G.R. No. 140667             August 12, 2004

WOODCHILD HOLDINGS, INC., petitioner, vs.ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC., respondent.

D E C I S I O N

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. 56125 reversing the Decision2 of the Regional Trial Court of Makati, Branch 57, which ruled in favor of the petitioner.

The Antecedents

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and Construction Company, was the

owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square meters, at a price and under such terms and conditions which he deemed most reasonable and advantageous to the corporation; and to execute, sign and deliver the pertinent sales documents and receive the proceeds of the sale for and on behalf of the company.3

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered by TCT No. 78086 on which it planned to construct its warehouse building, and a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be able to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and conditions for P1,000 per square meter or at the price of P7,213,000.4 One of the terms incorporated in Dy's offer was the following provision:

5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER, that he holds a good and registrable title to the property, which shall be conveyed CLEAR and FREE of all liens and encumbrances, and that the area of 7,213 square meters of the subject property already includes the area on which the right of way traverses from the main lot (area) towards the exit to the Sumulong Highway as shown in the location plan furnished by the Owner/Seller to the buyer. Furthermore, in the event that the right of way is insufficient for the buyer's purposes (example: entry of a 45-foot container),

the seller agrees to sell additional square meter from his current adjacent property to allow the buyer to full access and full use of the property.5

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of WHI, as vendee, executed a contract to sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.6 On September 5, 1991, a Deed of Absolute Sale7 in favor of WHI was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000, receipt of which was acknowledged by Roxas under the following terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a right of way from Sumulong Highway to the property herein conveyed consists of 25 square meters wide to be used as the latter's egress from and ingress to and an additional 25 square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for Vendee's vehicles.

The Vendor agrees that in the event that the right of way is insufficient for the Vendee's use (ex entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current adjacent property to allow the Vendee full access and full use of the property.

…

The Vendor hereby undertakes and agrees, at its account, to defend the title of the Vendee to the parcel of land and improvements herein conveyed, against all claims of any and all persons or entities, and that the Vendor hereby warrants the right of the Vendee to possess and own the said parcel of land and improvements thereon and will defend the Vendee against all present and future claims and/or action in relation thereto, judicial and/or administrative. In particular, the Vendor shall eject all existing squatters and occupants of the premises within two (2) weeks from the signing hereof. In case of failure on the part of the Vendor to eject all occupants and squatters within the two-week period or breach of any of the stipulations, covenants and terms and conditions herein provided and that of contract to sell dated 1 July 1991, the Vendee shall have the right to cancel the sale and demand reimbursement for all payments made to the Vendor with interest thereon at 36% per annum.8

On September 10, 1991, the Wimbeco Builder's, Inc. (WBI) submitted its quotation for P8,649,000 to WHI for the construction of the warehouse building on a portion of the property with an area of 5,088 square meters.9 WBI proposed to start the project on October 1, 1991 and to turn over the building to WHI on February 29, 1992.10

In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa emphasized the need for the warehouse to be ready for occupancy before April 1, 1992.11 WHI accepted the offer. However, WBI failed to commence the construction of the warehouse in October 1, 1991 as planned because of the presence of squatters in the property and suggested a renegotiation of the contract after the squatters shall have been evicted.12 Subsequently, the squatters were evicted from the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the warehouse building for P11,804,160.13 The contractor started construction in April 1992 even before the building officials of Antipolo City issued a building permit on May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993 a certificate of occupancy by the building official. Earlier, or on March

18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of the property for a monthly rental of P300,000 for a period of three years from March 1, 1993 up to February 28, 1996.14

In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were parked on a portion of the property over which WHI had been granted a right of way. Roxas promised to look into the matter. Dy and Roxas discussed the need of the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 as provided for in the deed of absolute sale. However, Roxas died soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to purchase a portion of the said lot as provided for in the deed of absolute sale, and complained about the latter's failure to eject the squatters within the three-month period agreed upon in the said deed.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise the appropriate action would be filed against it. RECCI rejected the demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no response from RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial Court of Makati, for specific performance and damages, and alleged, inter alia, the following in its complaint:

5. The "current adjacent property" referred to in the aforequoted paragraph of the Deed of Absolute Sale pertains to the property covered by Transfer Certificate of Title No. N-78085 of the Registry of Deeds of Antipolo, Rizal, registered in the name of herein defendant Roxas Electric.

6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed of Absolute Sale unjustifiably refused to deliver to Woodchild Holdings the stipulated beneficial use and right of way consisting of 25 square meters and 55 square meters to the prejudice of the plaintiff.

7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild Holdings for its beneficial use is inadequate as turning and/or maneuvering area of its 45-foot container van, Woodchild Holdings manifested its intention pursuant to para. 5 of the Deed of Sale to purchase additional square meters from Roxas Electric to allow it full access and use of the purchased property, however, Roxas Electric refused and failed to merit Woodchild Holdings' request contrary to defendant Roxas Electric's obligation under the Deed of Absolute Sale (Annex "A").

8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of the premises within the stipulated time frame and as a consequence thereof, plaintiff's planned construction has been considerably delayed for seven (7) months due to the squatters who continue to trespass and obstruct the subject property, thereby Woodchild Holdings incurred substantial losses amounting to P3,560,000.00 occasioned by the increased cost of construction materials and labor.

9. Owing further to Roxas Electric's deliberate refusal to comply with its obligation under Annex "A," Woodchild Holdings suffered unrealized income of P300,000.00 a month or P2,100,000.00 supposed income from rentals of the subject property for seven (7) months.

10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply with its obligations and warranties under the Deed of Absolute Sale but notwithstanding such

demand, defendant Roxas Electric refused and failed and continue to refuse and fail to heed plaintiff's demand for compliance.

Copy of the demand letter dated April 15, 1992 is hereto attached as Annex "B" and made an integral part hereof.

11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas Electric to particularly annotate on Transfer Certificate of Title No. N-78085 the agreement under Annex "A" with respect to the beneficial use and right of way, however, Roxas Electric unjustifiably ignored and disregarded the same.

Copy of the letter request dated 29 May 1992 is hereto attached as Annex "C" and made an integral part hereof.

12. By reason of Roxas Electric's continuous refusal and failure to comply with Woodchild Holdings' valid demand for compliance under Annex "A," the latter was constrained to litigate, thereby incurring damages as and by way of attorney's fees in the amount of P100,000.00 plus costs of suit and expenses of litigation.15

The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild Holdings and ordering Roxas Electric the following:

a) to deliver to Woodchild Holdings the beneficial use of the stipulated 25 square meters and 55 square meters;

b) to sell to Woodchild Holdings additional 25 and 100 square meters to allow it full access and use of the purchased property pursuant to para. 5 of the Deed of Absolute Sale;

c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial use and right of way granted to Woodchild Holdings under the Deed of Absolute Sale;

d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual damages and unrealized income;

e) to pay attorney's fees in the amount of P100,000.00; and

f) to pay the costs of suit.

Other reliefs just and equitable are prayed for.16

In its answer to the complaint, the RECCI alleged that it never authorized its former president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said deed are ultra vires. The RECCI further alleged that the provision therein that it would sell a portion of Lot No. 491-A-3-B-1 to the WHI lacked the essential elements of a binding contract.17

In its amended answer to the complaint, the RECCI alleged that the delay in the construction of its warehouse building was due to the failure of the WHI's contractor to secure a building permit thereon.18

During the trial, Dy testified that he told Roxas that the petitioner was buying a portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the price of P1,000 per square meter.

On November 11, 1996, the trial court rendered judgment in favor of the WHI, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered directing defendant:

(1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m. and 55 sq. m.;

(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow said plaintiff full access and use of the purchased property pursuant to Par. 5 of their Deed of Absolute Sale;

(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted by their Deed of Absolute Sale;

(4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiff's unrealized income;

(5) To pay plaintiff P100,000 representing attorney's fees; and

To pay the costs of suit.

SO ORDERED.19

The trial court ruled that the RECCI was estopped from disowning the apparent authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The court reasoned that to do so would prejudice the WHI which transacted with Roxas in good faith, believing that he had the authority to bind the WHI relating to the easement of right of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085.

The RECCI appealed the decision to the CA, which rendered a decision on November 9, 1999 reversing that of the trial court, and ordering the dismissal of the complaint. The CA ruled that, under the resolution of the Board of Directors of the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion thereof. The appellate court also ruled that the grant of a right of way and an option to the respondent were so lopsided in favor of the respondent because the latter was authorized to fix the location as well as the price of the portion of its property to be sold to the respondent. Hence, such provisions contained in the deed of absolute sale were not binding on the RECCI. The appellate court ruled that the delay in the construction of WHI's warehouse was due to its fault.

The Present Petition

The petitioner now comes to this Court asserting that:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. "C") IS ULTRA VIRES.

II.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE THESE ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. "C").

III.

THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. "C") WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS.

IV.

IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE PROCESS BY THE ASSAILED DECISION.

V.

THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE DEED OF ABSOLUTE SALE (EXH. "C").

VI.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL DAMAGES AND PLAINTIFF'S UNREALIZED INCOME AS WELL AS ATTORNEY'S FEES.20

The threshold issues for resolution are the following: (a) whether the respondent is bound by the provisions in the deed of absolute sale granting to the petitioner beneficial use and a right of way over a portion of Lot

No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable against the respondent; (b) whether the respondent failed to eject the squatters on its property within two weeks from the execution of the deed of absolute sale; and, (c) whether the respondent is liable to the petitioner for damages.

On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the respondent authorized Roxas, then its president, to grant a right of way over a portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent to buy a portion of the said property. The

petitioner contends that when the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent) was well aware of its obligation to provide the petitioner with a means of ingress to or egress from the property to the Sumulong Highway, since the latter had no adequate outlet to the public highway. The petitioner asserts that it agreed to buy the property covered by TCT No. 78085 because of the grant by the respondent of a right of way and an option in its favor to buy a portion of the property covered by TCT No. 78085. It contends that the respondent never objected to Roxas' acceptance of its offer to purchase the property and the terms and conditions therein; the respondent even allowed Roxas to execute the deed of absolute sale in its behalf. The petitioner asserts that the respondent even received the purchase price of the property without any objection to the terms and conditions of the said deed of sale. The petitioner claims that it acted in good faith, and contends that after having been benefited by the said sale, the respondent is estopped from assailing its terms and conditions. The petitioner notes that the respondent's Board of Directors never approved any resolution rejecting the deed of absolute sale executed by Roxas for and in its behalf. As such, the respondent is obliged to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the price of P1,000 per square meter, based on its evidence and Articles 649 and 651 of the New Civil Code.

For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent was not bound by such provisions contained in the deed of absolute sale. Besides, the respondent contends, the petitioner cannot enforce its right to buy a portion of the said property since there was no agreement in the deed of absolute sale on the price thereof as well as the specific portion and area to be purchased by the petitioner.

We agree with the respondent.

In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,21 we held that:

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of directors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides:

"SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified."

Indubitably, a corporation may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law. …22

Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond

the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them:

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.

Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation.23

In BA Finance Corporation v. Court of Appeals,24 we also ruled that persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, 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 establish it.

In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden thereon. The petitioner was thus burdened to prove that the respondent so authorized Roxas to sell the same and to create a lien thereon.

Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway, Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price and on terms and conditions which he deems most reasonable and advantageous to the corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation, be, as he is hereby authorized to execute, sign and deliver the pertinent sales documents and receive the proceeds of sale for and on behalf of the company.25

Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and conditions which he deems most reasonable and advantageous." Under paragraph 12, Article 1878 of the New Civil Code, a special power of attorney is required to convey real rights over immovable property.26 Article 1358 of the New Civil Code requires that contracts which have for their object the creation of real rights over immovable property must appear in a public document.27 The petitioner cannot feign ignorance of the need for Roxas to have been specifically authorized in writing by the Board of Directors to be able to validly grant a right of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is one which requires authority in writing, those dealing with him are charged with notice of that fact.28

Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under which the agent is to deal.29 The general rule is that the power of attorney must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally identical with that authorized to be done.30 In sum, then, the consent of the respondent to the assailed provisions in the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it.

We reject the petitioner's submission that, in allowing Roxas to execute the contract to sell and the deed of absolute sale and failing to reject or disapprove the same, the respondent thereby gave him apparent authority to grant a right of way over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack of the written power required under the statement of frauds.31 In addition, the petitioner's fallacy is its wrong assumption of the unproved premise that the respondent had full knowledge of all the terms and conditions contained in the deed of absolute sale when Roxas executed it.

It bears stressing that apparent authority is based on estoppel and can arise from two instances: first, the principal may knowingly permit the agent to so hold himself out as having such authority, and in this way, the principal becomes estopped to claim that the agent does not have such authority; second, the principal may so clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that he actually has such authority.32 There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a change of position to its detriment. The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent.33

For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b) knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon by the petitioner consistent with ordinary care and prudence.34 In this case, there is no evidence on record of specific acts made by the respondent35 showing or indicating that it had full knowledge of any representations made by Roxas to the petitioner that the respondent had authorized him to grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden or lien thereon, or that the respondent allowed him to do so.

The petitioner's contention that by receiving and retaining the P5,000,000 purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken possession of the property. As such, the respondent had the right to retain the P5,000,000, the purchase price of the property it had sold to the petitioner. For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that he approved and intended to adopt what had been done in his name.36 Ratification is based on waiver – the intentional relinquishment of a known right. Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent. Moreover, if a writing is required to grant an authority to do a particular act, ratification of that act must also be in writing.37 Since the respondent had not ratified the unauthorized acts of Roxas, the same are unenforceable.38 Hence, by the respondent's retention of the amount, it cannot thereby be implied that it had ratified the unauthorized acts of its agent, Roberto Roxas.

On the last issue, the petitioner contends that the CA erred in dismissing its complaint for damages against the respondent on its finding that the delay in the construction of its warehouse was due to its (petitioner's) fault. The petitioner asserts that the CA should have affirmed the ruling of the trial court that the respondent failed to cause the eviction of the squatters from the property on or before September 29, 1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that the delay in the construction of the petitioner's warehouse was due to its late filing of an application for a building permit, only on May 28, 1992.

The petitioner's contention is meritorious. The respondent does not deny that it failed to cause the eviction of the squatters on or before September 29, 1991. Indeed, the respondent does not deny the fact that when the petitioner wrote the respondent demanding that the latter cause the eviction of the squatters on April 15, 1992, the latter were still in the premises. It was only after receiving the said letter in April 1992 that the respondent caused the eviction of the squatters, which thus cleared the way for the petitioner's contractor to commence the construction of its warehouse and secure the appropriate building permit therefor.

The petitioner could not be expected to file its application for a building permit before April 1992 because the squatters were still occupying the property. Because of the respondent's failure to cause their eviction as agreed upon, the petitioner's contractor failed to commence the construction of the warehouse in October 1991 for the agreed price of P8,649,000. In the meantime, costs of construction materials spiraled. Under the construction contract entered into between the petitioner and the contractor, the petitioner was obliged to pay P11,804,160,39including the additional work costing P1,441,500, or a net increase of P1,712,980.40 The respondent is liable for the difference between the original cost of construction and the increase thereon, conformably to Article 1170 of the New Civil Code, which reads:

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

The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income from the lease of the property to the Ponderosa Leather Goods Company. The respondent is, thus, liable to the petitioner for the said amount, under Articles 2200 and 2201 of the New Civil Code:

Art. 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

In sum, we affirm the trial court's award of damages and attorney's fees to the petitioner.

IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed Decision of the Court of Appeals WITH MODIFICATION. The respondent is ordered to pay to the petitioner the amount of P5,612,980 by way of actual damages and P100,000 by way of attorney's fees. No costs.

SO ORDERED.

Puno, J., Chairman, Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

Footnotes

1 Penned by Associate Justice Salome A. Montoya, with Associate Justices Conrado M. Vasquez, Jr. and Teodoro P. Regino, concurring.

2 Penned by Judge Francisco X. Velez.

3 Exhibit "L," Records, p. 213.

4 Exhibit "M," Id. at 214.

5 Ibid.

6 Exhibit "N," Id. at 216.

7 Exhibit "C," Id. at 192-195.

8 Id. at 193-194.

9 Exhibit "D," Id. at 196.

10 Exhibit "D-1," Id. at 197.

11 Exhibit "G," Id. at 201.

12 Exhibit "E," Id. at 198.

13 Exhibit "F," Id. at 199.

14 Exhibit "H," Id. at 202-206.

15 Records, pp. 2-4.

16 Id. at 4-5.

17 Id. at 24-25.

18 Id. at 247.

19 Id. at 482.

20 Rollo, pp. 22-23.

21 296 SCRA 631 (1998).

22 Id. at 644-645.

23 Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those 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.

24 211 SCRA 112 (1992).

25 Records, p. 213.

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

…

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

…

(12) To create or convey real rights over immovable property;

…

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion.

27 Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by articles 1403, No. 2, and 1405;

…

(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

28 State v. Sellers and Resolute Insurance Company, 258 N.W.2d 292 (1977).

29 Prior v. Hager, 440 S.W.2d 167 (1969).

30 Lang v. Bair, 36 Mo. 85, id.

31 Union Camp Corporation v. Dyal, Jr., 460 F.2d 678 (1972).

32 Banker's Protective Life Insurance Co. v. Addison, 273 S.W.2d 694 (1951).

33 Id. at 696.

34 Residon v. Miller Distributors Co., Inc., 139 N.W.2d 12 (1966).

35 See Wells Fargo Business v. Kozoff, 695 F.2d 940 (1983).

36 The Board of Supervisors v. Schack, 18 L.E.2d 556 (1897); American Food Corporation v. Central Carolina Bank & Trust Company, 291 S.W.2d 892.

