AGENCY

G.R. No. L-56545 January 28, 1983

BERT OSMEÑA & ASSOCIATES, petitioners, vs.THE COURT OF APPEALS and SPOUSES PEDRO QUIMBO and LEONADIZA QUIMBO, respondents.

Siguion Reyna, Montecillo & Ongsiako for petitioners.

Hilario Davide, Jr., for private respondents.

R E S O L U T I O N

 

MELENCIO-HERRERA, J.:

Sought to be reversed in this Petition for Review on certiorari is the Decision of respondent Court of Appeals in CA-G.R. No. 62601-R, entitled "Pedro Quimbo and Leonadiza Quimbo vs. Carmen Siguenza and Helena Siguenza, Bert Osmeña & Associates, Inc." sentencing defendants, jointly and severally, to pay damages to the plaintiffs, who are the private respondents herein.

Upon a review of the evidence, we find as established: (1) that on June 3, 1971, a "Contract of Sale" over Lots 1 and 2, Block I, Phase II of the Clarita Subdivision, Cebu City, for the total price of P15,200.00, was executed in favor of the Quimbo spouses. The sellers were petitioner company, developer of the subdivision, and Carmen and Helena Siguenza, owners of the property, represented by petitioner. Antonio V. Osmeña signed the contract on behalf of the company. Signing as witness was one C. Siguenza.

(2) The spouses had intended to construct a house thereon inasmuch as their rented abode, for which they were paying P170.00 monthly, had become inconvenient for their family. Plans for the house were drawn. The spouses were ready to pay the purchase price in full even

before the due date of the first installment and advised Helena Siguenza accordingly so that title in their names could be delivered to them. On the pretext that a road would traverse the lots purchased, Helena proposed to exchange another lot (Lot 409) with the same area for the lots purchased by the spouses to which the latter hesitating agreed. Until 1973, however, no title could be given the Quimbo spouses.

(3) It turned out that on December 15, 1969, or approximately a year and a half prior to the sale in the spouses' favor, Lots Nos. 1 and 2 had already been sold to Dr. Francisco Maningo (Exhs. "G " and "G-1 "), and that Transfer Certificates of Title Nos. 48546 and 48547 were issued in favor of Irenea Maningo on September 21, 1970 (Exhs. "H" and "H-1 "), or about nine months before. the sale. Annotated on said titles were mortgages in favor of petitioner.

(4) Discovering this fact only in 1973, respondent spouses instituted this suit for Damages against petitioner company and the Siguenzas on March 25, 1974.

In its judgment, the lower Court ordered petitioner company and the Siguenzas to pay damages to respondent spouses as follows:

WHEREFORE, based on all the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering the latter:

To pay, jointly and severally, the plaintiffs P3,040.00, with interest at the legal rate from June 2, 1971 until the same shall have been fully paid; P100,000.00 as compensation for the pecuniary loss plaintiffs suffered for failure to construct their residential house; P5,610.00 as reimbursement for the rentals plaintiffs paid from January 1972 to September 6, 1974; P50,000.00 as moral damages, P25,000.00 as

exemplary damages, P5,000.00 as attorney's fees; and the cost. 1

The Appellate Court affirmed the judgment of the Trial Court in toto. Hence, this recourse by petitioner company, advancing tile following arguments:

1) The Honorable Court of Appeals seriously erred in not having considered the contract as having been novated by virtue of the change in the subject matter or object of the contract;

2) The courts below seriously erred for having found petitioner to have acted fraudulently where there is no evidence to support such a finding;

3) The Court of Appeals committed serious error in law when it held petitioner jointly and severally liable to pay P100,000.00 as compensation for the pecuniary loss suffered by Mrs. Quimbo;

4) The Court seriously erred in holding petitioner jointly and severally liable with the Siguenzas to pay moral damages to Quimbo, there being no evidence showing fraud or bad faith perpetrated by petitioner;

5) The lower court seriously erred in holding petitioner liable to pay the sum of P5,610.00 as reimbursement for rentals because Quimbo was no longer interested in the lots on which her house was supposed to have been constructed but sought only for reimbursement of the downpayment;

6) The Court below erred in holding petitioner liable jointly and severally for exemplary damages, attorneys fees and costs;

7) The court seriously erred in fact and in law in holding petitioner jointly and severally with the Siguenzas to return the downpayment.

Except for some items of damages awarded, we affirm.

1) Petitioner's contention that in. as much as respondent spouses had agreed to exchange Lot 409 for Lots 1 and 2, the contract of sale had been novated and its liability extinguished, in untenable. No new contract was ever executed between. petitioner and respondent spouses, notwithstanding Helena Siguenza's assurances to that effect. As held by respondent Court:

This stand taken by appellant only reveals its misconception of novation. Novation is a contract containing two stipulations: one to extinguish an existing obligation, the other to substitute a new one in its place. It requires the creation of a new contractual relation as well as the extinguishment of the old. There must be a consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a new valid one (Tiu Suico vs. Habana, 45 Phil. 707). 2

2) Fraud has been established. As the trial Court had concluded:

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There is no question that the defendants have conveyed and disposed of Lots 1 and 2, Block I, Phase II of the Clarita Village Subdivision to the plaintiffs at a time when they were no longer the owners thereof. At the time of the execution of the contract of sale, their only interest thereon was a mortgage lien in the amount of P13,440.00. As mortgagee they did not have the right to sell the same. Helena and Carmen Siguenza did not reveal this fact to the plaintiffs and the latter relied on their assurances that the same belong to them. Bert Osmeña and Associates, Inc. as developer and at the same time attorney-in-fact for Carmen and Helena Siguenza similarly concealed this fact.1äwphï1.ñëtTheir efforts to cover up this fraud make the acts more detestable and obnoxious. Defendants demonstrated palpable malice, bad faith, wantonness and incurable dishonesty. 3

The finding of fraud in this case was a finding of fact and there are no factors which can justify a reversal thereof.

3) The award in the amount of P100,000.00 representing pecuniary loss for not having been able to build a P100,000.00 house should be eliminated. Respondent spouses did not lose that amount. It was only the estimated cost of the house they were unable to construct. It was an expense item, not expected income.

