After arraignment and trial on the merits, the trial court rendered

judgment, the dispositive portion of which reads:

G.R. No. 102784

February 28, 1996

ROSA LIM, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,
respondents.

WHEREFORE, in view of the foregoing, judgment is hereby

rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt
of the offense of estafa as defined and penalized under
Article 315, paragraph 1(b) of the Revised Penal Code;

DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in
CA-G.R. CR No. 10290, entitled "People v. Rosa Lim," promulgated
on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against
petitioner Rosa Lim before Branch 92 of the Regional Trial Court of
Quezon City.1 The Information reads:
That on or about the 8th day of October 1987, in Quezon
City, Philippines and within the jurisdiction of this Honorable
Court, the said accused with intent to gain, with
unfaithfulness and/or abuse of confidence, did, then and
there, wilfully, unlawfully and feloniously defraud one
VICTORIA SUAREZ, in the following manner, to wit: on the
date and place aforementioned said accused got and
received in trust from said complainant one (1) ring 3.35 solo
worth P169,000.00, Philippine Currency, with the obligation
to sell the same on commission basis and to turn over the
proceeds of the sale to said complainant or to return said
jewelry if unsold, but the said accused once in possession
thereof and far from complying with her obligation despite
repeated demands therefor, misapplied, misappropriated and
converted the same to her own personal use and benefit, to
the damage and prejudice of the said offended party in the
amount aforementioned and in such other amount as may be
awarded under the provisions of the Civil Code.
CONTRARY TO LAW.2

2. Sentencing her to suffer the Indeterminate penalty of

FOUR (4) YEARS and TWO (2) MONTHS of prision correccional
as minimum, to TEN (10) YEARS of prision mayor as
maximum;
3. Ordering her to return to the offended party Mrs. Victoria
Suarez the ring or its value in the amount of P169,000
without subsidiary imprisonment in case insolvency; and
4. To pay costs.3
On appeal, the Court of Appeals affirmed the judgment of
conviction with the modification that the penalty imposed shall be
six (6) years, eight (8) months and twenty-one (21) days to twenty
(20) years in accordance with Article 315, paragraph 1 of the
Revised Penal Code.4
Petitioner filed a motion for reconsideration before the appellate
court on September 20, 1991, but the motion was denied in a
Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant
petition for review alleging the following grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE
RULES OF COURT AND THE DECISION OF THIS HONORABLE
COURT IN NOT PASSING UPON THE FIRST AND THIRD
ASSIGNED ERRORS IN PETITIONER'S BRIEF;

II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE
THAT THE PAROL EVIDENCE RULE WAS WAIVED WHEN THE
PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER AND
AURELIA NADERA AND WHEN COMPLAINANT WAS CROSSEXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE
TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES
WHEREIN IT WAS DISCLOSED THAT THE TRUE AGREEMENT OF
THE PARTIES WAS A SALE OF JEWELRIES AND NOT WHAT WAS
EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH
WAS RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING
THE JUDGMENT OF CONVICTION AGAINST HEREIN
PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE
PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT TO THE
EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE
PROSECUTION MUST OVERTHROW THE PRESUMPTION OF
INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE
DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR THE
MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE,
BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF
WHATEVER DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF
THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD
ARRIVE AT A CONCLUSION THAT THE CRIME HAD BEEN
COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER
SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED
THAT EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE
PROOF AGAINST HIM MUST SURVIVE THE TEST OF REASON;
THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO
SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come
from Cebu received from private respondent Victoria Suarez the
following two pieces of jewelry; one (1) 3.35 carat diamond ring

worth P169,000.00 and one (1) bracelet worth P170,000.00, to be

sold on commission basis. The agreement was reflected in a receipt
marked as Exhibit "A"6 for the prosecution. The transaction took
place at the Sir Williams Apartelle in Timog Avenue, Quezon City,
where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky
Suarez, but failed to return the diamond ring or to turn over the
proceeds thereof if sold. As a result, private complainant, aside
from making verbal demands, wrote a demand letter7 to petitioner
asking for the return of said ring or the proceeds of the sale thereof.
In response, petitioner, thru counsel, wrote a letter8 to private
respondent's counsel alleging that Rosa Lim had returned both ring
and bracelet to Vicky Suarez sometime in September, 1987, for
which reason, petitioner had no longer any liability to Mrs. Suarez
insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez
filed a complaint for estafa under Article 315, par l(b) of the
Revised Penal Code for which the petitioner herein stands
convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu
sometime in October 1987, together with one Aurelia Nadera, who
introduced petitioner to private respondent, and that they were
lodged at the Williams Apartelle in Timog, Quezon City. Petitioner
denied that the transaction was for her to sell the two pieces of
jewelry on commission basis. She told Mrs. Suarez that she would
consider buying the pieces of jewelry far her own use and that she
would inform the private complainant of such decision before she
goes back to Cebu. Thereafter, the petitioner took the pieces of
jewelry and told Mrs. Suarez to prepare the "necessary paper for me
to sign because I was not yet prepare (d) to buy it."9 After the
document was prepared, petitioner signed it. To prove that she did
not agree to the terms of the receipt regarding the sale on
commission basis, petitioner insists that she signed the aforesaid
document on the upper portion thereof and not at the bottom where
a space is provided for the signature of the person(s) receiving the
jewelry. 10

On October 12, 1987 before departing for Cebu, petitioner called up

Mrs. Suarez by telephone in order to inform her that she was no
longer interested in the ring and bracelet. Mrs. Suarez replied that
she was busy at the time and so, she instructed the petitioner to
give the pieces of jewelry to Aurelia Nadera who would in turn give
them back to the private complainant. The petitioner did as she was
told and gave the two pieces of jewelry to Nadera as evidenced by a
handwritten receipt, dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction
between Rosa Lim and Vicky Suarez a contract of agency to sell on
commission basis as set out in the receipt or a sale on credit; and,
second, was the subject diamond ring returned to Mrs. Suarez
through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she
never received the jewelries in trust or on commission basis from
Vicky Suarez. The real agreement between her and the private
respondent was a sale on credit with Mrs. Suarez as the owner-seller
and petitioner as the buyer, as indicated by the bet that petitioner
did not sign on the blank space provided for the signature of the
person receiving the jewelry but at the upper portion thereof
immediately below the description of the items taken. 12
The contention is far from meritorious.
The receipt marked as Exhibit "A" which establishes a contract of
agency to sell on commission basis between Vicky Suarez and Rosa
Lim is herein reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez
PINATUTUNAYAN KO na aking tinanggap kay ___________ the
following jewelries:
ang mga alahas na sumusunod:
Description
Mga Uri

Price
Halaga

l ring 3.35 dolo

P 169,000.00

1 bracelet

9;170,000.00

total
Kabuuan

P 339,000.00

in good condition, to be sold in CASH ONLY within . . . days

from date of signing this receipt na nasa mabuting kalagayan
upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng
. . . araw mula ng ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within
the period mentioned above; if I would be able to
sell, I shall immediately deliver and account the
whole proceeds of sale thereof to the owner of the
jewelries at his/her residence; my compensation or
commission shall be the over-price on the value of
each jewelry quoted above. I am prohibited to sell
any jewelry on credit or by installment; deposit, give
for safekeeping: lend, pledge or give as security or
guaranty under any circumstance or manner, any
jewelry to other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng
alahas sa loob ng taning na panahong nakatala sa
itaas; kung maipagbili ko naman ay dagli kong isusulit
at ibibigay ang buong pinagbilhan sa may-ari ng mga
alahas sa kanyang bahay tahanan; ang aking
gantimpala ay ang mapapahigit na halaga sa
nakatakdang halaga sa itaas ng bawat alahas HINDI ko
ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan
ang alin mang alahas, ilalagak, ipagkakatiwala;
ipahihiram; isasangla o ipananagot kahit sa anong
paraan ang alin mang alahas sa ibang mga tao o tao.
I sign my name this . . . day of . . . 19 . . . at Manila,
NILALAGDAAN ko ang kasunduang ito ngayong ika _____ ng
dito sa Maynila.
___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga

Alahas)
Address: . . . . . . . . . . . .
Rosa Lim's signature indeed appears on the upper portion of the
receipt immediately below the description of the items taken: We
find that this fact does not have the effect of altering the terms of
the transaction from a contract of agency to sell on commission
basis to a contract of sale. Neither does it indicate absence or
vitiation of consent thereto on the part of Rosa Lim which would
make the contract void or voidable. The moment she affixed her
signature thereon, petitioner became bound by all the terms
stipulated in the receipt. She, thus, opened herself to all the legal
obligations that may arise from their breach. This is clear from
Article 1356 of the New Civil Code which provides:
Contracts shall be obligatory in whatever form they may have
been entered into, provided all the essential requisites for
their validity are present. . . .
However, there are some provisions of the law which require certain
formalities for particular contracts. The first is when the form is
required for the validity of the contract; the second is when it is
required to make the contract effective as against third parties such
as those mentioned in Articles 1357 and 1358; and the third is when
the form is required for the purpose of proving the existence of the
contract, such as those provided in the Statute of Frauds in article
1403. 13 A contract of agency to sell on commission basis does not
belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the
law strictly prescribes the location of the signature of the parties
thereto. This is in the case of notarial wills found in Article 805 of
the Civil Code, to wit:

sign, as aforesaid, each and every page thereof, except the

last, on the left margin. . . .
In the case before us, the parties did not execute a notarial will but
a simple contract of agency to sell on commission basis, thus making
the position of petitioner's signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been
returned to Vicky Suarez through Aurelia Nadera, thus relieving her
of any liability. Rosa Lim testified to this effect on direct
examination by her counsel:
Q:
And when she left the jewelries with you, what did
you do thereafter?
A:
On October 12, I was bound for Cebu. So I called up
Vicky through telephone and informed her that I am no
longer interested in the bracelet and ring and that I will just
return it.
Q:

And what was the reply of Vicky Suarez?

A:
She told me that she could not come to the apartelle
since she was very busy. So, she asked me if Aurelia was
there and when I informed her that Aurelia was there, she
instructed me to give the pieces of jewelry to Aurelia who in
turn will give it back to Vicky.
Q:
And you gave the two (2) pieces of jewelry to Aurelia
Nadera?
A:

Yes, Your Honor. 14

This was supported by Aurelia Nadera in her direct examination by

petitioner's counsel:

Every will, other than a holographic will, must be subscribed

at the end thereof by the testator himself . . . .

Q:
Do you know if Rosa Lim in fact returned the
jewelries?

The testator or the person requested by him to write his

name and the instrumental witnesses of the will, shall also

A:

She gave the jewelries to me.

Q:

Why did Rosa Lim give the jewelries to you?

A:
Rosa Lim called up Vicky Suarez the following morning
and told Vicky Suarez that she was going home to Cebu and
asked if she could give the jewelries to me.
Q:

And when did Rosa Lim give to you the jewelries?

A:

Before she left for Cebu.

15

On rebuttal, these testimonies were belied by Vicky Suarez herself:

Q:
It has been testified to here also by both Aurelia
Nadera and Rosa Lim that you gave authorization to Rosa Lim
to turn over the two (2) pieces of jewelries mentioned in
Exhibit "A" to Aurelia Nadera, what can you say about that?
A:
That is not true sir, because at that time Aurelia
Nadera is highly indebted to me in the amount of
P140,000.00, so if I gave it to Nadera, I will be exposing
myself to a high risk. 16<
The issue as to the return of the ring boils down to one of
credibility. Weight of evidence is not determined mathematically by
the numerical superiority of the witnesses testifying to a given fact.
It depends upon its practical effect in inducing belief on the part of
the judge trying the case.17 In the case at bench, both the trial court
and the Court of Appeals gave weight to the testimony of Vicky
Suarez that she did not authorize Rosa Lim to return the pieces of
jewelry to Nadera. The respondent court, in affirming the trial
court, said:
. . . This claim (that the ring had been returned to Suarez
thru Nadera) is disconcerting. It contravenes the very terms
of Exhibit A. The instruction by the complaining witness to
appellant to deliver the ring to Aurelia Nadera is vehemently
denied by the complaining witness, who declared that she
did not authorize and/or instruct appellant to do so. And
thus, by delivering the ring to Aurelia without the express
authority and consent of the complaining witness, appellant
assumed the right to dispose of the jewelry as if it were hers,

thereby committing conversion, a clear breach of trust,

punishable under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well
settled that we should not interfere with the judgment of the trial
court in determining the credibility of witnesses, unless there
appears in the record some fact or circumstance of weight and
influence which has been overlooked or the significance of which
has been misinterpreted. The reason is that the trial court is in a
better position to determine questions involving credibility having
heard the witnesses and having observed their deportment and
manner of testifying during the trial. 18
Article 315, par. 1(b) of the Revised Penal Code provides:
Art. 315. Swindling (estafa). Any person who shall defraud
another by any of the means mentioned hereinbelow shall be
punished by:
xxx

xxx

xxx

(b) By misappropriating or converting, to the prejudice of

another, money, goods, or any other personal property
received by the offender in trust or on commission, or for
administration, or under any other obligation involving the
duty to make delivery of or to return the same, even though
such obligation be totally or partially guaranteed by a bond;
or by denying having received such money, goods, or other
property.
xxx

xxx

xxx

The elements of estafa with abuse of confidence under this

subdivision are as follows. (1) That money, goods, or other personal
property be received by the offender in trust, or on commission, or
for administration, or under any other obligation involving the duty
to make delivery of, or to return, the same; (2) That there be
misappropriation or conversion of such money or property by the
offender or denial on his part of such receipt; (3) That such
misappropriation or conversion or denial is to the prejudice of
another; and (4) That there is a demand made by the offended party

to the offender (Note: The 4th element is not necessary when there
is evidence of misappropriation of the goods by the defendant) 19

residential house and lot located in La Vista, Quezon City, was

registered in respondents name.

All the elements of estafa under Article 315, Paragraph 1(b) of the
Revised Penal Code, are present in the case at bench. First, the
receipt marked as Exhibit "A" proves that petitioner Rosa Lim
received the pieces of jewelry in trust from Vicky Suarez to be sold
on commission basis. Second, petitioner misappropriated or
converted the jewelry to her own use; and, third, such
misappropriation obviously caused damage and prejudice to the
private respondent.

Noddy, Inc. subsequently failed to pay the loan secured by the

mortgage, prompting petitioner to foreclose the property
extrajudicially. As the winning bidder in the foreclosure sale,
petitioner was issued a certificate of sale. Respondent failed to
redeem the property. Thus, on December 10, 1984, the Register of
Deeds canceled the Transfer Certificate of Title in the name of
respondent and a new one was issued in petitioners name.

WHEREFORE, the petition is DENIED and the Decision of the Court of

Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 142950

March 26, 2001

EQUITABLE PCI BANK, formerly EQUITABLE BANKING

CORPORATION, petitioner,
vs.
ROSITA KU, respondent.
KAPUNAN, J.:
Can a person be evicted by virtue of a decision rendered in an
ejectment case where she was not joined as a party? This was the
issue that confronted the Court of Appeals, which resolved the issue
in the negative. To hold the contrary, it said, would violate due
process. Given the circumstances of the present case, petitioner
Equitable PCI Bank begs to differ. Hence, this petition.
On February 4, 1982, respondent Rosita Ku, as treasurer of Noddy
Dairy Products, Inc., and Ku Giok Heng, as Vice-President/General
Manager of the same corporation, mortgaged the subject property
to the Equitable Banking Corporation, now known as Equitable PCI
Bank to secure Noddy Inc.s loan to Equitable. The property, a

On May 10, 1989, petitioner instituted an action for ejectment

before the Quezon City Metropolitan Trial Court (MeTC) against
respondents father Ku Giok Heng. Petitioner alleged that it allowed
Ku Giok Heng to remain in the property on the condition that the
latter pay rent. Ku Giok Hengs failure to pay rent prompted the
MeTC to seek his ejectment. Ku Giok Heng denied that there was
any lease agreement over the property.1wphi1.nt
On December 8, 1994, the MeTC rendered a decision in favor of
petitioner and ordered Ku Giok Heng to, among other things, vacate
the premises. It ruled:
x x x for his failure or refusal to pay rentals despite proper
demands, the defendant had not established his right for his
continued possession of or stay in the premises acquired by
the plaintiff thru foreclosure, the title of which had been
duly transferred in the name of the plaintiff. The absence of
lease agreement or agreement for the payment of rentals is
of no moment in the light of the prevailing Supreme Court
ruling on the matter. Thus: "It is settled that the buyer in
foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one (1)
year after the registration of the sale is as such he is entitled
to the possession of the property and the demand at any
time following the consolidation of ownership and the
issuance to him of a new certificate of title. The buyer can,
in fact, demand possession of the land even during the
redemption period except that he has to post a bond in
accordance with Section 7 of Act No. 3155 as amended.
Possession of the land then becomes an absolute right of the

purchaser as confirmed owner. Upon proper application and

proof of title, the issuance of a writ of possession becomes a
ministerial duty of the court. (David Enterprises vs. IBAA[,]
191 SCRA 116).1
Ku Giok Heng did not appeal the decision of the MeTC. Instead, he
and his daughter, respondent Rosita Ku, filed on December 20, 1994,
an action before the Regional Trial Court (RTC) of Quezon City to
nullify the decision of the MeTC. Finding no merit in the complaint,
the RTC on September 13, 1999 dismissed the same and ordered the
execution of the MeTC decision.
Respondent filed in the Court of Appeals (CA) a special civil action
for certiorari assailing the decision of the RTC. She contended that
she was not made a party to the ejectment suit and was, therefore,
deprived of due process. The CA agreed and, on March 31, 2000,
rendered a decision enjoining the eviction of respondent from the
premises.
On May 10, 2000, Equitable PCI Bank filed in this Court a motion for
an extension of 30 days from May 10, 2000 or until June 9, 2000 to
file its petition for review of the CA decision. The motion alleged
that the Bank received the CA decision on April 25, 2000.2 The Court
granted the motion for a 30-day extension "counted from the
expiration of the reglementary period" and "conditioned upon the
timeliness of the filing of [the] motion [for extension]."3
On June 13, 2000,4 Equitable Bank filed its petition, contending that
there was no need to name respondent Rosita Ku as a party in the
action for ejectment since she was not a resident of the premises
nor was she in possession of the property.
The petition is meritorious.
Generally, no man shall be affected by any proceeding to which he
is a stranger, and strangers to a case are not bound by judgment
rendered by the court.5 Nevertheless, a judgment in an ejectment
suit is binding not only upon the defendants in the suit but also
against those not made parties thereto, if they are:

a) trespassers, squatters or agents of the defendant fraudulently

occupying the property to frustrate the judgment;
b) guests or other occupants of the premises with the permission of
the defendant;
c) transferees pendente lite;
d) sub-lessees;
e) co-lessees; or
f) members of the family, relatives and other privies of the
defendant.6
Thus, even if respondent were a resident of the property, a point
disputed by the parties, she is nevertheless bound by the judgment
of the MeTC in the action for ejectment despite her being a nonparty thereto. Respondent is the daughter of Ku Giok Heng, the
defendant in the action for ejectment.
Respondent nevertheless claims that the petition is defective. The
bank alleged in its petition that it received a copy of the CA decision
on April 25, 2000. A Certification dated June 6, 2000 issued by the
Manila Central Post Office reveals, however, that the copy "was duly
delivered to and received by Joel Rosales (Authorized
Representative) on April 24, 2000."7 Petitioners motion for
extension to file this petition was filed on May 10, 2000, sixteen
(16) days from the petitioners receipt of the CA decision (April 24,
2000) and one (1) day beyond the reglementary period for filing the
petition for review (May 9, 2000).
Petitioner however maintains "its honest representation of having
received [a copy of the decision] on April 25, 2000."8 Appended as
Annex "A" to petitioners Reply is an Affidavit9 dated October 27,
2000 and executed by Joel Rosales, who was mentioned in the
Certification as having received the decision. The Affidavit states:
(1) I am an employee of Unique Industrial & Allied Services,
Inc. (Unique) a corporation duly organized and existing under
Philippine laws with principal place of business at 1206 Vito

Cruz St., Malate, Manila, and I am assigned with the

Equitable PCI Bank, Mail and Courier Department, Equitable
PCI Bank Tower II, cor. Makati Avenue and H.V. dela Costa
St., Makati City, Metro Manila;

(7) On May 8, 2000, Atty. Roland A. Niedo of said law office

inquired from me as to my actual date of receipt of this
letter, and I informed him that based on my logbook, I
received it on April 25, 2000.

(2) Under the contract of services between the Bank and

Unique, it is my official duty and responsibility to receive
and pick-up from the Manila Central Post Office (CPO) the
various mails, letters, correspondence, and other mail
matters intended for the banks various departments and
offices at Equitable Bank Building, 262 Juan Luna St.,
Binondo, Manila. This building, however, also houses various
other offices or tenants not related to the Bank.

