association,
Inc. to withdraw the amount outstanding thereon, if any, after the debit.

SO ORDERED.

65
 G.R. No. 77356. July 15, 1991.*
TRAVEL WIDE ASSOCIATED SALES (PHILS.), INC., and TRANS WORLD
AIRLINES, INC., petitioners, vs. COURT OF APPEALS, DECISION SYSTEMS
CORPORATION and MANUEL A. ALCUAZ, JR., respondents.

Pleadings and Practice; Motion to Dismiss; If the suit is not brought in the name of or
against the real party in interest, a motion to dismiss may be filed on the ground that the
complaint states no cause of action.—The petitioners invoke Rule 16, Section 1, of the
Rules of Court and argue that “the defense of not being a real party-ininterest” is not one
of the grounds enumerated therein for a motion to dismiss. Consequently, they could not
have pleaded it in their motion to dismiss but only in their answer as a special defense.
There seems to be a misconception here of the term “real party-in-interest.” As defined, a
real party-in-interest is the party who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit. Rule 3, Section 2, of the Rules of
Court provides explicitly that “every action must be prosecuted and defended in the
name of the real party-in-interest.” The party-in-interest is one who prosecutes or
defends and is benefited or injured. The term applies not only to the plaintiff but to the
defendant, and the suit may be dismissed if neither of them is a real party-in-interest. If
the suit is not brought in the name of or against the real party-in-interest, a motion to
dismiss may be filed on the ground that the complaint states no cause of action.

Same; Same; To determine the sufficiency of the cause of action, only the facts alleged
in the complaint, and no others, should be considered.—However, the following doctrine
laid down in the Heirs of Juliana Clavano v. Genato should have guided him to the
contrary, and correct, conclusion: Besides, under this section a preliminary hearing may
be had on the affirmative defenses as if a motion to dismiss had been filed. During such
preliminary hearing evidence may be admitted. Nevertheless, We believe that the
respondent Judge committed an error in conducting a preliminary hearing on the private
respondent’s affirmative defenses. It is a well-settled rule that in a motion to dismiss
based on the ground that the complaint fails to state a cause of action, the question
submitted to the court for determination is the sufficiency of the allegations in the
complaint itself. Whether those allegations are true or not is beside the point, for their
truth is hypothetically admitted by the motion. The issue rather is: admitting them to be
true, may the court render a valid judgment in accordance with the prayer of the
complaint? Stated otherwise, the sufficiency of the cause of action must appear on the
face of the complaint in order to sustain a dismissal on this ground. No extraneous matter
may be considered nor facts not alleged, which would require evidence and therefore
must be raised as defenses and await the trial. In other words, to determine the
sufficiency of the cause of action, only the facts alleged in the complaint, and no others
should be considered. The respondent Judge departed from this rule in conducting a
hearing and in receiving evidence in support of the private respondent’s affirmative
defense, that is, lack of cause of action.

DECISION

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CRUZ, J.:

What started out as an ordinary complaint for damages has developed into a controversy
on procedure over which the Regional Trial Court and the Court of Appeals have not
agreed. The petitioners are now before us and ask that the issue be resolved.

The material facts are briefly related.

Sometime in March 1975, Decision Systems Corporation and its President, Manuel A.
Alcuaz, Jr., filed a complaint in the Regional Trial Court of Manila alleging that
defendants Travel Wide Associated Sales (Phils.), Inc. and Trans World Airlines, Inc.
had failed to comply with their obligations under Travel Pass ‘73 U.S.A., a package deal
consisting of a TWA ticket to Los Angeles, New York and Boston, in the United States,
and hotel accommodations, for which the plaintiffs had made the corresponding payment
in Manila.

