Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 126777 April 29, 1999
DOMINGO LAO and ERNESTO T. LAO, petitioners,
vs.
ESTRELLA VILLONES-LAO, SPS. MANUEL and ANGELITA MALAN, SPS. CARLOS and
SOCORRO VILLENA,respondents.

PARDO, J .
The case is a petition for review on certiorari of the decision of the Court of Appeals,
1
and its
Resolution
2
reversing the decision of the trial court, and finding herein respondents Spouses Villena's as
mortgagees in good faith making their title to the property
3
, subject of this petition valid.
The facts of the case are as follows:
The spouses Domingo and Estrella Lao, during their marriage, acquired a real estate property
located at 6 Arayat St., Cubao, Quezon City, covered by TCT No. T-268732 of the Register of Deeds
of Quezon City. It has a total land area of 808 sq.m., and an estimated value of P1,500,000.00,
including the improvements. In 1974, the spouses separated. The property was at that time still
mortgaged with MetroBank and Trust Company.
However, after full payment of the loan obtained by Domingo Lao from MetroBank, Estrella Lao was
able to secure release of the title of the property and had the mortgage therein cancelled unknown to
Domingo.
Domingo Lao was leasing the subject property to Filmart at a monthly rental of P7,000.00. Sometime
in August 1982, Domingo Lao learned that the title had been cancelled and a new one issued in the
name of the respondents spouses Carlos and Socorro Patenia-Villena, Domingo Lao came to know
this when Carlos Villena, Jr. visited the premises and informed the tenants that he (Villena) was the
new owner of the property. Domingo Lao then went to the Office of the Register of Deeds of Quezon
City and inquired into the record of the property. True enough, he was informed that his title has
been cancelled and a new one issued in favor of the Villena spouses.
Estrella, the estranged wife of Domingo Lao, was in dire financial straits and was seeking a financial
accommodation. The spouses Manuel and Angelita Malana, whom Estrella met at one time, came to
her house and represented themselves as agents of Carlos Villena. The Malanas introduced Estrella
Lao to Villena on May 22, 1980.
Upon meeting Estrella Lao, Carlos Villena Jr. indicated his willingness to grant her a loan, but noted
that the title was in the name of the spouses Estrella and Domingo and their son Ernesto Lao,
Estrella Lao must obtain a Special Power of Attorney from Domingo and Ernesto Lao. Estrella Lao
admitted this would be difficult as she and her husband had been estranged for many years, and
were not even on speaking terms. However, the Malana spouses assured her they would help her
secure the Special Power of Attorney.
After three days Estrella Lao returned to the Villenas together with the Malanas with the Special
Power of Attorney (SPA) signed by Domingo and Ernesto Lao, and duly notarized. The spouses
Villena relied on the said notarized SPA, and found nothing suspicious that it was so easily obtained
by Estrella Lao only after three days, when they were in fact aware that Estrella and Domingo Lao
were estrange from each other. Villena therefore entered into a contract of mortgage as with Estrella
Lao with the 808 sq. m. land as collateral.
After Estrella Lao failed to make payments on the loan, Carlos Villena Jr. effected an extra-judicial
foreclosure and sale at public auction of the property on July 27, 1981
4
and the Register of Deeds
issued a new Certificate of Title in the name of the spouses Carlos and Socorro Villena.
Domingo Lao, after being appraised of what happened to the property, filed on April 27, 1983, with
the Regional Trial Court Quezon City, Branch 76, a complaint for the annulment of the special power
of attorney, mortgage, extra-judicial foreclosure, and the cancellation TCT No. 290029 and
reconveyance of title.
5

On September 28, 1992, the Regional trial Court, Branch 76, Quezon City rendered decision the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, the court hereby declares null and void the
following:
1. The special power of attorney;
2. Deed of real estate mortgage;
3. The foreclosure proceedings;
4. Transfer Certificate of Title No. 290029 in the name of the Villena
spouses, and orders the Register of Deeds of Quezon City to cancel
the said title and issue a new one in favor of Domingo Lao, Ernesto
Lao, and Estrella Villones-Lao with the same participation as
appearing in TCT No. T-268732 of the Registry of Deeds of Quezon
City, namely: Estrella Villones-Lao, 50%; Domingo Lao, 30%; and
Ernesto Lao, 20%.
The Court further orders the defendants Estrella Villones-Lao, spouses Manuel and
Angelita Malana and the spouses Carlos and Socorro Patenia Villena to pay the
plaintiff, jointly and severally, the sum of P15,000.00 as moral damages, P10,000.00
as attorney's fees, P10,000.00 as reasonable litigation expenses and to pay the
costs. Defendant Villenas are ordered to pay the sum of P840,000.00 as unearned
rentals computed at P7,000.00 a month from September 1982 to September 1992
plus interest at 12% per annum until fully paid.
Considering that a special characteristic of a real estate mortgage is its indivisibility
(Art 2089 of the Civil Code) even through the debt secured may be divided among
the debtors or creditors or other successors in interest, the deed of real estate
mortgage executed by Estrella Villones-Lao with respect to her undivided not share
in property. The nullity notwithstanding, Villena can recover the indebtedness of
Estrella Villones-Lao through an ordinary suit.
6

