Article 1875 – Agency Presumed to be with Compensation

1.

G.R. No. 163720 December 16, 2004

GENEVIEVE LIM, petitioner, vs. FLORENCIO SABAN, respondents.
TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing the Decision1 dated October 27, 2003 of the Court of
Appeals, Seventh Division, in CA-G.R. V No. 60392.2

The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square meter lot in Cebu City (the "lot"), entered into
an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on
February 8, 1994. Under the Agency Agreement, Ybañez authorized Saban to look for a buyer of the lot for Two Hundred
Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as Saban’s commission for the sale. 3

Through Saban’s efforts, Ybañez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses
Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of Absolute
Sale is Two Hundred Thousand Pesos (P200,000.00).4 It appears, however, that the vendees agreed to purchase the lot at
the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After
the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos
(P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as broker’s
commission.5 Lim also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty
Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands (BPI)
Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00;
BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June 20,
1994 for P168,000.00.

Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybañez asked Lim to cancel all the
checks issued by her in Saban’s favor and to "extend another partial payment" for the lot in his (Ybañez’s) favor. 6

After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of money
and damages against Ybañez and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994. 7 The case was
assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for P600,000.00, i.e., with a mark-
up of Four Hundred Thousand Pesos (P400,000.00) from the price set by Ybañez. Of the total purchase price
of P600,000.00, P200,000.00 went to Ybañez, P50,000.00 allegedly went to Lim’s agent, and P113,257.00 was given to
Saban to cover taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks 8 in favor of Saban
for the remaining P236,743.00.9

Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the
actual selling price of the lot from Ybañez and because he was not a licensed real estate broker. Ybañez was able to
convince Lim to cancel all four checks.

Saban further averred that Ybañez and Lim connived to deprive him of his sales commission by withholding payment of the
first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the account
against which it was drawn was closed.

In his Answer, Ybañez claimed that Saban was not entitled to any commission because he concealed the actual selling
price from him and because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement between Ybañez and Saban, and that she issued stop
payment orders for the three checks because Ybañez requested her to pay the purchase price directly to him, instead of
coursing it through Saban. She also alleged that she agreed with Ybañez that the purchase price of the lot was
only P200,000.00.
Ybañez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court dismissed the
case only against him without any objection from the other parties. 10

On May 14, 1997, the RTC rendered its Decision11 dismissing Saban’s complaint, declaring the four (4) checks issued by
Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban.

Saban appealed the trial court’s Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial court’s ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.13

The Court of Appeals ruled that Ybañez’s revocation of his contract of agency with Saban was invalid because the agency
was coupled with an interest and Ybañez effected the revocation in bad faith in order to deprive Saban of his commission
and to keep the profits for himself.14

The appellate court found that Ybañez and Lim connived to deprive Saban of his commission. It declared that Lim is liable
to pay Saban the amount of the purchase price of the lot corresponding to his commission because she issued the four
checks knowing that the total amount thereof corresponded to Saban’s commission for the sale, as the agent of Ybañez.
The appellate court further ruled that, in issuing the checks in payment of Saban’s commission, Lim acted as an
accommodation party. She signed the checks as drawer, without receiving value therefor, for the purpose of lending her
name to a third person. As such, she is liable to pay Saban as the holder for value of the checks. 15

Lim filed a Motion for Reconsideration of the appellate court’s Decision, but her Motion was denied by the Court of Appeals
in a Resolution dated May 6, 2004.16

Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.

Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the amounts due for
taxes and transfer of title, she paid the balance of the purchase price directly to Ybañez.17

She further contends that she is not liable for Ybañez’s debt to Saban under the Agency Agreement as she is not privy
thereto, and that Saban has no one but himself to blame for consenting to the dismissal of the case against Ybañez and
not moving for his substitution by his heirs.18

Lim also assails the findings of the appellate court that she issued the checks as an accommodation party for Ybañez and
that she connived with the latter to deprive Saban of his commission. 19

Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be held liable to the
extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses Lim) who should share such liability. 20

In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of the P200,000.00
which would be paid to Ybañez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes and other expenses
incidental to the sale and Saban’s commission as broker for Ybañez. According to Saban, Lim assumed the obligation to
pay him his commission. He insists that Lim and Ybañez connived to unjustly deprive him of his commission from the
negotiation of the sale.21

The issues for the Court’s resolution are whether Saban is entitled to receive his commission from the sale; and, assuming
that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales commission.

The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals.

The Court affirms the appellate court’s finding that the agency was not revoked since Ybañez requested that Lim make stop
payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that time,
Saban had already performed his obligation as Ybañez’s agent when, through his (Saban’s) efforts, Ybañez executed
the Deed of Absolute Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach
of his contract of agency with Ybañez which expressly states that Saban would be entitled to any excess in the purchase
price after deducting the P200,000.00 due to Ybañez and the transfer taxes and other incidental expenses of the sale. 22
In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his commission for finding a suitable buyer for
the seller’s property even though the seller himself consummated the sale with the buyer. 24 The Court held that it would be
in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he
had already reaped the benefits of the broker’s efforts.

In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their commissions although the seller revoked
their authority to act in his behalf after they had found a buyer for his properties and negotiated the sale directly with the
buyer whom he met through the brokers’ efforts. The Court ruled that the seller’s withdrawal in bad faith of the brokers’
authority cannot unjustly deprive the brokers of their commissions as the seller’s duly constituted agents.

The pronouncements of the Court in the aforecited cases are applicable to the present case, especially considering that
Saban had completely performed his obligations under his contract of agency with Ybañez by finding a suitable buyer to
preparing the Deed of Absolute Sale between Ybañez and Lim and her co-vendees. Moreover, the contract of agency very
clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybañez’s share
of P200,000.00 and the taxes and other incidental expenses of the sale.

However, the Court does not agree with the appellate court’s pronouncement that Saban’s agency was one coupled with
an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if
it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the
contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as
one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the interest
of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a
third person subsists. In an agency coupled with an interest, the agent’s interest must be in the subject matter of the power
conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agent’s
interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agent’s
interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship. 26

Saban’s entitlement to his commission having been settled, the Court must now determine whether Lim is the proper party
against whom Saban should address his claim.

Saban’s right to receive compensation for negotiating as broker for Ybañez arises from the Agency Agreement between
them. Lim is not a party to the contract. However, the record reveals that she had knowledge of the fact that Ybañez set the
price of the lot at P200,000.00 and that the P600,000.00—the price agreed upon by her and Saban—was more than the
amount set by Ybañez because it included the amount for payment of taxes and for Saban’s commission as broker for
Ybañez.

According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00 for her broker,
and P400.000.00 directly to Ybañez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty Seven Pesos
(P563,257.00).27 Lim, on the other hand, claims that on March 10, 1994, the date of execution of the Deed of Absolute
Sale, she paid directly to Ybañez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to
Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,28 and One Hundred Thirty Thousand Pesos
(P130,000.00) on June 28, 1994,29 or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos
(P393,257.00). Ybañez, for his part, acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was
the full amount for the sale of the lot. 30 It thus appears that he received P100,000.00 on March 10, 1994, acknowledged
receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the balance
of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybañez. Apparently, although the amount
actually paid by Lim was P393,257.00, Ybañez rounded off the amount to P400,000.00 and waived the difference.

Lim’s act of issuing the four checks amounting to P236,743.00 in Saban’s favor belies her claim that she and her co-vendees
did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there would be no reason for her to issue
those checks which is the balance of P600,000.00 less the amounts of P200,000.00 (due to Ybañez), P50,000.00
(commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed her mind about agreeing to
purchase the lot at P600,000.00 after talking to Ybañez and ultimately realizing that Saban’s commission is even more than
what Ybañez received as his share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice
of Saban whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the Court
cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are similar to the
circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for
her two lots and the house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five percent
(5%) of the purchase price plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the
properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and Mijares thereafter
introduced Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in selling the
property and asked them to sign a document stating that their written authority to act as her agents for the sale of the
properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand
Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining that—

…[Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a
matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction in
deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the benevolence
of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to
bad faith. This act cannot be sanctioned without according the party prejudiced the reward which is due him. This
is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services
rendered by [Cunanan and Mijares], but believing that she could evade payment of their commission, she made
use of a ruse by inducing them to sign the deed of cancellation….This act of subversion cannot be sanctioned and
cannot serve as basis for [Infante] to escape payment of the commission agreed upon. 31

The appellate court therefore had sufficient basis for concluding that Ybañez and Lim connived to deprive Saban of his
commission by dealing with each other directly and reducing the purchase price of the lot and leaving nothing to compensate
Saban for his efforts.

Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the balance
of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the balance of P200,000.00.

Furthermore, since Ybañez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his asking price
of P200,000.00, Saban may claim such excess from Ybañez’s estate, if that remedy is still available, 32 in view of the trial
court’s dismissal of Saban’s complaint as against Ybañez, with Saban’s express consent, due to the latter’s demise on
November 11, 1994.33

The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an accommodation
party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the
negotiable instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the purpose of lending
his name to some other person." The accommodation party is liable on the instrument to a holder for value even though the
holder at the time of taking the instrument knew him or her to be merely an accommodation party. The accommodation
party may of course seek reimbursement from the party accommodated. 34

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all
these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value
for the signature; and (3) he signed for the purpose of lending his name to some other person. In the case at bar, while Lim
signed as drawer of the checks she did not satisfy the two other remaining requisites.

The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in question
on account of her transaction, along with the other purchasers, with Ybañez which was a sale and, therefore, a reciprocal
contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of the
transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot to her and her co-vendees.
In other words, the amounts covered by the checks form part of the cause or consideration from Ybañez’s end, as vendor,
while the lot represented the cause or consideration on the side of Lim, as vendee.35 Ergo, Lim received value for her
signature on the checks.

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybañez, or any other person for that
matter, to obtain credit or to raise money, thereby totally debunking the presence of the third requisite of an accommodation
party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED. SO ORDERED.

 Article 1878 – Necessity of Special Powers of Attorney; Instances

G.R. No. 148116 April 14, 2004

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners,

vs. MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA,
HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON,
EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES
and JANE DOES, respondents.

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 64940, which reversed
and set aside the June 23, 1999 Decision2 of the Regional Trial Court of Pasig City, Branch 68, in Civil Case No. 65629, as
well as its Resolution dated April 30, 2001 denying the petitioners’ motion for reconsideration of the aforesaid decision.

The heirs of Domingo B. Ticzon3 are the owners of a parcel of land located in San Pablo City, covered by Transfer Certificate
of Title (TCT) No. T-36766 of the Register of Deeds of San Pablo City.4 On the other hand, the heirs of Paz Ticzon Eleosida,
represented by Gregorio T. Eleosida, are the owners of a parcel of land located in San Pablo City, covered by TCT No.
36754, also of the Register of Deeds of San Pablo City.5

The Case for the Petitioners

Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, offered to sell to the
petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land covered by TCT Nos. 36754 and 36766. The
petitioners were shown a locator plan and copies of the titles showing that the owners of the properties were represented
by Mary Mediatrix Fernandez and Gregorio T. Eleosida, respectively. The brokers told the petitioners that they were
authorized by respondent Fernandez to offer the property for sale. The petitioners, thereafter, made two ocular inspections
of the property, in the course of which they saw some people gathering coconuts.

In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez and the two brokers at the petitioners’
office in Mandaluyong City.6 The petitioners and respondent Fernandez agreed that the petitioners would buy the property
consisting of 36,742 square meters, for the price of P150 per square meter, or the total sum of P5,098,500. They also
agreed that the owners would shoulder the capital gains tax, transfer tax and the expenses for the documentation of the
sale. The petitioners and respondent Fernandez also agreed to meet on December 8, 1995 to finalize the sale. It was also
agreed upon that on the said date, respondent Fernandez would present a special power of attorney executed by the owners
of the property, authorizing her to sell the property for and in their behalf, and to execute a deed of absolute sale thereon.
The petitioners would also remit the purchase price to the owners, through respondent Fernandez. However, only Agapito
Fisico attended the meeting. He informed the petitioners that respondent Fernandez was encountering some problems with
the tenants and was trying to work out a settlement with them.7 After a few weeks of waiting, the petitioners wrote respondent
Fernandez on January 5, 1995, demanding that their transaction be finalized by January 30, 1996. 8

When the petitioners received no response from respondent Fernandez, the petitioners sent her another Letter 9dated
February 1, 1996, asking that the Deed of Absolute Sale covering the property be executed in accordance with their verbal
agreement dated November 27, 1995. The petitioners also demanded the turnover of the subject properties to them within
fifteen days from receipt of the said letter; otherwise, they would have no option but to protect their interest through legal
means.

Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14, 1996 10 and clarified her stand
on the matter in this wise:

1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I do not recall we ever
discussed about them. Nonetheless, I made an assurance at that time that there was no liens/encumbrances and
tenants on my property (TCT – 36755).

2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of Absolute Sale. The truth
of the matter is that you were the one who emphatically stated that you would prepare a Contract to Sell and
requested us to come back first week of December as you would be leaving the country then. In fact, what you were
demanding from us was to apprise you of the status of the property, whether we would be able to ascertain that
 there are really no tenants. Ms. Alimario and I left your office, but we did not assure you that we would be back on
the first week of December.

Unfortunately, some people suddenly appeared and claiming to be "tenants" for the entire properties (including
those belonging to my other relatives.) Another thing, the Barangay Captain now refuses to give a certification that
our properties are not tenanted.

Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the appearance of "alleged
tenants" who are demanding for a one-hectare share, my cousin and I have thereby changed our mind and that the
sale will no longer push through. I specifically instructed her to inform you thru your broker that we will not be
attending the meeting to be held sometime first week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the property until all problems are
fully settled. We have not demanded and received from you any earnest money, thereby, no obligations exist. In
the meantime, we hope that in the future we will eventually be able to transact business since we still have other
properties in San Pablo City.11

Appended thereto was a copy of respondent Fernandez’ letter to the petitioners dated January 16, 1996, in response to the
latter’s January 5, 1996 letter.12

On April 12, 1996, the petitioners filed the instant Complaint for specific performance with damages 13 against respondent
Fernandez and the registered owners of the property. In their complaint, the petitioners alleged, inter alia, the following:

4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land covered by Transfer
Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742 square meters in Barrio Concepcion, San
Pablo City. … After a brief negotiation, defendants committed and specifically agreed to sell to plaintiffs 33,990
square meters of the two (2) aforementioned parcels of land at P150.00 per square meter.

5. The parties also unequivocally agreed to the following:

(a) The transfer tax and all the other fees and expenses for the titling of the subject property in plaintiffs’ names
would be for defendants’ account.

(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the aforementioned 33,990 square meters
of land in plaintiffs’ office on 8 December 1995.

6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free from all liens and
encumbrances and that no squatters or tenants occupied them.

7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants, pursued the purchase of
the subject parcels of lands. On 5 January 1996, plaintiffs sent a letter of even date to defendants, … setting the
date of sale and payment on 30 January 1996.

7.1 Defendants received the letter on 12 January 1996 but did not reply to it.

8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding execution of the Deed
of Sale.

8.1 Defendants received the same on 6 February 1996. Again, there was no reply. Defendants thus reneged
on their commitment a second time.

9. On 14 February 1996, defendant Fernandez sent a written communication of the same date to plaintiffs enclosing
therein a copy of her 16 January 1996 letter to plaintiffs which plaintiffs never received before. Defendant Fernandez
stated in her 16 January 1996 letter that despite the meeting of minds among the parties over the 33,990 square
meters of land for P150.00 per square meter on 27 November 1995, defendants suddenly had a change of heart
and no longer wished to sell the same. Paragraph 6 thereof unquestionably shows defendants’ previous agreement
as above-mentioned and their unjustified breach of their obligations under it. …

10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract to sell. …
 11. Plaintiffs intended to use the subject property for their subdivision project to support plaintiffs’ quarry operations,
processing of aggregate products and manufacture of construction materials. Consequently, by reason of
defendants’ failure to honor their just obligations, plaintiffs suffered, and continue to suffer, actual damages,
consisting in unrealized profits and cost of money, in the amount of at least P5 Million.