(8) I discovered this error only on September 6, 2000, when I

was informed by Atty. Niedo that Postmaster VI Alfredo C.
Mabanag, Jr. of the Central Post Office, Manila, issued a
certification that I received the said mail on April 24, 2000.

(3) I am not the constituted agent of "Curato Divina Mabilog

Niedo Magturo Pagaduan Law Office" whose former address is
at Rm. 405 4/F Equitable Bank Bldg., 262 Juan Luna St.,
Binondo, Manila, for purposes of receiving their incoming
mail matters; neither am I any such agent of the various
other tenants of the said Building. On occasions when I
receive mail matters for said law office, it is only to help
them receive their letters promptly.
(4) On April 24, 2000, I received the registered letter sent by
the Court of Appeals, covered by Registry Receipt No. 125234
and Delivery No. 4880 (copy of envelope attached as Annex
"A") together with other mail matters, and brought them to
the Mail and Courier Department;
(5) After sorting out these mail matters, on April 25, 2000, I
erroneously recorded them on page 422 of my logbook as
having been received by me on said dated April 25, 2000
(copy of page 422 is attached as Annex "B").
(6) On April 27, 2000, this letter was sent by the Mail and
Courier Department to said Law Office whose receiving clerk
Darwin Bawar opened the letter and stamped on the "Notice
of Judgment" their actual date of receipt: "April 27, 2000"
(copy of the said Notice with the date so stamped is attached
as Annex "C").

(9) I hereby confirm that this error was caused by an honest

mistake.
Petitioner argues that receipt on April 25, 2000 by Joel Rosales, who
was not an agent of its counsels law office, did not constitute
notice to its counsel, as required by Sections 210 and 10,11 Rule 13 of
the Rules of Court. To support this contention, petitioner cites
Philippine Long Distance Telephone Co. vs. NLRC.12 In said case, the
bailiff served the decision of the National Labor Relations
Commission at the ground floor of the building of the petitioner
therein, the Philippine Long Distance Telephone Co., rather than on
the office of its counsel, whose address, as indicated in the notice
of the decision, was on the ninth floor of the building. We held that:
x x x practical considerations and the realities of the
situation dictate that the service made by the bailiff on
March 23, 1981 at the ground floor of the petitioners
building and not at the address of record of petitioners
counsel on record at the 9th floor of the PLDT building cannot
be considered a valid service. It was only when the Legal
Services Division actually received a copy of the decision on
March 26, 1981 that a proper and valid service may be
deemed to have been made. x x x.
Applying the foregoing provisions and jurisprudence, petitioner
submits that actual receipt by its counsel was on April 27, 2000, not
April 25, 2000. Following the argument to its logical conclusion, the
motion for extension to file the petition for review was even filed
two (2) days before the lapse of the 15-day reglementary period.
That counsel treated April 25, 2000 and not April 27, 2000 as the
date of receipt was purportedly intended to obviate respondents

possible argument that the 15-day period had to be counted from

April 25, 2000.

days; and City Fair Corporation vs. NLRC,22 which also concerned a
tardy appeal.1wphi1.nt

The Court is not wholly convinced by petitioners argument. The

Affidavit of Joel Rosales states that he is "not the constituted agent
of Curato Divina Mabilog Nedo Magturo Pagaduan Law Office." An
agency may be express but it may also be implied from the acts of
the principal, from his silence, or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.13 Likewise, acceptance by the agent may
also be express, although it may also be implied from his acts which
carry out the agency, or from his silence or inaction according to the
circumstances.14 In this case, Joel Rosales averred that "[o]n
occasions when I receive mail matters for said law office, it is only
to help them receive their letters promptly," implying that counsel
had allowed the practice of Rosales receiving mail in behalf of the
former. There is no showing that counsel had objected to this
practice or took steps to put a stop to it. The facts are, therefore,
inadequate for the Court to make a ruling in petitioners favor.

The Court finds these arguments to be persuasive, especially in light

of the merits of the petition.

Assuming the motion for extension was indeed one day late,
petitioner urges the Court, in any event, to suspend its rules and
admit the petition in the interest of justice. Petitioner invokes
Philippine National Bank vs. Court of Appeals,15 where the petition
was filed three (3) days late. The Court held:
It has been said time and again that the perfection of an
appeal within the period fixed by the rules is mandatory and
jurisdictional. But, it is always in the power of this Court to
suspend its own rules, or to except a particular case from its
operation, whenever the purposes of justice require it.
Strong compelling reasons such as serving the ends of justice
and preventing a grave miscarriage thereof warrant the
suspension of the rules.
The Court proceeded to enumerate cases where the rules on
reglementary periods were suspended. Republic vs. Court of
Appeals16 involved a delay of six days; Siguenza vs. Court of
Appeals,17 thirteen days; Pacific Asia Overseas Shipping Corporation
vs. NLRC,18 one day; Cortes vs. Court of Appeals,19 seven days;
Olacao vs. NLRC,20 two days; Legasto vs. Court of Appeals,21 two

WHEREFORE, the petition is GIVEN DUE COURSE and GRANTED.

The decision of the Court of Appeals is REVERSED.
SO ORDERED.
G.R. No. L-40242 December 15, 1982
DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE
CORDERO, together with his wife, NICETAS ALTERA, RAMON
CONDE, together with his wife, CATALINA T. CONDE, respondents.

MELENCIO-HERRERA, J.:
An appeal by certiorari from the Decision of respondent Court of
Appeals 1 (CA-G.R. No. 48133- R) affirming the judgment of the
Court of First Instance of Leyte, Branch IX, Tacloban City (Civil Case
No. B-110), which dismissed petitioner's Complaint for Quieting of
Title and ordered her to vacate the property in dispute and deliver
its possession to private respondents Ramon Conde and Catalina
Conde.
The established facts, as found by the Court of Appeals, show that
on 7 April 1938. Margarita Conde, Bernardo Conde and the petitioner
Dominga Conde, as heirs of Santiago Conde, sold with right of
repurchase, within ten (10) years from said date, a parcel of
agricultural land located in Maghubas Burauen Leyte, (Lot 840), with
an approximate area of one (1) hectare, to Casimira Pasagui,
married to Pio Altera (hereinafter referred to as the Alteras), for
P165.00. The "Pacto de Retro Sale" further provided:

... (4) if at the end of 10 years the said land is not

repurchased, a new agreement shall be made
between the parties and in no case title and
ownership shall be vested in the hand of the party of
the SECOND PART (the Alteras).

3. That the document of SALE WITH

THE RIGHT OF REPURCHASE got lost in
spite of the diligent efforts to locate
the same which was lost during the
war.

xxx xxx xxx (Exhibit "B")

4. That these two parcels of land which

was the subject matter of a Deed of
Sale with the Right of Repurchase
consists only of one document which
was lost.

On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No.

840 to the Alteras "subject to the right of redemption by Dominga
Conde, within ten (10) years counting from April 7, 1983, after
returning the amount of P165.00 and the amounts paid by the
spouses in concept of land tax ... " (Exhibit "1"). Original Certificate
of Title No. N-534 in the name of the spouses Pio Altera and
Casimira Pasagui, subject to said right of repurchase, was
transcribed in the "Registration Book" of the Registry of Deeds of
Leyte on 14 November 1956 (Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-inlaw of the Alteras, signed a document in the Visayan dialect, the
English translation of which reads:
MEMORANDUM OF REPURCHASE OVER A PARCEL OF
LAND SOLD WITH REPURCHASE WHICH DOCUMENT GOT
LOST
WE, PIO ALTERA and PACIENTE CORDERO, both of
legal age, and residents of Burauen Leyte,
Philippines, after having been duly sworn to in
accordance with law free from threats and
intimidation, do hereby depose and say:
1. That I, PIO ALTERA bought with the
right of repurchase two parcels of land
from DOMINGA CONDE, BERNARDO
CONDE AND MARGARITA CONDE, all
brother and sisters.
2. That these two parcels of land were
all inherited by the three.

5. Because it is about time to

repurchase the land, I have allowed the
representative of Dominga Conde,
Bernardo Conde and Margarita Conde in
the name of EUSEBIO AMARILLE to
repurchase the same.
6. Now, this very day November 28,
1945, 1 or We have received together
with Paciente Cordero who is my sonin-law the amount of ONE HUNDRED
SIXTY-FIVE PESOS (P165. 00) Philippine
Currency of legal tender which was the
consideration in that sale with the right
of repurchase with respect to the two
parcels of land.
That we further covenant together with Paciente
Cordero who is my son-in-law that from this day the
said Dominga Conde, Bernardo Conde and Margarita
Conde will again take possession of the
aforementioned parcel of land because they
repurchased the same from me. If and when their
possession over the said parcel of land be disturbed
by other persons, I and Paciente Cordero who is my
son-in-law will defend in behalf of the herein brother
and sisters mentioned above, because the same was
already repurchased by them.

IN WITNESS WHEREOF, I or We have hereunto affixed

our thumbmark or signature to our respective names
below this document or memorandum this 28th day of
November 1945 at Burauen Leyte, Philippines, in the
presence of two witnesses.

Private respondents, for their part, adduced evidence that Paciente

Cordero signed the document of repurchase merely to show that he
had no objection to the repurchase; and that he did not receive the
amount of P165.00 from petitioner inasmuch as he had no authority
from his parents-in-law who were the vendees-a-retro.

PIO ALTERA (Sgd.) PACIENTE CORDERO

After trial, the lower Court rendered its Decision dismissing the
Complaint and the counterclaim and ordering petitioner "to vacate
the property in dispute and deliver its peaceful possession to the
defendants Ramon Conde and Catalina T. Conde".

WITNESSES:
1. (SGD.) TEODORO C. AGUILLON
To be noted is the fact that neither of the vendees-a-retro, Pio
Altera nor Casimira Pasagui, was a signatory to the deed. Petitioner
maintains that because Pio Altera was very ill at the time, Paciente
Cordero executed the deed of resale for and on behalf of his fatherin-law. Petitioner further states that she redeemed the property
with her own money as her co-heirs were bereft of funds for the
purpose.

On appeal, the Court of Appeals upheld the findings of the Court a

quo that petitioner had failed to validly exercise her right of
repurchase in view of the fact that the Memorandum of Repurchase
was signed by Paciente Cordero and not by Pio Altera, the vendee-aretro, and that there is nothing in said document to show that
Cordero was specifically authorized to act for and on behalf of the
vendee a retro, Pio Altera.

The pacto de retro document was eventually found.

Reconsideration having been denied by the Appellate Court, the

case is before us on review.

On 30 June 1965 Pio Altera sold the disputed lot to the spouses
Ramon Conde and Catalina T. Conde, who are also private
respondents herein. Their relationship to petitioner does not appear
from the records. Nor has the document of sale been exhibited.

There is no question that neither of the vendees-a-retro signed the

"Memorandum of Repurchase", and that there was no formal
authorization from the vendees for Paciente Cordero to act for and
on their behalf.

Contending that she had validly repurchased the lot in question in

1945, petitioner filed, on 16 January 1969, in the Court of First
Instance of Leyte, Branch IX, Tacloban City, a Complaint (Civil Case
No. B-110), against Paciente Cordero and his wife Nicetas Altera,
Ramon Conde and his wife Catalina T. Conde, and Casimira Pasagui
Pio Altera having died in 1966), for quieting of title to real property
and declaration of ownership.

Of significance, however, is the fact that from the execution of the

repurchase document in 1945, possession, which heretofore had
been with the Alteras, has been in the hands of petitioner as
stipulated therein. Land taxes have also been paid for by petitioner
yearly from 1947 to 1969 inclusive (Exhibits "D" to "D-15"; and "E").
If, as opined by both the Court a quo and the Appellate Court,
petitioner had done nothing to formalize her repurchase, by the
same token, neither have the vendees-a-retro done anything to
clear their title of the encumbrance therein regarding petitioner's
right to repurchase. No new agreement was entered into by the
parties as stipulated in the deed of pacto de retro, if the vendors a
retro failed to exercise their right of redemption after ten years. If,
as alleged, petitioner exerted no effort to procure the signature of
Pio Altera after he had recovered from his illness, neither did the

Petitioner's evidence is that Paciente Cordero signed the

Memorandum of Repurchase in representation of his father-in-law
Pio Altera, who was seriously sick on that occasion, and of his
mother-in-law who was in Manila at the time, and that Cordero
received the repurchase price of P65.00.

Alteras repudiate the deed that their son-in-law had signed. Thus,
an implied agency must be held to have been created from their
silence or lack of action, or their failure to repudiate the agency. 2
Possession of the lot in dispute having been adversely and
uninterruptedly with petitioner from 1945 when the document of
repurchase was executed, to 1969, when she instituted this action,
or for 24 years, the Alteras must be deemed to have incurred in
laches. 3 That petitioner merely took advantage of the abandonment
of the land by the Alteras due to the separation of said spouses, and
that petitioner's possession was in the concept of a tenant, remain
bare assertions without proof.
Private respondents Ramon Conde and Catalina Conde, to whom Pio
Altera sold the disputed property in 1965, assuming that there was,
indeed, such a sale, cannot be said to be purchasers in good faith.
OCT No. 534 in the name of the Alteras specifically contained the
condition that it was subject to the right of repurchase within 10
years from 1938. Although the ten-year period had lapsed in 1965
and there was no annotation of any repurchase by petitioner,
neither had the title been cleared of that encumbrance. The
purchasers were put on notice that some other person could have a
right to or interest in the property. It behooved Ramon Conde and
Catalina Conde to have looked into the right of redemption inscribed
on the title, and particularly the matter of possession, which, as
also admitted by them at the pre-trial, had been with petitioner
since 1945.
Private respondent must be held bound by the clear terms of the
Memorandum of Repurchase that he had signed wherein he
acknowledged the receipt of P165.00 and assumed the obligation to
maintain the repurchasers in peaceful possession should they be
"disturbed by other persons". It was executed in the Visayan dialect
which he understood. He cannot now be allowed to dispute the
same. "... If the contract is plain and unequivocal in its terms he is
ordinarily bound thereby. It is the duty of every contracting party to
learn and know its contents before he signs and delivers it." 4
There is nothing in the document of repurchase to show that
Paciente Cordero had signed the same merely to indicate that he
had no objection to petitioner's right of repurchase. Besides, he

would have had no personality to object. To uphold his oral

testimony on that point, would be a departure from the parol
evidence rule 5 and would defeat the purpose for which the doctrine
is intended.
... The purpose of the rule is to give stability to
written agreements, and to remove the temptation
and possibility of perjury, which would be afforded if
parol evidence was admissible. 6
In sum, although the contending parties were legally wanting in
their respective actuations, the repurchase by petitioner is
supported by the admissions at the pre-trial that petitioner has been
in possession since the year 1945, the date of the deed of
repurchase, and has been paying land taxes thereon since then. The
imperatives of substantial justice, and the equitable principle of
laches brought about by private respondents' inaction and neglect
for 24 years, loom in petitioner's favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby
REVERSED and SET ASIDE, and petitioner is hereby declared the
owner of the disputed property. If the original of OCT No. N-534 of
the Province of Leyte is still extant at the office of the Register of
Deeds, then said official is hereby ordered to cancel the same and,
in lieu thereof, issue a new Transfer Certificate of Title in the name
of petitioner, Dominga Conde.
No costs.
SO ORDERED.

G.R. No. 188288

January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,
DECISION

REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from
the January 30, 2009 Decision1 of the Special Thirteenth Division of
the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses
Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the
dispositive portion of which states:
WHEREFORE, the Decision of the Regional Trial Court, Branch 74,
dated 03 April 2006, awarding US$800.00 or its peso equivalent at
the time of payment, plus legal rate of interest from 21 July 1997
until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as
exemplary damages, [P]40,000.00 as attorneys fees and costs of
suit to plaintiffs-appellees is hereby REVERSED and SET ASIDE.
Defendant-appellants counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74
(RTC) rendered a Decision, giving due course to the complaint for
sum of money and damages filed by petitioners Fernando Viloria
(Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses
Viloria, against respondent Continental Airlines, Inc. (CAI). As culled
from the records, below are the facts giving rise to such complaint.
On or about July 21, 1997 and while in the United States, Fernando
purchased for himself and his wife, Lourdes, two (2) round trip
airline tickets from San Diego, California to Newark, New Jersey on
board Continental Airlines. Fernando purchased the tickets at
US$400.00 each from a travel agency called "Holiday Travel" and was
attended to by a certain Margaret Mager (Mager). According to
Spouses Viloria, Fernando agreed to buy the said tickets after Mager
informed them that there were no available seats at Amtrak, an
intercity passenger train service provider in the United States. Per
the tickets, Spouses Viloria were scheduled to leave for Newark on
August 13, 1997 and return to San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight

to Newark to an earlier date or August 6, 1997. Mager informed him
that flights to Newark via Continental Airlines were already fully
booked and offered the alternative of a round trip flight via Frontier
Air. Since flying with Frontier Air called for a higher fare of
US$526.00 per passenger and would mean traveling by night,
Fernando opted to request for a refund. Mager, however, denied his
request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new
tickets within one (1) year from the date the subject tickets were
issued. Fernando decided to reserve two (2) seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air,
Fernando went to the Greyhound Station where he saw an Amtrak
station nearby. Fernando made inquiries and was told that there are
seats available and he can travel on Amtrak anytime and any day he
pleased. Fernando then purchased two (2) tickets for Washington,
D.C.
From Amtrak, Fernando went to Holiday Travel and confronted
Mager with the Amtrak tickets, telling her that she had misled them
into buying the Continental Airlines tickets by misrepresenting that
Amtrak was already fully booked. Fernando reiterated his demand
for a refund but Mager was firm in her position that the subject
tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on
February 11, 1998, demanding a refund and alleging that Mager had
deluded them into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed
Fernando that his complaint had been referred to the Customer
Refund Services of Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied
Fernandos request for a refund and advised him that he may take
the subject tickets to any Continental ticketing location for the reissuance of new tickets within two (2) years from the date they were
issued. Continental Micronesia informed Fernando that the subject
tickets may be used as a form of payment for the purchase of
another Continental ticket, albeit with a re-issuance fee.5

On June 17, 1999, Fernando went to Continentals ticketing office at

Ayala Avenue, Makati City to have the subject tickets replaced by a
single round trip ticket to Los Angeles, California under his name.
Therein, Fernando was informed that Lourdes ticket was nontransferable, thus, cannot be used for the purchase of a ticket in his
favor. He was also informed that a round trip ticket to Los Angeles
was US$1,867.40 so he would have to pay what will not be covered
by the value of his San Diego to Newark round trip ticket.