A motion to modify the judgment was filed by petitioners Domingo and Ernesto Lao, on October 12,
1992
7
, which was granted by the lower court and a modified judgment was issued on February 11,
1993.
8
The modified judgment further orders the spouses Carlos and Socorro Villena and their
representatives and assigns to immediately vacate the premises located at Cubao, Quezon City and that
a new Certificate of Title be issued in favor of spouses Domingo and Estrella Lao with the 20% share of
Ernesto Lao annotated at the back.
9

On February 23, 1993 respondent spouses Villena filed their notice of appeal. On February 19, 1993
the spouses Malana filed their notice of appeal.
After due proceedings, on July 11, 1996, the Court of Appeals rendered decision on July 11, 1996,
reversing the lower court's decision, the dispositive portion of which reads as follows:
WHEREFORE, the trial court's decision is REVERSED and SET ASIDE, and in lieu
thereof, a new decision is hereby rendered declaring the Deed of Real Estate
Mortgage dated June 17, 1980 and the foreclosure sale valid, upholding the validity
of the villenas' title to TCT No. 290029, and ordering that the property be transferred
in Villenas' name.
10

On August 14, 1996 petitioner filed a motion for reconsideration. However, the Court of Appeals
denied the motion.
Hence, this petition.
In this appeal, petitioner imputes the following errors to the Court of Appeals:
1. The respondents were mortgagees in good faith, not being privy to
the forgery of the special power of attorney; and
2. Petitioners were negligent in entrusting the original owners
certificate of title to respondent Estrella Villones-Lao.
The petitioners argue that the Villenas' can not be considered as mortgagees in good faith since at
the first instance they knew that Estrella Lao and her husband Domingo Lao had been estranged
from each other. When Estrella Lao together with the Malana spouses came to him with the Special
Power of Attorney (SPA) after only three days, this should have put Villena in doubt as to the
authenticity of the SPA, after all the rule of commerce is caveat emptor.
11

Petitioners further stress the fact that a reasonably prudent man would have been surprised at the
very least when Estrella Lao and the Malanas showed up three days later with a special power of
attorney signed by the co-owners Domingo and Ernesto Lao. While Estrella Lao was a co-owner of
the property, she was nevertheless a stranger with regard to the sale or disposition of the shares of
the other co-owners. Yet, respondent Villena never even called or inform the co-owners of the
mortgage, even if he knew their addresses. He went to the subject property once and made no other
efforts to contact or confirm the identities of Domingo and Ernesto Lao.
According to petitioners, the Court of Appeals disregarded the requirement of ordinary prudence and
diligence in the case simply because of the notarized special power of attorney. And as such the
court binds petitioners to an unauthorized transaction entered into by his wife with regard to conjugal
properties.
The ruling of the Court of Appeals that petitioners were given by the Villenas several opportunities to
redeem the property finds no support in the factual records of the case. According to the petitioners
they only met the Villenas after title was, already consolidated in the name of the Villenas. Further, it
would be utterly absurd for petitioners to ratify the illegal and unauthorized acts of Estrella Lao by
redeeming the property foreclosed on the strength of their forged signatures.
The petitioners argue that the findings of the Court of Appeals on their negligence in giving Estrella
Lao a copy of the title of the property is without basis. As a registered co-owner, Estrella Lao was
entitled to the possession of an owner's copy. In fact under the provisions of P.D. 1529, a separate
duplicate may be issued to each co-owner. Hence, there was no responsibility upon anyone to deny
Estrella Lao possession of said title.
Petitioners raise in issue the fact that during the proceedings at the lower court it was proved that the
signatures of the petitioners, Domingo and Ernesto Lao were forged. Emmanuel de Guzman, of the
National Bureau of Investigation testified that upon examination and verification of the questioned
signatures of Domingo and Ernesto Lao, by comparing the sample signatures and the signatures
appearing on the special power of attorney, he concluded that the signatures do not match.
Therefore, the signatures of Domingo and Ernesto Lao were forgeries.
12