37 Reuschlin and Gregory, The Law of Agency and Partnership, 2nd ed., p. 75.

38 Article 1403, New Civil Code (infra).

39 Exhibit "F," Records, p. 199.

40 TSN, 30 September 1993, p. 13.

G.R. No. 94050 November 21, 1991

SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED PRODUCERS PHILS. YIELDS, INC., petitioners, vs.EMILY A. WHITE and HOLMAN T. WHITE, respondents.

Ramon A. Gonzales for petitioner of the Court.

Renato S. Corpuz for private respondents.

 

CRUZ, J.:p

The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered into the subject contract with private respondent Emily A. White. Both the trial court and the respondent court held she was acting in her own personal behalf. She faults this finding as reversible error and insists that she was merely acting as an agent.

The case arose when Bedia and White entered into a Participation Contract 1 reading in full as follows:

THE STATE FAIR OF TEXAS '80PARTICIPATION CONTRACT

PARTICIPANT (COMPANY NAME) EMILY WHITEENTERPRISES

I/We, the abovementioned company hereby agrees to participate in the 1980 Dallas State Fair to be held in Dallas, Texas on October 3, to October 19,1980. I/We request for a 15 square meter booth space worth $2,250.00 U.S. Dollars.

I/We further understand that this participation contract shall be deemed non-cancellable after payment of the said down payment, and that any intention on our part to cancel the same shall render whatever amount we have paid forfeited in favor of HONTIVEROS & ASSOCIATED PRODUCERS PHILIPPINE YIELDS, INC.

FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS & ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for our exclusive perusal; We also understand that the above cost includes overall exterior booth decoration and materials but does not include interior designs which will be per our specifications and expenses.

PARTICIPANT'S PARTICIPATIONAUTHORIZED SIGNATURE: ACCEPTED BY:

(SGD.) EMILY WHITE (SGD.) SYLVIA H. BEDIADATE: 8/13/80 DATE: Aug. 1, 1980

On August 10, 1986, White and her husband filed a complaint in the Regional Trial Court of Pasay City for damages against Bedia and Hontiveros & Associated Producers Phil. Yields, Inc. for damages caused by their fraudulent violation of their agreement. She averred that Bedia had approached her and persuaded her to participate in the State of Texas Fair, and that she made a down payment of $500.00 to Bedia on the agreed display space. In due time, she enplaned for Dallas with her merchandise but was dismayed to learn later that the defendants had not paid for or registered any display space in her name, nor were they authorized by the state fair director to recruit participants. She said she incurred losses as a result for which the defendants should be held solidarily liable. 2

In their joint answer, the defendants denied the plaintiff's allegation that they had deceived her and explained that no display space was registered in her name as she was only supposed to share the space leased by Hontiveros in its name. She was not allowed to display her goods in that space because she had not paid her balance of $1,750.00, in violation of their contract. Bedia also made the particular averment that she did not sign the Participation Contract on her own behalf but as an agent of Hontiveros and that she had later returned the advance payment of $500.00 to the plaintiff. The defendants filed their own counterclaim and complained of malice on the part of the plaintiffs. 3

In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4

In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus attorney's fees and the costs. The court said:

In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently attempted to escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in the name of said corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the name of another without being authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code)

Sustaining the trail court on this point, the respondent court 5 declared in its decision dated March 30, 1990:

The evidence, on the whole, shows that she definitely acted on her own. She represented herself asauthorized by the State of Texas to solicit and assign booths at the Texas fair; she assured the appellee that she could give her booth. Under Article 1883 of the New Civil Code, if the agent acts in his own name, the principal has no right of action against the persons with whom the agent had contracted.

We do not share these views.

It is noteworthy that in her letter to the Minister of Trade dated December 23,1984, Emily White began:

I am a local exporter who was recruited by Hontiveros & Associated Producers Phil. Yields, Inc. to participate in the State Fair of Dallas, Texas which was held last Oct. 3 to 19, 1980. Hontiveros & Associated charged me US$150.00 per square meter for display

booth of said fair. I have paid an advance of US$500.00 as partial payment for the total space of 15 square meter of which is $2,250.00 (Two Thousand Two Hundred Fifty Dollars). 6

As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros when it recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to Hontiveros in case of cancellation by her of the agreement. The fact that the contract was typewritten on the letterhead stationery of Hontiveros bolsters this conclusion in the absence of any showing that said stationery had been illegally used by Bedia.

Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with Bedia, it did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In fact, by filing the answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation.

If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros. They did not. Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article 1910 of the Civil Code, "the principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Hence, the private respondents cannot now hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal.

The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against Hontiveros, 7 leaving Bedia as the sole defendant. Hontiveros had admitted as early as when it filed its answer that Bedia was acting as its agent. The effect of the motion was to leave the plaintiffs without a cause of action against Bedia for the obligation, if any, of Hontiveros.

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

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

SO ORDERED.

Narvasa, C.J., Feliciano, Griño-Aquino and Medialdea, JJ., concur.

 

# Footnotes

1 Exhibit "A"

2 Original Records, pp. 2-10.

3 Ibid., pp. 29-34.

4 Id., p. 100.

5 Rasul , J., ponente, with Herrera and Bengzon, JJ., concurring.

6 Exhibit "C."

7 Original Records, p. 100.

G.R. No. 142616            July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner, vs.RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents.

KAPUNAN, J.:

In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss.

The antecedents of this case are as follows:

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

On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.

However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.

On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.

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

1.

THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.

2.

THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2

Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case.3

In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties.4 Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts.5 In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.6

The petition is impressed with merit.

Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:

GROUNDS

I

THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.

II

THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD.7

Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said property.8

The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.

The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.9

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner.

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.12

We disagree.

The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.13The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.

We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.

While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway

Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation:

The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which, if present in the proper combination, are controlling.

These are as follows:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.

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

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

The Tennessee Supreme Court thus ruled:

In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed.

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a

corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.15

In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit:

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

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

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

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is directed only against the agent, not the principal.

Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:

SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually,

(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.21 Respondents do not deny their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that they have a right protected and that the acts against which the writ is to be directed are violative of said right.22The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their error.

All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.

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

SO ORDERED.

Puno, Pardo and Santiago, JJ ., concur.Davide, Jr., C .J ., on official leave.

Footnotes

1 Decision, Court of Appeals, pp. 1-6; Rollo, pp. 37-42.

2 Petition, p. 10; Rollo, p. 20.

3 Id., at 24; Id., at 34.

4 Comment, pp. 12-13; Rollo, pp. 438-439.

5 Id., at 17-19; Id., at 443-445.

6 Id., at 20-24; Id., at 446-450.

7 Rollo, p. 266.

8 Id., at 270.

9 See Complaint, p. 15; Rollo, p. 64.

10 Rollo, p. 49.

11 77 Phil. 496 (1946).

12 Ibid.

13 Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 (1961).

14 173 F. Supp. 915, E.D. Tenn. (1959).

15 Umali v. Court of Appeals, 189 SCRA 529, 524 (1990).

16 257 SCRA 149 (1996).

17 Id., at 159.

18 See RULES OF COURT, Rule 3, sec. 2.

19 RULES OF COURT, Rule 3, sec. 7.

20 Philippine Airlines, Inc. vs. NLRC, 287 SCRA 672 (1998).

21 Union Bank of the Philippines v. Court of Appeals, 311 SCRA 795, 805-806 (1999).

22 China Banking Corporation v. Court of Appeals, 265 SCRA 327, 343 (1996).

G.R. No. L-2484            April 11, 1906

JOHN FORTIS, plaintiff-appellee, vs.GUTIERREZ HERMANOS, defendants-appellants.

Hartigan, Rohde and Gutierrez, for appellants.W. A. Kincaid, for appellee.

WILLARD, J.:

Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to recover a balance due him as salary for the year 1902. He alleged that he was entitled, as salary, to 5 per cent of the net profits of the business of the defendants for said year. The complaint also contained a cause of action for the sum of 600 pesos, money expended by plaintiff for the defendants during the year 1903. The court below, in its judgment, found that the contract had been made as claimed by the plaintiff; that 5 per cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos, Mexican currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican currency, and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency, with interest thereon from December 31, 1904. The court also ordered judgment against the defendants for the 600 pesos mentioned in the complaint, and intereat thereon. The total judgment rendered against the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40. The defendants moved for a new trial, which was denied, and they have brought the case here by bill of exceptions.

(1) The evidence is sufifcient to support the finding of the court below to the effect that the plaintiff worked for the defendants during the year 1902 under a contract by which he was to receive as compensation 5 per cent of the net profits of the business. The contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the provisions of the articles of partnership he was made one of the managers of the company, with full power to transact all of the business thereof. As such manager he had authority to make a contract of employment with the plaintiff.