States or Canada and any place outside thereof to which tariffs in

force in those countries apply.8

In a letter dated June 21, 1999, Fernando demanded for the refund
of the subject tickets as he no longer wished to have them replaced.
In addition to the dubious circumstances under which the subject
tickets were issued, Fernando claimed that CAIs act of charging him
with US$1,867.40 for a round trip ticket to Los Angeles, which other
airlines priced at US$856.00, and refusal to allow him to use
Lourdes ticket, breached its undertaking under its March 24, 1998
letter.6

Following a full-blown trial, the RTC rendered its April 3, 2006

Decision, holding that Spouses Viloria are entitled to a refund in
view of Magers misrepresentation in obtaining their consent in the
purchase of the subject tickets.9 The relevant portion of the April 3,
2006 Decision states:

On September 8, 2000, Spouses Viloria filed a complaint against CAI,

praying that CAI be ordered to refund the money they used in the
purchase of the subject tickets with legal interest from July 21,
1997 and to pay P1,000,000.00 as moral damages, P500,000.00 as
exemplary damages and P250,000.00 as attorneys fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no
right to ask for a refund as the subject tickets are non-refundable;
(b) Fernando cannot insist on using the ticket in Lourdes name for
the purchase of a round trip ticket to Los Angeles since the same is
non-transferable; (c) as Mager is not a CAI employee, CAI is not
liable for any of her acts; (d) CAI, its employees and agents did not
act in bad faith as to entitle Spouses Viloria to moral and exemplary
damages and attorneys fees. CAI also invoked the following clause
printed on the subject tickets:
3. To the extent not in conflict with the foregoing carriage and
other services performed by each carrier are subject to: (i)
provisions contained in this ticket, (ii) applicable tariffs, (iii)
carriers conditions of carriage and related regulations which are
made part hereof (and are available on application at the offices of
carrier), except in transportation between a place in the United

According to CAI, one of the conditions attached to their contract of

carriage is the non-transferability and non-refundability of the
subject tickets.
The RTCs Ruling

Continental Airlines agent Ms. Mager was in bad faith when she was
less candid and diligent in presenting to plaintiffs spouses their
booking options. Plaintiff Fernando clearly wanted to travel via
AMTRAK, but defendants agent misled him into purchasing
Continental Airlines tickets instead on the fraudulent
misrepresentation that Amtrak was fully booked. In fact, defendant
Airline did not specifically denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were
tricked into buying Continental Airline tickets on Ms. Magers
misleading misrepresentations. Continental Airlines agent Ms. Mager
further relied on and exploited plaintiff Fernandos need and told
him that they must book a flight immediately or risk not being able
to travel at all on the couples preferred date. Unfortunately,
plaintiffs spouses fell prey to the airlines and its agents unethical
tactics for baiting trusting customers."10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that
Mager is CAIs agent, hence, bound by her bad faith and
misrepresentation. As far as the RTC is concerned, there is no issue
as to whether Mager was CAIs agent in view of CAIs implied
recognition of her status as such in its March 24, 1998 letter.
The act of a travel agent or agency being involved here, the
following are the pertinent New Civil Code provisions on agency:

Art. 1868. 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.
Art. 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.
Agency may be oral, unless the law requires a specific form.
As its very name implies, a travel agency binds itself to render some
service or to do something in representation or on behalf of another,
with the consent or authority of the latter. This court takes judicial
notice of the common services rendered by travel agencies that
represent themselves as such, specifically the reservation and
booking of local and foreign tours as well as the issuance of airline
tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the
plaintiff spouses on July 21, 1997 were no different from those
offered in any other travel agency. Defendant airline impliedly if not
expressly acknowledged its principal-agent relationship with Ms.
Mager by its offer in the letter dated March 24, 1998 an obvious
attempt to assuage plaintiffs spouses hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging
on its undertaking to replace the subject tickets within two (2) years
from their date of issue when it charged Fernando with the amount
of US$1,867.40 for a round trip ticket to Los Angeles and when it
refused to allow Fernando to use Lourdes ticket. Specifically:
Tickets may be reissued for up to two years from the original date of
issue. When defendant airline still charged plaintiffs spouses
US$1,867.40 or more than double the then going rate of US$856.00
for the unused tickets when the same were presented within two (2)
years from date of issue, defendant airline exhibited callous
treatment of passengers.12
The Appellate Courts Ruling

On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding

that CAI cannot be held liable for Magers act in the absence of any
proof that a principal-agent relationship existed between CAI and
Holiday Travel. According to the CA, Spouses Viloria, who have the
burden of proof to establish the fact of agency, failed to present
evidence demonstrating that Holiday Travel is CAIs agent.
Furthermore, contrary to Spouses Vilorias claim, the contractual
relationship between Holiday Travel and CAI is not an agency but
that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday
Travel who was in turn a ticketing agent of Holiday Travel who was
in turn a ticketing agent of Continental Airlines. Proceeding from
this premise, they contend that Continental Airlines should be held
liable for the acts of Mager. The trial court held the same view.
We do not agree. By the contract of agency, a person binds
him/herself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. The elements of agency are: (1) consent,
express or implied, of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and not for
him/herself; and (4) the agent acts within the scope of his/her
authority. As the basis of agency is representation, there must be,
on the part of the principal, an actual intention to appoint, an
intention naturally inferable from the principals words or actions.
In the same manner, there must be an intention on the part of the
agent to accept the appointment and act upon it. Absent such
mutual intent, there is generally no agency. It is likewise a settled
rule that persons dealing with an assumed agent are bound at their
peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and
in case either is controverted, the burden of proof is upon them to
establish it. Agency is never presumed, neither is it created by the
mere use of the word in a trade or business name. We have perused
the evidence and documents so far presented. We find nothing
except bare allegations of plaintiffs-appellees that Mager/Holiday
Travel was acting in behalf of Continental Airlines. From all sides of
legal prism, the transaction in issue was simply a contract of sale,
wherein Holiday Travel buys airline tickets from Continental Airlines

and then, through its employees, Mager included, sells it at a

premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as
the word "non-refundable" was clearly printed on the face of the
subject tickets, which constitute their contract with CAI. Therefore,
the grant of their prayer for a refund would violate the proscription
against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they
charged Spouses Viloria with the higher amount of US$1,867.40 for a
round trip ticket to Los Angeles. According to the CA, there is no
compulsion for CAI to charge the lower amount of US$856.00, which
Spouses Viloria claim to be the fee charged by other airlines. The
matter of fixing the prices for its services is CAIs prerogative, which
Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating
business entities to peg the premium of the services and items which
they provide at a price which they deem fit, no matter how
expensive or exhorbitant said price may seem vis--vis those of the
competing companies. The Spouses Viloria may not intervene with
the business judgment of Continental Airlines.14
The Petitioners Case
In this Petition, this Court is being asked to review the findings and
conclusions of the CA, as the latters reversal of the RTCs April 3,
2006 Decision allegedly lacks factual and legal bases. Spouses Viloria
claim that CAI acted in bad faith when it required them to pay a
higher amount for a round trip ticket to Los Angeles considering
CAIs undertaking to re-issue new tickets to them within the period
stated in their March 24, 1998 letter. CAI likewise acted in bad faith
when it disallowed Fernando to use Lourdes ticket to purchase a
round trip to Los Angeles given that there is nothing in Lourdes
ticket indicating that it is non-transferable. As a common carrier, it
is CAIs duty to inform its passengers of the terms and conditions of
their contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject
contract of carriage is a contract of adhesion; therefore, any
ambiguities should be construed against CAI. Notably, the

petitioners are no longer questioning the validity of the subject

contracts and limited its claim for a refund on CAIs alleged breach
of its undertaking in its March 24, 1998 letter.
The Respondents Case
In its Comment, CAI claimed that Spouses Vilorias allegation of bad
faith is negated by its willingness to issue new tickets to them and
to credit the value of the subject tickets against the value of the
new ticket Fernando requested. CAI argued that Spouses Vilorias
sole basis to claim that the price at which CAI was willing to issue
the new tickets is unconscionable is a piece of hearsay evidence an
advertisement appearing on a newspaper stating that airfares from
Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the
advertisement pertains to airfares in September 2000 and not to
airfares prevailing in June 1999, the time when Fernando asked CAI
to apply the value of the subject tickets for the purchase of a new
one.16 CAI likewise argued that it did not undertake to protect
Spouses Viloria from any changes or fluctuations in the prices of
airline tickets and its only obligation was to apply the value of the
subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Vilorias claim that they are not aware of
CAIs restrictions on the subject tickets and that the terms and
conditions that are printed on them are ambiguous, CAI denies any
ambiguity and alleged that its representative informed Fernando
that the subject tickets are non-transferable when he applied for
the issuance of a new ticket. On the other hand, the word "nonrefundable" clearly appears on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and
Mager and that no principal-agency relationship exists between
them. As an independent contractor, Holiday Travel was without
capacity to bind CAI.
Issues
To determine the propriety of disturbing the CAs January 30, 2009
Decision and whether Spouses Viloria have the right to the reliefs
they prayed for, this Court deems it necessary to resolve the
following issues:

a. Does a principal-agent relationship exist between CAI and

Holiday Travel?
b. Assuming that an agency relationship exists between CAI
and Holiday Travel, is CAI bound by the acts of Holiday
Travels agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travels
agents and employees, can the representation of Mager as to
unavailability of seats at Amtrak be considered fraudulent as
to vitiate the consent of Spouse Viloria in the purchase of the
subject tickets?
d. Is CAI justified in insisting that the subject tickets are nontransferable and non-refundable?
e. Is CAI justified in pegging a different price for the round
trip ticket to Los Angeles requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its
obligation to Spouses Viloria to apply the value of the subject
tickets in the purchase of new ones when it refused to allow
Fernando to use Lourdes ticket and in charging a higher
price for a round trip ticket to Los Angeles?
This Courts Ruling
I. A principal-agent relationship exists between CAI and Holiday
Travel.
With respect to the first issue, which is a question of fact that would
require this Court to review and re-examine the evidence presented
by the parties below, this Court takes exception to the general rule
that the CAs findings of fact are conclusive upon Us and our
jurisdiction is limited to the review of questions of law. It is wellsettled to the point of being axiomatic that this Court is authorized
to resolve questions of fact if confronted with contrasting factual
findings of the trial court and appellate court and if the findings of
the CA are contradicted by the evidence on record.17

According to the CA, agency is never presumed and that he who

alleges that it exists has the burden of proof. Spouses Viloria, on
whose shoulders such burden rests, presented evidence that fell
short of indubitably demonstrating the existence of such agency.
We disagree. The CA failed to consider undisputed facts,
discrediting CAIs denial that Holiday Travel is one of its agents.
Furthermore, in erroneously characterizing the contractual
relationship between CAI and Holiday Travel as a contract of sale,
the CA failed to apply the fundamental civil law principles governing
agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court
explained the nature of an agency and spelled out the essential
elements thereof:
Out of the above given principles, sprung the creation and
acceptance of the relationship of agency whereby one party, called
the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third
persons. The essential elements of agency are: (1) there is consent,
express or implied of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and not for himself,
and (4) the agent acts within the scope of his authority.1avvphi1
Agency is basically personal, representative, and derivative in
nature. The authority of the agent to act emanates from the powers
granted to him by his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit per alium facit se.
"He who acts through another acts himself."19
Contrary to the findings of the CA, all the elements of an agency
exist in this case. The first and second elements are present as CAI
does not deny that it concluded an agreement with Holiday Travel,
whereby Holiday Travel would enter into contracts of carriage with
third persons on CAIs behalf. The third element is also present as it
is undisputed that Holiday Travel merely acted in a representative
capacity and it is CAI and not Holiday Travel who is bound by the
contracts of carriage entered into by Holiday Travel on its behalf.
The fourth element is also present considering that CAI has not

made any allegation that Holiday Travel exceeded the authority that
was granted to it. In fact, CAI consistently maintains the validity of
the contracts of carriage that Holiday Travel executed with Spouses
Viloria and that Mager was not guilty of any fraudulent
misrepresentation. That CAI admits the authority of Holiday Travel
to enter into contracts of carriage on its behalf is easily discernible
from its February 24, 1998 and March 24, 1998 letters, where it
impliedly recognized the validity of the contracts entered into by
Holiday Travel with Spouses Viloria. When Fernando informed CAI
that it was Holiday Travel who issued to them the subject tickets,
CAI did not deny that Holiday Travel is its authorized agent.
Prior to Spouses Vilorias filing of a complaint against it, CAI never
refuted that it gave Holiday Travel the power and authority to
conclude contracts of carriage on its behalf. As clearly extant from
the records, CAI recognized the validity of the contracts of carriage
that Holiday Travel entered into with Spouses Viloria and considered
itself bound with Spouses Viloria by the terms and conditions
thereof; and this constitutes an unequivocal testament to Holiday
Travels authority to act as its agent. This Court cannot therefore
allow CAI to take an altogether different position and deny that
Holiday Travel is its agent without condoning or giving imprimatur to
whatever damage or prejudice that may result from such denial or
retraction to Spouses Viloria, who relied on good faith on CAIs acts
in recognition of Holiday Travels authority. Estoppel is primarily
based on the doctrine of good faith and the avoidance of harm that
will befall an innocent party due to its injurious reliance, the failure
to apply it in this case would result in gross travesty of justice.20
Estoppel bars CAI from making such denial.
As categorically provided under Article 1869 of the Civil Code,
"[a]gency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without
authority."
Considering that the fundamental hallmarks of an agency are
present, this Court finds it rather peculiar that the CA had branded
the contractual relationship between CAI and Holiday Travel as one
of sale. The distinctions between a sale and an agency are not
difficult to discern and this Court, as early as 1970, had already

formulated the guidelines that would aid in differentiating the two

(2) contracts. In Commissioner of Internal Revenue v. Constantino,21
this Court extrapolated that the primordial differentiating
consideration between the two (2) contracts is the transfer of
ownership or title over the property subject of the contract. In an
agency, the principal retains ownership and control over the
property and the agent merely acts on the principals behalf and
under his instructions in furtherance of the objectives for which the
agency was established. On the other hand, the contract is clearly a
sale if the parties intended that the delivery of the property will
effect a relinquishment of title, control and ownership in such a way
that the recipient may do with the property as he pleases.
Since the company retained ownership of the goods, even as it
delivered possession unto the dealer for resale to customers, the
price and terms of which were subject to the company's control, the
relationship between the company and the dealer is one of agency,
tested under the following criterion:
"The difficulty in distinguishing between contracts of sale and the
creation of an agency to sell has led to the establishment of rules by
the application of which this difficulty may be solved. The decisions
say the transfer of title or agreement to transfer it for a price paid
or promised is the essence of sale. If such transfer puts the
transferee in the attitude or position of an owner and makes him
liable to the transferor as a debtor for the agreed price, and not
merely as an agent who must account for the proceeds of a resale,
the transaction is a sale; while the essence of an agency to sell is
the delivery to an agent, not as his property, but as the property of
the principal, who remains the owner and has the right to control
sales, fix the price, and terms, demand and receive the proceeds
less the agent's commission upon sales made. 1 Mechem on Sales,
Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1;
Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract
between CAI and Holiday Travel is a sale is certainly confounding,
considering that CAI is the one bound by the contracts of carriage
embodied by the tickets being sold by Holiday Travel on its behalf.
It is undisputed that CAI and not Holiday Travel who is the party to
the contracts of carriage executed by Holiday Travel with third

persons who desire to travel via Continental Airlines, and this

conclusively indicates the existence of a principal-agent
relationship. That the principal is bound by all the obligations
contracted by the agent within the scope of the authority granted to
him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held
liable for the tort committed by its agents employees if it has
been established by preponderance of evidence that the principal
was also at fault or negligent or that the principal exercise
control and supervision over them.
Considering that Holiday Travel is CAIs agent, does it necessarily
follow that CAI is liable for the fault or negligence of Holiday
Travels employees? Citing China Air Lines, Ltd. v. Court of Appeals,
et al.,23 CAI argues that it cannot be held liable for the actions of
the employee of its ticketing agent in the absence of an employeremployee relationship.
An examination of this Courts pronouncements in China Air Lines
will reveal that an airline company is not completely exonerated
from any liability for the tort committed by its agents employees. A
prior determination of the nature of the passengers cause of action
is necessary. If the passengers cause of action against the airline
company is premised on culpa aquiliana or quasi-delict for a tort
committed by the employee of the airline companys agent, there
must be an independent showing that the airline company was at
fault or negligent or has contributed to the negligence or tortuous
conduct committed by the employee of its agent. The mere fact
that the employee of the airline companys agent has committed a
tort is not sufficient to hold the airline company liable. There is no
vinculum juris between the airline company and its agents
employees and the contractual relationship between the airline
company and its agent does not operate to create a juridical tie
between the airline company and its agents employees. Article
2180 of the Civil Code does not make the principal vicariously liable
for the tort committed by its agents employees and the principalagency relationship per se does not make the principal a party to
such tort; hence, the need to prove the principals own fault or
negligence.

On the other hand, if the passengers cause of action for damages

against the airline company is based on contractual breach or culpa
contractual, it is not necessary that there be evidence of the airline
companys fault or negligence. As this Court previously stated in
China Air Lines and reiterated in Air France vs. Gillego,24 "in an
action based on a breach of contract of carriage, the aggrieved
party does not have to prove that the common carrier was at fault
or was negligent. All that he has to prove is the existence of the
contract and the fact of its non-performance by the carrier."
Spouses Vilorias cause of action on the basis of Magers alleged
fraudulent misrepresentation is clearly one of tort or quasi-delict,
there being no pre-existing contractual relationship between them.
Therefore, it was incumbent upon Spouses Viloria to prove that CAI
was equally at fault.
However, the records are devoid of any evidence by which CAIs
alleged liability can be substantiated. Apart from their claim that
CAI must be held liable for Magers supposed fraud because Holiday
Travel is CAIs agent, Spouses Viloria did not present evidence that
CAI was a party or had contributed to Magers complained act either
by instructing or authorizing Holiday Travel and Mager to issue the
said misrepresentation.
It may seem unjust at first glance that CAI would consider Spouses
Viloria bound by the terms and conditions of the subject contracts,
which Mager entered into with them on CAIs behalf, in order to
deny Spouses Vilorias request for a refund or Fernandos use of
Lourdes ticket for the re-issuance of a new one, and simultaneously
claim that they are not bound by Magers supposed
misrepresentation for purposes of avoiding Spouses Vilorias claim
for damages and maintaining the validity of the subject contracts. It
may likewise be argued that CAI cannot deny liability as it benefited
from Magers acts, which were performed in compliance with
Holiday Travels obligations as CAIs agent.
However, a persons vicarious liability is anchored on his possession
of control, whether absolute or limited, on the tortfeasor. Without
such control, there is nothing which could justify extending the
liability to a person other than the one who committed the tort. As
this Court explained in Cangco v. Manila Railroad Co.:25

With respect to extra-contractual obligation arising from

negligence, whether of act or omission, it is competent for the
legislature to elect and our Legislature has so elected to limit
such liability to cases in which the person upon whom such an
obligation is imposed is morally culpable or, on the contrary, for
reasons of public policy, to extend that liability, without regard
to the lack of moral culpability, so as to include responsibility for
the negligence of those persons whose acts or omissions are
imputable, by a legal fiction, to others who are in a position to
exercise an absolute or limited control over them. The legislature
which adopted our Civil Code has elected to limit extra-contractual
liability with certain well-defined exceptions to cases in which
moral culpability can be directly imputed to the persons to be
charged. This moral responsibility may consist in having failed to
exercise due care in one's own acts, or in having failed to exercise
due care in the selection and control of one's agent or servants, or in
the control of persons who, by reasons of their status, occupy a
position of dependency with respect to the person made liable for
their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised
control or supervision over Mager by preponderant evidence. The
existence of control or supervision cannot be presumed and CAI is
under no obligation to prove its denial or nugatory assertion. Citing
Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant
to deny an alleged employment relationship. The defendant is under
no obligation to prove the negative averment. This Court said:
"It is an old and well-settled rule of the courts that the burden of
proving the action is upon the plaintiff, and that if he fails
satisfactorily to show the facts upon which he bases his claim, the
defendant is under no obligation to prove his exceptions. This [rule]
is in harmony with the provisions of Section 297 of the Code of Civil
Procedure holding that each party must prove his own affirmative
allegations, etc."29 (citations omitted)
Therefore, without a modicum of evidence that CAI exercised
control over Holiday Travels employees or that CAI was equally at

fault, no liability can be imposed on CAI for Magers supposed

misrepresentation.
III. Even on the assumption that CAI may be held liable for the
acts of Mager, still, Spouses Viloria are not entitled to a refund.
Magers statement cannot be considered a causal fraud that
would justify the annulment of the subject contracts that would
oblige CAI to indemnify Spouses Viloria and return the money
they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides
that if the consent of the contracting parties was obtained through
fraud, the contract is considered voidable and may be annulled
within four (4) years from the time of the discovery of the fraud.
Once a contract is annulled, the parties are obliged under Article
1398 of the same Code to restore to each other the things subject
matter of the contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses
Viloria that Fernandos consent to the subject contracts was
supposedly secured by Mager through fraudulent means, it is plainly
apparent that their demand for a refund is tantamount to seeking
for an annulment of the subject contracts on the ground of vitiated
consent.
Whether the subject contracts are annullable, this Court is required
to determine whether Magers alleged misrepresentation constitutes
causal fraud. Similar to the dispute on the existence of an agency,
whether fraud attended the execution of a contract is factual in
nature and this Court, as discussed above, may scrutinize the
records if the findings of the CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them,
he would not have agreed to. In order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract.30 In Samson v. Court of Appeals,31 causal fraud was
defined as "a deception employed by one party prior to or

simultaneous to the contract in order to secure the consent of the

other."32
Also, fraud must be serious and its existence must be established by
clear and convincing evidence. As ruled by this Court in Sierra v.
Hon. Court of Appeals, et al.,33 mere preponderance of evidence is
not adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced
to enter into a contract which without them, he would not have
agreed to.
Art. 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
To quote Tolentino again, the "misrepresentation constituting the
fraud must be established by full, clear, and convincing evidence,
and not merely by a preponderance thereof. The deceit must be
serious. The fraud is serious when it is sufficient to impress, or to
lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into
account the personal conditions of the victim."34
After meticulously poring over the records, this Court finds that the
fraud alleged by Spouses Viloria has not been satisfactorily
established as causal in nature to warrant the annulment of the
subject contracts. In fact, Spouses Viloria failed to prove by clear
and convincing evidence that Magers statement was fraudulent.
Specifically, Spouses Viloria failed to prove that (a) there were
indeed available seats at Amtrak for a trip to New Jersey on August
13, 1997 at the time they spoke with Mager on July 21, 1997; (b)
Mager knew about this; and (c) that she purposely informed them
otherwise.
This Court finds the only proof of Magers alleged fraud, which is
Fernandos testimony that an Amtrak had assured him of the

perennial availability of seats at Amtrak, to be wanting. As CAI

correctly pointed out and as Fernando admitted, it was possible that
during the intervening period of three (3) weeks from the time
Fernando purchased the subject tickets to the time he talked to said
Amtrak employee, other passengers may have cancelled their
bookings and reservations with Amtrak, making it possible for
Amtrak to accommodate them. Indeed, the existence of fraud
cannot be proved by mere speculations and conjectures. Fraud is
never lightly inferred; it is good faith that is. Under the Rules of
Court, it is presumed that "a person is innocent of crime or wrong"
and that "private transactions have been fair and regular."35 Spouses
Viloria failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless
deemed to have ratified the subject contracts.
Even assuming that Magers representation is causal fraud, the
subject contracts have been impliedly ratified when Spouses Viloria
decided to exercise their right to use the subject tickets for the
purchase of new ones. Under Article 1392 of the Civil Code,
"ratification extinguishes the action to annul a voidable contract."
Ratification of a voidable contract is defined under Article 1393 of
the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of
the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should
execute an act which necessarily implies an intention to waive his
right.
Implied ratification may take diverse forms, such as by silence or
acquiescence; by acts showing approval or adoption of the contract;
or by acceptance and retention of benefits flowing therefrom.36
Simultaneous with their demand for a refund on the ground of
Fernandos vitiated consent, Spouses Viloria likewise asked for a
refund based on CAIs supposed bad faith in reneging on its
undertaking to replace the subject tickets with a round trip ticket
from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the
subject contracts based on contractual breach. Resolution, the
action referred to in Article 1191, is based on the defendants
breach of faith, a violation of the reciprocity between the parties37
and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38
this Court ruled that a claim for a reimbursement in view of the
other partys failure to comply with his obligations under the
contract is one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and
rescission under Article 1191 are two (2) inconsistent remedies. In
resolution, all the elements to make the contract valid are present;
in annulment, one of the essential elements to a formation of a
contract, which is consent, is absent. In resolution, the defect is in
the consummation stage of the contract when the parties are in the
process of performing their respective obligations; in annulment,
the defect is already present at the time of the negotiation and
perfection stages of the contract. Accordingly, by pursuing the
remedy of rescission under Article 1191, the Vilorias had impliedly
admitted the validity of the subject contracts, forfeiting their right
to demand their annulment. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its
existence or validity. Indeed, litigants are enjoined from taking
inconsistent positions.39
V. Contracts cannot be rescinded for a slight or casual breach.
CAI cannot insist on the non-transferability of the subject tickets.
Considering that the subject contracts are not annullable on the
ground of vitiated consent, the next question is: "Do Spouses Viloria
have the right to rescind the contract on the ground of CAIs
supposed breach of its undertaking to issue new tickets upon
surrender of the subject tickets?"
Article 1191, as presently worded, states:
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent
upon him.