Acting on a motion to dismiss filed by TWA on May 16, 1975, on the ground that the
complaint did not state a cause of action, the trial court ordered the plaintiffs to amend
their complaint and particularize their averments. The plaintiffs complied on June 27,
1975. On July 7, 1975, and July 11, 1975, respectively, TWA and Travel Wide filed
separate motions to dismiss on the ground that the amended complaint still did not state a
cause of action. Both motions were denied on July 11, 1975, the trial court holding that
the allegations were now "sufficiently particular."

On September 5, 1975, the defendants filed a joint answer in which they alleged the
special defense that they were not the real parties-in-interest because they had acted only
as agents of a disclosed principal. They reiterated this argument at the pre-trial held on
October 27, 1975. Subsequently, they filed a Joint Motion for Preliminary Hearing of
Special Defense, which was opposed by the plaintiffs on the ground that the special
defense was barred, not having been raised in the two motions to dismiss the amended
complaint. The joint motion was nevertheless granted.

After the preliminary hearing, Judge Bernardo P. Fernandez issued his order dated
September 13, 1976, dismissing the complaint.[1] His finding was that Travel Wide was
wily the general agent of TWA and that the latter was only an agent of a disclosed
principal, namely, Tour Services, Inc. As neither of the defendants was a real
party-in-interest, there could be no cause of action against them.

The motion for its reconsideration having been denied, the order was elevated to the then
Intermediate Appellate Court, which, on June 30, 1983, reversed the trial court.[2] The
record does not show why the separate motions for reconsideration filed by the appellees

67
were resolved only on January 27, 1987. At any rate, the petitioners have seasonably
come to this Court to ask for the reversal instead of the respondent court and the
reinstatement of the order of the trial court.

We find that the Court of Appeals did not err in setting aside the order of dismissal and
remanding the case for further proceedings. We disagree, however, with the reason for
its decision.

The respondent court held that the appellees should have pleaded the special defense that
they were not real parties-in-interest in their motion to dismiss, conformably to the
omnibus motion rule. Not having done so, they are deemed to have waived that ground,
which therefore could not be used as the basis of the motion to dismiss.

The omnibus motion rule embodied in Rule 15, Section 8, of the Rules of Court reads as
follows:

Sec. 8. Omnibus motion. - A motion attacking a pleading or a proceeding

shall include all objections then available, and all objections not so
included shall be deemed waived.

This is reiterated in Rule 9, Section 2, which also provides for the exceptions thus:

Sec. 2. Defenses and objections not pleaded deemed waived. - Defenses

and objections not pleaded either in a motion to dismiss or in an answer
are deemed waived, except the failure to state a cause of action which
may be alleged in a latter pleading, if one is permitted, or by motion for
judgment on the pleadings, or at the trial on the merits; but in the last
instance, the motion shall be disposed of as provided in section 5, Rule 10
in the light of any evidence which may have been received. Whenever it
appears that the court has no jurisdiction over the subject matter, it shall
dismiss the action.

The petitioners invoke Rules 16, Section 1, of the Rules of Court and argue that "the
defense of not being a real party-in-interest" is not one of the grounds enumerated therein
for a motion to dismiss. Consequently, they could not have pleaded it in their motion to
dismiss but only in their answer as a special defense.

There seems to be a misconception here of the term "real party-in-interest."

As defined, a real party-in-interest is the party who stands to be benefited or injured by

the judgment in the suit, or the party entitled to the avails of the suit.[3] Rule 3, Section 2,
of the Rules of Court provides explicitly that "every action must be prosecuted and

68
defended in the name of the real party-in-interest." The party-in-interest is one who
prosecutes or defends and is benefited or injured. The term applies not only to the
plaintiff but to the defendant, and the suit may be dismissed if neither of them is a real
party-in?interest.[4] If the suit is not brought in the name of or against the real
party-in-interest, a motion to dismiss may be filed on the ground that the complaint states
no cause of action.[5]

Indeed, even if the special defense was not invoked in the motion to dismiss, it would
still not be deemed waived because it is one of the two exceptions mentioned in Rules 9,
Section 2, to the omnibus motion rule. The first is lack of jurisdiction, which can be
invoked any time, even on appeal. The second is lack of a cause of action, which can
be raised even during the trial on the merits.