12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants’ fraudulent actuations for
which reason defendants are liable to plaintiffs for moral damages in the amount of at least P1.5 Million.

13. By reason of defendants’ above-described fraudulent actuations, plaintiffs, despite their willingness and ability
to pay the agreed purchase price, have to date been unable to take delivery of the title to the subject property.
Defendants acted in a wanton, fraudulent and malevolent manner in violating the contract to sell. By way of example
or correction for the public good, defendants are liable to plaintiff for exemplary damages in the amount of
P500,000.00.

14. Defendants’ bad faith and refusal to honor their just obligations to plaintiffs constrained the latter to litigate and
to engage the services of undersigned counsel for a fee in the amount of at least P250,000.00.14

The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering the respondents to –

a. Secure at defendants’ expense all clearances from the appropriate government agencies that will enable
defendants to comply with their obligations under the Contract to Sell;
b. Execute a Contract to Sell with terms agreed upon by the parties;
c. Solidarily pay the plaintiffs the following amounts:

1. P5,000,000.00 in actual damages;

2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorney’s fees.15

On July 5, 1996, respondent Fernandez filed her Answer to the complaint. 16 She claimed that while the petitioners offered
to buy the property during the meeting of November 27, 1995, she did not accept the offer; thus, no verbal contract to sell
was ever perfected. She specifically alleged that the said contract to sell was unenforceable for failure to comply with the
statute of frauds. She also maintained that even assuming arguendo that she had, indeed, made a commitment or promise
to sell the property to the petitioners, the same was not binding upon her in the absence of any consideration distinct and
separate from the price. She, thus, prayed that judgment be rendered as follows:

1. Dismissing the Complaint, with costs against the plaintiffs;

2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in the amount of not less than
P2,000,000.00 and exemplary damages in the amount of not less than P500,000.00 and attorney’s fees and
reimbursement expenses of litigation in the amount of P300,000.00.17

On September 24, 1997, the trial court, upon motion of the petitioners, declared the other respondents in default for failure
to file their responsive pleading within the reglementary period. 18 At the pre-trial conference held on March 2, 1998, the
parties agreed that the following issues were to be resolved by the trial court: (1) whether or not there was a perfected
contract to sell; (2) in the event that there was, indeed, a perfected contract to sell, whether or not the respondents breached
the said contract to sell; and (3) the corollary issue of damages.19

Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the properties in San Pablo City
"on a best offer basis." She was later informed by Alimario that the petitioners were interested to buy the properties. On
November 27, 1995, along with Alimario and another person, she met with the petitioners in the latter’s office and told them
that she was at the conference merely to hear their offer, that she could not bind the owners of the properties as she had
no written authority to sell the same. The petitioners offered to buy the property at P150 per square meter. After the meeting,
respondent Fernandez requested Joy Marquez to secure a barangay clearance stating that the property was free of any
tenants. She was surprised to learn that the clearance could not be secured. She contacted a cousin of hers, also one of
the owners of the property, and informed him that there was a prospective buyer of the property but that there were tenants
thereon. Her cousin told her that he was not selling his share of the property and that he was not agreeable to the price of
P150 per square meter. She no longer informed the other owners of the petitioners’ offer. Respondent Fernandez then
asked Alimario to apprise the petitioners of the foregoing developments, through their agent, Agapito Fisico. She was
surprised to receive a letter from the petitioners dated January 5, 1996. Nonetheless, she informed the petitioners that she
had changed her mind in pursuing the negotiations in a Letter dated January 18, 1996. When she received petitioners’
February 1, 1996 Letter, she sent a Reply-Letter dated February 14, 1996.

After trial on the merits, the trial court rendered judgment in favor of the petitioners on June 23, 1999, 20 the dispositive
portion of which reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of plaintiffs ANTONIO K.
LITONJUA and AURELIO K. LITONJUA and against defendants MARY MEDIATRIX T. FERNANDEZ, HEIRS OF
PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN DOES and JANE DOES; HEIRS OF
DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON, EVANGELINE
JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and
JANE DOES, ordering defendants to:

1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed upon by the parties and
to secure all clearances from the concerned government agencies and removal of any tenants from the
subject property at their expense to enable defendants to comply with their obligations under the perfected
agreement to sell; and

2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as and by way of attorney’s
fees.21

On appeal to the Court of Appeals, the respondents ascribed the following errors to the court a quo:

I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED CONTRACT OF SALE OF THE
TWO LOTS ON NOVEMBER 27, 1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF SALE AS CLAIMED BY
PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND AURELIO LITONJUA WAS UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-APPELLANT FERNANDEZ
DATED JANUARY 16, 1996 WAS A CONFIRMATION OF THE PERFECTED SALE AND CONSTITUTED AS
WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF ATTORNEY WAS
REQUIRED IN ORDER THAT DEFENDANT-APPELLANT FERNANDEZ COULD NEGOTIATE THE SALE ON
BEHALF OF THE OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING ATTORNEY’S FEES IN THE DISPOSITIVE PORTION OF THE
DECISION WITHOUT STATING THE BASIS IN THE TEXT OF SAID DECISION. 22

On February 28, 2001, the appellate court promulgated its decision reversing and setting aside the judgment of the trial
court and dismissing the petitioners’ complaint, as well as the respondents’ counterclaim. 23 The appellate court ruled that
the petitioners failed to prove that a sale or a contract to sell over the property between the petitioners and the private
respondent had been perfected.

Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The petitioners submit the following issues for the Court’s resolution:

A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE BENEFITED BY THE ASSAILED
DECISION OF THE COURT OF APPEALS.24

The petition has no merit.

The general rule is that the Court’s jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law
committed by the appellate court. As the findings of fact of the appellate court are deemed continued, this Court is not duty-
bound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo.25 This rule, however,
is not without exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or
contradictory.26 Indeed, in this case, the findings of the trial court and its conclusion based on the said findings contradict
those of the appellate court. However, upon careful review of the records of this case, we find no justification to grant the
petition. We, thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert that there was a perfected contract of sale between the
petitioners as buyers and the respondents-owners, through respondent Fernandez, as sellers. The petitioners contend that
the perfection of the said contract is evidenced by the January 16, 1996 Letter of respondent Fernandez. 27 The pertinent
portions of the said letter are as follows:

… [M]y cousin and I have thereby changed our mind and that the sale will no longer push through. I specifically
instructed her to inform you thru your broker that we will not be attending the meeting to be held sometime first
week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the property until all problems are
fully settled. We have not demanded and received from you any earnest money, thereby, no obligations exist… 28

The petitioners argue that the letter is a sufficient note or memorandum of the perfected contract, thus, removing it from the
coverage of the statute of frauds. The letter specifically makes reference to a sale which respondent Fernandez agreed to
initially, but which the latter withdrew because of the emergence of some people who claimed to be tenants on both parcels
of land. According to the petitioners, the respondents-owners, in their answer to the complaint, as well as respondent
Fernandez when she testified, admitted the authenticity and due execution of the said letter. Besides, when the petitioner
Antonio Litonjua testified on the contract of sale entered into between themselves and the respondents-owners, the latter
did not object thereto. Consequently, the respondents-owners thereby ratified the said contract of sale. The petitioners thus
contend that the appellate court’s declaration that there was no perfected contract of sale between the petitioners and the
respondents-owners is belied by the evidence, the pleadings of the parties, and the law.