4) The amount of P5,610.00 awarded representing rentals the spouses could have saved, from the time when the house was to be finished to the date when respondent Leonadiza testified in Court (January 1972 to September 6, 1974), should also be eliminated for being speculative. If they had built their P100,000.00 house, thus avoiding the payment of rentals, they would, on the other hand, be losing interest or income from that amount. Evidence that the plaintiff could have bettered his position had it not been for the defendant's wrongful act cannot serve as basis for an award of damages. 4

5) Fraud and bad faith by petitioner company and the Siguenzas having been established, the award of moral damages is in order. Moral damages should be reduced, however, from P50,000.00 to P10,000.00.

6) Moral damages having been awarded, exemplary damages were also properly awarded. 5 They should be reduced, however, from P25,000.00 to P5,000.00.

7) The award of P5,000.00 as attorney's fees is affirmed inasmuch as respondent spouses were compelled to litigate for the protection of their interests. 6

8) The portion of the Decision requiring petitioners and the Siguenzas to return the downpayment of P3,040.00 is also justified. The Quimbo spouses are entitled to the return of their downpayment, with interest at the legal rate from March 25, 1974 when the instant, suit was commenced. 7

9) Petitioner's plea for exception from liability for damages on the ground that it was a mere agent of the Siguenzas is untenable. The contract of sale describes petitioner as seller together with the Siguenzas. In fact, petitioner was the lone signatory for the sellers in said contract. As held by respondent Court:

The contract ... is clear that appellant is one of the Seller-of the lots in question. We will not allow a variation of the terms of the written contract by parole evidence, for there is never an allegation in the appellant's answer that Exhibit 6-Osmeña does not express the true intent of the parties or that it is suffering from a vice or mistake or imperfection. Further, appellant never asserted in its answer that it is a mere agent of its co-defendant Helena. Indeed, the tenor of its Answer is one which shows its admission that it is a co-seller of all lots in subdivision which it is developing. We take particular attention to appellant's admission in its answer to the allegations in par. 4, 8 and 9 of appellees' complaint, which show that appellant was not an agent but a co-seller of the lots. 8

ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby ordered to pay private respondents the following sums: P3,040.00 with interest at the legal rate from March 25, 1974 until fully paid; P10,000.00 as moral damages; P5,000.00 as exemplary damages; and P5,000.00 as attorney's fees. Costs against petitioner company.

SO ORDERED.

G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner, vs.COURT OF APPEALS and BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT (BMW), respondents.

 

MENDOZA, J.:

This is a petition for review of the decision 1 of the Court of Appeals dismissing a complaint for specific performance which petitioner had filed against private respondent on the ground that the Regional Trial Court of Quezon City did not acquire jurisdiction over private respondent, a nonresident foreign corporation, and of the appellate court's order denying petitioner's motion for reconsideration.

The following are the facts:

Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany.

On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney," which reads in full as follows:

WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and device in the Philippines which ASSIGNOR uses and has been using on the products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by certificate of registration issued by the Director of Patents on 12 December 1963 and is referred to as Trademark No. 10625;

WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with the Philippines Patent Office;

NOW THEREFORE, in view of the foregoing and in consideration of the stipulations hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor of the ASSIGNEE under the following terms and conditions:

1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or infringer of the BMW trademark in the Philippines; for such purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or infringement of the said trademark which comes to his knowledge and upon such information the ASSIGNOR shall automatically act as Attorney-In-Fact of the ASSIGNEE for such case, with full power, authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be the responsibility and for the account of the ASSIGNOR,

2. That the ASSIGNOR and the ASSIGNEE shall continue business

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relations as has been usual in the past without a formal contract, and for that purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE's complete production program with the only limitation that, for the present, in view of ASSIGNEE's limited production, the latter shall not be able to supply automobiles to ASSIGNOR.

Per the agreement, the parties "continue[d] business relations as has been usual in the past without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed interest in acquiring the same. On February 24, 1993, petitioner received confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive BMW dealer. 2 Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate petitioner's exclusive dealership effective June 30, 1993.

Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the Deed of Assignment. 3 Hahn insisted that as long as the assignment of its trademark and device subsisted, he remained BMW's exclusive dealer in the Philippines because the assignment was made in consideration of the exclusive dealership. In the same letter petitioner explained that the decline in sales was due to lower prices offered for BMW cars in the United States and the fact that few customers returned for repairs and servicing because of the durability of BMW parts and the efficiency of petitioner's service.

Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its offer of a "standard importer contract"

and terminated the exclusive dealer relationship effective June 30, 1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among those invited from the Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars and parts.

Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific performance and damages against BMW to compel it to continue the exclusive dealership. Later he filed an amended complaint to include an application for temporary restraining order and for writs of preliminary, mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive dealership. Hahn's amended complaint alleged in pertinent parts:

2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal offices at Munich, Germany. It may be served with summons and other court processes through the Secretary of the Department of Trade and Industry of the Philippines. . . .

xxx xxx xxx

5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment with Special Power of Attorney covering the trademark and in consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the Assignee in the Philippines. . . .

xxx xxx xxx

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contribution from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of money and resources in order

to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW.

xxx xxx xxx

10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing to maintain with Plaintiff a relationship but only "on the basis of a standard BMW importer contract as adjusted to reflect the particular situation in the Philippines" subject to certain conditions, otherwise, defendant BMW would terminate Plaintiffs exclusive dealership and any relationship for cause effective June 30, 1993. . . .

xxx xxx xxx

15. The actuations of defendant BMW are in breach of the assignment agreement between itself and plaintiff since the consideration for the assignment of the BMW trademark is the continuance of the exclusive dealership agreement. It thus, follows that the exclusive dealership should continue for so long as defendant BMW enjoys the use and ownership of the trademark assigned to it by Plaintiff.

The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and copies of the complaint and amended complaint were thereafter served on the private respondent through the Department of Trade and Industry, pursuant to Rule 14, §14 of the Rules of Court. The order, summons and copies of the complaint and amended complaint were later sent by the DTI to BMW via registered mail on June 15, 1993 5 and received by the latter on June 24, 1993.

On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial court issued an order granting the writ of preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993, following the posting of the required bond, a writ of preliminary injunction was issued.

On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction over it through the service of summons on the Department of Trade and Industry, because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn was not its agent because the latter undertook to assemble and sell BMW cars and products without the participation of BMW and sold other products; and that Hahn was an indentor or middleman transacting business in his own name and for his own account.

Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically inspected standards of service rendered by him; and that he was described in service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines.

The trial court 6 deferred resolution of the motion to dismiss until after trial on the merits for the reason that the grounds advanced by BMW in its motion did not seem to be indubitable.

Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with the Court of Appeals alleging that:

I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT OF

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PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.