(2) Before answering in the court below, the defendants presented a motion that the complaint be made more definite and certain. This motion was denied. To the order denying it the defendants excepted, and they have assigned as error such ruling of the court below. There is nothing in the record to show that the defendants were in any way prejudiced by this ruling of the court below. If it were error it was error without prejudice, and not ground for reversal. (Sec. 503, Code of Civil Procedure.)

(3) It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a copartner of the defendants in the business which they were carrying on. This contention can not bo sustained. It was a mere contract of employnent. The plaintiff had no voice nor vote in the management of the affairs of the company. The fact that the compensation received by him was to be determined with reference to the profits made by the defendants in their business did not in any sense make by a partner therein. The articles of partnership between the defendants provided that the profits should be divided among the partners named in a certain proportion. The contract made between the plaintiff and the then manager of the defendant partnership did not in any way vary or modify this provision of the articles of partnership. The profits of the business could not be determined until all of the expenses had been paid. A part of the expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted before the net profits of the

business, which were to be divided among the partners, could be ascertained. It was undoubtedly necessary in order to determine what the salary of the plaintiff was, to determine what the profits of the business were, after paying all of the expenses except his, but that determination was not the final determination of the net profits of the business. It was made for the purpose of fixing the basis upon which his compensation should be determined.

(4) It was no necessary that the contract between the plaintiff and the defendants should be made in writing. (Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818, October 8, 1903.)

(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the contract, had died prior to the trial of the action, and the defendants claim that by reasons of the provisions of section 383, paragraph 7, of the Code of Civil Procedure, plaintiff could not be a witness at the trial. That paragraph provides that parties to an action against an executor or aministrator upon a claim or demand against the estate of a deceased person can not testify as to any matter of fact occurring before the death of such deceased person. This action was not brought against the administrator of Miguel Alonzo, nor was it brought upon a claim against his estate. It was brought against a partnership which was in existence at the time of the trial of the action, and which was juridical person. The fact that Miguel Alonzo had been a partner in this company, and that his interest therein might be affected by the result of this suit, is not sufficient to bring the case within the provisions of the section above cited.

(6) The plaintiff was allowed to testify against the objection and exception of the defendants, that he had been paid as salary for the year 1900 a part of the profits of the business. This evidence was competent for the purpose of corroborating the testimony of the plaintiff as to the existence of the contract set out in the complaint.

(7) The plaintiff was allowed to testify as to the contents of a certain letter written by Miguel Glutierrez, one of the partners in the defendant company, to Miguel Alonzo Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is not necessary to inquire whether the court committed an error in admitting this evidence. The case already made by the plaintiff was in itself sufficient to prove the contract without reference to this letter. The error, if any there were, was not prejudicial, and is not ground for revesal. (Sec. 503, Code of Civil Procedure.)

(8) For the purpose of proving what the profits of the defendants were for the year 1902, the plaintiff presented in evidence the ledger of defendants, which contained an entry made on the 31st of December, 1902, as follows:

Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66 Utilidades liquidas obtenidas durante el ano y que abonamos conforme a la proporcion que hemos establecido segun el convenio de sociedad.

The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of the defendants, who testiffied, among other things, that there were no profits during the year 1902, but, on the contrary, that the company suffered considerable loss during that year. We do not think the evidence of this witnees sufficiently definite and certain to overcome the positive evidence furnished by the books of the defendants themselves.

(9) In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ of the defendants on the 19th of Macrh, 1903; that at their request he went to Hongkong, and was there for about two months looking after the business of the defendants in the matter of the repair of a certain steamship. The appellants in their brief say that the plaintiff is entitled to no compensation for his services thus rendered, because by the provisions of article 1711 of the Civil

Code, in the absence of an agreement to the contrary, the contract of agency is supposed to be gratuitous. That article i not applicable to this case, because the amount of 600 pesos not claimed as compensation for services but as a reimbursment for money expended by the plaintiff in the business of the defendants. The article of the code that is applicable is article 1728.

The judgment of the court below is affirmed, with the costs, of this instance against the appellants. After the expiration of twenty days from the date of this decision let final judgment be entered herein, and ten days thereafter let the case be remanded to the lower court for execution. So ordered.

Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.

G.R. No. L-20726 December 20, 1923

ALBALADEJO Y CIA., S. en C., plaintiff-appellant, vs.The PHILIPPINE REFINING CO., as successor to The Visayan Refining Co., defendant-appellant.

Eduardo Gutierrez Repide and Felix Socias for plaintiff. Manly, Goddard and Lockwood for defendant-appellant. Fisher, DeWitt, Perkins and Brady of counsel.

 

STREET, J.:

This action was instituted in the Court of First Instance of the Province of Albay by Albaladejo y Cia., S. en C., to recover a sum of money from the Philippine Refining Co., as successor to the Visayan Refining Co., two causes of action being stated in the complaint. Upon hearing the cause the trial judge absolved the defendant from the first cause of action but gave judgment for the plaintiff to recover the sum of P49,626.68, with costs, upon the second cause of action. From this judgment the plaintiff appealed with respect to the action taken upon the first cause of action, and the defendant appealed with respect to the action taken upon the second cause of action. It results that, by the appeal of the two parties, the decision of the lower court is here under review as regards the action taken upon both grounds of action set forth in the complaint.

It appears that Albaladejo y Cia. is a limited partnership, organized in conformity with the laws of these Islands, and having its principal place of business at Legaspi, in the Province of Albay; and during the transactions which gave origin to this litigation said firm was engaged in the buying and selling of the products of the country, especially copra, and in the conduct of a general mercantile business in Legaspi and in other places where it maintained agencies, or sub-agencies, for the prosecution of its commercial enterprises.

The Visayan Refining Co. is a corporation organized under the laws of the Philippine Islands; and prior to July 9, 1920, it was engaged in operating its extensive plant at Opon, Cebu, for the manufacture of coconut oil.

On August 28, 1918, the plaintiff made a contract with the Visayan Refining Co., the material parts of which are as follows:

Memorandum of Agreement Re Purchase of Copra. — This memorandum of agreement, made and entered into by and between Albaladejo y Compania, S. en C., of Legaspi, Province of Albay, Philippine Islands, party of the first part, and the Visayan Refining Company, Inc., of Opon, Province of Cebu, Philippine Islands, party of the second part,

Witnesseth That. — Whereas, the party of the first part is engaged in the purchase of copra in the Province of Albay; and Whereas, the party of the second part is engaged in the business of the manufacture of coconut oil, or which purpose it must continually purchase large quantities of copra; Now, Therefore, in consideration of the premises and covenants

hereinafter set forth, the said parties have agreed and do hereby contract and agree as follows, to wit:

1. The party of the first part agrees and binds itself to sell to the party of the second part, and the party of the second part agrees and binds itself to buy from the party of the first part, for a period of one (1) year from the date of these presents, all the copra purchased by the party of the first part in Province of Albay.

2. The party of the second part agrees to pay the party of the first part for the said copra the market price thereof in Cebu at date (of) purchase, deducting, however, from such price the cost of transportation by sea to the factory of the party of second part at Opon, Cebu, the amount deducted to be ascertained from the rates established, from time to time, by the public utility commission, or such entity as shall succeed to its functions, and also a further deduction for the shrinkage of the copra from the time of its delivery to the party of the second part to its arrival at Opon, Cebu, plus one-half of a real per picul in the event the copra is delivered to boats which will unload it on the pier of the party of the second part at Opon, Cebu, plus one real per picul in the event that the party of the first part shall employ its own capital exclusively in its purchase.

3. During the continuance of this contract the party of the second part will not appoint any other agent for the purchase of copra in Legaspi, nor buy copra from any vendor in Legaspi.

4. The party of the second part will, so far as practicable, keep the party of the first part advised of the prevailing prices paid for copra in the Cebu market.

5. The party of the second part will provide transportation by sea to Opon, Cebu, for the copra delivered to it by the party of the first part, but the party of the first part must deliver such copra to the party of the second part free on board the boats of the latter's ships or on the pier alongside the latter's ships, as the case may be.

Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra extensively for the Visayan Refining Co. At the end of said year both parties found themselves satisfied with the existing arrangement, and they therefore continued by tacit consent to govern their future relations by the same agreement. In this situation affairs remained until July 9, 1920, when the Visayan Refining Co. closed down its factory at Opon and withdrew from the copra market.

When the contract above referred to was originally made, Albaladejo y Cia. apparently had only one commercial establishment, i.e., that at Legaspi; but the large requirements of the Visayan Refining Co. for copra appeared so far to justify the extension of the plaintiff's business that during the course of the next two or three years it established some twenty agencies, or subagencies, in various ports and places of the Province of Albay and neighboring provinces.

After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact the plaintiff was duly notified, the supplies of copra already purchased by the plaintiff were gradually shipped out and accepted by the Visayan Refining Co., and in the course of the next eight or ten months the accounts between the two parties were liquidated. The last account rendered by the Visayan Refining Co. to the plaintiff was for the month of April, 1921, and it showed a balance of P288 in favor of the defendant. Under date of June 25, 1921, the plaintiff company addressed a letter from Legaspi to the Philippine Refining Co. (which had now succeeded to the rights and liabilities of the Visayan Refining Co.), expressing its approval of said account. In this letter no dissatisfaction was expressed by the plaintiff as to the state of affairs between the parties; but about six weeks thereafter the present action was begun.