The petitioners’ contention is bereft of merit. In its decision, the appellate court ruled that the Letter of respondent Fernandez
dated January 16, 1996 is hardly the note or memorandum contemplated under Article 1403(2)(e) of the New Civil Code,
which reads:

Art. 1403. The following contracts are unenforceable, unless they are ratified:
…
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or secondary evidence of its contents:
…
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of
an interest therein.29

The appellate court based its ruling on the following disquisitions:

In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said to constitute the note
or memorandum evidencing the agreement of the parties to enter into a contract of sale as it is very clear that
defendant-appellant as seller did not accept the condition that she will be the one to pay the registration fees and
miscellaneous expenses and therein also categorically denied she had already committed to execute the deed of
sale as claimed by the plaintiffs-appellees. The letter, in fact, stated the reasons beyond the control of the defendant-
appellant, why the sale could no longer push through – because of the problem with tenants. The trial court zeroed
in on the statement of the defendant-appellant that she and her cousin changed their minds, thereby concluding
that defendant-appellant had unilaterally cancelled the sale or backed out of her previous commitment. However,
the tenor of the letter actually reveals a consistent denial that there was any such commitment on the part of
defendant-appellant to sell the subject lands to plaintiffs-appellees. When defendant-appellant used the words
"changed our mind," she was clearly referring to the decision to sell the property at all (not necessarily to plaintiffs-
appellees) and not in selling the property to herein plaintiffs-appellees as defendant-appellant had not yet made the
final decision to sell the property to said plaintiffs-appellees. This conclusion is buttressed by the last paragraph of
the subject letter stating that "we are no longer selling the property until all problems are fully settled." To read a
definite previous agreement for the sale of the property in favor of plaintiffs-appellees into the contents of this letter
is to unduly restrict the freedom of the contracting parties to negotiate and prejudice the right of every property
owner to secure the best possible offer and terms in such sale transactions. We believe, therefore, that the trial
court committed a reversible error in finding that there was a perfected contract of sale or contract to sell under the
foregoing circumstances. Hence, the defendant-appellant may not be held liable in this action for specific
performance with damages.30
In Rosencor Development Corporation vs. Court of Appeals,31 the term "statute of frauds" is descriptive of statutes which
require certain classes of contracts to be in writing. The statute does not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it
enforceable. The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations, depending for their
existence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be
evidenced by a writing signed by the party to be charged. The statute is satisfied or, as it is often stated, a contract or
bargain is taken within the statute by making and executing a note or memorandum of the contract which is sufficient to
state the requirements of the statute.32 The application of such statute presupposes the existence of a perfected contract.
However, for a note or memorandum to satisfy the statute, it must be complete in itself and cannot rest partly in writing and
partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract
and a description of the property sufficient to render it capable of identification. 33 Such note or memorandum must contain
the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum
itself, or some other writing to which it refers or within which it is connected, without resorting to parol evidence. 34 To be
binding on the persons to be charged, such note or memorandum must be signed by the said party or by his agent duly
authorized in writing.35

In City of Cebu v. Heirs of Rubi,36 we held that the exchange of written correspondence between the parties may constitute
sufficient writing to evidence the agreement for purposes of complying with the statute of frauds.

In this case, we agree with the findings of the appellate court that there was no perfected contract of sale between the
respondents-owners, as sellers, and the petitioners, as buyers.

There is no documentary evidence on record that the respondents-owners specifically authorized respondent Fernandez to
sell their properties to another, including the petitioners. Article 1878 of the New Civil Code provides that a special power of
attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration,37 or to create or convey real rights over immovable property, 38 or for any other
act of strict dominion.39 Any sale of real property by one purporting to be the agent of the registered owner without any
authority therefor in writing from the said owner is null and void. 40 The declarations of the agent alone are generally
insufficient to establish the fact or extent of her authority. 41 In this case, the only evidence adduced by the petitioners to
prove that respondent Fernandez was authorized by the respondents-owners is the testimony of petitioner Antonio Litonjua
that respondent Fernandez openly represented herself to be the representative of the respondents-owners,42 and that she
promised to present to the petitioners on December 8, 1996 a written authority to sell the properties. 43 However, the
petitioners’ claim was belied by respondent Fernandez when she testified, thus:

Q Madam Witness, what else did you tell to the plaintiffs?

A I told them that I was there representing myself as one of the owners of the properties, and I was just there to
listen to his proposal because that time, we were just looking for the best offer and I did not have yet any written
authorities from my brother and sisters and relatives. I cannot agree on anything yet since it is just a preliminary
meeting, and so, I have to secure authorities and relate the matters to my relatives, brother and sisters, sir.

Q And what else was taken up?

A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested me to come back on
the first week of December and in the meantime, I should make an assurance that there are no tenants in our
properties, sir.44

The petitioners cannot feign ignorance of respondent Fernandez’ lack of authority to sell the properties for the respondents-
owners. It must be stressed that the petitioners are noted businessmen who ought to be very familiar with the intricacies of
business transactions, such as the sale of real property.

The settled rule is that persons dealing with an assumed agent are bound at their peril, and if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to prove it.45 In this case, respondent Fernandez specifically denied that she was authorized
by the respondents-owners to sell the properties, both in her answer to the complaint and when she testified. The Letter
dated January 16, 1996 relied upon by the petitioners was signed by respondent Fernandez alone, without any authority
from the respondents-owners. There is no evidence on record that the respondents-owners ratified all the actuations of
respondent Fernandez in connection with her dealings with the petitioners. As such, said letter is not binding on the
respondents as owners of the subject properties.
Contrary to the petitioners’ contention, the letter of January 16, 199646 is not a note or memorandum within the context of
Article 1403(2) because it does not contain the following: (a) all the essential terms and conditions of the sale of the
properties; (b) an accurate description of the property subject of the sale; and, (c) the names of the respondents-owners of
the properties. Furthermore, the letter made reference to only one property, that covered by TCT No. T-36755.

We note that the petitioners themselves were uncertain as to the specific area of the properties they were seeking to buy.
In their complaint, they alleged to have agreed to buy from the respondents-owners 33,990 square meters of the total
acreage of the two lots consisting of 36,742 square meters. In their Letter to respondent Fernandez dated January 5, 1996,
the petitioners stated that they agreed to buy the two lots, with a total area of 36,742 square meters.47 However, in their
Letter dated February 1, 1996, the petitioners declared that they agreed to buy a portion of the properties consisting of
33,990 square meters.48 When he testified, petitioner Antonio Litonjua declared that the petitioners agreed to buy from the
respondents-owners 36,742 square meters at P150 per square meter or for the total price of P5,098,500.49

The failure of respondent Fernandez to object to parol evidence to prove (a) the essential terms and conditions of the
contract asserted by the petitioners and, (b) her authority to sell the properties for the respondents-registered owners did
not and should not prejudice the respondents-owners who had been declared in default.50

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the appellate court is AFFIRMED IN TOTO.
Costs against the petitioners. SO ORDERED.

Article 1883 – Acts of Agent in his own name; Right of Action of Parties

G.R. No. 167812 December 19, 2006

JESUS M. GOZUN, petitioner, vs. JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO MERCADO, respondent.

CARPIO MORALES, J.:

On challenge via petition for review on certiorari is the Court of Appeals’ Decision of December 8, 2004 and Resolution of
April 14, 2005 in CA-G.R. CV No. 763091 reversing the trial court’s decision2 against Jose Teofilo T. Mercado a.k.a. Don
Pepito Mercado (respondent) and accordingly dismissing the complaint of Jesus M. Gozun (petitioner).

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondent’s request,
petitioner, owner of JMG Publishing House, a printing shop located in San Fernando, Pampanga, submitted to respondent
draft samples and price quotation of campaign materials.

By petitioner’s claim, respondent’s wife had told him that respondent already approved his price quotation and that he could
start printing the campaign materials, hence, he did print campaign materials like posters bearing respondent’s
photograph,3 leaflets containing the slate of party candidates, 4 sample ballots,5 poll watcher identification cards,6 and
stickers.

Given the urgency and limited time to do the job order, petitioner availed of the services and facilities of Metro Angeles
Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun and mother Epifania Macalino Gozun,
respectively.7

Petitioner delivered the campaign materials to respondent’s headquarters along Gapan-Olongapo Road in San Fernando,
Pampanga.8

Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian) obtained from petitioner "cash advance"
of P253,000 allegedly for the allowances of poll watchers who were attending a seminar and for other related expenses.
Lilian acknowledged on petitioner’s 1995 diary9 receipt of the amount.10

Petitioner later sent respondent a Statement of Account11 in the total amount of P2,177,906 itemized as follows: P640,310
for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000,
the "cash advance" obtained by Lilian.

On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who issued a receipt12 therefor.
Despite repeated demands and respondent’s promise to pay, respondent failed to settle the balance of his account to
petitioner.