II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q-93-15933. Private respondent pointed out that, unless the trial court's order was set aside, it would be forced to submit to the jurisdiction of the court by filing its answer or to accept judgment in default, when the very question was whether the court had jurisdiction over it.

The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring resolution of the motion to dismiss. It stated:

Going by the pleadings already filed with the respondent court before it came out with its questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to dismiss could be resolved then and there, and that the respondent judge's deferment of his action thereon until after trial on the merit constitutes, to our mind, grave abuse of discretion.

xxx xxx xxx

. . . [T]here is not much appreciable disagreement as regards the factual matters relating to the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ is the legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining that on the basis thereof, BMW is doing business in the

Philippines while the latter asserts that it is not.

Then, after stating that any ruling which the trial court might make on the motion to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that BMW was not doing business in the country and, therefore, jurisdiction over it could not be acquired through service of summons on the DTI pursuant to Rule 14, §14. 'The court upheld private respondent's contention that Hahn acted in his own name and for his own account and independently of BMW, based on Alfred Hahn's allegations that he had invested his own money and resources in establishing BMW's goodwill in the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It held that petitioner was a mere indentor or broker and not an agent through whom private respondent BMW transacted business in the Philippines. Consequently, the Court of Appeals dismissed petitioner's complaint against BMW.

Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial court gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding that private respondent BMW is not doing business in the Philippines and, for this reason, dismissing petitioner's case.

Petitioner's appeal is well taken. Rule 14, §14 provides:

§14. Service upon private foreign corporations. — If the defendant is a foreign corporation, or a nonresident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. (Emphasis added).

What acts are considered "doing business in the Philippines" are enumerated in §3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7

d) the phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. (Emphasis supplied)

Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not when the representative or distributor "transacts business in its name and for its own account." In addition, §1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No. 226) provided:

(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the Code. In particular, "doing business" includes:

(1) . . . A foreign firm which does business through middlemen acting in their own names, such as indentors,

commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW cars and products, BMW, a foreign corporation, is not considered doing business in the Philippines within the meaning of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW).

The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts with individuals or entities interested in acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for which reason he is to be considered, under governing statutes, as doing business." (p. 13) In support of this conclusion, the appellate court cited the following allegations in Hahn's amended complaint:

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contributions from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money and resources in order to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW.

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As the above quoted allegations of the amended complaint show, however, there is nothing to support the appellate court's finding that Hahn solicited orders alone and for his own account and without "interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the downpayment and pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed the orders by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services, including warranty services, for which he received reimbursement from BMW. All orders were on invoices and forms of BMW. 8

These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of Appeals, stated: 9

9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices are made, the vehicles are shipped to the Philippines. (The payments may be made by the purchasers or third-persons or even by Hahn.) The bills of lading are made up in the name of the purchasers, but Hahn-Manila is therein indicated as the person to be notified.

9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the purchasers.

9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in writing that

the vehicles have been registered in the Philippines and have been serviced by him, he will receive an additional three percent (3%) of the full purchase prices as commission.

Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.

As to the service centers and showrooms which he said he had put up at his own expense, Hahn said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to Hahn, BMW periodically inspected the service centers to see to it that BMW standards were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW standards that BMW was terminating Hahn's dealership.

The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce compliance with BMW standards and specifications. 10 For example, in its letter to Hahn dated February 23, 1996, BMW stated:

In the last years we have pointed out to you in several discussions and letters that we have to tackle the Philippine market more professionally and that we are through your present activities not adequately prepared to cope with the forthcoming challenges. 11

In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.

This case fits into the mould of Communications Materials, Inc. v. Court of Appeals, 12 in which the foreign corporation entered into a

"Representative Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation sold products exported by the foreign corporation and put up a service center for the products sold locally. This Court held that these acts constituted doing business in the Philippines. The arrangement showed that the foreign corporation's purpose was to penetrate the Philippine market and establish its presence in the Philippines.

In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines, even as it announced in the Asian region that Hahn was the "official BMW agent" in the Philippines. 13

The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding is based entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition for certiorari before the Court of Appeals. 14 But this allegation was denied by Hahn 15 and therefore the Court of Appeals should not have cited it as if it were the fact.

Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals the necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss. Petitioner alleged that whether or not he is considered an agent of BMW, the fact is that BMW did business in the Philippines because it sold cars directly to Philippine buyers. 16 This was denied by BMW, which claimed that Hahn was not its agent and that, while it was true that it had sold cars to Philippine buyers, this was done without solicitation on its part. 17

It is not true then that the question whether BMW is doing business could have been resolved simply by considering the parties' pleadings. There are genuine issues of facts which can only be determined on the basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it to go to trial would be to deny its right not to submit to the

jurisdiction of the trial court which precisely it denies. Rule 16, §3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if the ground on which the motion is based does not appear to be indubitable. Here the record of the case bristles with factual issues and it is not at all clear whether some allegations correspond to the proof.

Anyway, private respondent need not apprehend that by responding to the summons it would be waiving its objection to the trial court's jurisdiction. It is now settled that, for purposes of having summons served on a foreign corporation in accordance with Rule 14, §14, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations of the complaint in order to determine whether it has Jurisdiction. 18 A determination that the foreign corporation is doing business is only tentative and is made only for the purpose of enabling the local court to acquire jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, §14. Such determination does not foreclose a contrary finding should evidence later show that it is not transacting business in the country. As this Court has explained:

This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the Philippines was through a passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business in the Philippines. It is a defense, however, that requires the contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of the case, which should not thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation which has done business in the country, but which has ceased to do business at the time of the filing of a complaint, can still be made to answer for a cause of action

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which accrued while it was doing business, is another matter that would yet have to await the reception and admission of evidence. Since these points have seasonably been raised by the petitioner, there should be no real cause for what may understandably be its apprehension,i.e., that by its participation during the trial on the merits, it may, absent an invocation of separate or independent reliefs of its own, be considered to have voluntarily submitted itself to the court's jurisdiction. 19

Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion to dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the same result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling that BMW is not doing business on the basis merely of uncertain allegations in the pleadings, disposed of the whole case with finality and thereby deprived petitioner of his right to be heard on his cause of action. Nor was there justification for nullifying the writ of preliminary injunction issued by the trial court. Although the injunction was issued ex parte, the fact is that BMW was subsequently heard on its defense by filing a motion to dismiss.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to the trial court for further proceedings.

SO ORDERED.