It is understandable if in granting the motion for a preliminary hearing on the special

defense, the trial judge relied on Rule 16, Section 5, of the Rules of Court, providing as
follows:

Section 5. Pleading grounds as affirmative defenses. - Any of the grounds

for dismissal provided for in this rule, except improper venue, may be
pleaded as an affirmative defense, and a preliminary hearing may be had
thereon as if a motion to dismiss had been filed.

However, the following doctrine laid down in The Heirs of Juliana Clavano v. Genato[6]
should have guided him to the contrary, and correct, conclusion:

Besides, under this section a preliminary hearing may be had on the

affirmative defenses as if a motion to dismiss had been filed. During
such preliminary hearing evidence may be admitted. Nevertheless, We
believe that the respondent Judge committed an error in conducting a
preliminary hearing on the private respondent's affirmative defenses. It
is a well-settled rule that in a motion to dismiss based on the ground that
the complaint fails to state a cause of action, the question submitted to the
court for determination is the sufficiency of the allegations in the
complaint itself. Whether those allegations are true or not is beside the
point, for their truth is hypothetically admitted by the motion. The issue
rather is: admitting them to be true, may the court render a valid
judgment in accordance with the prayer of the complaint? Stated
otherwise, the sufficiency of the cause of action must appear on the face
of the complaint in order to sustain a dismissal on this ground. No
extraneous matter may be considered nor facts not alleged, which would

69
 require evidence and therefore must be raised as defenses and await the
trial. In other words, to determine the sufficiency of the cause of action,
only the facts alleged in the complaint, and no others should be
considered.
The respondent Judge departed from this rule in conducting a hearing and
in receiving evidence in support of the private respondent's affirmative
defense, that is, lack of cause of action.

But despite all the foregoing observations, we feel that the trial court may also have erred
in holding that the petitioners were mere agents of a disclosed principal and so could not
be held liable on the complaint.

In disclaiming liability, the petitioners point to the stipulation on Responsibility in the

Travel Pass ‘73 Plan brochure that "Tour Services, Inc. and/or their agents" are acting
"as agents for the passengers." They stress further that the Miscellaneous Charge Order
issued to Alcuaz indicated that the amount of $218.00 was payable to Tour Services, Inc.
and not to either of them. This would mean that, if at all, they were acting as agents of
Tour Services, Inc. and not as principal obligors.

Without arriving at any factual conclusion, the Court believes it would be useful to make
a more careful appraisal of the evidence, particularly the terms and conditions of the
brochure distributed by the petitioners and the significance of the Miscellaneous Charges
Order which was issued by TWA. We note that even the trial court observed the active
participation of TWA in the promotion of the travel pass plan as an additional source of
revenue for its airline business.

It is also worth noting that if the petitioners were indeed acting as agents of the
passengers, as the brochure stipulates, they could still be held liable under Article 1909
of the Civil Code, which provides:

The agent is responsible not only for fraud, but also for negligence, which
shall be judged with more or less rigor by the courts, according to whether
the agency was or was not for a compensation.

The private respondent* is entitled to prove that the petitioners did not provide
adequately for the pre-paid hotel accommodations of Alcuaz, who had to incur additional
expenses and was compelled to cut short his business trip because of his depleted dollar
allocation. It was not established that the petitioners received any confirmation of the
hotel reservations they sent and yet they did not follow up their request nor did they
inform Alcuaz that they had not received confirmation. This procedure should have
been followed by the petitioners as so provided in the Travel Pass ‘73 USA.

70
We sustain the respondent court in ruling that the trial court should not have dismissed
the complaint, albeit nor for the reasons given in the challenged decision. Our finding
is that, because the petitioners are real parties?in-interest as defendants in the suit below,
the motion to dismiss for lack of a cause of action should not have been granted.

WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so

ordered.

71