Herein respondent Villena spouses, Malana spouses and Estrella Lao filed their separate comment
to the petition.
Respondent spouses Villena were steadfast in their claim that since they were not privy to the
forgery of the special power of attorney they cannot be part of the fraud imputed by the petitioners.
According to the spouses Villena, they have exhibited the required diligence to ascertain the veracity
of the representation made by Estrella by employing several precautionary measures.
They demanded for and was given the original of the owner's copy of TCT No. 268732, the location
plan and Real Estate Tax Declaration of the mortgage property. They conducted an ocular
inspection of the subject property and inquired who owns the property. They went to the Quezon City
Register of Deeds to verify the authenticity of TCT No. 266732 and found the same to be genuine
and free from liens and encumbrances. Carlos Villena even asked Estrella Lao why she preferred
mortgaging the property to him rather than to Metrobank. They inquired as to the whereabouts of the
other co-owners.
13

To evidence their good faith and intention to help Estrella Lao, the foreclosure was done only after
six months from the last demand to give Estrella Lao an opportunity to pay her debt. The foreclosure
was published, and after consolidation of the title to their name, the Villenas reminded Estrella Lao of
her right to repurchase the property. The Villenas even offered petitioner the option to sell the
property, and whatever be the proceeds from the sale, be given as payment for the debt and interest
of Estrellas' loan and whatever remains be given to the co-owners Domingo and Ernesto Lao.
Contrary to the claims of petitioners, the spouses Villena alleged that they should not be faulted for
relying on the notarized document. Precisely, a notarized document is executed to lend truth to the
statements contained therein and to the authenticity of the signatures. Moreover a notarized
document enjoys the presumption of regularity which can be overturned only by clear and convincing
evidence. Armed with this presumption, a prudent man exercising due diligence need only require
the presentation of a duly notarized special power of attorney. He is not expected to enlist the
opinions of experts and summon all signatories before he can rely on the notarized document.
Respondents claim that the petitioners, Domingo and Ernesto Lao should file a case for damages
against the perpetrators of the fraud, and not against them. Further the present action for
reconveyance is a collateral attack on the Villenas title, which is prohibited under Sec. 48 of
Presidential Decree 1529 of the property registration decree.
Estrella Lao on the other hand filed her separate comment to the petition. She alleges that she never
defrauded nor deceived her stranged husbands, Domingo Lao. She vehemently denies any
intervention in the preparation and execution of the disputed special power of attorney except by
affixing her signature on the blank form presented to her by the other private respondents, spouses
Malana.
According to Estrella it was the Malanas' who made her sign a blank special power of attorney. She
only affixed her signature at the portion of the blank document, which states, "with my marital
consent," she never read the document and did not know what it contained.
14