G.R. No. 110668 February 6, 1997

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

 

PANGANIBAN, J.:

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

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

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

The Facts

The facts are undisputed by the parties, 6 and are narrated by respondent Court, quoting the trial court, as follows: 7

The undisputed facts of the case have been succintly (sic) summarized by the lower court(,) as follows:

. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin Chiong, Importer, bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at US$13,000.00 CIF Manila. These were contained in 1,250 bags and shipped from the Port of Kaohsiung, Taiwan on Board S.S. "GOLDEN WEALTH" for the Port on (sic) Manila. On

July 27, 1982, this shipment was insured by the defendant First Insurance Co. for US$19,500.00 "against all risks" at port of departure under Marine Policy No. 1000M82070033219, with the note "Claim, if any, payable in U.S. currency at Manila (Exh. "1", 'D" for the plaintiff) and with defendant Smith, Bell, and Co. stamped at the lower left side of the policy as "Claim Agent."

The cargo arrived at the Port of Manila on September 1, 1982 aboard the above-mentioned carrying vessel and landed at port on September 2, 1982. thereafter, the entire cargo was discharged to the local arrastre contractor, Metroport Services Inc. with a number of the cargo in apparent bad order condition. On September 27, 1982, the plaintiff secured the services of a cargo surveyor to conduct a survey of the damaged cargo which were (sic) delivered by plaintiff's broker on said date to the plaintiffs premises at 12th Avenue, Grace Park, Caloocan City. The surveyor's report (Exh. "E") showed that of the 1,250 bags of the imported material, 600 were damaged by tearing at the sides of the container bags and the contents partly empty. Upon weighing, the contents of the damaged bags were found to be 18,546.0 kg short. Accordingly, on October 16 following, the plaintiff filed with Smith, Bell, and Co., Inc. a formal statement of claim (Exh. "G") with proof of loss and a demand for settlement of the corresponding value of the losses, in the sum of

US$7,357.78.00. (sic) After purportedly conveying the claim to its principal, Smith, Bell, and Co., Inc. informed the plaintiff by letter dated February 15, 1983 (Exh."G-2") that its principal offered only 50% of the claim or US$3,616.17 as redress, on the alleged ground of discrepancy between the amounts contained in the shipping agent's reply to the claimant of only US$90.48 with that of Metroport's. The offer not being acceptable to the plaintiff, the latter wrote Smith, Bell, & Co. expressing his refusal to the "redress" offer. contending that the discrepancy was a result of loss from vessel to arrastre to consignees' warehouse\which losses were still within the "all risk" insurance cover. No settlement of the claim having been made, the plaintiff then caused the instant case to be filed. (p. 2, RTC Decision; p. 142, Record).

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

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

After due trial and proceeding, the lower court rendered a decision favorable to plaintiff-appellee. It ruled that plaintiff-appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete evidence of the amount of losses resulting from the risks insured against which were

6

supported, by reliable report and assessment of professional cargo surveyor. As regards defendant-appellant, the lower court held that since it is admittedly a claim agent of the foreign insurance firm doing business in the Philippines justice is better served if said agent is made liable without prejudice to its right of action against its principal, the insurance firm. . . .

The Issue

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

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

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

Likewise, private respondent disputed the applicability of the cases of E Macias & Co. vs. Warner, Barnes & Co. 12and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by

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

The Court's Ruling

There are three reasons why we find for petitioner.

First Reason: Existing Jurisprudence

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

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

rule of agency applies. The following authorities bear this out:

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

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

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

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

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

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

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

Second Reason: Absence of Solidarity Liability

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

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

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

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

force and effect as if made upon the company.

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

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

Third Reason: Not Real Party-In-Interest

Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest in this case. An action is brought for a practical purpose, that is, to obtain actual and positive relief. If the party sued is not the proper party, any decision that may be rendered against him would be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of the Rules of Court identifies who the real parties-in-interest are, thus:

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

complete determination or settlement of the questions involved therein shall be joined as defendants.

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

Resort to Equity Misplaced

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

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

No costs.

SO ORDERED.

G.R. No. L-8169             January 29, 1957

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner, vs.FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL CASUALTY INSURANCE CO., SALVADOR

SISON, PORFIRIO DE LA FUENTE and THE COURT OF APPEALS (First Division),respondents.

Ross, Selph, Carrascoso & Janda for petitioner.J. A. Wolfson and Manuel Y. Macias for respondents.

PADILLA, J.:

Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which reversed that of the Court of First Instance of Manila and sentenced ". . . the defendants-appellees to pay, jointly and severally, the plaintiffs-appellants the sum of P1,651.38, with legal interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the costs in both instances."

The Court of Appeals found the following:

Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell Company of the Philippine Islands, Ltd. accept the statement of facts made by the trial court in its decision and appearing on pages 23 to 37 of the Record on Appeal, we quote hereunder such statement:

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

It is a fact that a Plymounth car owned by Salvador R. Sison was brought, on September 3, 1947 to the Shell Gasoline and Service Station, located at the corner of Marques de Comillas and Isaac Peral Streets, Manila, for washing, greasing and spraying. The operator of the station, having agreed to do service upon payment of P8.00, the car was placed on a hydraulic lifter under the direction of the personnel of the station.

What happened to the car is recounted by Perlito Sison, as follows:

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Q. Will you please describe how they proceeded to do the work?

A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the lifter. Then by the aid of the two grease men they raised up my car up to six feet high, and then washing was done. After washing, the next step was greasing. Before greasing was finished, there is a part near the shelf of the right fender, right front fender, of my car to be greased, but the the grease men cannot reached that part, so the next thing to be done was to loosen the lifter just a few feet lower. Then upon releasing the valve to make the car lower, a little bit lower . . .

Q. Who released the valve?

A. The greasemen, for the escape of the air. As the escape of the air is too strong for my ear I faced backward. I faced toward Isaac Peral Street, and covered my ear. After the escaped of the air has been finished, the air coming out from the valve, I turned to face the car and I saw the car swaying at that time, and just for a few second the car fell., (t.s.n. pp. 22-23.)

The case was immediately reported to the Manila Adjustor Company, the adjustor of the firemen's Insurance Company and the Commercial Casualty Insurance Company, as the car was insured with these insurance companies. After having been inspected by one Mr. Baylon, representative of the Manila Adjustor Company, the damaged car was taken to the shops of the Philippine Motors, Incorporated, for repair upon order of the Firemen's Insurance Company and the Commercial Casualty Company, with the consent of Salvador R. Sison. The car was restored to running condition after repairs amounting to P1,651.38, and was delivered to Salvador R. Sison, who, in turn made assignments of his rights to recover damages in favor of the Firemen's Insurance Company and the Commercial Casualty Insurance Company.