Petitioner and respondent being compadres, they having been principal sponsors at the weddings of their respective
daughters, waited for more than three (3) years for respondent to honor his promise but to no avail, compelling petitioner to
endorse the matter to his counsel who sent respondent a demand letter.13 Respondent, however, failed to heed the
demand.14

Petitioner thus filed with the Regional Trial Court of Angeles City on November 25, 1998 a complaint 15 against respondent
to collect the remaining amount of P1,177,906 plus "inflationary adjustment" and attorney’s fees.

In his Answer with Compulsory Counterclaim,16 respondent denied having transacted with petitioner or entering into any
contract for the printing of campaign materials. He alleged that the various campaign materials delivered to him were
represented as donations from his family, friends and political supporters. He added that all contracts involving his personal
expenses were coursed through and signed by him to ensure compliance with pertinent election laws.

On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from him a cash advance of P253,000,
respondent denied having given her authority to do so and having received the same.

At the witness stand, respondent, reiterating his allegations in his Answer, claimed that petitioner was his over-all coordinator
in charge of the conduct of seminars for volunteers and the monitoring of other matters bearing on his candidacy; and that
while his campaign manager, Juanito "Johnny" Cabalu (Cabalu), who was authorized to approve details with regard to
printing materials, presented him some campaign materials, those were partly donated. 17

When confronted with the official receipt issued to his wife acknowledging her payment to JMG Publishing House of the
amount of P1,000,000, respondent claimed that it was his first time to see the receipt, albeit he belatedly came to know
from his wife and Cabalu that the P1,000,000 represented "compensation [to petitioner] who helped a lot in the campaign
as a gesture of goodwill."18

Acknowledging that petitioner is engaged in the printing business, respondent explained that he sometimes discussed with
petitioner strategies relating to his candidacy, he (petitioner) having actively volunteered to help in his campaign; that his
wife was not authorized to enter into a contract with petitioner regarding campaign materials as she knew her limitations;
that he no longer questioned the P1,000,000 his wife gave petitioner as he thought that it was just proper to compensate
him for a job well done; and that he came to know about petitioner’s claim against him only after receiving a copy of the
complaint, which surprised him because he knew fully well that the campaign materials were donations. 19

Upon questioning by the trial court, respondent could not, however, confirm if it was his understanding that the campaign
materials delivered by petitioner were donations from third parties.20

Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is donated, it must be so stated
on its face, acknowledged that nothing of that sort was written on all the materials made by petitioner. 21

As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of evidence, the Court hereby
renders a decision in favor of the plaintiff ordering the defendant as follows:

1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the filing of this complaint until
fully paid;
2. To pay the sum of P50,000.00 as attorney’s fees and the costs of suit.

SO ORDERED.22

Also as earlier adverted to, the Court of Appeals reversed the trial court’s decision and dismissed the complaint for lack of
cause of action.

In reversing the trial court’s decision, the Court of Appeals held that other than petitioner’s testimony, there was no evidence
to support his claim that Lilian was authorized by respondent to borrow money on his behalf. It noted that the
acknowledgment receipt23 signed by Lilian did not specify in what capacity she received the money. Thus, applying Article
131724 of the Civil Code, it held that petitioner’s claim for P253,000 is unenforceable.

On the accounts claimed to be due JMG Publishing House – P640,310, Metro Angeles Printing – P837,696, and St. Joseph
Printing Press – P446,900, the appellate court, noting that since the owners of the last two printing presses were not
impleaded as parties to the case and it was not shown that petitioner was authorized to prosecute the same in their behalf,
held that petitioner could not collect the amounts due them.

Finally, the appellate court, noting that respondent’s wife had paid P1,000,000 to petitioner, the latter’s claim of P640,310
(after excluding the P253,000) had already been settled.

Hence, the present petition, faulting the appellate court to have erred:

1. . . . when it dismissed the complaint on the ground that there is no evidence, other than petitioner’s own testimony,
to prove that Lilian R. Soriano was authorized by the respondent to receive the cash advance from the petitioner in
the amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro Angeles Press and St. Joseph
Printing Press on the ground that the complaint was not brought by the real party in interest.

x x x x25

By the contract of agency a person binds himself to render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter. 26 Contracts entered into in the name of another person by one who
has been given no authority or legal representation or who has acted beyond his powers are classified as unauthorized
contracts and are declared unenforceable, unless they are ratified.27

Generally, the agency may be oral, unless the law requires a specific form. 28 However, a special power of attorney is
necessary for an agent to, as in this case, borrow money, unless it be urgent and indispensable for the preservation of the
things which are under administration.29 Since nothing in this case involves the preservation of things under administration,
a determination of whether Soriano had the special authority to borrow money on behalf of respondent is in order.

Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of attorney refers to the nature of the authorization
and not to its form.

. . . The requirements are met if there is a clear mandate from the principal specifically authorizing the performance
of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may
be either oral or written. The one thing vital being that it shall be express. And more recently, We stated that, if the
special authority is not written, then it must be duly established by evidence:

"…the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while the
same does not state that the special authority be in writing the Court has every reason to expect that, if not in writing,
the same be duly established by evidence other than the self-serving assertion of counsel himself that such authority
was verbally given him."31 (Emphasis and underscoring supplied)

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a loan
from him, viz:

Q : Another caption appearing on Exhibit "A" is cash advance, it states given on 3-31-95 received by Mrs. Lilian
Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00, will you kindly tell the Court and explain what
does that caption means?

A : It is the amount representing the money borrowed from me by the defendant when one morning they came
very early and talked to me and told me that they were not able to go to the bank to get money for the allowances
of Poll Watchers who were having a seminar at the headquarters plus other election related expenses during that
day, sir.

Q : Considering that this is a substantial amount which according to you was taken by Lilian Soriano, did you happen
to make her acknowledge the amount at that time?
 A : Yes, sir.32 (Emphasis supplied)

Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent or of his
wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked as Exhibit "A" states
that the amount was received by Lilian "in behalf of Mrs. Annie Mercado."

Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that he had authorized Lilian to
obtain the loan, hence, following Macke v. Camps34 which holds that one who clothes another with apparent authority
as his agent, and holds him out to the public as such, respondent cannot be permitted to deny the authority.

Petitioner’s submission does not persuade. As the appellate court observed:

. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support his claim unfortunately
only indicates the Two Hundred Fifty Three Thousand Pesos (P253,0000.00) was received by one Lilian R. Soriano
on 31 March 1995, but without specifying for what reason the said amount was delivered and in what capacity did
Lilian R. Soriano received [sic] the money. The note reads:

"3-31-95
261,120 ADVANCE MONEY FOR TRAINEE –
RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO HUNDRED FIFTY THREE THOUSAND PESOS
(SIGNED)
LILIAN R. SORIANO
3-31-95"

Nowhere in the note can it be inferred that defendant-appellant was connected with the said transaction. Under
Article 1317 of the New Civil Code, a person cannot be bound by contracts he did not authorize to be entered into
his behalf.35 (Underscoring supplied)

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for and in
behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or anyone for that
matter.

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the
agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the
name of the principal. x x x36 (Emphasis and underscoring supplied)

On the amount due him and the other two printing presses, petitioner explains that he was the one who personally and
directly contracted with respondent and he merely sub-contracted the two printing establishments in order to deliver on time
the campaign materials ordered by respondent.

Respondent counters that the claim of sub-contracting is a change in petitioner’s theory of the case which is not allowed on
appeal.

In Oco v. Limbaring,37 this Court ruled:

The parties to a contract are the real parties in interest in an action upon it, as consistently held by the Court. Only
the contracting parties are bound by the stipulations in the contract; they are the ones who would benefit from and
could violate it. Thus, one who is not a party to a contract, and for whose benefit it was not expressly made, cannot
maintain an action on it. One cannot do so, even if the contract performed by the contracting parties would
incidentally inure to one's benefit.38 (Underscoring supplied)

In light thereof, petitioner is the real party in interest in this case. The trial court’s findings on the matter were affirmed by
the appellate court.39 It erred, however, in not declaring petitioner as a real party in interest insofar as recovery of the cost
of campaign materials made by petitioner’s mother and sister are concerned, upon the wrong notion that they should have
been, but were not, impleaded as plaintiffs.
In sum, respondent has the obligation to pay the total cost of printing his campaign materials delivered by petitioner in the
total of P1,924,906, less the partial payment of P1,000,000, or P924,906.