The injured party may choose between the fulfilment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached
the subject contracts when it refused to apply the value of Lourdes
ticket for Fernandos purchase of a round trip ticket to Los Angeles
and in requiring him to pay an amount higher than the price fixed by
other airline companies.
In its March 24, 1998 letter, CAI stated that "non-refundable tickets
may be used as a form of payment toward the purchase of another
Continental ticket for $75.00, per ticket, reissue fee ($50.00, per
ticket, for tickets purchased prior to October 30, 1997)."
Clearly, there is nothing in the above-quoted section of CAIs letter
from which the restriction on the non-transferability of the subject
tickets can be inferred. In fact, the words used by CAI in its letter
supports the position of Spouses Viloria, that each of them can use
the ticket under their name for the purchase of new tickets whether
for themselves or for some other person.
Moreover, as CAI admitted, it was only when Fernando had
expressed his interest to use the subject tickets for the purchase of
a round trip ticket between Manila and Los Angeles that he was
informed that he cannot use the ticket in Lourdes name as
payment.
Contrary to CAIs claim, that the subject tickets are nontransferable cannot be implied from a plain reading of the provision
printed on the subject tickets stating that "[t]o the extent not in
conflict with the foregoing carriage and other services performed by
each carrier are subject to: (a) provisions contained in this ticket, x

x x (iii) carriers conditions of carriage and related regulations which

are made part hereof (and are available on application at the offices
of carrier) x x x." As a common carrier whose business is imbued
with public interest, the exercise of extraordinary diligence requires
CAI to inform Spouses Viloria, or all of its passengers for that
matter, of all the terms and conditions governing their contract of
carriage. CAI is proscribed from taking advantage of any ambiguity
in the contract of carriage to impute knowledge on its passengers of
and demand compliance with a certain condition or undertaking that
is not clearly stipulated. Since the prohibition on transferability is
not written on the face of the subject tickets and CAI failed to
inform Spouses Viloria thereof, CAI cannot refuse to apply the value
of Lourdes ticket as payment for Fernandos purchase of a new
ticket.
CAIs refusal to accept Lourdes ticket for the purchase of a new
ticket for Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for non-performance of
its stipulations is not absolute. The general rule is that rescission of
a contract will not be permitted for a slight or casual breach, but
only for such substantial and fundamental violations as would defeat
the very object of the parties in making the agreement.40 Whether a
breach is substantial is largely determined by the attendant
circumstances.41
While CAIs refusal to allow Fernando to use the value of Lourdes
ticket as payment for the purchase of a new ticket is unjustified as
the non-transferability of the subject tickets was not clearly
stipulated, it cannot, however be considered substantial. The
endorsability of the subject tickets is not an essential part of the
underlying contracts and CAIs failure to comply is not essential to
its fulfillment of its undertaking to issue new tickets upon Spouses
Vilorias surrender of the subject tickets. This Court takes note of
CAIs willingness to perform its principal obligation and this is to
apply the price of the ticket in Fernandos name to the price of the
round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes name as full or partial
payment as the case may be for the purchase of any ticket, albeit
under her name and for her exclusive use. In other words, CAIs
willingness to comply with its undertaking under its March 24, 1998

cannot be doubted, albeit tainted with its erroneous insistence that

Lourdes ticket is non-transferable.
Moreover, Spouses Vilorias demand for rescission cannot prosper as
CAI cannot be solely faulted for the fact that their agreement failed
to consummate and no new ticket was issued to Fernando. Spouses
Viloria have no right to insist that a single round trip ticket between
Manila and Los Angeles should be priced at around $856.00 and
refuse to pay the difference between the price of the subject
tickets and the amount fixed by CAI. The petitioners failed to
allege, much less prove, that CAI had obliged itself to issue to them
tickets for any flight anywhere in the world upon their surrender of
the subject tickets. In its March 24, 1998 letter, it was clearly stated
that "[n]on-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket"42 and there is
nothing in it suggesting that CAI had obliged itself to protect Spouses
Viloria from any fluctuation in the prices of tickets or that the
surrender of the subject tickets will be considered as full payment
for any ticket that the petitioners intend to buy regardless of actual
price and destination. The CA was correct in holding that it is CAIs
right and exclusive prerogative to fix the prices for its services and
it may not be compelled to observe and maintain the prices of other
airline companies.43
The conflict as to the endorsability of the subject tickets is an
altogether different matter, which does not preclude CAI from fixing
the price of a round trip ticket between Manila and Los Angeles in
an amount it deems proper and which does not provide Spouses
Viloria an excuse not to pay such price, albeit subject to a reduction
coming from the value of the subject tickets. It cannot be denied
that Spouses Viloria had the concomitant obligation to pay whatever
is not covered by the value of the subject tickets whether or not the
subject tickets are transferable or not.1avvphi1
There is also no showing that Spouses Viloria were discriminated
against in bad faith by being charged with a higher rate. The only
evidence the petitioners presented to prove that the price of a
round trip ticket between Manila and Los Angeles at that time was
only $856.00 is a newspaper advertisement for another airline
company, which is inadmissible for being "hearsay evidence, twice
removed." Newspaper clippings are hearsay if they were offered for

the purpose of proving the truth of the matter alleged. As ruled in

Feria v. Court of Appeals,:44

P17,000.00 debt within 3 years as stipulated, they are both liable

for damages.

[N]ewspaper articles amount to "hearsay evidence, twice removed"

and are therefore not only inadmissible but without any probative
value at all whether objected to or not, unless offered for a purpose
other than proving the truth of the matter asserted. In this case, the
news article is admissible only as evidence that such publication
does exist with the tenor of the news therein stated.45 (citations
omitted)

Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of
the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not
furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for
not paying his overdue P17,000.00 debt. x x x.47

The records of this case demonstrate that both parties were equally
in default; hence, none of them can seek judicial redress for the
cancellation or resolution of the subject contracts and they are
therefore bound to their respective obligations thereunder. As the
1st sentence of Article 1192 provides:

Another consideration that militates against the propriety of holding

CAI liable for moral damages is the absence of a showing that the
latter acted fraudulently and in bad faith. Article 2220 of the Civil
Code requires evidence of bad faith and fraud and moral damages
are generally not recoverable in culpa contractual except when bad
faith had been proven.48 The award of exemplary damages is
likewise not warranted. Apart from the requirement that the
defendant acted in a wanton, oppressive and malevolent manner,
the claimant must prove his entitlement to moral damages.49

Art. 1192. In case both parties have committed a breach of the

obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. (emphasis
supplied)

WHEREFORE, premises considered, the instant Petition is DENIED.

G.R. No. 118375

Therefore, CAIs liability for damages for its refusal to accept

Lourdes ticket for the purchase of Fernandos round trip ticket is
offset by Spouses Vilorias liability for their refusal to pay the
amount, which is not covered by the subject tickets. Moreover, the
contract between them remains, hence, CAI is duty bound to issue
new tickets for a destination chosen by Spouses Viloria upon their
surrender of the subject tickets and Spouses Viloria are obliged to
pay whatever amount is not covered by the value of the subject
tickets.
This Court made a similar ruling in Central Bank of the Philippines v.
Court of Appeals.46 Thus:
Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed
to comply with its obligation to furnish the entire loan and Sulpicio
M. Tolentino failed to comply with his obligation to pay his

October 3, 2003

CELESTINA T. NAGUIAT, petitioner,

vs.
COURT OF APPEALS and AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45,
assailing the decision of the Sixteenth Division of the respondent
Court of Appeals promulgated on 21 December 19941, which
affirmed in toto the decision handed down by the Regional Trial
Court (RTC) of Pasay City.2
The case arose when on 11 August 1981, private respondent Aurora
Queao (Queao) filed a complaint before the Pasay City RTC for

cancellation of a Real Estate Mortgage she had entered into with

petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
declaring the questioned Real Estate Mortgage void, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld
the RTC decision, Naguiat instituted the present
petition.1vvphi1.nt
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two
Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On
11 August 1980, Naguiat indorsed to Queao Associated Bank Check
No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by
the Corporate Resources Financing Corporation. She also issued her
own Filmanbank Check No. 065314, to the order of Queao, also
dated 11 August 1980 and for the amount of Ninety Five Thousand
Pesos (P95,000.00). The proceeds of these checks were to constitute
the loan granted by Naguiat to Queao.3
To secure the loan, Queao executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered
to the latter the owners duplicates of the titles covering the
mortgaged properties.4 On the same day, the mortgage deed was
notarized, and Queao issued to Naguiat a promissory note for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with
interest at 12% per annum, payable on 11 September 1980.5 Queao
also issued a Security Bank and Trust Company check, postdated 11
September 1980, for the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12
September 1980, Queao requested Security Bank to stop payment
of her postdated check, but the bank rejected the request pursuant
to its policy not to honor such requests if the check is drawn against
insufficient funds.6
On 16 October 1980, Queao received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter,
Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.

At the meeting, Queao told Naguiat that she did not receive the
proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiats agent.7
Naguiat applied for the extrajudicial foreclosure of the mortgage
with the Sheriff of Rizal Province, who then scheduled the
foreclosure sale on 14 August 1981. Three days before the scheduled
sale, Queao filed the case before the Pasay City RTC,8 seeking the
annulment of the mortgage deed. The trial court eventually stopped
the auction sale.9
On 8 March 1991, the RTC rendered judgment, declaring the Deed of
Real Estate Mortgage null and void, and ordering Naguiat to return
to Queao the owners duplicates of her titles to the mortgaged
lots.10 Naguiat appealed the decision before the Court of Appeals,
making no less than eleven assignments of error. The Court of
Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of
Appeals, especially on the issue of whether Queao had actually
received the loan proceeds which were supposed to be covered by
the two checks Naguiat had issued or indorsed. Naguiat claims that
being a notarial instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are true. Naguiat
also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the nonbinding effect of the admissions of third persons.11
The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does
not exercise in an appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be raised12 as the
Supreme Court is not a trier of facts.13 The resolution of factual
issues is the function of lower courts, whose findings on these
matters are received with respect and are in fact generally binding
on the Supreme Court.14 A question of law which the Court may pass
upon must not involve an examination of the probative value of the
evidence presented by the litigants.15 There is a question of law in a
given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the

doubt or difference arises as to the truth or the falsehood of alleged

facts.16
Surely, there are established exceptions to the rule on the
conclusiveness of the findings of facts of the lower courts.17 But
Naguiats case does not fall under any of the exceptions. In any
event, both the decisions of the appellate and trial courts are
supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously
insists that Queao received the loan proceeds. Capitalizing on the
status of the mortgage deed as a public document, she cites the rule
that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is
correct in ruling that the presumption of truthfulness of the recitals
in a public document was defeated by the clear and convincing
evidence in this case that pointed to the absence of consideration.18
This Court has held that the presumption of truthfulness engendered
by notarized documents is rebuttable, yielding as it does to clear
and convincing evidence to the contrary, as in this case.19
On the other hand, absolutely no evidence was submitted by Naguiat
that the checks she issued or endorsed were actually encashed or
deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code provides that
the delivery of bills of exchange and mercantile documents such as
checks shall produce the effect of payment only when they have
been cashed.20 It is only after the checks have produced the effect
of payment that the contract of loan may be deemed perfected.
Art. 1934 of the Civil Code provides:
"An accepted promise to deliver something by way of commodatum
or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract."
A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract.21 In
this case, the objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed
or indorsed by Naguiat. If indeed the checks were encashed or

deposited, Naguiat would have certainly presented the

corresponding documentary evidence, such as the returned checks
and the pertinent bank records. Since Naguiat presented no such
proof, it follows that the checks were not encashed or credited to
Queaos account.1awphi1.nt
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they could
not bind her following the res inter alia acta alteri nocere non debet
rule. The Court of Appeals rejected the argument, holding that since
Ruebenfeldt was an authorized representative or agent of Naguiat
the situation falls under a recognized exception to the rule.22 Still,
Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship
between Naguiat and Ruebenfeldt is supported by ample evidence.
As correctly pointed out by the Court of Appeals, Ruebenfeldt was
not a stranger or an unauthorized person. Naguiat instructed
Ruebenfeldt to withhold from Queao the checks she issued or
indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaos friend, Marilou Farralese, and it was in
connection with that transaction that Queao came to know
Naguiat.23 It was also Ruebenfeldt who accompanied Queao in her
meeting with Naguiat and on that occasion, on her own and without
Queao asking for it, Reubenfeldt actually drew a check for the sum
of P220,000.00 payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.24
The Court of Appeals recognized the existence of an "agency by
estoppel25 citing Article 1873 of the Civil Code.26 Apparently, it
considered that at the very least, as a consequence of the
interaction between Naguiat and Ruebenfeldt, Queao got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat
did nothing to correct Queaos impression. In that situation, the
rule is clear. One who clothes another with apparent authority as his
agent, and holds him out to the public as such, cannot be permitted
to deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person in good
faith, and in the honest belief that he is what he appears to be.27

The Court of Appeals is correct in invoking the said rule on agency

by estoppel.1awphi1.nt
More fundamentally, whatever was the true relationship between
Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
checks issued or indorsed to Queao were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the
courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows
that the mortgage which is supposed to secure the loan is null and
void. The consideration of the mortgage contract is the same as that
of the principal contract from which it receives life, and without
which it cannot exist as an independent contract.28 A mortgage
contract being a mere accessory contract, its validity would depend
on the validity of the loan secured by it.29
WHEREFORE, the petition is denied and the assailed decision is
affirmed. Costs against petitioner.

G.R. No. 163553

December 11, 2009

YUN KWAN BYUNG, Petitioner,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent.

SO ORDERED.

DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review1 assailing
the Court of Appeals Decision2 dated 27 May 2003 in CA-G.R. CV No.
65699 as well as the Resolution3 dated 7 May 2004 denying the
Motion for Reconsideration. In the assailed decision, the Court of
Appeals (CA) affirmed the Regional Trial Courts Decision4 dated 6
May 1999. The Regional Trial Court of Manila, Branch 13 (trial
court), dismissed petitioners demand against respondent Philippine
Amusement and Gaming Corporation (PAGCOR) for the redemption
of gambling chips.
The Facts

PAGCOR is a government-owned and controlled corporation tasked

to establish and operate gambling clubs and casinos as a means to
promote tourism and generate sources of revenue for the
government. To achieve these objectives, PAGCOR is vested with
the power to enter into contracts of every kind and for any lawful
purpose that pertains to its business. Pursuant to this authority,
PAGCOR launched its Foreign Highroller Marketing Program
(Program). The Program aims to invite patrons from foreign
countries to play at the dollar pit of designated PAGCOR-operated
casinos under specified terms and conditions and in accordance with
industry practice.5
The Korean-based ABS Corporation was one of the international
groups that availed of the Program. In a letter-agreement dated 25
April 1996 (Junket Agreement), ABS Corporation agreed to bring in
foreign players to play at the five designated gaming tables of the
Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino
Filipino). The relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket
chips. The junket chips will be distinguished from the chips
being used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its
players and at the end of the playing period, ABS Corporation
will collect the junket chips from its players and make an
accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the
winnings of its foreign players and settle the collectibles
from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and
harmless from any damage, claim or liability which may arise
from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these
foreign players, PAGCOR is entitled to receive from ABS
Corporation a 12.5% share in the gross winnings of ABS
Corporation or 1.5 million US dollars, whichever is higher,

over a playing period of 6 months. PAGCOR has the option to

extend the period.6
Petitioner, a Korean national, alleges that from November 1996 to
March 1997, he came to the Philippines four times to play for high
stakes at the Casino Filipino.7 Petitioner claims that in the course of
the games, he was able to accumulate gambling chips worth US$2.1
million. Petitioner presented as evidence during the trial gambling
chips with a face value of US$1.1 million. Petitioner contends that
when he presented the gambling chips for encashment with
PAGCORs employees or agents, PAGCOR refused to redeem them.8
Petitioner brought an action against PAGCOR seeking the
redemption of gambling chips valued at US$2.1 million. Petitioner
claims that he won the gambling chips at the Casino Filipino, playing
continuously day and night. Petitioner alleges that every time he
would come to Manila, PAGCOR would extend to him amenities
deserving of a high roller. A PAGCOR official who meets him at the
airport would bring him to Casino Filipino, a casino managed and
operated by PAGCOR. The card dealers were all PAGCOR employees,
the gambling chips, equipment and furnitures belonged to PAGCOR,
and PAGCOR enforced all the regulations dealing with the operation
of foreign exchange gambling pits. Petitioner states that he was able
to redeem his gambling chips with the cashier during his first few
winning trips. But later on, the casino cashier refused to encash his
gambling chips so he had no recourse but to deposit his gambling
chips at the Grand Boulevard Hotels deposit box, every time he
departed from Manila.9
PAGCOR claims that petitioner, who was brought into the Philippines
by ABS Corporation, is a junket player who played in the dollar pit
exclusively leased by ABS Corporation for its junket players. PAGCOR
alleges that it provided ABS Corporation with distinct junket chips.
ABS Corporation distributed these chips to its junket players. At the
end of each playing period, the junket players would surrender the
chips to ABS Corporation. Only ABS Corporation would make an
accounting of these chips to PAGCORs casino treasury.10
As additional information for the junket players playing in the
gaming room leased to ABS Corporation, PAGCOR posted a notice
written in English and Korean languages which reads:

NOTICE
This GAMING ROOM is exclusively operated by ABS under
arrangement with PAGCOR, the former is solely accountable for all
PLAYING CHIPS wagered on the tables. Any financial
ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only
be binding upon said PLAYERS and ABS.11
PAGCOR claims that this notice is a standard precautionary
measure12 to avoid confusion between junket players of ABS
Corporation and PAGCORs players.
PAGCOR argues that petitioner is not a PAGCOR player because
under PAGCORs gaming rules, gambling chips cannot be brought
outside the casino. The gambling chips must be converted to cash at
the end of every gaming period as they are inventoried every shift.
Under PAGCORs rules, it is impossible for PAGCOR players to
accumulate two million dollars worth of gambling chips and to bring
the chips out of the casino premises.13
Since PAGCOR disclaimed liability for the winnings of players
recruited by ABS Corporation and refused to encash the gambling
chips, petitioner filed a complaint for a sum of money before the
trial court.14 PAGCOR filed a counterclaim against petitioner. Then,
trial ensued.
On 6 May 1999, the trial court dismissed the complaint and
counterclaim. Petitioner appealed the trial courts decision to the
CA. On 27 May 2003, the CA affirmed the appealed decision. On 27
June 2003, petitioner moved for reconsideration which was denied
on 7 May 2004.
Aggrieved by the CAs decision and resolution, petitioner elevated
the case before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCORs charter,15 PAGCOR has
no authority to lease any portion of the gambling tables to a private
party like ABS Corporation. Section 13 of Presidential Decree No.
1869 or the PAGCORs charter states:

Sec. 13. Exemptions xxx

(4) Utilization of Foreign Currencies The Corporation shall have the
right and authority, solely and exclusively in connection with the
operations of the casino(s), to purchase, receive, exchange and
disburse foreign exchange, subject to the following terms and
conditions:
(a) A specific area in the casino(s) or gaming pit shall be put
up solely and exclusively for players and patrons utilizing
foreign currencies;
(b) The Corporation shall appoint and designate a duly
accredited commercial bank agent of the Central Bank, to
handle, administer and manage the use of foreign currencies
in the casino(s);
(c) The Corporation shall provide an office at casino(s)
exclusively for the employees of the designated bank, agent
of the Central Bank, where the Corporation shall maintain a
dollar account which will be utilized exclusively for the
above purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of
identity (for Hong Kong patron only) duly issued by the
government or country of their residence will be allowed to
play in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the
Philippine International Reserve and the following foreign
exchange currencies: Australian Dollar, Singapore Dollar,
Hong Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and
recording of foreign exchange currencies used in the
casino(s) shall be carried out in accordance with existing
foreign exchange regulations, and periodical reports of the
transactions in such foreign exchange currencies by the

Corporation shall be duly recorded and reported to the

Central Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and
regulations for the guidance and information of players
qualified to participate in the foreign exchange gaming pit,
in order to make certain that the terms and conditions as
above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in
its gaming tables. When PAGCOR accepted only a fixed portion of
the dollar earnings of ABS Corporation in the concept of a lease of
facilities, PAGCOR shared its franchise with ABS Corporation in
violation of the PAGCORs charter. Hence, the Junket Agreement is
void. Since the Junket Agreement is not permitted by PAGCORs
charter, the mutual rights and obligations of the parties to this case
would be resolved based on agency and estoppel.16
The trial court found that the petitioner wanted to redeem gambling
chips that were specifically used by ABS Corporation at its gaming
tables. The gambling chips come in distinctive orange or yellow
colors with stickers bearing denominations of 10,000 or 1,000. The
1,000 gambling chips are smaller in size and the words "no cash
value" marked on them. The 10,000 gambling chips do not reflect
the "no cash value" sign. The senior treasury head of PAGCOR
testified that these were the gambling chips used by the previous
junket operators and PAGCOR merely continued using them.
However, the gambling chips used in the regular casino games were
of a different quality.17
The trial court pointed out that PAGCOR had taken steps to warn
players brought in by all junket operators, including ABS
Corporation, that they were playing under special rules. Apart from
the different kinds of gambling chips used, the junket players were
confined to certain gaming rooms. In these rooms, notices were
posted that gambling chips could only be encashed there and
nowhere else. A photograph of one such notice, printed in Korean
and English, stated that the gaming room was exclusively operated
by ABS Corporation and that ABS Corporation was solely accountable
for all the chips wagered on the gaming tables. Although petitioner
denied seeing this notice, this disclaimer has the effect of a

negative evidence that can hardly prevail against the positive

assertions of PAGCOR officials whose credibility is also not open to
doubt. The trial court concluded that petitioner had been alerted to
the existence of these special gambling rules, and the mere fact
that he continued to play under the same restrictions over a period
of several months confirms his acquiescence to them. Otherwise,
petitioner could have simply chose to stop gambling.18
In dismissing petitioners complaint, the trial court concluded that
petitioners demand against PAGCOR for the redemption of the
gambling chips could not stand. The trial court stated that
petitioner, a stranger to the agreement between PAGCOR and ABS
Corporation, could not under principles of equity be charged with
notice other than of the apparent authority with which PAGCOR had
clothed its employees and agents in dealing with petitioner. Since
petitioner was made aware of the special rules by which he was
playing at the Casino Filipino, petitioner could not now claim that
he was not bound by them. The trial court explained that in an
unlawful transaction, the courts will extend equitable relief only to
a party who was unaware of all its dimensions and whose ignorance
of them exposed him to the risk of being exploited by the other.
Where the parties enter into such a relationship with the
opportunity to know all of its ramifications, as in this case, there is
no room for equitable considerations to come to the rescue of any
party. The trial court ruled that it would leave the parties where
they are.19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four
errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of ABS
Corporation. Petitioner also denies seeing a notice that certain
gaming rooms were exclusively operated by entities under special
agreement.20
The CA ruled that the records do not support petitioners theory.
Petitioners own testimony reveals that he enjoyed special
accommodations at the Grand Boulevard Hotel. This similar
accommodation was extended to players brought in by ABS

Corporation and other junket operators. Petitioner cannot

disassociate himself from ABS Corporation for it is unlikely that an
unknown high roller would be accorded choice accommodations by
the hotel unless the accommodation was facilitated by a junket
operator who enjoyed such privilege.21
The CA added that the testimonies of PAGCORs employees affirming
that notices were posted in English and Korean in the gaming areas
are credible in the absence of any convincing proof of ill motive.
Further, the specified gaming areas used only special chips that
could be bought and exchanged at certain cashier booths in that
area.22
Second, petitioner attacks the validity of the contents of the notice.
Since the Junket Agreement is void, the notice, which was issued
pursuant to the Junket Agreement, is also void and cannot affect
petitioner.23
The CA reasoned that the trial court never declared the notice valid
and neither did it enforce the contents thereof. The CA emphasized
that it was the act of cautioning and alerting the players that was
upheld. The trial court ruled that signs and warnings were in place
to inform the public, petitioner included, that special rules applied
to certain gaming areas even if the very agreement giving rise to
these rules is void.24
Third, petitioner takes the position that an implied agency existed
between PAGCOR and ABS Corporation.25
The CA disagreed with petitioners view. A void contract has no
force and effect from the very beginning. It produces no effect
either against or in favor of anyone. Neither can it create, modify or
extinguish the juridical relation to which it refers. Necessarily, the
Junket Agreement, being void from the beginning, cannot give rise
to an implied agency. The CA explained that it cannot see how the
principle of implied agency can be applied to this case. Article
188326 of the Civil Code applies only to a situation where the agent
is authorized by the principal to enter into a particular transaction,
but instead of contracting on behalf of the principal, the agent acts
in his own name.27

The CA concluded that no such legal fiction existed between

PAGCOR and ABS Corporation. PAGCOR entered into a Junket
Agreement to lease to ABS Corporation certain gaming areas. It was
never PAGCORs intention to deal with the junket players. Neither
did PAGCOR intend ABS Corporation to represent PAGCOR in dealing
with the junket players. Representation is the basis of agency but
unfortunately for petitioner none is found in this case.28
The CA added that the special gaming chips, while belonging to
PAGCOR, are mere accessories in the void Junket Agreement with
ABS Corporation. In Article 1883, the phrase "things belonging to the
principal" refers only to those things or properties subject of a
particular transaction authorized by the principal to be entered into
by its purported agent. Necessarily, the gambling chips being mere
incidents to the void lease agreement cannot fall under this
category.29
The CA ruled that Article 215230 of the Civil Code is also not
applicable. The circumstances relating to negotiorum gestio are
non-existent to warrant an officious manager to take over the
management and administration of PAGCOR.31
Fourth, petitioner asks for equitable relief.32
The CA explained that although petitioner was never a party to the
void Junket Agreement, petitioner cannot deny or feign blindness to
the signs and warnings all around him. The notices, the special
gambling chips, and the separate gaming areas were more than
enough to alert him that he was playing under different terms.
Petitioner persisted and continued to play in the casino. Petitioner
also enjoyed the perks extended to junket players of ABS
Corporation. For failing to heed these signs and warnings, petitioner
can no longer be permitted to claim equitable relief. When parties
do not come to court with clean hands, they cannot be allowed to
profit from their own wrong doing.33
The Issues
Petitioners raise three issues in this petition:

1. Whether the CA erred in holding that PAGCOR is not liable

to petitioner, disregarding the doctrine of implied agency, or
agency by estoppel;
2. Whether the CA erred in using intent of the contracting
parties as the test for creation of agency, when such is not
relevant since the instant case involves liability of the
presumed principal in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR
ratified, or at least adopted, the acts of the agent, ABS
Corporation.34
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as specifically
provided in Articles 195 to 199 of the Revised Penal Code, as
amended. Gambling is an act beyond the pale of good morals,35 and
is thus prohibited and punished to repress an evil that undermines
the social, moral, and economic growth of the nation.36 Presidential
Decree No. 1602 (PD 1602),37 which modified Articles 195-199 of the
Revised Penal Code and repealed inconsistent provisions,38
prescribed stiffer penalties on illegal gambling.39
As a rule, all forms of gambling are illegal. The only form of
gambling allowed by law is that stipulated under Presidential Decree
No. 1869, which gave PAGCOR its franchise to maintain and operate
gambling casinos. The issue then turns on whether PAGCOR can
validly share its franchise with junket operators to operate gambling
casinos in the country. Section 3(h) of PAGCORs charter states:
Section 3. Corporate Powers. - The Corporation shall have the
following powers and functions, among others:
xxx

h) to enter into, make, perform, and carry out contracts of every

kind and for any lawful purpose pertaining to the business of the
Corporation, or in any manner incident thereto, as principal, agent
or otherwise, with any person, firm, association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of
PAGCORs charter, PAGCOR could share its gambling franchise with
another entity. In Senator Jaworski v. Phil. Amusement and Gaming
Corp.,40 the Court discussed the extent of the grant of the legislative
franchise to PAGCOR on its authority to operate gambling casinos:
A legislative franchise is a special privilege granted by the state to
corporations. It is a privilege of public concern which cannot be
exercised at will and pleasure, but should be reserved for public
control and administration, either by the government directly, or by
public agents, under such conditions and regulations as the
government may impose on them in the interest of the public. It is
Congress that prescribes the conditions on which the grant of the
franchise may be made. Thus the manner of granting the franchise,
to whom it may be granted, the mode of conducting the business,
the charter and the quality of the service to be rendered and the
duty of the grantee to the public in exercising the franchise are
almost always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and
the contending positions of the parties, we hold that PAGCOR has
acted beyond the limits of its authority when it passed on or shared
its franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR
entered into a joint venture agreement with two other entities in
the operation and management of jai alai games, the Court, in an En
Banc Resolution dated 24 August 2001, partially granted the motions
for clarification filed by respondents therein insofar as it prayed
that PAGCOR has a valid franchise, but only by itself (i.e. not in
association with any other person or entity), to operate, maintain
and/or manage the game of jai-alai.

In the case at bar, PAGCOR executed an agreement with SAGE

whereby the former grants the latter the authority to operate and
maintain sports betting stations and Internet gaming operations. In
essence, the grant of authority gives SAGE the privilege to actively
participate, partake and share PAGCORs franchise to operate a
gambling activity. The grant of franchise is a special privilege that
constitutes a right and a duty to be performed by the grantee. The
grantee must not perform its activities arbitrarily and whimsically
but must abide by the limits set by its franchise and strictly adhere
to its terms and conditionalities. A corporation as a creature of the
State is presumed to exist for the common good. Hence, the special
privileges and franchises it receives are subject to the laws of the
State and the limitations of its charter. There is therefore a
reserved right of the State to inquire how these privileges had been
employed, and whether they have been abused. (Emphasis supplied)
Thus, PAGCOR has the sole and exclusive authority to operate a
gambling activity. While PAGCOR is allowed under its charter to
enter into operators or management contracts, PAGCOR is not
allowed under the same charter to relinquish or share its franchise.
PAGCOR cannot delegate its power in view of the legal principle of
delegata potestas delegare non potest, inasmuch as there is nothing
in the charter to show that it has been expressly authorized to do
so.41
Similarly, in this case, PAGCOR, by taking only a percentage of the
earnings of ABS Corporation from its foreign currency collection,
allowed ABS Corporation to operate gaming tables in the dollar pit.
The Junket Agreement is in direct violation of PAGCORs charter and
is therefore void.
Since the Junket Agreement violates PAGCORs charter, gambling
between the junket player and the junket operator under such
agreement is illegal and may not be enforced by the courts. Article
201442 of the Civil Code, which refers to illegal gambling, states that
no action can be maintained by the winner for the collection of
what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it necessary
to discuss the applicability of Republic Act No. 948743 (RA 9487) to
the present case.

RA 9487 amended the PAGCOR charter, granting PAGCOR the power

to enter into special agreement with third parties to share the
privileges under its franchise for the operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation
(PAGCOR) franchise granted under Presidential Decree No. 1869
otherwise known as the PAGCOR Charter, is hereby further amended
to read as follows:
xxx
(2) Section 3(h) is hereby amended to read as follows:
"SEC. 3. Corporate Powers. "x x x
"(h) to enter into, make, conclude, perform, and carry out contracts
of every kind and nature and for any lawful purpose which are
necessary, appropriate, proper or incidental to any business or
purpose of the PAGCOR, including but not limited to investment
agreements, joint venture agreements, management agreements,
agency agreements, whether as principal or as an agent, manpower
supply agreements, or any other similar agreements or arrangements
with any person, firm, association or corporation." (Boldfacing
supplied)
PAGCOR sought the amendment of its charter precisely to address
and remedy the legal impediment raised in Senator Jaworski v. Phil.
Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the
present case. The Junket Agreement was entered into between
PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR
charter then prevailing (PD 1869) prohibited PAGCOR from entering
into any arrangement with a third party that would allow such party
to actively participate in the casino operations.
It is a basic principle that laws should only be applied prospectively
unless the legislative intent to give them retroactive effect is
expressly declared or is necessarily implied from the language

used.44 RA 9487 does not provide for any retroactivity of its

provisions. All laws operate prospectively absent a clear contrary
language in the text,45 and that in every case of doubt, the doubt
will be resolved against the retroactive operation of laws.46
Thus, petitioner cannot avail of the provisions of RA 9487 as this was
not the law when the acts giving rise to the claimed liabilities took
place. This makes the gambling activity participated in by petitioner
illegal. Petitioner cannot sue PAGCOR to redeem the cash value of
the gambling chips or recover damages arising from an illegal
activity for two reasons. First, petitioner engaged in gambling with
ABS Corporation and not with PAGCOR. Second, the court cannot
assist petitioner in enforcing an illegal act. Moreover, for a court to
grant petitioners prayer would mean enforcing the Junket
Agreement, which is void.
Now, to address the issues raised by petitioner in his petition,
petitioner claims that he is a third party proceeding against the
liability of a presumed principal and claims relief, alternatively, on
the basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is derived
from the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority. Implied agency, being an
actual agency, is a fact to be proved by deductions or inferences
from other facts.47
On the other hand, apparent authority is based on estoppel and can
arise from two instances. First, the principal may knowingly permit
the agent to hold himself out as having such authority, and the
principal becomes estopped to claim that the agent does not have
such authority. Second, the principal may clothe the agent with the
indicia of authority as to lead a reasonably prudent person to
believe that the agent actually has such authority.48 In an agency by
estoppel, there is no agency at all, but the one assuming to act as
agent has apparent or ostensible, although not real, authority to
represent another.49
The law makes no presumption of agency and proving its existence,
nature and extent is incumbent upon the person alleging it.50

Whether or not an agency has been created is a question to be

determined by the fact that one represents and is acting for
another. 51
Acts and conduct of PAGCOR negates the existence of an implied
agency or an agency by estoppel
Petitioner alleges that there is an implied agency. Alternatively,
petitioner claims that even assuming that no actual agency existed
between PAGCOR and ABS Corporation, there is still an agency by
estoppel based on the acts and conduct of PAGCOR showing
apparent authority in favor of ABS Corporation. Petitioner states
that one factor which distinguishes agency from other legal precepts
is control and the following undisputed facts show a relationship of
implied agency:
1. Three floors of the Grand Boulevard Hotel52 were leased to
PAGCOR for conducting gambling operations;53
2. Of the three floors, PAGCOR allowed ABS Corporation to
use one whole floor for foreign exchange gambling,
conducted by PAGCOR dealers using PAGCOR facilities,
operated by PAGCOR employees and using PAGCOR chips
bearing the PAGCOR logo;54
3. PAGCOR controlled the release, withdrawal and return of
all the gambling chips given to ABS Corporation in that part
of the casino and at the end of the day, PAGCOR conducted
an inventory of the gambling chips;55
4. ABS Corporation accounted for all gambling chips with the
Commission on Audit (COA), the official auditor of PAGCOR;56
5. PAGCOR enforced, through its own manager, all the rules
and regulations on the operation of the gambling pit used by
ABS Corporation.57
Petitioners argument is clearly misplaced. The basis for agency is
representation,58 that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts
have the same legal effect as if they were personally executed by

the principal.59 On the part of the principal, there must be an actual

intention to appoint or an intention naturally inferable from his
words or actions, while on the part of the agent, there must be an
intention to accept the appointment and act on it.60 Absent such
mutual intent, there is generally no agency.61
There is no implied agency in this case because PAGCOR did not hold
out to the public as the principal of ABS Corporation. PAGCORs
actions did not mislead the public into believing that an agency can
be implied from the arrangement with the junket operators, nor did
it hold out ABS Corporation with any apparent authority to represent
it in any capacity. The Junket Agreement was merely a contract of
lease of facilities and services.
The players brought in by ABS Corporation were covered by a
different set of rules in acquiring and encashing chips. The players
used a different kind of chip than what was used in the regular
gaming areas of PAGCOR, and that such junket players played
specifically only in the third floor area and did not mingle with the
regular patrons of PAGCOR. Furthermore, PAGCOR, in posting
notices stating that the players are playing under special rules,
exercised the necessary precaution to warn the gaming public that
no agency relationship exists.1avvphi1

In the entire duration that petitioner played in Casino Filipino, he

was dealing only with ABS Corporation, and availing of the privileges
extended only to players brought in by ABS Corporation. The facts
that he enjoyed special treatment upon his arrival in Manila and
special accommodations in Grand Boulevard Hotel, and that he was
playing in special gaming rooms are all indications that petitioner
cannot claim good faith that he believed he was dealing with
PAGCOR. Petitioner cannot be considered as an innocent third party
and he cannot claim entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR
ratified the acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket
Agreement is void. A void or inexistent contract is one which has no
force and effect from the very beginning. Hence, it is as if it has
never been entered into and cannot be validated either by the
passage of time or by ratification.64 Article 1409 of the Civil Code
provides that contracts expressly prohibited or declared void by law,
such as gambling contracts, "cannot be ratified."65
WHEREFORE, we DENY the petition. We AFFIRM the Court of
Appeals Decision dated 27 May 2003 as well as the Resolution dated
7 May 2004 as modified by this Decision.

For the second assigned error, petitioner claims that the intention of
the parties cannot apply to him as he is not a party to the contract.
We disagree. The Court of Appeals correctly used the intent of the
contracting parties in determining whether an agency by estoppel
existed in this case. An agency by estoppel, which is similar to the
doctrine of apparent authority requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.62
There can be no apparent authority of an agent without acts or
conduct on the part of the principal and such acts or conduct of the
principal must have been known and relied upon in good faith and as
a result of the exercise of reasonable prudence by a third person as
claimant, and such must have produced a change of position to its
detriment.63 Such proof is lacking in this case.