On the other hand, the fall of the car from the hydraulic lifter has been

explained by Alfonso M. Adriano, a greaseman in the Shell Gasoline and Service Station, as follows:

Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3, 1947?

A. Yes, sir.

Q. To what height did you raise more or less?

A. More or less five feet, sir.

Q. After lifting that car that height, what did you do with the car?

A. I also washed it, sir.

Q. And after washing?

A. I greased it.

Q. On that occasion, have you been able to finish greasing and washing the car?

A. There is one point which I could not reach.

Q. And what did you do then?

A. I lowered the lifter in order to reach that point.

Q. After lowering it a little, what did you do then?

A. I pushed and pressed the valve in its gradual pressure.

Q. Were you able to reach the portion which you were not able to reach while it was lower?

A. No more, sir.

Q. Why?

A. Because when I was lowering the lifter I saw that the car was swinging and it fell.

THE COURT. Why did the car swing and fall?

WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)

The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts which is hereunder also reproduced:

In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador Sison was brought by his son, Perlito Sison, to the gasoline and service station at the corner of Marques de Comillas and Isaac Peral Streets, City of Manila, Philippines, owned by the defendant The Shell Company of the Philippine Islands, Limited, but operated by the defendant Porfirio de la Fuente, for the purpose of having said car washed and greased for a consideration of P8.00 (t.s.n., pp. 19-20.) Said car was insured against loss or damage by Firemen's Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance Company jointly for the sum of P10,000 (Exhibits "A', "B", and "D").

The job of washing and greasing was undertaken by defendant Porfirio de la Fuente through his two employees, Alfonso M. Adriano, as greaseman and one surnamed de los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job the car was carefully and centrally placed on the platform of the lifter in the gasoline and service station aforementioned before raising up said platform to a height of about 5 feet and then the servicing job was started. After more than one hour of washing and greasing, the job was about to be completed except for an ungreased portion underneath the

vehicle which could not be reached by the greasemen. So, the lifter was lowered a little by Alfonso M. Adriano and while doing so, the car for unknown reason accidentally fell and suffered damage to the value of P1, 651.38 (t.s.n., pp. 65-67).

The insurance companies after paying the sum of P1,651.38 for the damage and charging the balance of P100.00 to Salvador Sison in accordance with the terms of the insurance contract, have filed this action together with said Salvador Sison for the recovery of the total amount of the damage from the defendants on the ground of negligence (Record on Appeal, pp. 1-6).

The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in his separate answer and contended further that the accidental fall of the car was caused by unforseen event (Record on Appeal, pp. 17-19).

The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila Adjustor Company, to investigate the incident and after such investigation the damaged car, upon order of the insures and with the consent of the owner, was brought to the shop of the Philippine Motors, Inc. The car was restored to running condition after thereon which amounted to P1,651.38 and returned to the owner who assigned his right to collect the aforesaid amount to the Firemen's Insurance Company and the Commercial Casualty Insurance Company.

On 6 December 1947 the insures and the owner of the car brought an action in the Court of First Instance of Manila against the Shell Company of the Philippines, Ltd. and Porfirio de la Fuente to recover from them, jointly and severally, the sum of P1,651.38, interest thereon at the legal rate from the filing of the complaint until fully paid, the costs. After trial the Court dismissed the complaint. The plaintiffs appealed. The Court of Appeals reversed the judgment and sentenced the defendant to pay the amount sought to be recovered, legal interest and costs, as stated at the beginning of this opinion.

9

In arriving at the conclusion that on 3 September 1947 when the car was brought to the station for servicing Profirio de la Fuente, the operator of the gasoline and service station, was an agent of the Shell Company of the Philippines, Ltd., the Court of Appeals found that —

. . . De la Fuente owned his position to the Shell Company which could remove him terminate his services at any time from the said Company, and he undertook to sell the Shell Company's products exculusively at the said Station. For this purpose, De la Fuente was placed in possession of the gasoline and service station under consideration, and was provided with all the equipments needed to operate it, by the said Company, such as the tools and articles listed on Exhibit 2 which the hydraulic lifter (hoist) and accessories, from which Sison's automobile fell on the date in question (Exhibit 1 and 2). These equipments were delivered to De la Fuente on a so-called loan basis. The Shell Company took charge of its care and maintenance and rendered to the public or its customers at that station for the proper functioning of the equipment. Witness Antonio Tiongson, who was sales superintendent of the Shell Company, and witness Augusto Sawyer, foreman of the same Company, supervised the operators and conducted periodic inspection of the Company's gasoline and service station, the service station in question inclusive. Explaining his duties and responsibilities and the reason for the loan, Tiongson said: "mainly of the supervision of sales or (of) our dealers and rountinary inspection of the equipment loaned by the Company" (t.s.n., 107); "we merely inquire about how the equipments are, whether they have complaints, and whether if said equipments are in proper order . . .", (t.s.n., 110); station equipments are "loaned for the exclusive use of the dealer on condition that all supplies to be sold by said dealer should be exclusively Shell, so as a concession we loan equipments for their use . . .," "for the proper functioning of the

equipments, we answer and see to it that the equipments are in good running order usable condition . . .," "with respect to the public." (t.s.n., 111-112). De la Fuente, as operator, was given special prices by the Company for the gasoline products sold therein. Exhibit 1 — Shell, which was a receipt by Antonio Tiongson and signed by the De la Fuente, acknowledging the delivery of equipments of the gasoline and service station in question was subsequently replaced by Exhibit 2 — Shell, an official from of the inventory of the equipment which De la Fuente signed above the words: "Agent's signature" And the service station in question had been marked "SHELL", and all advertisements therein bore the same sign. . . .

. . . De la Fuente was the operator of the station "by grace" of the Defendant Company which could and did remove him as it pleased; that all the equipments needed to operate the station was owned by the Defendant Company which took charge of their proper care and maintenance, despite the fact that they were loaned to him; that the Defendant company did not leave the fixing of price for gasoline to De la Fuente; on the other hand, the Defendant company had complete control thereof; and that Tiongson, the sales representative of the Defendant Company, had supervision over De la Fuente in the operation of the station, and in the sale of Defendant Company's products therein. . . .