After three months from obtaining the loan from the Villenas she went to see them about the
payment of the loan and the redemption of the property by her friend Mr. Go. The Villenas refused
and told her that only she and her husband can redeem the property. After this encounter whenever
Estrella Lao went to see the Villenas or call them over the phone she is always told that the couple
were out and that they refused to see or talk to her.
15
In fact Estrella Lao filed a suit against the
respondent Villena spouses for violation of the Usury law and damages suffered by Estrella Lao when the
Villenas cancelled the lease contract of her lessee Mr. Ranola during the pendency of the mortgage.
Further, according to Estrella Lao, the Malanas were agents of the spouses Villena. This was also
the conclusion of the trial court. In fact in the decision of the trial court there is a mention that the
Villenas were aware of the forgery. They were not simply witnesses to the document but were aware
of how the Malanas were able to obtain the special power of attorney.
According to Estrella Lao the respondent spouses Villena took advantage of her urgent need for
money and took the opportunity to get the property worth P1.5 M for only P167,000.00, the amount
that was actually given to her as loan.
The spouses Manuel and Angelita Mallana on the other hand claims that the only participation they
had in the transaction was to introduced respondent Estrella Lao to respondent Carlos Villena in
connection with her desire to secure a loan from the latter. They acted as witnesses to the real uses
Carlos and Soccorro Villena and Estrella Villones-Lao. The undisputed fact remains that it was
Estrella Lao who secured the loan from the Villenas. She secured the loan by means of a forged
special power of attorney from her husband Domingo Lao and her son Ernesto Lao. The case filed
by Estrella Lao against spouses Manuel and Angelita Malana, Carlos Villena, and Atty. Rodolfo G.
Palatao (notary public who notarized the special power of attorney, now Associate Justice,
Sandiganbayan) was dismissed for lack of merit.
We find the petition impressed with merit.
While this Court has held in several cases that "a notarized instrument is admissible in evidence
without further proof of its due execution and is conclusive as to the truthfulness of its contents, this
rule is nonetheless not absolute but may be rebutted by clear and convincing evidence to the
contrary."
16
Such evidence, as the Court sees it, has been sufficiently established in this case.
The respondent do not deny the sequence of the events established on record that:
1. Estrella Lao was in extreme need of money and was looking in the
neighborhood of Nepa Q Mart for a quick loan;
2. It was the spouses Malana who went to her house to inquire if she
was still interested in a loan. In fact, they had with them the folder
given by Estrella Lao to one Cora, containing important documents
pertaining to the property in question;
3. The Malanas informed her they knew of a financier (referring to Mr.
Villena) who could provide her with the loan, clearly implying that they
had previous dealings with Mr. Villena. This is borne out by the fact
that prior to the actual meeting or Estrella Lao and Mr. Villena, the
Malanas already went to see Mr. Villena about the prospective
transaction. Villena admitted that he knew the Malanas and that the
Malanas approached him to be a lender;
17

4. The Malanas were not agents of Estrella Lao. They represented
themselves to be official agents of Mr. Villena;
18
Mr. Villena upon
introduction to Estrella Kao learned important facts like: (a) the
separation between her and her husband Domingo Lao;
19
(b) the
property was in the name of the spouses Lao and Ernesto Lao,
Domingo's son by his first marriage; (c) that they were residing in Metro
Manila;
5. Villena informed Estrella Lao of the necessity of a power of
attorney;
20
to which she answered that it may not be possible for her to
get one as she and her husband were not on speaking terms;
6. The Malanas assured her that they would do it for her;
7. Their participation in the transaction extended far beyond being
mere witnesses;
8 Villena was aware of this and was fully forewarned of what was
happening;
9. The signature on the special power of attorney were "poor
imitations" of the real signatures of the petitioners, proof of an attempt
to make them appear as genuine;
10. Estrella Lao could not be expected to be involved in the
mechanics of executing the forged power of attorney. However, she
could have furnished the other respondents with sample signatures of
petitioners and the Malanas, causing the execution of the documents
in her possession;
11. It was proved that the signatures were forgeries.
21

The events show a pattern that leads this Court to conclude that the spouses Villena and Malana
were business partners in credit financing. The Villenas were the financier while the Malanas served
as their brokers or agents, who look for clients, in this case, Estrella Lao.
We agree with the trial court that "Villenas feigned innocence of the flawed character of the power of
attorney is exposed not only by the above circumstances, but bolstered even by the fact that as a
legitimate businessman he is expected to be well-informed of matters dealing with estranged wife
involving a conjugal property. Why should a husband and his son execute a power of attorney in
favor of the separated wife and stepmother when they were all residing in Metro Manila."
22

It is therefore without doubt that the special power of attorney is a forgery. It can not be a basis of a
valid mortgage contract, its subsequent foreclosure and the consolidation of title in favor of the
spouses Villena.
A holder in bad faith of a certificate of title is not entitled to the protection of the law, for the law can
not be used as a shield for fraud.
23