Upon reference to paragraph five of the contract reproduced above it will be seen that the Visayan Refining Co. obligated itself to provide transportation by sea to Opon, Cebu, for the copra which should be delivered to it by the plaintiff; and the first cause of action set forth in the complaint is planted upon the alleged negligent failure of the Visayan Refining Co. to provide opportune transportation for the copra collected by the plaintiff and deposited for shipment at various places. In this connection we reproduce the following allegations from the complaint:

6. That, from the month of September, 1918, until the month of June, 1920, the plaintiff opportunely advised the Visayan of the stocks that the former had for shipment, and, from time to time, requested the Visayan to send vessels to take up said stocks; but that the Visayan culpably and negligently allowed a great number of days to elapse before sending the boats for the transportation of the copra to Opon, Cebu, and that due to the fault and negligence of the Visayan, the stocks of copra prepared for shipment by the plaintiff had to remain an unnecessary length of time in warehouses and could not be delivered to the Visayan, nor could they be transmitted to this latter because of the lack of boats, and that for this reason the copra gathered by the plaintiff and prepared for delivery to the Visayan suffered the diminishment of weight herein below specified, through shrinkage or excessive drying, and, in consequence thereof, an important diminishment in its value.

8. That the diminishment in weight suffered as shrinkage through excessive drying by all the lots of copra sold by the plaintiff to the Visayan, due to the fault and negligence of the Visayan in the sending of boats to take up said copra, represents a total of 9,695 piculs and 56 cates, the just and reasonable value of which, at the rates fixed by the purchaser as the price in its liquidation, is a total of two hundred and one thousand, five hundred and ninety-nine pesos and fifty-three centavos (P201,599.53), Philippine currency, in which amount the plaintiff has been damaged and injured by the negligent and culpable acts and omissions of the Visayan, as herein above stated and alleged.

In the course of the appealed decision the trial judge makes a careful examination of the proof relative to the movements of the fleet of boats maintained by the Visayan Refining Co. for the purpose of collecting copra from the various ports where it was gathered for said company, as well as of the movements of other boats chartered or hired by said company for the same purpose; and upon consideration of all the facts revealed in evidence, his Honor found that the Visayan Refining Co. had used reasonable promptitude in its efforts to get out the copra from the places where it had been deposited for shipment, notwithstanding occasional irregularities due at times to the condition of the weather as related to transportation by sea and at other times to the inability of the Visayan Refining Co. to dispatch boats to the more remote ports. This finding of the trial judge, that no negligence of the kind alleged can properly be imputed to the Visayan Refining Co., is in our opinion supported by the proof.

Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that this is a product which necessarily undergoes considerable shrinkage in the process of drying, and intelligent witnesses who are conversant with the matter testified at the trial that shrinkage of cobra varies from twenty to thirty per centum of the original gross weight. It is agreed that the shrinkage shown in all of the copra which the plaintiff delivered to the Visayan Refining Co. amounted to only 8.187 per centum of the whole, an amount which is notably below the normal. This showing was undoubtedly due in part, as the trial judge suggests, to the fact that in purchasing the copra directly from the producers the plaintiff's buyers sometimes estimated the picul at sixty-eight kilos, or somewhat less, but in no case at the true weight of 63.25 kilos. The plaintiff was therefore protected in a great measure from loss by shrinkage by purchasing upon a different basis of weight from that upon which

he sold, otherwise the shrinkage shown in the result must have been much greater than that which actually appeared. But even considering this fact, it is quite evident that the demonstrated shrinkage of 8.187 per centum was extremely moderate average; and this fact goes to show that there was no undue delay on the part of the Visayan Refining Co. in supplying transportation for the copra collected by the plaintiff.

In the course of his well-reasoned opinion upon this branch of the case, the trial judge calls attention to the fact that it is expressly provided in paragraph two of the contract that the shrinkage of copra from the time of its delivery to the party of the second part till its arrival at Opon should fall upon the plaintiff, from whence it is to be interfered that the parties intended that the copra should be paid for according to its weight upon arrival at Opon regardless of its weight when first purchased; and such appears to have been the uniform practice of the parties in settling their accounts for the copra delivered over a period of nearly two years.

From what has been said it follows that the first cause of action set forth in the complaint is not well founded, and the trial judge committed no error in absolving the plaintiff therefrom.

It appears that in the first six months of the year 1919, the plaintiff found that its transactions with the Visayan Refining Co. had not been productive of reasonable profit, a circumstance which the plaintiff attributed to loss of weight or shrinkage in the copra from the time of purchase to its arrival at Opon; and the matter was taken up with the officials of said company, with the result that a bounty amounting to P15,610.41 was paid to the plaintiff by the Visayan Refining Co. In the ninth paragraph of the complaint the plaintiff alleges that this payment was made upon account of shrinkage, for which the Visayan Refining Co. admitted itself to be liable; and it is suggested that the making of this payment operated as a recognition on the part of the Visayan refining Co. of the justice of the plaintiff's claim with respect to the shrinkage in all subsequent transactions. With this proposition we cannot agree. At most the payment appears to have been made in recognition of an existing claim, without involving any commitment as to liability on the part of the defendant in the future; and furthermore it appears to have been in the nature of a mere gratuity given by the company in order to encourage the plaintiff and to assure that the plaintiff's organization would be kept in an efficient state for future activities. It is certain that no general liability for plaintiff's losses was assumed for the future; and the defendant on more than one occasion thereafter expressly disclaimed liability for such losses.

As already stated purchases of copra by the defendant were suspended in the month of July, 1920. At this time the plaintiff had an expensive organization which had been built up chiefly, we suppose, with a view to the buying of copra; and this organization was maintained practically intact for nearly a year after the suspension of purchases by the Visayan Refining Co. Indeed in October, 1920, the plaintiff added an additional agency at Gubat to the twenty or more already in existence. As a second cause of action the plaintiff seeks to recover the sum of P110,000, the alleged amount expended by the plaintiff in maintaining and extending its organization as above stated. As a basis for the defendant's liability in this respect it is alleged that said organization was maintained and extended at the express request, or requirement, of the defendant, in conjunction with repeated assurances that the defendant would soon resume activity as a purchaser of copra.

With reference to this cause of action the trial judge found that the plaintiff, as claimed, had incurred expenses at the request of the defendant and upon its representation that the plaintiff would be fully compensated therefor in the future. Instead, however, of allowing the plaintiff the entire amount claimed, his Honor gave judgment for only thirty per centum of said amount, in view of the fact that the plaintiff's transactions in copra had amounted in the past only to about thirty per centum of the total business transacted by it. Estimated upon this basis, the amount recognized as constituting a

just claim was found to be P49,626.68, and for this amount judgment was rendered against the defendant.

The discussion of this branch of the appeal involves the sole question whether the plaintiff's expense in maintaining and extending its organization for the purchase of copra in the period between July, 1920, to July, 1921, were incurred at the instance and request of the defendant, or upon any promise of the defendant to make the expenditure good. A careful examination of the evidence, mostly of a documentary character, is, in our opinion, convincing that the supposed liability does not exist.

By recurring to paragraph four of the contract between the plaintiff and the Visayan Refining Co. it will be seen that the latter agreed to keep the plaintiff advised of the prevailing prices paid for the copra in the Cebu market. In compliance with this obligation the Visayan Refining Co. was accustomed to send out "trade letters" from time to time its various clients in the southern provinces of whom the plaintiff was one. In these letters the manager of the company was accustomed to make comment upon the state of the market and to give such information as might be of interest or value to the recipients of the letters. From the series of letters thus sent to Albaladejo y Cia. during the latter half of 1920, we here reproduce the following excerpts:

(Letter of July 2, 1920, from K.B. Day, General Manager of the Visayan Refining Co., to Albaladejo y Cia.)

The copra market is still very weak. I have spent the past two weeks in Manila studying conditions and find that practically no business at all is being done. A few of the mills having provincial agents are accepting small deliveries, but I do not suppose that 500 piculs of copra are changing hands a day. Buyers are offering from P13 to P15, depending on quality, and sellers are offering to sell at anywhere from P16 to P18, but no business can be done for the simple reason that the banks will not lend the mills any money to buy copra with at this time.

Reports from the United States are to the effect that the oil market is in a very serious and depressed condition and that large quantities of oil cannot be disposed of at any price.

Under this conditions it is imperative that this mill buy no more copra than it can possibly help at the present time. We are not anxious to compete, nor do we wish to purchase same in competition with others. We do, however, desire to keep our agents doing business and trust that they will continue to hold their parroquianos (customers), buying only minimum quantities at present.

The local market has not changed since last week, and our liquidating price is P14.

(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cia.)