Taking into consideration the fact that the operator owed his position to the company and the latter could remove him or terminate his services at will; that the service station belonged to the company and bore its tradename and the operator sold only the products of the company; that the equipment used by the operator belonged to the company and were just loaned to the operator and the company took charge of their repair and maintenance; that an employee of the company supervised the operator and conducted periodic inspection of the company's gasoline and service station; that the price of the

products sold by the operator was fixed by the company and not by the operator; and that the receipt signed by the operator indicated that he was a mere agent, the finding of the Court of Appeals that the operator was an agent of the company and not an independent contractor should not be disturbed.

To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it by the contracting parties, should there be a controversy as to what they really had intended to enter into, but the way the contracting parties do or perform their respective obligation stipulated or agreed upon may be shown and inquired into, and should such performance conflict with the name or title given the contract by the parties, the former must prevail over the latter.

It was admitted by the operator of the gasoline and service station that "the car was carefully and centrally placed on the platform of the lifter . . ." and the Court of Appeals found that —

. . . the fall of Appellant Sison's car from the hydraulic lift and the damage caused therefor, were the result of the jerking and swaying of the lift when the valve was released, and that the jerking was due to some accident and unforeseen shortcoming of the mechanism itself, which caused its faulty or defective operation or functioning,

. . . the servicing job on Appellant Sison's automobile was accepted by De la Fuente in the normal and ordinary conduct of his business as operator of his co-appellee's service station, and that the jerking and swaying of the hydraulic lift which caused the fall of the subject car were due to its defective condition, resulting in its faulty operation. . . .

As the act of the agent or his employees acting within the scope of his authority is the act of the principal, the breach of the undertaking by the agent is one for which the principal is answerable. Moreover, the company undertook to "answer and see to it that the equipments are

in good running order and usable condition;" and the Court of Appeals found that the Company's mechanic failed to make a thorough check up of the hydraulic lifter and the check up made by its mechanic was "merely routine" by raising "the lifter once or twice and after observing that the operator was satisfactory, he (the mechanic) left the place." The latter was negligent and the company must answer for the negligent act of its mechanic which was the cause of the fall of the car from the hydraulic lifter.

The judgment under review is affirmed, with costs against the petitioner.

G.R. No. L-47538             June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner, vs.ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.

Feria & Lao for petitioner.J. W. Ferrier and Daniel Me. Gomez for respondent.

LAUREL, J.:

This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."

It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of sound reproducing equipment and machinery ordered by the petitioner from the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and confirmed by the appellate court, which are admitted by the respondent, are as follows:

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In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands, with its office in Manila, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement Company. C. S. Salmon was the president, while A. B. Coulette was the business manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation doing business in the Philippine Islands, with office in Manila, in addition to its other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A. It would seem that this last company dealt in cinematographer equipment and machinery, and the Arco Amusement Company desiring to equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its then president and acting manager, Gil Puyat, and an employee named Santos. After some negotiations, it was agreed between the parties, that is to say, Salmon and Coulette on one side, representing the plaintiff, and Gil Puyat on the other, representing the defendant, that the latter would, on behalf of the plaintiff, order sound reproducing equipment from the Starr Piano Company and that the plaintiff would pay the defendant, in addition to the price of the equipment, a 10 per cent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the equipment desired and making the said company to quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to this price, the plaintiff, by means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19, 1929,

formally authorized the order. The equipment arrived about the end of the year 1929, and upon delivery of the same to the plaintiff and the presentation of necessary papers, the price of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses and charges, was duly paid by the plaintiff to the defendant.

Sometime the following year, and after some negotiations between the same parties, plaintiff and defendants, another order for sound reproducing equipment was placed by the plaintiff with the defendant, on the same terms as the first order. This agreement or order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff would pay for the equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This amount of $160 does not represent actual out-of-pocket expenses paid by the defendant, but a mere flat charge and rough estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment.

About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered that the price quoted to them by the defendant with regard to their two orders mentioned was not the net price but rather the list price, and that the defendants had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said officials of the plaintiff were convinced that the prices charged them by the defendant were much too

high including the charges for out-of-pocket expense. For these reasons, they sought to obtain a reduction from the defendant or rather a reimbursement, and failing in this they brought the present action.

The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale, and absolved that petitioner from the complaint. The appellate court, however, — by a division of four, with one justice dissenting — held that the relation between petitioner and respondent was that of agent and principal, the petitioner acting as agent of the respondent in the purchase of the equipment in question, and sentenced the petitioner to pay the respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. The appellate court further argued that even if the contract between the petitioner and the respondent was one of purchase and sale, the petitioner was guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the overpayments made by the latter.

The petitioner now claims that the following errors have been incurred by the appellate court:

I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la recurrente y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion de que se trata, en vez de la de vendedora a compradora como ha declarado el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy Magistrado Honorable Marcelino Montemayor.

II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las maquinarias y equipos en cuestion,

y condenar a la recurrente ha obtenido de la Starr Piano Company of Richmond, Indiana.

We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase and sale, and not one of agency, for the reasons now to be stated.

In the first place, the contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with the petitioner, are clear in their terms and admit no other interpretation that the respondent in question at the prices indicated which are fixed and determinate. The respondent admitted in its complaint filed with the Court of First Instance of Manila that the petitioner agreed to sell to it the first sound reproducing equipment and machinery. The third paragraph of the respondent's cause of action states:

3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner) entered into an agreement, under and by virtue of which the herein defendant was to secure from the United States, and sell and deliver to the herein plaintiff, certain sound reproducing equipment and machinery, for which the said defendant, under and by virtue of said agreement, was to receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all out of pocket expenses in connection with the purchase and delivery of such equipment, such as costs of telegrams, freight, and similar expenses. (Emphasis ours.)

11

We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency between the petitioner and the respondent, because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code).

While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances indicated do not point to anything but plain ordinary transaction where the respondent enters into a contract of purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano Company in the United States.

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

The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus ten per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. The distinction which the respondents seeks to draw between the cost price and the list price we consider to be spacious. It is to be observed that the twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner is available only to the latter as the former's exclusive agent in the Philippines. The respondent could not have secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10 percent commission offered by the respondent. Moreover, the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers, and the respondent was not even aware of such an arrangement. The respondent, therefore, could not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company except from the petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as represented; and that was the end of the matter as far as the respondent was concerned. The fact that the petitioner obtained more or less profit than the respondent calculated before entering into the contract or reducing the price agreed upon between the petitioner and the respondent. Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business

acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world.