G.R. No. 160346

August 25, 2009

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA

(represented by Mother and Attorney-in-Fact VIRGINIA CASTILLA),
Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA
OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN
AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA
SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN
AGUSTIN, ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO
SAN AGUSTIN, Respondents.
DECISION

NACHURA, J.:
For our resolution is a petition for review on certiorari assailing the
April 23, 2003 Decision1 and October 8, 2003 Resolution2 of the Court
of Appeals (CA) in CA-G.R. CV No. 59426. The appellate court, in the
said decision and resolution, reversed and set aside the January 14,
1998 Decision3 of the Regional Trial Court (RTC), which ruled in
favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona Genil
were able to acquire a 246-square meter parcel of land situated in
Barangay Anos, Los Baos, Laguna and covered by Original
Certificate of Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on
September 13, 1990 while Pedro San Agustin died on September 14,
1991. Both died intestate, survived by their eight (8) children:
respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva,
Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of
Absolute Sale of Undivided Shares5 conveying in favor of petitioners
(the Pahuds, for brevity) their respective shares from the lot they
inherited from their deceased parents for P525,000.00.6 Eufemia
also signed the deed on behalf of her four (4) other co-heirs,
namely: Isabelita on the basis of a special power of attorney
executed on September 28, 1991,7 and also for Milagros, Minerva,
and Zenaida but without their apparent written authority.8 The deed
of sale was also not notarized.9
On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos Rural
Bank where the subject property was mortgaged.10 The bank issued
a release of mortgage and turned over the owners copy of the OCT
to the Pahuds.11 Over the following months, the Pahuds made more
payments to Eufemia and her siblings totaling to P350,000.00.12 They
agreed to use the remaining P87,500.0013 to defray the payment for
taxes and the expenses in transferring the title of the property.14
When Eufemia and her co-heirs drafted an extra-judicial settlement
of estate to facilitate the transfer of the title to the Pahuds, Virgilio
refused to sign it.15

On July 8, 1993, Virgilios co-heirs filed a complaint16 for judicial

partition of the subject property before the RTC of Calamba,
Laguna. On November 28, 1994, in the course of the proceedings for
judicial partition, a Compromise Agreement17 was signed with seven
(7) of the co-heirs agreeing to sell their undivided shares to Virgilio
for P700,000.00. The compromise agreement was, however, not
approved by the trial court because Atty. Dimetrio Hilbero, lawyer
for Eufemia and her six (6) co-heirs, refused to sign the agreement
because he knew of the previous sale made to the
Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged having received
P700,000.00 from Virgilio.19 Virgilio then sold the entire property to
spouses Isagani Belarmino and Leticia Ocampo (Belarminos)
sometime in 1994. The Belarminos immediately constructed a
building on the subject property.
Alarmed and bewildered by the ongoing construction on the lot they
purchased, the Pahuds immediately confronted Eufemia who
confirmed to them that Virgilio had sold the property to the
Belarminos.20 Aggrieved, the Pahuds filed a complaint in
intervention21 in the pending case for judicial partition.1avvphil
After trial, the RTC upheld the validity of the sale to petitioners.
The dispositive portion of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT
No. O (1655) O-15 by the plaintiffs as heirs of deceased Sps.
Pedro San Agustin and Agatona Genil in favor of the
Intervenors-Third Party plaintiffs as valid and enforceable,
but obligating the Intervenors-Third Party plaintiffs to
complete the payment of the purchase price of P437,500.00
by paying the balance of P87,500.00 to defendant Fe (sic)
San Agustin Magsino. Upon receipt of the balance, the
plaintiff shall formalize the sale of the 7/8 portion in favor of
the Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled "Salaysay sa Pagsang-ayon
sa Bilihan" (Exh. "2-a") signed by plaintiff Eufemia San Agustin

attached to the unapproved Compromise Agreement (Exh.

"2") as not a valid sale in favor of defendant Virgilio San
Agustin;
3. declaring the sale (Exh. "4") made by defendant Virgilio
San Agustin of the property covered by OCT No. O (1655)-O15 registered in the names of Spouses Pedro San Agustin and
Agatona Genil in favor of Third-party defendant Spouses
Isagani and Leticia Belarmino as not a valid sale and as
inexistent;
4. declaring the defendant Virgilio San Agustin and the ThirdParty defendants spouses Isagani and Leticia Belarmino as in
bad faith in buying the portion of the property already sold
by the plaintiffs in favor of the Intervenors-Third Party
Plaintiffs and the Third-Party Defendant Sps. Isagani and
Leticia Belarmino in constructing the two-[storey] building in
(sic) the property subject of this case; and
5. declaring the parties as not entitled to any damages, with
the parties shouldering their respective responsibilities
regarding the payment of attorney[]s fees to their
respective lawyers.
No pronouncement as to costs.
SO ORDERED.22
Not satisfied, respondents appealed the decision to the CA arguing,
in the main, that the sale made by Eufemia for and on behalf of her
other co-heirs to the Pahuds should have been declared void and
inexistent for want of a written authority from her co-heirs. The CA
yielded and set aside the findings of the trial court. In disposing the
issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January
14, 1998, rendered by the Regional Trial Court of Calamba, Laguna,
Branch 92 in Civil Case No. 2011-93-C for Judicial Partition is hereby
REVERSED and SET ASIDE, and a new one entered, as follows:

(1) The case for partition among the plaintiffs-appellees and

appellant Virgilio is now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to intervenorsappellees the total amount they received from the latter,
plus an interest of 12% per annum from the time the
complaint [in] intervention was filed on April 12, 1995 until
actual payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to
appellants spouses, Isagani and Leticia Belarmino[,] as valid
and binding;
(4) Declaring appellants-spouses as buyers in good faith and
for value and are the owners of the subject property.
No pronouncement as to costs.
SO ORDERED.23
Petitioners now come to this Court raising the following arguments:
I. The Court of Appeals committed grave and reversible error
when it did not apply the second paragraph of Article 1317 of
the New Civil Code insofar as ratification is concerned to the
sale of the 4/8 portion of the subject property executed by
respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and reversible error
in holding that respondents spouses Belarminos are in good
faith when they bought the subject property from respondent
Virgilio San Agustin despite the findings of fact by the court a
quo that they were in bad faith which clearly contravenes
the presence of long line of case laws upholding the task of
giving utmost weight and value to the factual findings of the
trial court during appeals; [and]
III. The Court of Appeals committed grave and reversible
error in holding that respondents spouses Belarminos have
superior rights over the property in question than petitioners
despite the fact that the latter were prior in possession

thereby misapplying the provisions of Article 1544 of the New

Civil Code.24
The focal issue to be resolved is the status of the sale of the subject
property by Eufemia and her co-heirs to the Pahuds. We find the
transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Also, under Article 1878,25 a special power of attorney is necessary
for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously
or for a valuable consideration. Such stringent statutory
requirement has been explained in Cosmic Lumber Corporation v.
Court of Appeals:26
[T]he authority of an agent to execute a contract [of] sale of real
estate must be conferred in writing and must give him specific
authority, either to conduct the general business of the principal or
to execute a binding contract containing terms and conditions which
are in the contract he did execute. A special power of attorney is
necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general terms to sell
must be one that expressly mentions a sale or that includes a sale as
a necessary ingredient of the act mentioned. For the principal to
confer the right upon an agent to sell real estate, a power of
attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be
given the document.27
In several cases, we have repeatedly held that the absence of a
written authority to sell a piece of land is, ipso jure, void,28
precisely to protect the interest of an unsuspecting owner from
being prejudiced by the unwarranted act of another.

Based on the foregoing, it is not difficult to conclude, in principle,

that the sale made by Eufemia, Isabelita and her two brothers to the
Pahuds sometime in 1992 should be valid only with respect to the
4/8 portion of the subject property. The sale with respect to the
3/8 portion, representing the shares of Zenaida, Milagros, and
Minerva, is void because Eufemia could not dispose of the interest of
her co-heirs in the said lot absent any written authority from the
latter, as explicitly required by law. This was, in fact, the ruling of
the CA.
Still, in their petition, the Pahuds argue that the sale with respect
to the 3/8 portion of the land should have been deemed ratified
when the three co-heirs, namely: Milagros, Minerva, and Zenaida,
executed their respective special power of attorneys29 authorizing
Eufemia to represent them in the sale of their shares in the subject
property.30
While the sale with respect to the 3/8 portion is void by express
provision of law and not susceptible to ratification,31 we
nevertheless uphold its validity on the basis of the common law
principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed
with the requisite special power of attorney to dispose of the 3/8
portion of the property. Initially, in their answer to the complaint in
intervention,32 Eufemia and her other co-heirs denied having sold
their shares to the Pahuds. During the pre-trial conference,
however, they admitted that they had indeed sold 7/8 of the
property to the Pahuds sometime in 1992.33 Thus, the previous
denial was superseded, if not accordingly amended, by their
subsequent admission.34 Moreover, in their Comment,35 the said coheirs again admitted the sale made to petitioners.36
Interestingly, in no instance did the three (3) heirs concerned assail
the validity of the transaction made by Eufemia to the Pahuds on

the basis of want of written authority to sell. They could have easily
filed a case for annulment of the sale of their respective shares
against Eufemia and the Pahuds. Instead, they opted to remain
silent and left the task of raising the validity of the sale as an issue
to their co-heir, Virgilio, who is not privy to the said transaction.
They cannot be allowed to rely on Eufemia, their attorney-in-fact,
to impugn the validity of the first transaction because to allow them
to do so would be tantamount to giving premium to their sisters
dishonest and fraudulent deed. Undeniably, therefore, the silence
and passivity of the three co-heirs on the issue bar them from
making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to
liability for loss caused to another by the latters reliance upon a
deceitful representation by an agent in the course of his
employment (1) if the representation is authorized; (2) if it is within
the implied authority of the agent to make for the principal; or (3) if
it is apparently authorized, regardless of whether the agent was
authorized by him or not to make the representation.37
By their continued silence, Zenaida, Milagros and Minerva have
caused the Pahuds to believe that they have indeed clothed Eufemia
with the authority to transact on their behalf. Clearly, the three coheirs are now estopped from impugning the validity of the sale from
assailing the authority of Eufemia to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to
Virgilio was void because they no longer had any interest over the
subject property which they could alienate at the time of the
second transaction.38 Nemo dat quod non habet. Virgilio, however,
could still alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased
the property from Virgilio in good faith. As a general rule, a
purchaser of a real property is not required to make any further
inquiry beyond what the certificate of title indicates on its face.39
But the rule excludes those who purchase with knowledge of the
defect in the title of the vendor or of facts sufficient to induce a
reasonable and prudent person to inquire into the status of the
property.40 Such purchaser cannot close his eyes to facts which
should put a reasonable man on guard, and later claim that he acted

in good faith on the belief that there was no defect in the title of
the vendor. His mere refusal to believe that such defect exists, or
his obvious neglect by closing his eyes to the possibility of the
existence of a defect in the vendors title, will not make him an
innocent purchaser for value, if afterwards it turns out that the title
was, in fact, defective. In such a case, he is deemed to have bought
the property at his own risk, and any injury or prejudice occasioned
by such transaction must be borne by him.41
In the case at bar, the Belarminos were fully aware that the
property was registered not in the name of the immediate
transferor, Virgilio, but remained in the name of Pedro San Agustin
and Agatona Genil.42 This fact alone is sufficient impetus to make
further inquiry and, thus, negate their claim that they are
purchasers for value in good faith.43 They knew that the property
was still subject of partition proceedings before the trial court, and
that the compromise agreement signed by the heirs was not
approved by the RTC following the opposition of the counsel for
Eufemia and her six other co-heirs.44 The Belarminos, being
transferees pendente lite, are deemed buyers in mala fide, and they
stand exactly in the shoes of the transferor and are bound by any
judgment or decree which may be rendered for or against the
transferor.45 Furthermore, had they verified the status of the
property by asking the neighboring residents, they would have been
able to talk to the Pahuds who occupy an adjoining business
establishment46 and would have known that a portion of the
property had already been sold. All these existing and readily
verifiable facts are sufficient to suggest that the Belarminos knew
that they were buying the property at their own risk.
WHEREFORE, premises considered, the April 23, 2003 Decision of the
Court of Appeals as well as its October 8, 2003 Resolution in CA-G.R.
CV No. 59426, are REVERSED and SET ASIDE. Accordingly, the
January 14, 1998 Decision of Branch 92 of the Regional Trial Court of
Calamba, Laguna is REINSTATED with the MODIFICATION that the
sale made by respondent Virgilio San Agustin to respondent spouses
Isagani Belarmino and Leticia Ocampo is valid only with respect to
the 1/8 portion of the subject property. The trial court is ordered to
proceed with the partition of the property with dispatch.
SO ORDERED.

refundable within two weeks should AF Realty disapprove Ranullo's

action on the matter.
G.R. No. 111448

January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO,

petitioners,
vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and
MIDAS DEVELOPMENT CORPORATION, respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the Decision dated
December 10, 1992 and the Resolution (Amending Decision) dated
August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic
corporation and a registered owner of a parcel of commercial lot
consisting of 2,094 square meters, located at 104 E. Rodriguez
Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is
covered by Transfer Certificate of Title No. 39849 issued by the
Registry of Deeds of the Province of Rizal.1
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of
directors of Dieselman, issued a letter denominated as "Authority To
Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of the
CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for
a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per
square meter, or a total of P6,282,000.00. Cruz, Jr. has no written
authority from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter3 dated May 19, 1988,
authorized Felicisima ("Mimi") Noble4 to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty &
Development, Inc. (AF Realty) at P2,500.00 per square meter.5
Zenaida Ranullo, board member and vice-president of AF Realty,
accepted the offer and issued a check in the amount of P300,000.00
payable to the order of Dieselman. Polintan received the check and
signed an "Acknowledgement Receipt"6 indicating that the amount of
P300,000.00 represents the partial payment of the property but

On June 29, 1988, AF Realty confirmed its intention to buy the lot.
Hence, Ranullo asked Polintan for the board resolution of Dieselman
authorizing the sale of the property. However, Polintan could only
give Ranullo the original copy of TCT No. 39849, the tax declaration
and tax receipt for the lot, and a photocopy of the Articles of
Incorporation of Dieselman.7
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman,
acknowledged receipt of the said P300,000.00 as "earnest money"
but required AF Realty to finalize the sale at P4,000.00 per square
meter.8 AF Realty replied that it has paid an initial down payment of
P300,000.00 and is willing to pay the balance.9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and
demanded from AF Realty the return of the title of the lot earlier
delivered by Polintan.10
Claiming that there was a perfected contract of sale between them,
AF Realty filed with the Regional Trial Court, Branch 160, Pasig City
a complaint for specific performance (Civil Case No. 56278) against
Dieselman and Cruz, Jr.. The complaint prays that Dieselman be
ordered to execute and deliver a final deed of sale in favor of AF
Realty.11 In its amended complaint,12 AF Realty asked for payment of
P1,500,000.00 as compensatory damages; P400,000.00 as attorney's
fees; and P500,000.00 as exemplary damages.
In its answer, Dieselman alleged that there was no meeting of the
minds between the parties in the sale of the property and that it did
not authorize any person to enter into such transaction on its
behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development
Corporation (Midas) executed a Deed of Absolute Sale13 of the same
property. The agreed price was P2,800.00 per square meter. Midas
delivered to Dieselman P500,000.00 as down payment and deposited
the balance of P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on

April 3, 1989 a Motion for Leave to Intervene in Civil Case No. 56278.
Midas alleged that it has purchased the property and took possession
thereof, hence Dieselman cannot be compelled to sell and convey it
to AF Realty. The trial court granted Midas' motion.
After trial, the lower court rendered the challenged Decision holding
that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to
AF Realty.14 Consequently, the perfected contract of sale between
Dieselman and AF Realty bars Midas' intervention. The trial court
also held that Midas acted in bad faith when it initially paid
Dieselman P500,000.00 even without seeing the latter's title to the
property. Moreover, the notarial report of the sale was not
submitted to the Clerk of Court of the Quezon City RTC and the
balance of P5,300,000.00 purportedly deposited in escrow by Midas
with a bank was not established.1wphi1.nt
The dispositive portion of the trial court's Decision reads:
"WHEREFORE, foregoing considered, judgment is hereby
rendered ordering defendant to execute and deliver to
plaintiffs the final deed of sale of the property covered by
the Transfer Certificate of Title No. 39849 of the Registry of
Deed of Rizal, Metro Manila District II, including the
improvements thereon, and ordering defendants to pay
plaintiffs attorney's fees in the amount of P50,000.00 and to
pay the costs.

Upon the other hand, Dieselman and Midas claimed that the trial
court erred in finding that a contract of sale between Dieselman and
AF Realty was perfected. Midas further averred that there was no
bad faith on its part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals
reversed the judgment of the trial court holding that since Cruz, Jr.
was not authorized in writing by Dieselman to sell the subject
property to AF Realty, the sale was not perfected; and that the
Deed of Absolute Sale between Dieselman and Midas is valid, there
being no bad faith on the part of the latter. The Court of Appeals
then declared Dieselman and Cruz, Jr. jointly and severally liable to
AF Realty for P100,000.00 as moral damages; P100,000.00 as
exemplary damages; and P100,000.00 as attorney's fees.16
On August 5, 1993, the Court of Appeals, upon motions for
reconsideration filed by the parties, promulgated an Amending
Decision, the dispositive portion of which reads:
"WHEREFORE, The Decision promulgated on October 10,
1992, is hereby AMENDED in the sense that only defendant
Mr. Manuel Cruz, Jr. should be made liable to pay the
plaintiffs the damages and attorney's fees awarded therein,
plus the amount of P300,000.00 unless, in the case of the
said P300,000.00, the same is still deposited with the Court
which should be restituted to plaintiffs.
"SO ORDERED."17

"The counterclaim of defendants is necessarily dismissed.

"The counterclaim and/or the complaint in intervention are
likewise dismissed
"SO ORDERED."15

AF Realty now comes to this Court via the instant petition alleging
that the Court of Appeals committed errors of law.
The focal issue for consideration by this Court is who between
petitioner AF Realty and respondent Midas has a right over the
subject lot.

Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman
liable for moral, compensatory and exemplary damages, and in
dismissing its counterclaim against Midas.

The Court of Appeals, in reversing the judgment of the trial court,

made the following ratiocination:
"From the foregoing scenario, the fact that the board of
directors of Dieselman never authorized, verbally and in

writing, Cruz, Jr. to sell the property in question or to look

for buyers and negotiate the sale of the subject property is
undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr.
to look for buyers and negotiate the sale of the subject
property, it should be noted that Cruz, Jr. could not confer
on Polintan any authority which he himself did not have.
Nemo dat quod non habet. In the same manner, Felicisima
Noble could not have possessed authority broader in scope,
being a mere extension of Polintan's purported authority, for
it is a legal truism in our jurisdiction that a spring cannot rise
higher than its source. Succinctly stated, the alleged sale of
the subject property was effected through persons who were
absolutely without any authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by
accepting the P300,000.00 as partial payment of the
purchase price of the subject property is equally untenable.
The sale of land through an agent without any written
authority is void.
xxx

xxx

xxx

"On the contrary, anent the sale of the subject property by

Dieselman to intervenor Midas, the records bear out that
Midas purchased the same from Dieselman on 30 July 1988.
The notice of lis pendens was subsequently annotated on the
title of the property by plaintiffs on 15 August 1988.
However, this subsequent annotation of the notice of lis
pendens certainly operated prospectively and did not
retroact to make the previous sale of the property to Midas a
conveyance in bad faith. A subsequently registered notice of
lis pendens surely is not proof of bad faith. It must therefore
be borne in mind that the 30 July 1988 deed of sale between
Midas and Dieselman is a document duly certified by notary
public under his hand and seal. x x x. Such a deed of sale
being public document acknowledged before a notary public
is admissible as to the date and fact of its execution without
further proof of its due execution and delivery (Bael vs.
Intermediate Appellate Court, 169 SCRA617; Joson vs.

Baltazar, 194 SCRA 114) and to prove the defects and lack of
consent in the execution thereof, the evidence must be
strong and not merely preponderant x x x."18
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board
of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual
officers or agents appointed by it.19 Thus, contracts or acts of a
corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board.20 Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized
duties of such director, are held not binding on the corporation.21
In the instant case, it is undisputed that respondent Cruz, Jr. has no
written authority from the board of directors of respondent
Dieselman to sell or to negotiate the sale of the lot, much less to
appoint other persons for the same purpose. Respondent Cruz, Jr.'s
lack of such authority precludes him from conferring any authority
to Polintan involving the subject realty. Necessarily, neither could
Polintan authorize Felicisima Noble. Clearly, the collective acts of
respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in
the purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an
unauthorized agent may be ratified where, as here, there is
acceptance of the benefits involved. In this case the receipt by
respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial
payment of the lot effectively binds respondent Dieselman.22
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the
law on agency under the Civil Code takes precedence. This is well
stressed in Yao Ka Sin Trading vs. Court of Appeals:23

"Since a corporation, such as the private respondent, can act

only through its officers and agents, all acts within the
powers of said corporation may be performed by agents of
its selection; and, except so far as limitations or restrictions
may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern
the relation of agency for a natural person govern the
officer or agent of a corporation, of whatever status or
rank, in respect to his power to act for the corporation;
and agents when once appointed, or members acting in
their stead, are subject to the same rules, liabilities, and
incapacities as are agents of individuals and private
persons." (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest
therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void." (Emphasis
supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and
Felicisima Ranullo were not authorized by respondent Dieselman to
sell its lot, the supposed contract is void. Being a void contract, it is
not susceptible of ratification by clear mandate of Article 1409 of
the Civil Code, thus:

Appeals,24 the sale was authorized by a board resolution of

respondent Dieselman dated May 27, 1988.1wphi1.nt
The Court of Appeals awarded attorney's fees and moral and
exemplary damages in favor of petitioner AF Realty and against
respondent Cruz, Jr.. The award was made by reason of a breach of
contract imputable to respondent Cruz, Jr. for having acted in bad
faith. We are no persuaded. It bears stressing that petitioner
Zenaida Ranullo, board member and vice-president of petitioner AF
Realty who accepted the offer to sell the property, admitted in her
testimony25that a board resolution from respondent Dieselman
authorizing the sale is necessary to bind the latter in the
transaction; and that respondent Cruz, Jr. has no such written
authority. In fact, despite demand, such written authority was not
presented to her.26 This notwithstanding, petitioner Ranullo
tendered a partial payment for the unauthorized transaction.
Clearly, respondent Cruz, Jr. should not be held liable for damages
and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of
Appeals are hereby AFFIRMED with MODIFICATION in the sense that
the award of damages and attorney's fees is deleted. Respondent
Dieselman is ordered to return to petitioner AF Realty its partial
payment of P300,000.00. Costs against petitioners.