Notify your subagents to drop out of the market temporarily. We do not desire to purchase at present.

(Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo y Cia.)

The market continues to grow weaker. Conditions are so uncertain that this company desires to drop out of the copra market until conditions have a chance to readjust themselves. We request therefore that our agents drop out of active competition for copra temporarily. Stocks that are at present on hand will, of course, be liquidated, but no new stocks should be acquired. Agents should do their best to keep their organizations together temporarily, for we expect to be in the market again soon stronger than ever. We expect the cooperation of agents in making this effective; and if they give us this cooperation, we will endeavor to see that they do not lose by the transaction in the long run. This company has been receiving copra from its agents for a long time at prices which have netted it a loss. The company has been supporting its agents during this period. It now expects the same support from its agents. Agents having stocks actually on hand in their bodegas should telegraph us the quantity immediately and we will protect same. But stocks not actually in bodegas cannot be considered.

(Letter of July 17, 1920, from K.B. Day to Albaladejo y Cia.)

Conditions have changed very little in the copra market since last reports. . . . We are in the same position as last week and are out of the market.

For the benefit of our agents, we wish to explain in a few words just why we are have been forced to close down our mill until the arrival of a boat to load some of our stocks on hand. We have large stocks of copra. The market for oil is so uncertain that we do not care to increase these stocks until such time as we know that the market has touched the bottom. As soon as this period of uncertainty is over, we expect to be in the market again stronger than ever, but it is only the part of business wisdom to play safe at such times as these.

Owing to the very small amounts of copra now in the provinces, we do not think that our agents will lose anything by our being out of the market. On the contrary, the producers of copra will have a chance to allow their nuts to mature on the trees so that the quality of copra which you will receive when we again are in the market should be much better than what you have been receiving in the past. Due to the high prices and scarcity of copra a large proportion of the copra we have received has been made from unripe coconuts and in order to keep revenue coming in the producers have kept harvesting these coconuts without giving them a chance to reach maturity. This period now should give them the chance to let their nuts ripen and should give you a better copra in the future which will shrink less and be more satisfactory both from your standpoint and ours. Please do all you can to assist us at this time. We shall greatly appreciate your cooperation. lawphi1.net

(Letter of August 7, 1920, from H.U. Umstead, Assistant General Manager, to Albaladejo y Cia.)

The copra situation in Manila remains unchanged and the outlook is still uncertain. Arrivals continue small.

We are still out of the market and are not yet in a position to give you buying orders. We trust, however, that within the next few days weeks we may be able to reenter the market and resume our former activity.

While we are not of the market we have no objection whatever to our agents selling copra to other purchasers, if by doing so they are able to keep themselves in the market and retain their parroquianos(customers). We do not, however, wish you to use our money, for this

purpose, nor do we want you to buy copra on speculation with the idea in mind that we will take it off of your hands at high prices when we reenter the market. We wish to warn you against this now so that you will not be working under any misapprehension.

In this same mail, we are sending you a notice of change of organization. In your dealings with us hereafter, will you kindly address all communications to the Philippine Refining Corporation, Cebu, which you will understand will be delivered to us.

(Letter of August 21, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y Cia.)

We are not yet in the market, but, as we have indicated before, are hopeful of renewing our activities soon. We shall advise all our agents seasonably of our return to the market. . . .

We are preparing new form of agreement between ourselves and our agents and hope to have them completed in time to refer them to our agents in the course of the next week or ten days.

All agents should endeavor to liquidate outstanding advances at this time because this is a particularly good time to clean out old accounts and be on a business basis when we return to the market. We request that our agents concentrate their attention on this point during the coming week.lawphi1.net

(Letter of October 16, 1920, from K.B. Day, Manager, to Albaladejo y Cia.)

Copra in Manila and coconut oil in the United States have taken a severe drop during the past week. The Cebu price seems to have remained unchanged, but we look for an early drop in the local market.

We have received orders from our president in New York to buy no more copra until the situation becomes more favorable. We had hoped and expected to be in the market actively before this time, but this most unexpected reaction in the market makes the date of our entry in it more doubtful.

With this in view, we hereby notify our agents that we can accept no more copra and advance no more money until we have permission from our president to do so. We request, therefore, that you go entirely out of the market, so far as we are concerned, with the exception of receiving copra against outstanding accounts.

In case any agent be compelled to take in copra and desire to send same to us, we will be glad to sell same for him to the highest bidder in Cebu. We will make no charge for our services in this connection, but the copra must be forwarded to us on consignment only so that we will not appear as buyers and be required to pay the internal-revenue tax.

We are extremely sorry to be compelled to make the present announcement to you, but the market is such that our president does not deem it wise for us to purchase copra at present, and, with this in view, we have no alternative other than to comply with his orders. We hope that our agents will realize the spirit in which these orders are given, and will do all they can to remain faithful to us until such time as we can reenter the market, which we hope and believe will be within a comparatively short time.

(Special Letter of October 16, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y Cia.)

We have received very strict instructions from New York temporarily to suspend the purchase of copra, and of course we must comply therewith. However, should you find yourselves obliged to buy copra in connection with your business activities, and cannot dispose of it advantageously in Cebu, we shall be glad to receive your copra under the condition that we shall sell it in the market on your account to the highest bidder, or, in other words, we offer you our services free, to sell your copra to the best possible advantages that the local market may offer, provided that, in doing so, we be not obliged to accept your copra as a purchase when there be no market for this product.

Whenever you find yourselves obliged to buy copra in order to liquidate pending advances, we can accept it provided that, so long as present conditions prevail, we be not required to make further cash advances.

We shall quote no further from letters written by the management of the Philippine Refining Corporation to the plaintiff, as we find nothing in the correspondence which reflects an attitude different from that reflected in the matter above quoted. It is only necessary to add that the hope so frequently expressed in the letters, to the effect that the Philippine Refining Corporation would soon enter the market as a buyer of copra on a more extensive scale than its predecessor, was not destined to be realized, and the factory at Opon remained closed.

But it is quite obvious that there is nothing in these letters on which to hold the defendant liable for the expenses incurred by the plaintiff in keeping its organization intact during the period now under consideration. Nor does the oral testimony submitted by the plaintiff materially change the situation in any respect. Furthermore, the allegation in the complaint that one agency in particular (Gubat) had been opened on October 1, 1920, at the special instance and request of the defendant, is not at all sustained by the evidence.

We note that in his letter of July 10, 1920, Mr. Day suggested that if the various purchasing agents of the Visayan Refining Co. would keep their organization intact, the company would endeavor to see that they should not lose by the transaction in the long run. These words afford no sufficient basis for the conclusion, which the trial judge deduced therefrom, that the defendant is bound to compensate the plaintiff for the expenses incurred in maintaining its organization. The correspondence sufficiently shows on its face that there was no intention on the part of the company to lay a basis for contractual liability of any sort; and the plaintiff must have understood the letters in that light. The parties could undoubtedly have contracted about it, but there was clearly no intention to enter into contractual relation; and the law will not raise a contract by implication against the intention of the parties. The inducement held forth was that, when purchasing should be resumed, the plaintiff would be compensated by the profits then to be earned for any expense that would be incurred in keeping its organization intact. It is needless to say that there is no proof showing that the officials of the defendant acted in bad faith in holding out this hope.

In the appellant's brief the contention is advanced that the contract between the plaintiff and the Visayan Refining Co. created the relation of principal and agent between the parties, and the reliance is placed upon article 1729 of the Civil Code which requires the principal to indemnify the agent for damages incurred in carrying out the agency. Attentive perusal of the contract is, however, convincing to the effect that the relation between the parties was not that of principal and agent in so far as relates to the purchase of copra by the plaintiff. It is true that the Visayan Refining Co. made the plaintiff one of its instruments for the collection of copra; but it is clear that in making its purchases from the producers the plaintiff was buying upon its own account and that when it turned

over the copra to the Visayan Refining Co., pursuant to that agreement, a second sale was effected. In paragraph three of the contract it is declared that during the continuance of this contract the Visayan Refining Co. would not appoint any other agent for the purchase of copra in Legaspi; and this gives rise indirectly to the inference that the plaintiff was considered its buying agent. But the use of this term in one clause of the contract cannot dominate the real nature of the agreement as revealed in other clauses, no less than in the caption of the agreement itself. In some of the trade letters also the various instrumentalities used by the Visayan Refining Co. for the collection of copra are spoken of as agents. But this designation was evidently used for convenience; and it is very clear that in its activities as a buyer the plaintiff was acting upon its own account and not as agents, in the legal sense, of the Visayan Refining Co. The title to all of the copra purchased by the plaintiff undoubtedly remained in it until it was delivered by way of subsequent sale to said company.

For the reasons stated we are of the opinion that no liability on the part of the defendant is shown upon the plaintiff's second cause of action, and the judgment of the trial court on this part of the case is erroneous.

The appealed judgment will therefore be affirmed in so far as it absolves the defendant from the first cause of action and will be reversed in so far as it gives judgment against the defendant upon the second cause of action; and the defendant will be completely absolved from the complaint. So ordered, without express findings as to costs of either instance.