The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is accordingly reversed and the petitioner is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee," without pronouncement regarding costs. So ordered.

[G. R. No. 129919. February 6, 2002]

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

D E C I S I O N

PARDO, J.:

The Case

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

The Facts

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

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

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

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

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

Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties.

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

ORDER

12

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

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

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

SO ORDERED.

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

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

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

On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that

the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion.

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

WHEREFORE, premises considered, judgment is hereby rendered ordering:

1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendants clients;

2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;

3. The dismissal of the counter-claim of the defendant and the third-party complaint;

4. The defendant to pay the costs of suit.[4]

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

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

Hence, this appeal.[9]

The Issues

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

The Court's Ruling

The petition is without merit.

By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.[10] The basis for agency is representation.[11] On the part of the principal, there must be an actual intention to appoint[12] or an intention naturally inferrable from his words or actions;[13] and on the part of the agent, there must be an intention to accept the appointment and act on it,[14] and in the absence of such intent, there is generally no agency.[15]

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

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

1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.

2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf.

3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter become due, owing payable or transferable to said Corporation by reason of or in connection with the above-mentioned appointment.

4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said Corporation.[19] [Emphasis supplied]

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

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

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

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

(1) To make such payments as are not usually considered as acts of administration;

xxx xxx xxx

(15) Any other act of strict dominion.

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

13

respondent Guevarra could settle the insurance claims of the insured.

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

xxx xxx xxx

1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office.

2. Full authority is given you on TPPI claims settlement.

xxx xxx xxx[24]

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

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

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

(sgd.) FERNANDO C. AUSTRIA

Regional Manager[26]

[Emphasis supplied]

The instruction of petitioner as the principal could not be any clearer.

Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession.

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

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

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

xxx xxx xxx

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

Article 1236, second paragraph, Civil Code, provides:

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

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

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

The extent to which petitioner was benefited by the settlement of the insurance

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

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

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

The Fallo

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

No costs in this instance.

SO ORDERED.

G.R. No. 137471            January 16, 2002

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

PANGANIBAN, J.:

Loss brought about by the concurrent negligence of two persons shall be borne by the one who was in the immediate, primary and overriding position to prevent it. In the present case, the mortgagee -- who is engaged in the business of

lending money secured by real estate mortgages -- could have easily avoided the loss by simply exercising due diligence in ascertaining the identity of the impostor who claimed to be the registered owner of the property mortgaged.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the November 11, 1998 Decision1of the Court of Appeals (CA) in CA-GR CV No. 44558. The dispositive portion of the CA Decision reads as follows:

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

Also questioned is the February 5, 1999 CA Resolution3 denying petitioner's Motion for Reconsideration.

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

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

"Defendant's counterclaim is dismissed for want of basis."4

The Facts

14

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

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

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

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

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

"[Petitioner] likewise filed a criminal case for estafa thru falsification of public document against [Respondent] Romulo Pangilinan, as well as against

Angelina Salvador, Romy de Castro and Marilen Macanaya, in connection with the execution of the allegedly falsified deed of real estate mortgage: this was docketed as Criminal Case No. 1533-91 of the Regional Trial Court of San Mateo, Rizal, Branch 76.

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

"[Respondent] claimed that [petitioner] voluntarily entrusted his title to the

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

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

Ruling of the Court of Appeals

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

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

Hence, this present recourse.9

The Issues

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

I

"Whether or not consent is an issue in determining who must bear the loss if a mortgage contract is sought to be declared a nullity[;]

and

II

"Whether or not the Motion for Reconsideration filed by the petitioner before the Court of Appeals should have been dismissed[.]"11

This Court's Ruling

The Petition is meritorious.

First Issue:

Effect of Mortgage by Non-Owner

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

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

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

"(1) That they be constituted to secure the fulfillment of a principal obligation;

15

"(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

"(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for that purpose.

"Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (1857)" (Italics supplied)

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

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

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

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

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

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

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

Second Issue:

Concurrent Negligence of the Parties

The CA reversed the lower court, because petitioner had been negligent in entrusting and

delivering his TCT No. 337942 to his "distant relative" Angelina Salvador, who undertook to find a money lender. Citing Blondeau v. Nano16 and Philippine National Bank v. CA,17 it then applied the "bona fide purchaser for value" principle.

Both cases cited involved individuals who, by their negligence, enabled other persons to cause the cancellation of the original TCT of the disputed property and the issuance of a new one in their favor. Having obtained TCTs in their names, they conveyed the subject property to third persons, who in Blondeau was a bona fide purchaser while in Philippine National Bank was an innocent mortgagee for value. It should be stressed that in both these cases, the seller and the mortgagor were the registered owners of the subject property; whereas in the present case, the mortgagor was an impostor, not the registered owner.1âwphi1.nêt

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

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

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

Respondent testified that he was engaged in the real estate business, including the grant of loans secured by real property mortgages. Thus, he is expected to ascertain the status and condition of

the properties offered to him as collaterals, as well as to verify the identities of the persons he transacts business with. Specifically, he cannot simply rely on a hasty examination of the property offered to him as security and the documents backing them up.21 He should also verify the identity of the person who claims to be the registered property owner.

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

"Q       Mr. witness, you stated earlier that you are a businessman. Will you please inform the Hon. Court what kind of business you are engaged in?

A       First, as a businessman, I buy and sell real estate properties, sir, and engaged in real estate mortgage, sir.

Q       In relation to your buy and sell business, Mr. witness, how many clients have you had since you started?

A       Since I started in 1985, I have [had] almost 30 to 50 clients, sir.

x x x           x x x           x x x

Q       Will you inform the Court, Mr. [W]itness, how are you found by your clients?

A       I advertise it in the newspapers, sir.

Q       And what is the frequency of this advertisement in the newspapers?

A       One whole week in every month, sir.

Q       Let us go specifically [to] the real estate mortgage, Mr. [W]itness, which has relation to this case. Will you inform the Court how you go about this business, meaning, if you have any procedure that you follow?

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A       As soon as my client go[es] to our house, I usually give them the requirements, sir.

Q       And what are these requirements?

A       I usually require them to submit to me at least a machine copy of the title, the location plan with vicinity, the real estate tax, the tax declaration, the picture of the property and the Res. Cert. of the owner, sir.

Q       And when these documents are given to you, what else do you do, if any?

A       When they present to me the machine copy, I require them to visit the place for the ocular inspection for the appraisal of the property, sir.

Q       What other steps, if any?