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the Resolution dated April 14, 2005
of the Court of Appeals are hereby REVERSED and SET ASIDE.

The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is REINSTATED mutatis mutandis, in
light of the foregoing discussions. The trial court’s decision is modified in that the amount payable by respondent to petitioner
is reduced to P924,906. SO ORDERED.

3.

G.R. No. 95703 August 3, 1992

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,

vs. HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S.
AQUINO, respondents.

GRIÑO-AQUINO, J.:

This petition for review seeks reversal of the decision dated September 18, 1990 of the Court of Appeals, reversing the
decision of the Regional Trial Court of Makati, Branch 150, which dismissed the private respondents' complaint and awarded
damages to the petitioner, Rural Bank of Bombon.

On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special power of attorney in favor of
Rufina S. Aquino authorizing him:

1. To secure a loan from any bank or lending institution for any amount or otherwise mortgage the property
covered by Transfer Certificate of Title No. S-79238 situated at Las Piñas, Rizal, the same being my
paraphernal property, and in that connection, to sign, or execute any deed of mortgage and sign other
document requisite and necessary in securing said loan and to receive the proceeds thereof in cash or in
check and to sign the receipt therefor and thereafter endorse the check representing the proceeds of loan.
(p. 10, Rollo.)

Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of Transfer Certificate of
Title No. S-79238 (19963-A).

On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of the Rural Bank of
Bombon (Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the three parcels of land covered by TCT No. S-
79238. The deed stated that the property was being given as security for the payment of "certain loans, advances, or other
accommodations obtained by the mortgagor from the mortgagee in the total sum of Three Hundred Fifty Thousand Pesos
only (P350,000.00), plus interest at the rate of fourteen (14%) per annum . . ." (p. 11, Rollo).

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against Rufino Aquino and the Bank
because Aquino allegedly left his residence at San Pascual, Hagonoy, Bulacan, and transferred to an unknown place in
Bicol. She discovered that Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and then later, at San Vicente,
Calabanga, Camarines Sur, and that they (plaintiffs) were allegedly surprised to discover that the property was mortgaged
to pay personal loans obtained by Aquino from the Bank solely for personal use and benefit of Aquino; that the mortgagor
in the deed was defendant Aquino instead of plaintiff Gallardo whose address up to now is Manuyo, Las Piñas, M.M., per
the title (TCT No. S-79238) and in the deed vesting power of attorney to Aquino; that correspondence relative to the
mortgage was sent to Aquino's address at "Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address at
Las Piñas, Metro Manila; and that defendant Aquino, in the real estate mortgage, appointed defendant Rural Bank as
attorney in fact, and in case of judicial foreclosure as receiver with corresponding power to sell and that although without
any express authority from Gallardo, defendant Aquino waived Gallardo's rights under Section 12, Rule 39, of the Rules of
Court and the proper venue of the foreclosure suit.

On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily restrained the Rural Bank "from
enforcing the real estate mortgage and from foreclosing it either judicially or extrajudicially until further orders from the court"
(p.36, Rollo).
Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a bank so that he could use
the proceeds to liquidate her obligation of P350,000 to him. The obligation to pay the Rural Bank devolved on Gallardo. Of
late, however, she asked him to pay the Bank but defendant Aquino set terms and conditions which plaintiff did not agree
to. Aquino asked for payment to him of moral damages in the sum of P50,000 and lawyer's fees of P35,000.

The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses, exemplary damages, and
attorney's fees. It also filed a crossclaim against Aquino for P350,000 with interest, other bank charges and damages if the
mortgage be declared unauthorized.

Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Rufino Aquino for "Foreclosure
of Mortgage" docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On motion of the plaintiff, the foreclosure case
and the annulment case (Civil Case No. 6062) were consolidated.

On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062, dismissing the complaint for
annulment of mortgage and declaring the Rural Bank entitled to damages the amount of which will be determined in
appropriate proceedings. The court lifted the writ of preliminary injunction it previously issued.

On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure proceedings until after
the decision in the annulment case (Civil Case No. 6062) shall have become final and executory.

The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September 18, 1990, reversed the trial court.
The dispositive portion of the decision reads:

UPON ALL THESE, the summary judgment entered by the lower court is hereby REVERSED and in lieu
thereof, judgment is hereby RENDERED, declaring the deed of real estate mortgage dated August 26,
1981, executed between Rufino S. Aquino with the marital consent of his wife Bibiana Aquino with the
appellee Rural Bank of Bombon, Camarines Sur, unauthorized, void and unenforceable against plaintiff
Ederlinda Gallardo; ordering the reinstatement of the preliminary injunction issued at the onset of the case
and at the same time, ordering said injunction made permanent.

Appellee Rural Bank to pay the costs. (p. 46, Rollo.)

Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court of Appeals erred:
1. in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and unenforceable against
the private respondent Ederlinda Gallardo; and
2. in not upholding the validity of the Real Estate Mortgage executed by Rufino S. Aquino as attorney-in-
fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam. Sur), Inc.

Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate Mortgage dated August 26,
1981, executed by Rufino S. Aquino, as attorney-in-fact of Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam.
Sur), Inc.

The Rural Bank contends that the real estate mortgage executed by respondent Aquino is valid because he was expressly
authorized by Gallardo to mortgage her property under the special power of attorney she made in his favor which was duly
registered and annotated on Gallardo's title. Since the Special Power of Attorney did not specify or indicate that the loan
would be for Gallardo's benefit, then it could be for the use and benefit of the attorney-in-fact, Aquino.

However, the Court of Appeals ruled otherwise. It held:

The Special Power of Attorney above quoted shows the extent of authority given by the plaintiff to defendant
Aquino. But defendant Aquino in executing the deed of Real Estate Mortgage in favor of the rural bank over
the three parcels of land covered by Gallardo's title named himself as the mortgagor without stating that his
signature on the deed was for and in behalf of Ederlinda Gallardo in his capacity as her attorney-in-fact.

At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H. Gallardo," thus: " (T)his
MORTGAGE executed by Rufino S. Aquino attorney in fact of Ederlinda H. Gallardo, of legal age, Filipino,
married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but which of itself, was merely
descriptive of the person of defendant Aquino. Defendant Aquino even signed it plainly as mortgagor with
the marital consent yet of his wife Bibiana P. Aquino who signed the deed as "wife of mortgagor."
 xxx xxx xxx

The three (3) promissory notes respectively dated August 31, 1981, September 23, 1981 and October 26,
1981, were each signed by Rufino Aquino on top of a line beneath which is written "signature of mortgagor"
and by Bibiana P. Aquino on top of a line under which is written "signature of spouse," without any mention
that execution thereof was for and in behalf of the plaintiff as mortgagor. It results, borne out from what
were written on the deed, that the amounts were the personal loans of defendant Aquino. As pointed out
by the appellant, Aquino's wife has not been appointed co-agent of defendant Aquino and her signature on
the deed and on the promissory notes can only mean that the obligation was personally incurred by them
and for their own personal account.

The deed of mortgage stipulated that the amount obtained from the loans shall be used or applied only for
"fishpond (bangus and sugpo production)." As pointed out by the plaintiff, the defendant Rural Bank in its
Answer had not categorically denied the allegation in the complaint that defendant Aquino in the deed of
mortgage was the intended user and beneficiary of the loans and not the plaintiff. And the special power of
attorney could not be stretched to include the authority to obtain a loan in said defendant Aquino's own
benefit. (pp. 40-41, Rollo.)

The decision of the Court of Appeals is correct. This case is governed by the general rule in the law of agency which this
Court, applied in "Philippine Sugar Estates Development Co. vs. Poizat," 48 Phil. 536, 538:

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized
to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily sufficient that
in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent
has acted in his own name and has set his own hand and seal to the mortgage. This is especially true
where the agent himself is a party to the instrument. However clearly the body of the mortgage may show
and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on
behalf of his principal and as the act and deed of the principal, it is not valid as to the principal.