Johnson, Malcolm, Avanceña, Villamor, Johns and Romualdez, JJ., concur.

G.R. No. 115838           July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs.COURT OF APPEALS and FRANCISCO ARTIGO, respondents.

CARPIO, J.:

The Case

Before us is a Petition for Review on Certiorari1 seeking to annul the Decision of the Court of Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision3 of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows:

"WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of:

a) P303,606.24 representing unpaid commission;

b) P25,000.00 for and by way of moral damages;

c) P45,000.00 for and by way of attorney's fees;

d) To pay the cost of this suit.

Quezon City, Metro Manila, December 20, 1991."

The Antecedent Facts

On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro ("Corazon" for brevity) to collect the unpaid balance of his broker's commission from the De Castros.4 The Court of Appeals summarized the facts in this wise:

"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit "A-1, p. 144, Records), appellee6 was authorized by appellants to act as real estate broker in the sale of these properties for the amount ofP23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission.

It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance.1âwphi1.nêt

On the other hand, appellants completely traverse appellee's claims and essentially argue that appellee is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellee's, considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second negotiation. But despite this and out of appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lion's share of the commission and worse, he should not have been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00."

Ruling of the Court of Appeals

The Court of Appeals affirmed in toto the decision of the trial court.

First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation ("Times Transit" for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency.

Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other co-owners since the action is exclusively based on a contract of agency between Artigo and Constante.

Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidencealiunde could be presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of Appeals explained that, "the rule that oral evidence is inadmissible to vary the terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it." Besides, Artigo was not

suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial court's finding that the purchase price was P7.05 million and not P3.6 million.

Hence, the instant petition.

The Issues

According to petitioners, the Court of Appeals erred in -

I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;

II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT;

III. CONSIDERING INCOMPETENT EVIDENCE;

IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;

V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;

VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY'S FEES.

The Court's Ruling

The petition is bereft of merit.

First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable parties

The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the four co-owners.

The De Castros' contentions are devoid of legal basis.

An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had.7 The joinder of indispensable parties is mandatory and courts cannot proceed without their presence.8 Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and order the inclusion of such party.9

However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.

There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The authority reads in full:

"24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City.

Asking price P 23,000,000.00 with 5% commission as agent's fee.

C.C. de Castroowner & representingco-owners

This authority is on a first-come

First serve basis –CAC"

Constante signed the note as owner and as representative of the other co-owners. Under this note, a contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constante's individual or representative capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the contract of agency,10 citing Article 1915 of the Civil Code, which reads:

Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.

The solidary liability of the four co-owners, however, militates against the De Castros' theory that the other co-owners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus –

"The rule in this article applies even when the appointments were made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the mere partition effected by the principals after the accomplishment of the agency.

If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which

are common and others are not, only those interested in each transaction shall be liable for it."11

When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entire obligation.12 The agent may recover the whole compensation from any one of the co-principals, as in this case.

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads:

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.13 that –

"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously'." (Emphasis supplied)

Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment

The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his proportionate share and no longer entitled to any balance." According to them, Artigo was just one of the agents involved in the sale and entitled to a "proportionate share" in the commission. They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real estate broker usually does.

The De Castros' arguments are flimsy.

A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and constitutes the law between the parties.14 The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good faith.

The mere fact that "other agents" intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These "other agents" turned out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe:

"The alleged `second group' of agents came into the picture only during the so-called `second negotiation' and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were limited to convincing Constante to 'part away' with the properties because the redemption period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991).

x x x

To accept Constante's version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the instant case easily presents itself if one has to consider that the alleged `second group' are the employees of the buyer, Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million.

It is to be noted also that while Constante was too particular about the unrenewed real estate broker's license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40)."15 (Emphasis supplied)

In any event, we find that the 5 percent real estate broker's commission is reasonable and within the standard practice in the real estate industry for transactions of this nature.

The De Castros also contend that Artigo's inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise:

"The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish the whole obligation."16(Emphasis supplied)

There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of.

The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence, Artigo's claim for the balance of his commission is barred by laches.

Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.17

Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the selling price of P7.05 million but there was no response from Constante.18 After it became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.

Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues.19 The right of action accrues from the moment the breach of right or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive period begins to run.20

The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigo's cause of action is barred by laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not constitute an unreasonable delay in asserting one's right. The Court has ruled, "a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief."21 In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has stated -

"Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the prescriptive period mandated by the Civil Code."22

Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.

Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence

The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted during the trial.

The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial court's reliance on the various correspondences between Constante and Times Transit which were mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price.

The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not.

Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do.

It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence again.23 This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals24 bears reiteration:

"At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])."

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

Fourth Issue: whether award of moral damages and attorney's fees is proper

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

Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo. The award of damages and attorney's fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.25 Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation.26 On the other hand, attorney's fees are awarded in instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim."27 There is no reason to disturb the trial court's finding that "the defendants' lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve censure." This warrants the award of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent broker's commission based on the actual purchase price of the two lots.

WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.

SO ORDERED.

Puno, and Panganiban, JJ., concur.Sandoval-Gutierrez, J., no part due to close family relation with a party.

Footnote

1 Under Rule 45 of the Rules of Court.

2 Seventh Division composed of Justices Ricardo J. Francisco (Chairman and Ponente); Salome A. Montoya and Ramon A. Barcelona (Members).

3 Penned by Judge Benigno T. Dayaw.

4 When referred to collectively.

5 Referring to the De Castros.

6 Referring to Artigo.

7 Rule 3, Section 7 of the Rules of Court; Seno vs. Mangubat, 156 SCRA 113 (1987); Quisumbing vs. Court of Appeals, 189 SCRA 325 (1990); Lozano vs. Ballesteros, 195 SCRA 681 (1991).

8 Ibid.

9 Vicente J. Francisco, The Revised Rules of Court, Vol. 1, p. 271, 1973 ed.

10 Memorandum of Petitioner dated April 23, 1997, p.8; Rollo, p. 175.

11 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. 5, pp.. 428-429, 1992 ed.

12 Art. 1207 of the Civil Code provides as follows: "Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity."

13 154 SCRA 738 (1987), reiterated in Republic vs. Sandiganbayan, 173 SCRA 72 (1989).

14 San Andres vs. Rodriguez, 332 SCRA 769 (2000).

15 Decision dated December 20, 1991 of RTC Judge Benigno T. Dayan, Rollo, pp. 33-34.

16 Tolentino, supra, see note 11, Vol. 4, p. 279.

17 Republic vs. Court of Appeals, 301 SCRA 366 (1999); Ochagabia vs. Court of Appeals, 304 SCRA 587 (1999).

18 RTC Decision, p. 7; Rollo, pp. 20-36, see p. 35.

19 Article 1144 of the Civil Code provides as follows: "Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment."

20 Tolention, supra, see note 16, p. 44.

21 Agra vs. Philippine National Bank, 309 SCRA 509 (1999).

22 Ibid.

23 Moomba Mining Exploration Company vs. Court of Appeals, , 317 SCRA 388 (1999).

24 247 SCRA 291 (1995).

25 Barzaga vs. Court of Appeals, 268 SCRA 105 (1997).

26 Jose C. Vitug, Compendium of Civil Law and Jurisprudence, p. 841, 1993 Ed.

27 Art. 2208, Civil Code of the Philippines.

G.R. No. L-17280      December 29, 1965

DIOSDADO STA. ROMANA, petitioner, vs.CARLOS IMPERIO, HEIRS OF PABLO IGNACIO, DOMINGO MANABAT, CALIXTO BAUTISTA, ELIODORO SIOSON, REYNALDO SALVADOR, PATRICIA LOPEZ, CONRADO MANABAT, GRACIANO GARCIA, HILARIO DE JESUS, APOLONIO PABLO and ISMAELA JIMENEZ, respondents.

Geminiano F. Yabut, Manuel M. Crudo and Sevilla and Aquino for petitioner.M. M. Peralta and D. P. Peralta for respondent Carlos Imperio.Rosendo J. Tansinsin for respondents heirs of Pablo Ignacio.Jose P. Osorio for respondents Domingo Manabat, et al.

CONCEPCION, J.:

Appeal, taken by Diosdado Sta. Romana, hereinafter referred to as appellant, from a decision of the Court of Appeals, as amended, insofar as it sentences him to reimburse to Carlos Imperio, hereinafter referred to, as appellee, the sum of P8,463, with costs.