A       After that ocular inspection, sir, appraising the property, I usually tell them to come back after one week for verification of the title in the Register of Deeds, sir.

Q       Will you inform the Court how you verif[ied] the title with the Register of Deeds?

A       I got a certified true copy from the Register of Deeds, sir.

Q       Certified true copy of what, Mr. witness?

A       The owner's duplicate title [to] the property, sir.

Q       Will you inform the Court why you asked for these documents?

A       To see to it that the title [was] genuine, sir.

x x x           x x x           x x x

Q       You mentioned Residence Certificate. Why did you ask for a Residence Certificate?

A       To fully identify the alleged owner, sir.

Q       So, when the machine copies of these documents x x x were given to you [as you said], what did you do next, if any?

A       x x x [O]cular inspection, sir, that is my standard procedure. After they gave me all the requirements, we usually go there for the ocular inspection for the appraisal of the property, sir.

Q       So, you went to the house itself?

A       Yes, sir.

Q       Did you go there alone or were you with somebody else?

A       With the[ir] group x x x, sir, the one [which] came to our house. The two of them were Marilou Macanaya and Angelina Salvador.

Q       And when you went to the house, what did you see?

A       I saw a man there x x x who posed as Guillermo Adriano and gave me all the original copies of the requirements, sir.

Q       Did you get to enter the house?

A       As an architect, as soon as I [saw] the house, I already knew what [was] the appraisal, sir, and I knew already the surroundings of the property.

Q       So, you did not need to go inside the house?

A       Inside the house, not anymore, sir, we talked only inside the property.

Q       And this person who gave you the original documents is the owner of the house?

A       I assumed it, sir, [that] he [was] the owner."23 (Emphasis supplied)

On cross[-]examination, he made a clarification:

"Q       Mr. Pangilinan, will you state again what business are you engaged [in]?

A       First, as an Architect, I do design and build and as a businessman, I do the buy and sell of real properties and engag[e] in mortgage contract, sir.

Q       Actually, it is in the mortgage business that you practically have the big bulk of your business. Isn't it?

A       Yes, sir."24

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

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

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

"Thus, while it is true, as asserted by petitioners, that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of

the vendor or mortgagor. His mere refusal to face up to the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor's or mortgagor's title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation."26

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

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

We are not impressed by the claim of respondent that he exercised due diligence in ascertaining the identity of the alleged mortgagor when he made an ocular inspection29 of the mortgaged property. Respondent's testimony negated this assertion.

"Q       Now you told me also that you conducted an ocular inspection o[f] the premises. How many times did you do it?

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A       Once, sir.

Q       Who were with you when you went there?

A       The same group of them, sir.

Q       How long did you stay in the premises?

A       I think 5 to 10 minutes, sir.

Q       And did you see any people inside the premises where you visited?

A       Yes, sir.

Q       Did you ask these persons?

A       They told me that. . .

Q       Did you ask these persons whom you saw in the premises?

A       No, sir.

Q       And what x x x did you [just] do when you inspected the premises?

x x x           x x x           x x x

A       When I arrived in the property, that house, the alleged owner told me that the one staying at his house were just renting from him, sir.

x x x           x x x           x x x

Q       Again, Mr. Pangilinan, my question to you is, what did you do when you arrived in the premises in the course of your ocular inspection?

Atty. Garcia:

Already answered.

Court:

You may answer.

A       When I arrived at that place, I just looked around and as an Architect, I [saw] that I [could] appraise it just [by] one look at it, sir.

Atty. Amado:

Q       And after that, where did you go? Where did you and this group go?

A       Just inside the property, sir. We talked [about] how much [would] be given to them and I told them this [was] only the amount I [could] give them, sir."30 (Emphasis supplied)

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

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

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

x x x           x x x           x x x

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

x x x           x x x           x x x

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

x x x           x x x           x x x."

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

Given the particular circumstances of this case, we believe that the negligence of petitioner is not enough to offset the fault of respondent himself in granting the loan. The former should not be made to suffer for respondent's failure to verify the identity of the mortgagor and the actual status of the subject property before agreeing to the real estate mortgage. While we commiserate with respondent -- who in the end appears to have been the victim of scoundrels -- his own negligence was the primary, immediate and overriding reason that put him in his present predicament.1âwphi1.nêt

To summarize, we hold that both law and equity favor petitioner. First, the relevant legal provision, Article 2085 of the Civil Code, requires that the "mortgagor be the absolute owner of the thing x x x mortgaged." Here, the mortgagor was an impostor who executed the contract without the knowledge and consent of the owner. Second, equity dictates that a loss brought about by the concurrent negligence of two persons shall be borne by one who was in the immediate, primary and overriding position to prevent it. Herein respondent – who, we repeat, is engaged in the business of lending money secured by real estate mortgages – could have easily avoided the loss by simply exercising due diligence in ascertaining the identity of the impostor who claimed to be the owner of the property being mortgaged. Finally, equity merely

supplements, not supplants, the law. The former cannot contravene or take the place of the latter.

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

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

SO ORDERED.

G.R. No. 85302 March 31, 1989

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

Contreras & Associates for petitioner.

Reynaldo A. Feliciano for private respondents.

 

MELENCIO-HERRERA, J.:

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

Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less, situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either

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private or public entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)

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

b) If at any time the Mortgagor shall refuse to pay the obligations herein secured, or any of the amortizations of such indebtedness when due, or to comply with any of the conditions and stipulations herein agreed .... then all the obligations of the Mortgagor secured by this Mortgage, all the amortizations thereof shall immediately become due, payable and defaulted and the Mortgagee may immediately foreclose this mortgage in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended, or Act No. 1508. For the purpose of extrajudicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged. . . . (CA Decision, pp. 47-48, Rollo)

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

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

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

issued in favor of the bank on 7 September 1982.

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

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

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

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

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

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

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

We find the foregoing provision inapplicable herein.

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

The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on the authorization in the deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: (1) to waive the mortgage and claim the entire debt from the

estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency. It is this right of extrajudicial foreclosure that petitioner bank had availed of, a right that was expressly upheld in the same case of Perez v. Philippine National Bank (supra), which explicitly reversed the decision inPasno v. Ravina (54 Phil. 382) requiring a judicial foreclosure in the same factual situation. The Court in the aforesaid PNB case pointed out that the ruling in the Pasno case virtually wiped out the third alternative, which precisely includes extrajudicial foreclosure, a result not warranted by the text of the Rule.

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

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

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

SO ORDERED.

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