In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, without any
indication that he was signing for and in behalf of the property owner, Ederlinda Gallardo, bound himself alone in his personal
capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo. The Court of Appeals further
observed:

It will also be observed that the deed of mortgage was executed on August 26, 1981 therein clearly
stipulating that it was being executed "as security for the payment of certain loans, advances or other
accommodation obtained by the Mortgagor from the Mortgagee in the total sum of Three Hundred Fifty
Thousand Pesos only (P350,000.00)" although at the time no such loan or advance had been obtained.
The promissory notes were dated August 31, September 23 and October 26, 1981 which were subsequent
to the execution of the deed of mortgage. The appellant is correct in claiming that the defendant Rural Bank
should not have agreed to extend or constitute the mortgage on the properties of Gallardo who had no
existing indebtedness with it at the time.
Under the facts the defendant Rural Bank appeared to have ignored the representative capacity of Aquino
and dealt with him and his wife in their personal capacities. Said appellee Rural Bank also did not conduct
an inquiry on whether the subject loans were to benefit the interest of the principal (plaintiff Gallardo) rather
than that of the agent although the deed of mortgage was explicit that the loan was for purpose of the
bangus and sugpo production of defendant Aquino.
In effect, with the execution of the mortgage under the circumstances and assuming it to be valid but
because the loan taken was to be used exclusively for Aquino's business in the "bangus" and "sugpo"
production, Gallardo in effect becomes a surety who is made primarily answerable for loans taken by Aquino
in his personal capacity in the event Aquino defaults in such payment. Under Art. 1878 of the Civil Code,
to obligate the principal as a guarantor or surety, a special power of attorney is required. No such special
power of attorney for Gallardo to be a surety of Aquino had been executed. (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since it was executed in accordance
with Article 1883 which 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 above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to the case at bar. Herein
respondent Aquino acted purportedly as an agent of Gallardo, but actually acted in his personal capacity. Involved herein
are properties titled in the name of respondent Gallardo against which the Bank proposes to foreclose the mortgage
constituted by an agent (Aquino) acting in his personal capacity. Under these circumstances, we hold, as we did in Philippine
Sugar Estates Development Co. vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage:

There is no principle of law by which a person can become liable on a real mortgage which she never
executed either in person or by attorney in fact. It should be noted that this is a mortgage upon real property,
the title to which cannot be divested except by sale on execution or the formalities of a will or deed. For
such reasons, the law requires that a power of attorney to mortgage or sell real property should be executed
with all of the formalities required in a deed. For the same reason that the personal signature of Poizat,
standing alone, would not convey the title of his wife in her own real property, such a signature would not
bind her as a mortgagor in real property, the title to which was in her name. (p. 548.)

WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in toto. Costs against the
petitioner. SO ORDERED.

Article 1884 – General Obligations of an Agent to Principal

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.

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 mortage on the aforementioned
motor vehicle. On July 25, 1977, Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to B.A.
Finance Corporation. The Cuadys paid a total of P36,730.15 to the B.A. Finance Corporation, thus leaving an unpaid
balance of P2,344.65 as of July 18, 1980. In addition thereto, the Cuadys owe B.A. Finance Corporation P460.00
representing penalties or surcharges for tardy monthly installments (Rollo, pp. 27-29).

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

On April 18, 1980, the aforementioned motor vehicle figured in an accident and was badly damaged. The unfortunate
happening was reported to the B.A. Finance Corporation and to the insurer, Zenith Insurance Corporation. The Cuadys
asked the B.A. Finance Corporation to consider the same as a total loss, and to claim from the insurer the face value of the
car insurance policy and apply the same to the payment of their remaining account and give them the surplus thereof, if
any. But instead of heeding the request of the Cuadys, B.A. Finance Corporation prevailed upon the former to just have the
car repaired. Not long thereafter, however, the car bogged down. The Cuadys wrote B.A. Finance Corporation requesting
the latter to pursue their prior instruction of enforcing the total loss provision in the insurance coverage. When B.A. Finance
Corporation did not respond favorably to their request, the Cuadys stopped paying their monthly installments on the
promissory note (Ibid., pp. 45).
On June 29, 1982, in view of the failure of the Cuadys to pay the remaining installments on the note, B.A. Finance
Corporation sued them in the Regional Trial Court of Manila, Branch 43, for the recovery of the said remaining installments
(Memorandum for the Petitioner, p. 1).

After the termination of the pre-trial conference, the case was set for trial on the merits on April 25, 1984. B.A. Finance
Corporation's evidence was presented on even date and the presentation of Cuady's evidence was set on August 15, 1984.
On August 7,1984, Atty. Noel Ebarle, counsel for the petitioner, filed a motion for postponement, the reason being that the
"handling" counsel, Atty. Ferdinand Macibay was temporarily assigned in Cebu City and would not be back until after August
15, 1984. Said motion was, however, denied by the trial court on August 10, 1984. On August 15, 1984, the date of hearing,
the trial court allowed private respondents to adduce evidence ex-parte in the form of an affidavit to be sworn to before any
authorized officer. B.A. Finance Corporation filed a motion for reconsideration of the order of the trial court denying its
motion for postponement. Said motion was granted in an order dated September 26, 1984, thus:

The Court grants plaintiff's motion for reconsideration dated August 22, 1984, in the sense that plaintiff is allowed
to adduce evidence in the form of counter-affidavits of its witnesses, to be sworn to before any person authorized
to administer oaths, within ten days from notice hereof. (Ibid., pp. 1-2).

B.A. Finance Corporation, however, never complied with the above-mentioned order, paving the way for the trial court to
render its decision on January 18, 1985, the dispositive portion of which reads as follows:

IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.SO ORDERED. (Rollo, p. 143)

On appeal, the respondent appellate court * affirmed the decision of the trial court. The decretal portion of the said decision
reads as follows:

WHEREFORE, after consultation among the undersigned members of this Division, in compliance with the provision
of Section 13, Article VIII of the Constitution; and finding no reversible error in the judgment appealed from, the
same is hereby AFFIRMED, without any pronouncement as to costs. (Ibid., p. 33)

B.A. Finance Corporation moved for the reconsideration of the above decision, but the motion was denied by the respondent
appellate court in a resolution dated February 9, 1988 (Ibid., p. 38).

Hence, this present recourse.

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

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

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

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

The petition is devoid of merit.

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

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:

... Under the established facts and circumstances, it is unjust, unfair and 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. ... (Ibid.)

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 on appeal. A review of the records of the case shows that B.A. Finance
Corporation failed to directly raise or ventilate in the trial court nor in the respondent appellate court the validity of the
evidence adduced ex-parte by private respondents. It was only when the petitioner filed the instant petition with this Court
that it later raised the aforementioned issue. As ruled by this Court in a long line of cases, issues not raised and/or ventilated
in the trial court, let alone in the Court of Appeals, cannot be raised for the first time on appeal as it would be offensive to
the basic rules of fair play, justice and due process (Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate Appellate
Court, 175 SCRA 70 [1989]; Dulos Realty & Development Corporation v. Court of Appeals, 157 SCRA 425 [1988];
Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987]; De la Santa v. Court of Appeals, et al., 140 SCRA 44
[1985]).

PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed from is AFFIRMED. SO ORDERED.
 Article 1892 – Appointment of Sub-Agent; Sub-Agent Defined

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
G.R. No. 130423 November 18, 2002

YNARES-SANTIAGO, J.:

During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to petitioner Virgie
Serona to be sold on commission basis. By oral agreement of the parties, petitioner shall remit payment or return the pieces
of jewelry if not sold to Quilatan, both within 30 days from receipt of the items.

Upon petitioner’s failure to pay on September 24, 1992, Quilatan required her to execute an acknowledgment receipt (Exhibit
B) indicating their agreement and the total amount due, to wit:

Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay Gng. Leonida Quilatan
na may kabuohang halaga na P567,750.00 para ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o
ibabalik sa kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw.

Las Pinas, September 24, 1992.1

The receipt was signed by petitioner and a witness, Rufina G. Navarette.

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the latter to sell on commission
basis. Petitioner was not able to collect payment from Labrador, which caused her to likewise fail to pay her obligation to
Quilatan.