On January 6, 1946, Silvio R. Viola, hereinafter referred to as the Principal, executed in favor of his brother, Dr. Jose R. Viola, hereinafter referred to as the Agent, a power of attorney, Exhibit A-1. vesting in the latter the authority to take charge of, manage and administer seven (7) parcels of registered land situated in the municipality of San Miguel, Province of Bulacan, to be converted into a "subdivision" for residential purposes, until all of the subdivision lots therein shall have been sold. It would seem that some of these parcels of land, one of which was known as Lot No. 622 of the Cadastral Survey of San Miguel, Bulacan, were covered by Transfer Certificates of Title Nos. 19556 and 19559 of said province. On April 26, 1946, the Principal asked the Court of First Instance of Bulacan to order the issuance of a second owner's duplicate of said transfer certificate of title, upon the ground that his duplicates thereof had been lost; but on June 25, 1946, he amended the motion to exclude therefrom TCT No. 19559, his copy thereof having been seemingly located in the meanwhile. Soon, later, or on June 29, 1946, the court granted said motion, as amended, and ordered the Register of Deeds to issue a second owner's duplicate of TCT No. 19556.

Meanwhile, or on June 18, 1946, the agent had executed, in favor of Pablo Ignacio, a deed (Exhibit A) in which he undertook to sell on installments six (6) lots covered by said TCT No. 19556, with an aggregate area of 3,804 square meters. This instrument (Exhibit A) and the Agent's aforementioned power of attorney (Exhibit A-1) were filed with the office of the register of deeds and annotated on said TCT No. 19556 on July 2, 1946. This notwithstanding, four (4) months later, or on October 18, 1946, the Principal sold a land of about thirty (30) hectares, including said Lot No. 622, to appellant herein (See Exhibit B). A week later, or on October 25, 1946, the latter, in turn, conveyed said land

to the appellee, by virtue of the deed Exhibit C, which was filed with the office of the register of deeds on November 4, 1946. Thereupon, TCT No. 19556 was cancelled and, in lieu thereof, TCT No. 28946 was issued in appellee's name. On December 14, 1946, appellee sold portions of said lot No. 622 to the following persons, hereinafter referred to as occupants, who had been and were holding, as lessees thereof, the portions respectively purchased by them, to wit:

a. 665 sq. m. to Domingo Manabat, Patricia Lopez and Calixta Bautista (to whom TCT No. T-1635 was issued) (Exhibit D);

b. 600 sq. m. to Conrado Manabat and Eladio Sioson (to whom TCT No. T-1634 was issued);

c. Lot No. 14 of Block 13 of the subdivision to Reynaldo Salvador and Graciano Garcia (to whom TCT No. T-1633 was issued); and

d. 682 sq. m. to Hilario de Jesus, Apolonio Pablo and Ismaela Jimenez (to whom TCT No. T-1632 was issued).

Having failed to take possession of the land sold to him by the Agent, on April 22, 1947, Pablo Ignacio commenced this action in the Court of First Instance of Bulacan, against said occupants, as well as against appellee, appellant, and the Principal, to annul the sales made by the latter to appellant, by appellant to appellee and by appellee to said occupants, as well as for the possession of the land in question and damages.

On May 7, 1947, a pleading was filed, purporting to be defendants' answer, alleging, inter alia, that appellees had, in good faith and for value, purchased said land from appellant, in whose name the title to said land was free from any lien or encumbrance in favor of Ignacio; that the occupants had purchased the portions assigned to them by appellee under similar conditions; that the sale in favor of Ignacio was fraudulent; and that Ignacio knew that said occupants were in possession of said portions, and had a right of pre-emption thereto.

On June 20, 1947, the Principal filed his own answer alleging that the land conveyed by him to Ignacio is different from the one covered by the sale made by the Agent to appellant and that he (the Principal) had instituted Civil Case No. 137 of the Court of First Instance of Bulacan against appellant to annul the aforementioned Sale by the Agent.

Subsequently, or on January 5, 1949, appellee and said occupants filed a cross-claim against the Principal, the Agent and appellant herein. On January 24, 1949, said occupants filed against the appellee, a cross-claim which was amended on October 17, 1949.

In due course, thereafter, the lower court rendered judgment: (I) declaring that Ignacio is the owner in fee simple of the lots in question; (II) ordering the Principal to execute the corresponding deed of final sale thereof to Ignacio; (III) directing appellee to surrender to the register of deeds of Bulacan the owner's duplicate of TCT No. 28948 for its cancellation and the issuance, in lieu thereof, of another certificate in the name of Ignacio; (IV) ordering the above-mentioned occupants to similarly surrender to said register of deeds their respective certificates of title for cancellation thereof; and (V) sentencing:

(a) appellee to refund

1) P2,151.25 to Domingo Manabat, Patricia Lopez and Calixta Bautista;

2) P1,950 to Conrado Manabat and Eliodoro Jimenez;

3) P2,216.50 to Hilario de Jesus and Apolonio and Ismaela Jimenez; and

4) P2,135.25 to Reynaldo Salvador and Graciano Garcia: and

(b) the Principal to pay Ignacio 255% of P6,457.00 — representing the price of materials purchased by the latter for the construction of a movie house — in order to compensate for the deterioration and depreciation of said materials, plus P5,000, by way of damages, with costs against the defendants.

Appellee and the occupants appealed from this judgment, which was affirmed by the Court of Appeals on May 20, 1958. On motion for reconsideration filed by appellee, on July 7, 1959, the Court of Appeals rendered an amended decision ordering appellant to reimburse the appellee in the sum of P8,463.00, representing the aggregate amount to be refunded by him (appellee) to the aforementioned occupants, pursuant to the original decision. Appellant seeks a review thereof as amended. He maintains that the Court of Appeals has erred: (1) in taking cognizance of this case; (2) in amending its original decision without giving him a chance to answer appellee's motion for reconsideration and in entertaining appellee's "supposed" cross-claim; and (3) in sustaining the same, despite the fact that appellee was in pari delicto.

As regards the first alleged error, it is urged that in their amended cross-claim herein, the aforementioned occupants had sought to recover the sums of P8,463.00, P45,960.00, P4,700.00, and P80,000.,00, or a total of P140,303.00, which was beyond the jurisdiction of the Court of Appeals, when it rendered the decision appealed from, on appeals taken directly from courts of first instance, in civil cases originating therefrom. The fact is, however, that the appellate jurisdiction of the Court of Appeals has been increased by Republic Act No. 2613 (approved on August 1, 1959) from P50,000 to P200,000. Hence, we cannot annul said decision for want of jurisdiction, and entertain the appeal from the decision of the court of origin as if it had been taken directly to the Supreme Court, inasmuch as the same now has no such jurisdiction. In fact, upon the passage of Republic Act No. 2613, we have remanded to the Court of Appeals a number of civil cases, pending decision before Us, in which the value of controversy did not exceed P200,000, although said cases had been forwarded to Us directly by courts of first instance, on appeal taken, from decisions thereof, when the Court of Appeals had exclusive appellate jurisdiction over civil cases involving not more than P50,000.00.

With reference to the second alleged error, suffice it to say that appellant was allowed to and did file a printed motion for reconsideration of the amended decision of the Court of Appeals; that, in said motion for reconsideration, consisting of 62 printed pages, appellant discussed extensively the alleged demerits of appellee's motion for reconsideration; and that, after due consideration thereof, said motion for reconsideration was denied by the Court of Appeals. The demands of substantial justice have thus been satisfied in said appellate court.

Appellant alleges in support of the third alleged error that appellee had never filed a cross-claim against him and that, at any rate, appellee is not entitled to reimbursement from him because they are in pari delicto. Although it is true that the appellee has not filed a cross-claim against the appellant, it is a fact that the occupants had filed a cross-claim against both of them; and that upon payment to the occupants of the amount of the cross-claim adjudged to be due to them, the appellee becomes subrogated into their rights, under said cross-claim, against the appellant. Moreover, it is an elementary principle of law (Articles 1495, 1547 and 1555, Civil Code of the Philippines), as well as of justice and equity that, unless a contrary intention appears, the vendor warrants his title to the thing sold, and that, in the event of eviction, the vendee shall be entitled to the return of the value

which the thing sold has at the time of the eviction, be it greater or less than the price of the sale. In the case at bar, it has been established that the land in dispute was, at the time of the eviction, worth at least the sum of P8,463, which is the aggregate amount charged by the appellee from said occupants.

Appellant cites Article 1412 of the Civil Code of the Philippines, in support of the view that appellee may not recover said amount from appellant, upon the ground that both are in pari delicto. This provision is part of Title II of Book IV of the Civil Code, on contracts in general, and it refers to contracts which are null and void ab initio, pursuant to Article 1409 of the Civil Code. The contract between appellant and appellee does not fall, however, under this provision, and is, accordingly, beyond the purview of the aforementioned Article 1412. Said contract is governed by Title VI of the same Book, on Sales in particular, specially by the aforesaid Articles 1495, 1547 and 1555, which are part of said Title VI, regarding breach of the warranty arising from a valid contract of sale, due to the application of Art. 1544 of the same title, regulating the effects of double sales. Incidentally, these provisions suggest, also, the remedies available to appellant herein.

WHEREFORE, the amended decision appealed from is hereby affirmed, with costs against the appellant. It is so ordered..

Bengzon, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P. and Zaldivar, JJ., concur.

Bautista Angelo and Barrera, JJ., took no part.