"ART. 1409. The following contracts are inexistent and void

from the very beginning:
G.R. No. 114311 November 29, 1996
xxx
(7) Those expressly prohibited or declared void by law.

COSMIC LUMBER CORPORATION, petitioner,

vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

"These contracts cannot be ratified. Neither can the right

to set up the defense of illegality be waived." (Emphasis
supplied)
BELLOSILLO, J.:
Upon the other hand, the validity of the sale of the subject lot to
respondent Midas is unquestionable. As aptly noted by the Court of

COSMIC LUMBER CORPORATION through its General Manager

executed on 28 January 1985 a Special Power of Attorney
appointing Paz G. Villamil-Estrada as attorney-in-fact
. . . to initiate, institute and file any court action for
the ejectment of third persons and/or squatters of
the entire lot 9127 and 443 and covered by TCT Nos.
37648 and 37649, for the said squatters to remove
their houses and vacate the premises in order that the
corporation may take material possession of the
entire lot, and for this purpose, to appear at the pretrial conference and enter into any stipulation of
facts and/or compromise agreement so far as it shall
protect the rights and interest of the corporation in
the aforementioned lots. 1
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her
power of attorney, instituted an action for the ejectment of
private respondent Isidro Perez and recover the possession of
a portion of Lot No. 443 before the Regional Trial Court of
Dagupan, docketed as Civil Case No. D-7750. 2
On 25 November 1985 Villamil-Estrada entered into a
Compromise Agreement with respondent Perez, the terms of
which follow:
1. That as per relocation sketch plan dated June 5,
1985 prepared by Engineer Rodolfo dela Cruz the area
at present occupied by defendant wherein his house is
located is 333 square meters on the easternmost part
of lot 443 and which portion has been occupied by
defendant for several years now;
2. That to buy peace said defendant pays unto the
plaintiff through herein attorney-in-fact the sum of
P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and
possession of the defendant by virtue of this
compromise agreement over said portion of 333
square m. of lot 443 which portion will be located on

the easternmost part as indicated in the sketch as

annex A;
4. Whatever expenses of subdivision, registration, and
other incidental expenses shall be shouldered by the
defendant. 3
On 27 November 1985 the "Compromise Agreement" was
approved by the trial court and judgment was rendered in
accordance therewith. 4
Although the decision became final and executory it was not
executed within the 5-year period from date of its finality
allegedly due to the failure of petitioner to produce the
owner's duplicate copy of Title No. 37649 needed to
segregate from Lot No. 443 the portion sold by the attorneyin-fact, Paz G. Villamil-Estrada, to private respondent under
the compromise agreement. Thus on 25 January 1993
respondent filed a complaint to revive the judgment,
docketed as Civil Case No. D-10459. 5
Petitioner asserts that it was only when the summons in Civil
Case No. D-10459 for the revival of judgment was served
upon it that it came to know of the compromise agreement
entered into between Paz G. Villamil-Estrada and respondent
Isidro Perez upon which the trial court based its decision of
26 July 1993 in Civil Case No. D-7750. Forthwith, upon
learning of the fraudulent transaction, petitioner sought
annulment of the decision of the trial court before
respondent Court of Appeals on the ground that the
compromise agreement was void because: (a) the attorneyin-fact did not have the authority to dispose of, sell,
encumber or divest the plaintiff of its ownership over its real
property or any portion thereof; (b) the authority of the
attorney-in-fact was confined to the institution and filing of
an ejectment case against third persons/squatters on the
property of the plaintiff, and to cause their eviction
therefrom; (c) while the special power of attorney made
mention of an authority to enter into a compromise
agreement, such authority was in connection with, and
limited to, the eviction of third persons/squatters thereat, in

order that "the corporation may take material possession of

the entire lot;" (d) the amount of P26,640.00 alluded to as
alleged consideration of said agreement was never received
by the plaintiff; (e) the private defendant acted in bad faith
in. the execution of said agreement knowing fully well the
want of authority of the attorney-in-fact to sell, encumber or
dispose of the real property of plaintiff; and, (f) the disposal
of a corporate property indispensably requires a Board
Resolution of its Directors, a fact which is wanting in said
Civil Case No. D-7750, and the General Manager is not the
proper officer to encumber a corporate property. 6
On 29 October 1993 respondent court dismissed the
complaint on the basis of its finding that not one of the
grounds for annulment, namely, lack of jurisdiction, fraud or
illegality was shown to exist. 7 It also denied the motion for
reconsideration filed by petitioner, discoursing that the
alleged nullity of the compromise judgment on the ground
that petitioner's attorney-in-fact Villamil-Estrada was not
authorized to sell the subject propety may be raised as a
defense in the execution of the compromise judgment as it
does not bind petitioner, but not as a ground for annulment
of judgment because it does not affect the jurisdiction of the
trial court over the action nor does it amount to extrinsic
fraud. 8
Petitioner challenges this verdict. It argues that the decision
of the trial court is void because the compromise agreement
upon which it was based is void. Attorney-in-fact VillamilEstrada did not possess the authority to sell or was she armed
with a Board Resolution authorizing the sale of its property.
She was merely empowered to enter into a compromise
agreement in the recovery suit she was authorized to file
against persons squatting on Lot No. 443, such authority
being expressly confined to the "ejectment of third persons
or squatters of . . . lot . . . (No.) 443 . . . for the said
squatters to remove their houses and vacate the premises in
order that the corporation may take material possession of
the entire lot . . ."

We agree with petitioner. The authority granted VillamilEstrada under the special power of attorney was explicit and
exclusionary: for her to institute any action in court to eject
all persons found on Lots Nos. 9127 and 443 so that
petitioner could take material possession thereof, and for
this purpose, to appear at the pre-trial and enter into any
stipulation of facts and/or compromise agreement but only
insofar as this was protective of the rights and interests of
petitioner in the property. Nowhere in this authorization was
Villamil-Estrada granted expressly or impliedly any power to
sell the subject property nor a portion thereof. Neither can a
conferment of the power to sell be validly inferred from the
specific authority "to enter into a compromise agreement"
because of the explicit limitation fixed by the grantor that
the compromise entered into shall only be "so far as it shall
protect the rights and interest of the corporation in the
aforementioned lots." In the context of the specific
investiture of powers to Villamil-Estrada, alienation by sale
of an immovable certainly cannot be deemed protective of
the right of petitioner to physically possess the same, more
so when the land was being sold for a price of P80.00 per
square meter, very much less than its assessed value of
P250.00 per square meter, and considering further that
petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. 9 Thus the
authority of an agent to execute a contract for the sale of
real estate must be conferred in writing and must give him
specific authority, either to conduct the general business of
the principal or to execute a binding contract containing
terms and conditions which are in the contract he did
execute. 10 A special power of attorney is necessary to enter
into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable
consideration. 11 The express mandate required by law to
enable an appointee of an agency (couched) in general terms
to sell must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the act
mentioned. 12 For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express

the powers of the agent in clear and unmistakable language.

When there is any reasonable doubt that the language so
used conveys such power, no such construction shall be given
the document. 13
It is therefore clear that by selling to respondent Perez a
portion of petitioner's land through a compromise
agreement, Villamil-Estrada acted without or in obvious
authority. The sale ipso jure is consequently void. So is the
compromise agreement. This being the case, the judgment
based thereon is necessarily void. Antipodal to the opinion
expressed by respondent court in resolving petitioner's
motion for reconsideration, the nullity of the settlement
between Villamil-Estrada and Perez impaired the jurisdiction
of the trial court to render its decision based on the
compromise agreement. In Alviar v. Court of First Instance
of La Union, 14 the Court held
. . . this court does not hesitate to hold that the
judgment in question is null and void ab initio. It is
not binding upon and cannot be executed against the
petitioners. It is evident that the compromise upon
which the judgment was based was not subscribed by
them . . . Neither could Attorney Ortega bind them
validly in the compromise because he had no special
authority . . .
As the judgment in question is null and void ab initio,
it is evident that the court acquired no jurisdiction to
render it, much less to order the execution thereof . .
.
. . . A judgment, which is null and void ab initio,
rendered by a court without jurisdiction to do so, is
without legal efficacy and may properly be impugned
in any proceeding by the party against whom it is
sought to be enforced . . .
This ruling was adopted in Jacinto v. Montesa, 15 by Mr.
Justice J. B.L. Reyes, a much-respected authority on civil
law, where the Court declared that a judgment based on a

compromise entered into by an attorney without specific

authority from the client is void. Such judgment may be
impugned and its execution restrained in any proceeding by
the party against whom it is sought to be enforced. The
Court also observed that a defendant against whom a
judgment based on a compromise is sought to be enforced
may file a petition for certiorari to quash the execution. He
could not move to have the compromise set aside and then
appeal from the order of denial since he was not a party to
the compromise. Thus it would appear that the obiter of the
appellate court that the alleged nullity of the compromise
agreement should be raised as a defense against its
enforcement is not legally feasible. Petitioner could not be in
a position to question the compromise agreement in the
action to revive the compromise judgment since it was never
privy to such agreement. Villamil-Estrada who signed the
compromise agreement may have been the attorney-in-fact
but she could not legally bind petitioner thereto as she was
not entrusted with a special authority to sell the land, as
required in Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party
may now petition the Court of Appeals to annul and set aside
judgments of Regional Trial Courts. 16 "Thus, the
Intermediate Appellant Court (now Court of Appeals) shall
exercise . . . (2) Exclusive original jurisdiction over action for
annulment of judgments of the Regional Trial Courts . . ."
However, certain requisites must first be established before
a final and executory judgment can be the subject of an
action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been
obtained by fraud. 17
Conformably with law and the above-cited authorities, the
petition to annul the decision of the trial court in Civil Case
No. D-7750 before the Court of Appeals was proper.
Emanating as it did from a void compromise agreement, the
trial court had no jurisdiction to render a judgment based
thereon. 18

It would also appear, and quite contrary to the finding of the

appellate court, that the highly reprehensible conduct of
attorney-in-fact Villamil-Estrada in Civil Case No. 7750
constituted an extrinsic or collateral fraud by reason of
which the judgment rendered thereon should have been
struck down. Not all the legal semantics in the world can
becloud the unassailable fact that petitioner was deceived
and betrayed by its attorney-in-fact, Villamil-Estrada
deliberately concealed from petitioner, her principal, that a
compromise agreement had been forged with the end-result
that a portion of petitioner's property was sold to the
deforciant, literally for a song. Thus completely kept
unaware of its agent's artifice, petitioner was not accorded
even a fighting chance to repudiate the settlement so much
so that the judgment based thereon became final and
executory.
For sure, the Court of Appeals restricted the concept of
fraudulent acts within too narrow limits. Fraud may assume
different shapes and be committed in as many different ways
and here lies the danger of attempting to define fraud. For
man in his ingenuity and fertile imagination will always
contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par.
(2), of B.P. Blg. 129, where it is one the effect of which
prevents a party from hearing a trial, or real contest, or from
presenting all of his case to the court, or where it operates
upon matters, not pertaining to the judgment itself, but to
the manner in which it was procured so that there is not a
fair submission of the controversy. In other words, extrinsic
fraud refers to any fraudulent act of the prevailing party in
the litigation which is committed outside of the trial of the
case, whereby the defeated party has been prevented from
exhibiting fully his side of the case by fraud or deception
practiced on him by his opponent. 19 Fraud is extrinsic where
the unsuccessful party has been prevented from exhibiting
fully his case, by fraud or deception practiced on him by his
opponent, as by keeping him away from court, a false
promise of a compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts of
the plaintiff; or where an attorney fraudulently or without

authority connives at his defeat; these and similar cases

which show that there has never been a real contest in the
trial or hearing of the case are reasons for which a new suit
may be sustained to set aside and annul the former judgment
and open the case for a new and fair hearing. 20
It may be argued that petitioner knew of the compromise
agreement since the principal is chargeable with and bound
by the knowledge of or notice to his agent received while the
agent was acting as such. But the general rule is intended to
protect those who exercise good faith and not as a shield for
unfair dealing. Hence there is a well-established exception to
the general rule as where the conduct and dealings of the
agent are such as to raise a clear presumption that he will
not communicate to the principal the facts in controversy. 21
The logical reason for this exception is that where the agent
is committing a fraud, it would be contrary to common sense
to presume or to expect that he would communicate the
facts to the principal. Verily, when an agent is engaged in
the perpetration of a fraud upon his principal for his own
exclusive benefit, he is not really acting for the principal but
is really acting for himself, entirely outside the scope of his
agency. 22 Indeed, the basic tenets of agency rest on the
highest considerations of justice, equity and fair play, and an
agent will not be permitted to pervert his authority to his
own personal advantage, and his act in secret hostility to the
interests of his principal transcends the power afforded him.
23

WHEREFORE, the petition is GRANTED. The decision and

resolution of respondent Court of Appeals dated 29 October
1993 and 10 March 1994, respectively, as well as the decision
of the Regional Trial Court of Dagupan City in Civil Case No.
D-7750 dated 27 November 1985, are NULLIFIED and SET
ASIDE. The "Compromise Agreement" entered into between
Attorney-in-fact Paz G. Villamil-Estrada and respondent
Isidro Perez is declared VOID. This is without prejudice to the
right of petitioner to pursue its complaint against private
respondent Isidro Perez in Civil Case No. D-7750 for the
recovery of possession of a portion of Lot No. 443.

SO ORDERED.

G.R. No. 171464

November 27, 2013

SPOUSES ELISEO R. BAUTISTA AND EMPERA TRIZ C. BAUTISTA,

Petitioners,
vs.
SPOUSES MILA JALANDONI AND ANTONIO JALANDONI AND MANILA
CREDIT CORPORATION, Respondents.
x-----------------------x
G.R. No. 199341
MANILA CREDIT CORPORATION, Petitioner,
vs.
SPOUSES MILA AND ANTONIO JALANDONI, and SPOUSES ELISEO
AND EMPERATRIZ C. BAUTISTA, Respondents.
DECISION
MENDOZA, J.:
Before the Court are two consolidated petitions for review under
Rule 45 assailing the January 27, 2006 Amended Decision1 of the
Court of Appeals CA) in CA G.R. CV No. 84648 and its October 12,
2011 Resolution2 denying the motion for reconsideration filed by
Manila Credit Corporation (MCC). The controversy stemmed from a
complaint3 for cancellation of titles with damages filed by Spouses
Mila and Antonio Jalandoni (Spouses Jalandoni) against Spouses
Eliseo and Emperatriz Bautista (Spouses Baustista), the Register of
Deeds of Makati City,4 Spouses Eduardo and Ma. Teresa Tongco
(Spouses Tongco). and Manila Credit Corporation MCC).
Spouses Jalandoni were the registered owners of two (2) parcels of
land, covered by Transfer Certificate of Title (TCT) Nos. 2010485
and 201049.6 The two lots were located in Muntinlupa City, each
parcel of land containing an area of Six Hundred (600) square
meters, more or less, amounting to P1,320,000.00 per lot.

In May 1997, the Spouses Jalandoni applied for a loan with a

commercial bank and, as a security thereof, they offered to
constitute a real estate mortgage over their two lots. After a routine
credit investigation, it was discovered that their titles over the two
lots had been cancelled and new TCT Nos. 206091 and 205624 were
issued in the names of Spouses Baustista. Upon further investigation,
they found out that the bases for the cancellation of their titles
were two deeds of absolute sale,7 dated April 4, 1996 and May 4,
1996, purportedly executed and signed by them in favor of Spouses
Baustista.
Aggrieved, Spouses Jalandoni filed a complaint for cancellation of
titles and damages claiming that they did not sell the subject lots
and denied having executed the deeds of absolute sale. They
asserted that the owner's duplicate certificates of title were still in
their possession; that their signatures appearing on the deeds of
absolute sale were forged and that said deeds were null and void
and transferred no title in favor of Spouses Bautista; that they never
met the Spouses Bautista; that they did not appear before the
notary public who notarized the deeds of absolute sale; that the
community tax certificates indicated in the deeds of absolute sale
were not issued to them and that the entries therein were forged
and falsified; that Spouses Bautista paid a grossly inadequate price
of only P600,000.00 per lot; and that the Spouses Bautista were
aware of the true value of the lots because they mortgaged one lot
to Spouses Tongco for P1,700,000.00 and the other lot for
P3,493,379.82 to MCC.
In their answer,8 Spouses Bautista claimed that in March 1996, a
certain Teresita Nasino (Nasino) offered to Eliseo Baustista (Eliseo)
two parcels of land located in Muntinlupa City; that the parcels of
land were sold at a bargain price because the owners were in dire
need of money; that upon their request, Nasino showed them the
photocopies of the titles covering the subject lands; that Nasino told
them that she would negotiate with the Spouses Jalandoni, prepare
the necessary documents and cause the registration of the sale with
the Register of Deeds; and that since Nasino was a wife of a friend,
Spouses Baustista trusted her and gave her the authority to
negotiate with Spouses Jalandoni on their behalf.

Spouses Bautista further alleged that in April 1996, Nasino informed

Eliseo that the deeds of sale had been prepared and signed by
Spouses Jalandoni; that they, in turn, signed the deeds of sale and
gave Nasino the amount of P1,200,000.00; that TCT Nos. 206091 and
205624 were issued to them; that since they needed funds for a new
project, Eliseo contracted a loan with Spouses Tongco using as a
security the parcel of land covered by TCT No. 205624; that he also
contracted a loan with MCC in the amount of P3,493,3 79.82 and
used as a security the lot covered by TCT No. 206091; that they
eventually paid the loan with the Spouses Tongco, thus, the real
estate mortgage was cancelled; and that since they were having
difficulty paying the interests of their loan with the MCC, they also
mortgaged the lot covered by TCT No. 205624.
For its part, MCC reiterated its claim in its motion to dismiss that
the venue of the case was improperly laid and that the complaint
failed to state a cause of action against it as there was no allegation
made in the complaint as to its participation in the alleged
falsification. MCC averred that they found no indication of any
defect in the titles of Spouses Bautista; that it exercised due
diligence and prudence in the conduct of its business and conducted
the proper investigation and inspection of the mortgaged properties;
and that its mortgage lien could not be prejudiced by the alleged
falsification claimed by Spouses Jalandoni.9
On December 17, 2004, the RTC rendered judgment10 declaring the
sale of the subject lots void. The RTC explained that Nasino had no
authority to negotiate for the Spouses Jalandoni, much less to
receive the consideration of the sale. Spouses Bautista were not
innocent purchasers in good faith and for value for their failure to
personally verify the original copies of the titles of the subject
properties and to ascertain the authority of Nasino since they were
not dealing with the registered owner. The RTC, nonetheless, found
MCC a mortgagee in good faith and upheld the validity of the
mortgage contract between Spouses Bautista and MCC. The
dispositive portion reads:
WHEREFORE, in view of all the foregoing, the Court hereby renders
judgment declaring:

1. The mortgage lien of defendant Manila Credit Corp. over

the Transfer Certificate of Title No. 205624 and 206091
and/or Transfer Certificates of Title No. 201048 and 201049
valid, legal and enforceable;
2. Ordering defendant Eliseo and Emperatriz Bautista jointly
and severally to pay the plaintiff Antonio and Mila Jalandoni
the amount of P1,320,000.00 for each lot by way of actual
damages; 3. Ordering defendant Eliseo and Emperatriz
Bautista jointly and severally to pay the plaintiff Antonio and
Mila J alandoni the amount of P100,000.00 by way of moral
damages;
4. Ordering defendant Eliseo and Emperatriz Bautista jointly
and severally to pay the plaintiff Antonio and Mila J alandoni
the amount of P50,000.00 by way of exemplary damages;and
5 Ordering defendant Eliseo and Emperatriz Bautista jointly
and severally to pay plaintiff Antonio and Mila Jalandoni the
amount of P50,000.00 by way of attorney s fees.
6. No pronouncement as to costs.
SO ORDERED.11
Both not satisfied, Spouses Jalandoni and Spouses Bautista appealed
the RTC decision before the CA.
In their appellants brief,12 Spouses Jalandoni prayed that (1) the
TCT Nos. 205624 and 201061 in the names of Spouses Bautista be
declared null and void; (2) the real estate mortgage constituted on
TCT Nos. 205624 and 201061 in favor of Manila Credit Corporation be
nullified; and (3) the Register of Deeds of Muntinlupa City be
ordered to reinstate TCT Nos. 201048 and 201049 in their names.
On the other hand, Spouses Bautista asked for the reversal of the R
TC decision and the dismissal of the complaint for lack of merit.13
With leave of court,14 MCC filed its Brief15 praying for the
affirmation of the RTC decision or in the event that the title of
Spouses Bautista over the subject lots would be cancelled, they be

adjudged to pay MCC their total obligation under the promissory

notes.

the Promissory Notes they executed in favor of defendantappellee Manila Credit Corporation;

The CA, in its Decision,16 dated September 30, 2005, modified the
RTC decision, ordering Spouses Bautista to pay Spouses Jalandoni
actual damages in the amount of P1,700,000.00 for the property
covered by TCT No. 205624 and P3,493,379.82 for the property
covered by TCT No. 206091.