Subsequently, Quilatan, through counsel, sent a formal letter of demand 2 to petitioner for failure to settle her obligation.
Quilatan executed a complaint affidavit3 against petitioner before the Office of the Assistant Provincial Prosecutor.
Thereafter, an information for estafa under Article 315, paragraph 1(b) 4 of the Revised Penal Code was filed against
petitioner, which was raffled to Branch 255 of the Regional Trial Court of Las Pinas. The information alleged:

That on or about and sometime during the period from July 1992 up to September 1992, in the Municipality of Las Pinas,
Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the said accused received in trust from the
complainant Leonida E. Quilatan various pieces of jewelry in the total value of P567,750.00 to be sold on commission basis
under the express duty and obligation of remitting the proceeds thereof to the said complainant if sold or returning the same
to the latter if unsold but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and
abuse of confidence and with intent to defraud, did then and there willfully, unlawfully and feloniously misappropriate and
convert the same for her own personal use and benefit and despite oral and written demands, she failed and refused to
account for said jewelry or the proceeds of sale thereof, to the damage and prejudice of complainant Leonida E. Quilatan
in the aforestated total amount of P567,750.00.

CONTRARY TO LAW.5

Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on the merits thereafter ensued.

Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of jewelriy;7 that at the start,
petitioner was prompt in settling her obligation; however, subsequently the payments were remitted late; 8that petitioner still
owed her in the amount of P424,750.00.9

On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and that she indeed failed
to pay for the same. She claimed that she entrusted the pieces of jewelry to Marichu Labrador who failed to pay for the
same, thereby causing her to default in paying Quilatan.10 She presented handwritten receipts (Exhibits 1 & 2)11 evidencing
payments made to Quilatan prior to the filing of the criminal case.

Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00. She identified an
acknowledgment receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified that she sold the jewelry to a person
who absconded without paying her. Labrador also explained that in the past, she too had directly transacted with Quilatan
for the sale of jewelry on commission basis; however, due to her outstanding account with the latter, she got jewelry from
petitioner instead.13

On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the dispositive portion of which
reads:

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond reasonable doubt, and
as the amount misappropriated is P424,750.00 the penalty provided under the first paragraph of Article 315 of the Revised
Penal Code has to be imposed which shall be in the maximum period plus one (1) year for every additional P10,000.00.

Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of imprisonment
ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to TEN (10) YEARS and ONE (1)
DAY of prision mayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the
accessory penalties provided by law; and to pay the costs.

SO ORDERED.14

Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the penalty as follows:

WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of the crime of estafa
is hereby AFFIRMED with the following MODIFICATION:

Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum period adding one (1)
year for each additional P10,000.00 albeit the total penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-
appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging from Four (4) Years and One (1) Day
of Prision Correccional as minimum to Twenty (20) Years of Reclusion Temporal.

SO ORDERED.15

Upon denial of her motion for reconsideration,16 petitioner filed the instant petition under Rule 45, alleging that:

I RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS AN ABUSE
OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-
AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.

II RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS

MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO RETURN THE
SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.17

Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under Article 315, par. 1(b) of
the Revised Penal Code. In particular, she submits that she neither abused the confidence reposed upon her by Quilatan
nor converted or misappropriated the subject jewelry; that her giving the pieces of jewelry to a sub-agent for sale on
commission basis did not violate her undertaking with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under
the same terms upon which it was originally entrusted to her. It was established that petitioner had not derived any personal
benefit from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or converted the same.

We find merit in the petition.

The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of the Revised Penal
Code are: (1) that the money, good or other personal property is received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to return, the same; (2) that there be
misappropriation or conversion of such money or property by the offender or denial on his part of such receipt; (3) that such
misappropriation or conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended
party on the offender.18 While the first, third and fourth elements are concededly present, we find the second element of
misappropriation or conversion to be lacking in the case at bar.

Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by delivering the jewelry to
a sub-agent for sale on commission basis. We are unable to agree with the lower courts’ conclusion that this fact alone is
sufficient ground for holding that petitioner disposed of the jewelry "as if it were hers, thereby committing conversion and a
clear breach of trust."19

It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a substitute or sub-
agent in the absence of an express agreement to the contrary between the agent and the principal. 20 In the case at bar, the
appointment of Labrador as petitioner’s sub-agent was not expressly prohibited by Quilatan, as the acknowledgment receipt,
Exhibit B, does not contain any such limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan
from passing on the jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus,
it cannot be said that petitioner’s act of entrusting the jewelry to Labrador is characterized by abuse of confidence because
such an act was not proscribed and is, in fact, legally sanctioned.

The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or property received to the
prejudice of the owner. The words "convert" and "misappropriated" connote an act of using or disposing of another’s property
as if it were one’s own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for one’s
own use includes not only conversion to one’s personal advantage, but also every attempt to dispose of the property of
another without right.21

In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to return either the
pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn, to the failure of Labrador to abide by
her agreement with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in behalf of petitioner
also on commission basis or to return the same if not sold. In other words, the pieces of jewelry were given by petitioner to
Labrador to achieve the very same end for which they were delivered to her in the first place. Consequently, there is no
conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed upon.

Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador "without right." Aside
from the fact that no condition or limitation was imposed on the mode or manner by which petitioner was to effect the sale,
it is also consistent with usual practice for the seller to necessarily part with the valuables in order to find a buyer and allow
inspection of the items for sale.

In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the instant case. Accused-
appellant therein undertook to sell two diamond rings in behalf of the complainant on commission basis, with the obligation
to return the same in a few days if not sold. However, by reason of the fact that the rings were delivered also for sale on
commission to sub-agents who failed to account for the rings or the proceeds of its sale, accused-appellant likewise failed
to make good his obligation to the complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant
of the crime charged, we held:

Where, as in the present case, the agents to whom personal property was entrusted for sale, conclusively proves the inability
to return the same is solely due to malfeasance of a subagent to whom the first agent had actually entrusted the property
in good faith, and for the same purpose for which it was received; there being no prohibition to do so and the chattel being
delivered to the subagent before the owner demands its return or before such return becomes due, we hold that the first
agent can not be held guilty of estafa by either misappropriation or conversion. The abuse of confidence that is characteristic
of this offense is missing under the circumstances.23

Accordingly, petitioner herein must be acquitted. The lower courts’ reliance on People v. Flores24 and U.S. v. Panes25 to
justify petitioner’s conviction is misplaced, considering that the factual background of the cited cases differ from those which
obtain in the case at bar. In Flores, the accused received a ring to sell under the condition that she would return it the
following day if not sold and without authority to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile,
was obliged to return the jewelry he received upon demand, but passed on the same to a sub-agent even after demand for
its return had already been made. In the foregoing cases, it was held that there was conversion or misappropriation.

Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case of People v. Trinidad,27 held that:

In cases of estafa the profit or gain must be obtained by the accused personally, through his own acts, and his mere
negligence in permitting another to take advantage or benefit from the entrusted chattel cannot constitute estafa under
Article 315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence should disclose that the agent acted
in conspiracy or connivance with the one who carried out the actual misappropriation, then the accused would be
answerable for the acts of his co-conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear
that the accused herself was the innocent victim of her sub-agent’s faithlessness, her acquittal is in order.28 (Italics copied)
Labrador admitted that she received the jewelry from petitioner and sold the same to a third person. She further
acknowledged that she owed petitioner P441,035.00, thereby negating any criminal intent on the part of petitioner. There is
no showing that petitioner derived personal benefit from or conspired with Labrador to deprive Quilatan of the jewelry or its
value. Consequently, there is no estafa within contemplation of the law.

Notwithstanding the above, however, petitioner is not entirely free from any liability towards Quilatan. The rule is that an
accused acquitted of estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant.
Then too, an agent who is not prohibited from appointing a sub-agent but does so without express authority is responsible
for the acts of the sub-agent.29 Considering that the civil action for the recovery of civil liability arising from the offense is
deemed instituted with the criminal action,30 petitioner is liable to pay complainant Quilatan the value of the unpaid pieces
of jewelry.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No. 17222 dated April
30,1997 and its resolution dated August 28, 1997 are REVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED
of the crime charged, but is held civilly liable in the amount of P424,750.00 as actual damages, plus legal interest, without
subsidiary imprisonment in case of insolvency.

SO ORDERED.