IN VIEW OF THE FOREGOING, the decision of the Court of Appeals in CA G.R. CV No. 42174 is
hereby REVERSED, and that of the trial court is REVIVED and AFFIRMED.1wphi 1. nt
No costs.
SO ORDERED.
Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-30573 October 29, 1971
VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE
DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all
surnamed DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J .:
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina
Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the
Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which
sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor
Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the
complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as
attorney's fees plus costs.
The following facts were found to be established by the majority of the Special Division of Five of the
Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio
Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an
area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with
a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the
30-day duration of the agency or if the property is sold by Vicente within three months from the
termination of the agency to apurchaser to whom it was submitted by Gregorio during the
continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one
copy was given to Vicente, while the original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer,
promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per
square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After
several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00
on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon
demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest
money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his
former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D".
Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar
de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de
Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City
which is part of the purchase price. It was again amended to the effect that Oscar will vacate his
house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay
in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year
1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to
Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for
succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure
of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00)
was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of
One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed
on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente,
Oscar told Gregorio that he did not receive his money from his brother in the United States, for which
reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00)
given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio
aspropina or gift. When Oscar did not see him after several weeks, Gregorio sensed something
fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that
Vicente was still committed to pay him 5% commission, if the sale is consummated within three
months after the expiration of the 30-day period of the exclusive agency in his favor from the
execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente
during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces.
Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of
Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds
of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by
Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon
City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No.
883 of Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writting payment of his commission on the sale price of One
Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon,
who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and
that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In
Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5%
commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another
buyer, Amparo Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is
genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his
property is practically a sale to Oscar de Leon since husband and wife have common or identical
interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the
consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as
additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed
to Oscar de Leon with respect to the additional earnest money, does not appear to have been
answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de
Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to
Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by
Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did
not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's
letter of demand of the 5% commission.
The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to
Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00)
as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20
per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price;
(2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the
latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the
award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice
Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed
that it does not constitute breach of trust or fraud on the part of the broker and regarded same as
merely part of the whole process of bringing about the meeting of the minds of the seller and the
purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio
if he could effect better terms for him from the seller, independent of his legitimate commission, is
not fraudulent, because the principal can reject the terms offered by the prospective buyer if he
believes that such terms are onerous disadvantageous to him. On the other hand, Justice
Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of
Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to
the commission.
The duties and liabilities of a broker to his employer are essentially those which an agent owes to his
principal.
1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil
Code.
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency, even
though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall
be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence, which
shall be judged with more less rigor by the courts, according to whether the agency
was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides
that:
Art. 1720. Every agent is bound to give an account of his transaction and to pay to
the principal whatever he may have received by virtue of the agency, even though
what he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in changing the phrase "to
pay" to "to deliver", which latter term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required
to an agent condemning as void any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish
Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall
be judged with more or less severity by the courts, according to whether the agency
was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the
part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes
upon the agent the absolute obligation to make a full disclosure or complete account to his principal
of all his transactions and other material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent from such an obligation and
considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not
a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well
as of the strictest justice.
2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from
the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty
to the principal and forfeits his right to collect the commission from his principal, even if the principal
does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or
that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent
the possibility of any wrong, not to remedy or repair an actual damage.
3
By taking such profit or bonus
or gift or propina from the vendee, the agent thereby assumes a position wholly inconsistent with that of
being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if
no agency had existed. The fact that the principal may have been benefited by the valuable services of
the said agent does not exculpate the agent who has only himself to blame for such a result by reason of
his treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil
Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account
of his employer as required by said Article 1720, said insurance agent was convicted estafa.
4
An
administrator of an estate was likewise under the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are estopped by having accepted the
correctness of his account previously rendered.
5

Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa
for failure to deliver to his principal the total amount collected by him in behalf of his principal and
cannot retain the commission pertaining to him by subtracting the same from his collections.
6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and
property received by him for his client despite his attorney's lien.
7
The duty of a commission agent to
render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias.
8

The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while ignorant of the
fact that the latter has been unfaithful, the principal may recover back the
commission paid, since an agent or broker who has been unfaithful is not entitled to
any compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions retained by an
unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34
LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost
good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not
conduct himself with entire fidelity towards his principal, but is guilty of taking a secret
profit or commission in regard the matter in which he is employed, he loses his right
to compensation on the ground that he has taken a position wholly inconsistent with
that of agent for his employer, and which gives his employer, upon discovering it, the
right to treat him so far as compensation, at least, is concerned as if no agency had
existed. This may operate to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to blame for that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held immaterial where
the agent has in fact entered into a relationship inconsistent with his agency, since
the law condemns the corrupting tendency of the inconsistent relationship. Little vs.
Phipps (1911) 94 NE 260.
9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent,
while the agency exists, so to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of it for himself in
excess of his lawful compensation; and if he does so he may be held as a trustee and
may be compelled to account to his principal for all profits, advantages, rights, or
privileges acquired by him in such dealings, whether in performance or in violation of his
duties, and be required to transfer them to his principal upon being reimbursed for his
expenditures for the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue or had accrued, to the agent, or
unless with such knowledge he has allowed the agent so as to change his condition that
he cannot be put in status quo. The application of this rule is not affected by the fact that
the principal did not suffer any injury by reason of the agent's dealings or that he in fact
obtained better results; nor is it affected by the fact that there is a usage or custom to the
contrary or that the agency is a gratuitous one. (Emphasis applied.)
10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in
the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without
the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His
acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred
Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most advantageous terms desired by his
principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his
principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per
square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of
88,477 square meters, which is very much lower the the price of P2.00 per square meter or One
Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally
offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted
only as a middleman with the task of merely bringing together the vendor and vendee, who
themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the
rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received
from the purchaser and his principal did not object therto.
11
Herein defendant-appellee Gregorio
Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar
de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant
was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon,
does not materially alter the situation; because the transaction, to be valid, must necessarily be with
the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets
including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part
of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No.
883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must
forfeit his right to the commission and must return the part of the commission he received from his
principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his
one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his
sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not
even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and
Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand
Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the
same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo
Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish
and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's
fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has
been pending for the last fifteen (15) years from its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and
directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum
of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as
attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to
pay the costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and
Villamor, JJ., concur.

Domingo Lao v Estrella Villones- Lao et al. GR NO. 126777,
April 29, 1999 (306 SCRA 387)
Holder in Bad Faith




Facts:

Domingo Lao and Estrella Lao, during their marriage, acquired a real property worth 1.5M including improvements.
The property was mortgaged with Metrobank at the time they separated. After full payment of the
mortgage,Estrella was able to obtain her own copy of the property title. The property was leased by Domingo to
Filmart and learned that the title to the property was already cancelled and a new one was issued in the name of
Villena spouses when the Villena came to visit the property and informed the tenants that they are the new
property owners. Estrella was at that time in dire need of money and the Malanas spouses approached her and
introduced themselves as agents of Carlos Villena who is willing to grant her a loan. Carlos Villenas
required Estrella to obtain aSpecial Power of Attorney from Domingo and his son Ernesto who are also named in
the title as owners of the property. Estrella admitted it would be difficult to obtain the SPA because she and her
husband are not on good and speaking terms. The Malana spouses however assured her that they could help her
obtain the SPA. 3 days after they returned to Villena with the SPA and was able to secure the loan. Upon failure
of Estrella to pay, Carlos Villena effected an extrajudicial foreclosure of the property and a new certificate of
title was issued in favor of the Villena spouses. Domingo filed a complaint for the annulment of the SPA, mortgage
and extrajudicial foreclosure, cancellation of the TCT and reconveyance of title.
The lower court ruled in favor of Domingo and ordered spouses Villena and Malanas together with Estrella to
jointly and severally pay for damages and litigation costs to Domingo while Villena can recover the indebtedness
of Estrellathrough an ordinary suit. In its modified judgment the court further ordered the Villenas to vacate the
premises and a new Cert. of title to be issued to Domingo and Estrella Lao with 20% share to Ernesto Lao.
On appeal, the CA reversed the decision declaring the mortgage and foreclosure sale valid and ordered the
transfer of the title to the Villena spouses. It held that the respondents are mortgagees in good faith and not privy
to the forgery of the SPA and the petitioner was negligent to entrust the title to Estrella.

Issue: Whether or not the Villena spouses are mortgagees in good faith?

Ruling:

The court ruled that it was established that the Malana spouses are the agent brokers of Villena and not
of Estrella. The court believes that the Malanas and Villena are business partners in credit financing. They were
the ones who approached Estrella and offered the loan to be financed by Villena. Estrella informed Carlos Villena
about the difficulty of securing the signature of Domingo yet they pursue the offer of loan with the Malanas
helping to secure the SPA. Estrella was just asked to sign a black SPA with her signature affixed on the portion
stating with my marital consent. She did not read and understand the document. They took advantage of her
dire need for money at that time. The participation of the Malanas extends beyond as mere witness to the
mortgage while Villena was aware of the situation. Estrella as a co-owner is entitled to obtain her own copy of the
title of the property thus she cant be denied to secure her own title. The court has reason to believe that
Villena feign his innocence on the flawed character of the SPA contending that as a legitimate businessman he
should exercise due diligence to consider the fact dealing with a conjugal property of an estranged wife. The
NBI also confirmed that the signatures of Domingo and Ernesto are forged. Therefore the mortgage contract is
deemed to be invalid and likewise the foreclosure is also invalid. A holder in bad faith of a certificate of title is
not entitled to the protection of the law, for the law can not be used as a shield for fraud. The court revived
and affirmed the lower court decision.