5. Ordering defendants-appellants jointly and severally to

pay plaintiffs-appellants the amount of Fifty Thousand Pesos
(P50,000.00) by way of moral damages;

Spouses Bautista filed a motion for reconsideration, whereas Spouses

Jalandoni filed a partial motion for reconsideration.
On January 27, 2006, the CA, in an Amended Decision,17 denied
Spouses Bautista s motion for reconsideration and ruled in favor of
Spouses Jalandoni. The CA held that MCC s purported right over the
subject properties could not be greater than that of Spouses
Jalandoni, who remained the lawful owners of the subject lots. The
dispositive portion reads:
WHEREFORE, except for the dismissal of the appeal instituted by
defendants-appellants spouses Eliseo Bautista and Emperatriz
Bautista, the dispositive portion of Our Decision dated September 30
2005 is hereby amended to read as follows:
1. Declaring null and void Transfer Certificates of Titles Nos.
205624 and 201061 in the name of defendants- appellants
Spouses Eliseo Bautista and Emperatriz Bautista;
2. Nullifying the Real Estate Mortgages constituted on the
lots covered by Transfer Certificates of Titles Nos. 205624
and 201061 by defendant-appellant Eliseo Bautista in favor of
defendant-appellee Manila Credit Corporation;
3. Ordering the Register of Deeds of Muntinlupa City to
reinstate Transfer Certificates of Title Nos. 201048 and
201049 in the name of plaintiffs-appellants Spouses Mila J
alandoni and Antonio J alandoni, free from any mortgage or
lien;
4. Defendants-appellants Spouses Eliseo Bautista and
Emperatriz Bautista are liable to pay their obligation under

6. Ordering defendants-appellants jointly and severally to

pay plaintiffs-appellants the amount of Twenty Five
Thousand Pesos (P25,000.00) by way of exemplary damages;
and
7. Ordering defendants-appellants jointly and severally to
pay plaintiffs-appellants the amount of Twenty Five
Thousand Pesos (P25,000.00) by way of attorney's fees.
SO ORDERED.18
On February 24, 2006, MCC filed a motion for reconsideration19
praying for the reinstatement of the CA s September 30, 2005
decision.
The Spouses Bautista, in turn, filed a petition for review before the
Court docketed as G.R. No. 171464. In view thereof, the CA held in
abeyance the resolution on MCC s motion for reconsideration.20
On September 26, 2007, the Court gave due course to the
petition.21 Seeing the need, however, to first resolve the motion for
reconsideration of the MCC, the Court directed the CA to resolve the
motion.
Consequently, the CA, in a Resolution,22 dated October 12, 2011,
denied the petition.
On December 6, 2011, the MCC filed a petition for review before
this Court assailing the January 27, 2006 Amended Decision and
October 12, 2011 Resolution of the CA in CA G.R. CV No. 84648.
Considering that G.R. No. 171464 and G.R. No. 199341 are both
questioning the January 27, 2006 Amended Decision and October 12,

2011 Resolution of the CA and that the issues raised are intertwined,
the Cou1i consolidated the two petitions.
In G.R. No. 171464, Spouses Bautista anchored their petition on the
following
ARGUMENTS:
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN FINDING THAT
PETITIONERS ARE NOT BUYERS IN GOOD FAITH.
THE COURT OF APPEALS ERRED IN RULING THAT (A) THE TCTs ISSUED
UNDER PETITIONERS NAMES SHOULD BE ANNULLED; AND (B) THEY
ARE LIABLE TO THE SPOUSES JALANDONI FOR ACTUAL, MORAL AND
EXEMPLARY DAMAGES, AND ATTORNEY'S FEES.23

Before resolving the issue on whether Spouses Bautista were

purchasers in good faith for value, the Court shall first discuss the
validity of the sale.
Articles 1874 of the Civil Code provides:
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Likewise, A1iicle 1878 paragraph 5 of the Civil Code specifically
mandates that the authority of the agent to sell a real property
must be conferred in writing, to wit:
Art. 1878. Special powers of attorney are necessary in the following
cases:

Whereas, in G.R. No. 199341, MCC presented the following

(1) x x x
ASSIGNMENT OF ERRORS/
GROUNDS/ISSUES
WHETHER OR NOT THE COURT OF APPEALS COMMITTED AN ERROR IN
NULLIFYING THE REAL MORTGAGE CONSTITUTED ON THE SUBJECT
PROPERTIES.
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY COMMITTED
AN ERROR IN FAILING TO APPLY THE CASES OF PINEDA VS. COURT OF
APPEALS, CABUHAT VS. COURT OF APPEALS, REPUBLIC VS. UMALI,
PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS, PENULLAR VS.
PHILIPPINE NATIONAL BANK AND SUCH OTHER CASES UPHOLDING THE
RIGHT OF AN INNOCENT MORTGAGEE FOR VALUE.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED AN ERROR IN
APPLYING THE CASE OF TORRES VS. COURT OF APPEALS.24
The issues to be resolved are (1) whether or not the Spouses
Bautista were buyers in good faith and for value; and, (2) in case
they were not, whether or not Spouses Jalandoni have a better right
than MCC.

xxx
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration;
x x x.
The foregoing provisions explicitly require a written authority when
the sale of a piece of land is through an agent, whether the sale is
gratuitously or for a valuable consideration. Absent such authority in
writing, the sale is null and void.25
In the case at bar, it is undisputed that the sale of the subject lots
to Spouses Bautista was void. Based on the records, Nasino had no
written authority from Spouses Jalandoni to sell the subject lots.
The testimony of Eliseo that Nasino was empowered by a special
power of attorney to sell the subject lots was bereft of merit as the
alleged special power attorney was neither presented in court nor
was it referred to in the deeds of absolute sale.26 Bare allegations,
unsubstantiated by evidence, are not equivalent to proof under the
Rules of Court.27

Spouses Bautista insist that they were innocent purchasers for value,
entitled to the protection of the law. They stress that their purchase
of the subject properties were all coursed through Nasino, who
represented that she knew Spouses Jalandoni and that they were
selling their properties at a bargain price because they were in dire
need of money. Considering that the Register of Deeds cancelled the
titles of Spouses Jalandoni and subsequently issued new titles in
their names, they assert that these were regularly and validly issued
in their names. Moreover, they aver that they were not privy to any
fraud committed in the sale of the subject properties.28
The Court finds no merit in their arguments.
"A buyer in good faith is one who buys the property of another
without notice that some other person has a right to or interest in
such property. He is a buyer for value if he pays a full and fair price
at the time of the purchase or before he has notice of the claim or
interest of some other person in the property."29 "Good faith
connotes an honest intention to abstain from taking unconscientious
advantage of another."30 To prove good faith, the following
conditions must be present: (a) the seller is the registered owner of
the land; (b) the owner is in possession thereof; and (3) at the time
of the sale, the buyer was not aware of any claim or interest of
some other person in the property, or of any defect or restriction in
the title of the seller or in his capacity to convey title to the
property. All these conditions must be present, otherwise, the buyer
is under obligation to exercise extra ordinary diligence by
scrutinizing the certificates of title and examining all factual
circumstances to enable him to ascertain the seller's title and
capacity to transfer any interest in the property.31
Tested by these conditions, Spouses Bautista cannot be deemed
purchasers in good faith.1wphi1 There were several circumstances
that should have placed them on guard and prompted them to
conduct an investigation that went beyond the face of the title of
the subject lots. Their failure to take the necessary steps to
determine the status of the subject lots and the extent of Nasino's
authority puts them into bad light. As correctly observed by the
RTC:

As a general rule, every person dealing with registered land may

safely rely on the correctness of the certificate of title and is under
no obligation to look beyond the certificate itself to determine the
actual owner or the circumstances of its ownership. However, there
might be circumstance apparent on the face of the certificate of
title or situation availing which would excite suspicion as a
reasonable prudent man to promptly inquire as in the instant case
where the transfer is being facilitated by a person other than the
registered owner.
In his testimony, defendant Eliseo Bautista admitted not having met
the plaintiffs except when the instant case was filed in court (TSN,
July 17, 2003, p. 32.). He also testified that a Special Power of
Attorney was executed by the plaintiffs in favor of Nasino. However,
such Special Power of Attorney was not presented in evidence much
less the tenor thereof referred to in the Deeds of Sale purportedly
executed by the plaintiffs with Bautista. Hence, this Court cannot
sustain Bautista's allegation that Nasino was specifically authorized
to transact for and in behalf of the plaintiffs over the vehement
denial of the latter to the contrary.
The foregoing fact alone would have prompted suspicion over the
transaction considering that the same involves a valuable
consideration. In addition, the following circumstances would have
placed Bautista on guard and should have behooved himself to
inquire further considering: (1) the non-presentation of the owner's
duplicate certificate, where only photocopies of the certificates of
title were presented to defendant Bautista; (2) the price at which
the subject lots were being sold; and (2) the continued failure
and/or refusal of the supposed sellers to meet and communicate
with him.
While it may be true that Bautista's participation over the
transaction was merely limited to the signing of the Deeds of Sale,
and there is no evidence on record that he was party to the forgery
or the simulation of the questioned contracts. Nevertheless, failing
to make the necessary inquiry under circumstances as would prompt
a reasonably prudent man to do so as in the instant case, is hardly
consistent with any pretense of good faith, which defendant
Bautista invokes to claim the right to be protected as innocent
purchaser for value.32

Spouses Bautistas claim of good faith is negated by their failure to

verify the extent and nature of Nasinos authority. Since Spouses
Bautista did not deal with the registered owners but with Nasino,
who merely represented herself to be their agent, they should have
scrutinized all factual circumstances necessary to determine her
authority to insure that there are no flaws in her title or her
capacity to transfer the land.33 They should not have merely relied
on her verbal representation that she was selling the subject lots on
behalf of Spouses Jalandoni. Moreover, Eliseos claim that he did not
require Nasino to give him a copy of the special power of attorney
because he trusted her is unacceptable. Well settled is the rule that
persons dealing with an assumed agency are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish
it.34 As stated, Spouses Bautista's failure to observe the required
degree of caution in ascertaining the genuineness and extent of
Nasino's authority is tantamount to bad faith that precludes them
from claiming the rights of a purchaser in good faith.35
Spouses Bautista next argue that they could not be held liable for
moral and exemplary damages. In light of the foregoing
circumstances, the Court finds the award of moral and exemplary
damages in order.
Moral damages are treated as compensation to alleviate physical
suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and
similar injury resulting from a wrong.36 Though moral damages are
not capable of pecuniary estimation, the amount should be
proportional to and in approximation of the suffering inflicted.37
On the other hand, exemplary damages may be imposed by way of
example or correction for the public good.38 They are "imposed not
to enrich one party or impoverish another, but to serve as a
deterrent against or as a negative incentive to curb socially
deleterious actions."39
Coming now to the petition of MCC, it claims to be a mortgagee in
good faith and asserts that it had no participation in the forgery of
the deeds of sale. It argues that since the mortgaged lots were

registered lands, it is not required to go beyond their titles to

determine the condition of the property and may rely on the
correctness of the certificates of title.
Generally, the law does not require a person dealing with registered
land to go beyond the certificate of title to determine the liabilities
attaching to the property.40 In the absence of suspicion, a
purchaser or mortgagee has a right to rely in good faith on the
certificates of title of the mortgagor and is not obligated to
undertake further investigation.41 For indeed the Court in several
cases declared that a void title may be the source of a valid title in
the hands of an innocent purchaser for value.42
Where the owner, however, could not be charged with negligence in
the keeping of its duplicate certificates of title or with any act
which could have brought about the issuance of another title relied
upon by the purchaser or mortgagee for value, then the innocent
registered owner has a better right over the mortgagee in good
faith.43 For "the law protects and prefers the lawful holder of
registered title over the transferee of a vendor bereft of any
transmissible rights."44
In the case of C.N. Hodges v. Dy Buncio Co. Inc.45 which was relied
upon by the Court in the cases of Baltazar v. Court of Appeals.46
Torres v. Court of Appeals.47 and in the more recent case of
Sanchez v. Quinio.48 the Court held that:
The claim of indefeasibility of the petitioner's title under the
Torrens land title system would be correct if previous valid title to
the same parcel of land did not exist. The respondent had a valid
title x x x It never parted with it; it never handed or delivered to
anyone its owner's duplicate of the transfer certificate of title; it
could not be charged with negligence in the keeping of its duplicate
certificate of title or with any act which could have brought about
the issuance of another certificate upon which a purchaser in good
faith and for value could rely. If the petitioner's contention as to
indefeasibility of his title should be upheld, then registered owners
without the least fault on their part could be divested of their title
and deprived of their property. Such disastrous results which would
shake and destroy the stability of land titles had not been foreseen

by those who had endowed with indefeasibility land titles issued

under the Torrens system. [Emphases supplied]
Thus, in the case of Tomas v. Philippine National Bank,49 the Court
stated that:

SO ORDERED.

G.R. No. 163720

December 16, 2004

We, indeed, find more weight and vigor in a doctrine which

recognizes a better right for the innocent original registered owner
who obtained his certificate of title through perfectly legal and
regular proceedings, than one who obtains his certificate from a
totally void one, as to prevail over judicial pronouncements to the
effect that one dealing with a registered land, such as a purchaser,
is under no obligation to look beyond the certificate of title of the
vendor, for in the latter case, good faith has yet to be established
by the vendee or transferee, being the most essential condition,
coupled with valuable consideration, to entitle him to respect for
his newly acquired title even as against the holder of an earlier and
perfectly valid title.

GENEVIEVE LIM, petitioner,

vs.
FLORENCIO SABAN, respondents.

Similarly, Spouses Jalandoni had not been negligent in any manner

and indeed had not performed any act which gave rise to any claim
by a third person. As a matter of fact, Spouses Jalandoni never
relinquished their title over the subject lots. They had in their
possession the owner s duplicate of title all this time and they never
handed it to anyone. Imagine their surprise when they learned that
the copy of their certificates of title with the Registry of Deeds had
been cancelled and new ones issued in the names of Spouses
Bautista. Thus, whatever rights MCC may have acquired over the
subject lots cannot prevail over, but must yield to the superior
rights of Spouses Jalandoni as no one can acquire a better right that
the transferor has.50

Before the Court is a Petition for Review on Certiorari assailing the

Decision1 dated October 27, 2003 of the Court of Appeals, Seventh
Division, in CA-G.R. V No. 60392.2

Accordingly, the CA was correct and fair when it ordered Spouses

Bautista to pay its obligation to MCC. At any rate, in its petition
before the CA, MCC precisely asked, in the alternative, that Spouses
Bautista be adjudged to pay its total obligation under the promissory
note.51 WHEREFORE, the petitions of Spouses Bautista in G.R. No.
171464 and the Manila Credit Corporation in G.R. No. 199341 are
both DENIED. The January 27, 2006 Amended Decision and October
12, 2011 Resolution of the Court of Appeals in CA G.R. CV No. 84648
are AFFIRMED.

DECISION

TINGA, J.:

The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square

meter lot in Cebu City (the "lot"), entered into an Agreement and
Authority to Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on February 8, 1994. Under the
Agency Agreement, Ybaez authorized Saban to look for a buyer of
the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark
up the selling price to include the amounts needed for payment of
taxes, transfer of title and other expenses incident to the sale, as
well as Sabans commission for the sale.3
Through Sabans efforts, Ybaez and his wife were able to sell the
lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin
and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of
the lot as indicated in the Deed of Absolute Sale is Two Hundred
Thousand Pesos (P200,000.00).4 It appears, however, that the
vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other
incidental expenses of the sale. After the sale, Lim remitted to
Saban the amounts of One Hundred Thirteen Thousand Two Hundred

Fifty Seven Pesos (P113,257.00) for payment of taxes due on the

transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers
commission.5 Lim also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred Thirty Six Thousand
Seven Hundred Forty Three Pesos (P236,743.00). These checks were
Bank of the Philippine Islands (BPI) Check No. 1112645 dated June
12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994
for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for
P25,000.00; and Equitable PCI Bank Check No. 021491B dated June
20, 1994 for P168,000.00.
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed
to Lim. In the letter Ybaez asked Lim to cancel all the checks
issued by her in Sabans favor and to "extend another partial
payment" for the lot in his (Ybaezs) favor.6
After the four checks in his favor were dishonored upon
presentment, Saban filed a Complaint for collection of sum of
money and damages against Ybaez and Lim with the Regional Trial
Court (RTC) of Cebu City on August 3, 1994.7 The case was assigned
to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed
to purchase the lot for P600,000.00, i.e., with a mark-up of Four
Hundred Thousand Pesos (P400,000.00) from the price set by
Ybaez. Of the total purchase price of P600,000.00, P200,000.00
went to Ybaez, P50,000.00 allegedly went to Lims agent, and
P113,257.00 was given to Saban to cover taxes and other expenses
incidental to the sale. Lim also issued four (4) postdated checks8 in
favor of Saban for the remaining P236,743.00.9
Saban alleged that Ybaez told Lim that he (Saban) was not entitled
to any commission for the sale since he concealed the actual selling
price of the lot from Ybaez and because he was not a licensed real
estate broker. Ybaez was able to convince Lim to cancel all four
checks.
Saban further averred that Ybaez and Lim connived to deprive him
of his sales commission by withholding payment of the first three
checks. He also claimed that Lim failed to make good the fourth

check which was dishonored because the account against which it

was drawn was closed.
In his Answer, Ybaez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him
and because he was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement
between Ybaez and Saban, and that she issued stop payment orders
for the three checks because Ybaez requested her to pay the
purchase price directly to him, instead of coursing it through Saban.
She also alleged that she agreed with Ybaez that the purchase
price of the lot was only P200,000.00.
Ybaez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against
him without any objection from the other parties.10
On May 14, 1997, the RTC rendered its Decision11 dismissing Sabans
complaint, declaring the four (4) checks issued by Lim as stale and
non-negotiable, and absolving Lim from any liability towards Saban.
Saban appealed the trial courts Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated its Decision12
reversing the trial courts ruling. It held that Saban was entitled to
his commission amounting to P236,743.00.13
The Court of Appeals ruled that Ybaezs revocation of his contract
of agency with Saban was invalid because the agency was coupled
with an interest and Ybaez effected the revocation in bad faith in
order to deprive Saban of his commission and to keep the profits for
himself.14
The appellate court found that Ybaez and Lim connived to deprive
Saban of his commission. It declared that Lim is liable to pay Saban
the amount of the purchase price of the lot corresponding to his
commission because she issued the four checks knowing that the
total amount thereof corresponded to Sabans commission for the
sale, as the agent of Ybaez. The appellate court further ruled that,
in issuing the checks in payment of Sabans commission, Lim acted

as an accommodation party. She signed the checks as drawer,

without receiving value therefor, for the purpose of lending her
name to a third person. As such, she is liable to pay Saban as the
holder for value of the checks.15

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

Lim filed a Motion for Reconsideration of the appellate courts

Decision, but her Motion was denied by the Court of Appeals in a
Resolution dated May 6, 2004.16

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

Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.
Lim argues that the appellate court ignored the fact that after
paying her agent and remitting to Saban the amounts due for taxes
and transfer of title, she paid the balance of the purchase price
directly to Ybaez.17
She further contends that she is not liable for Ybaezs debt to
Saban under the Agency Agreement as she is not privy thereto, and
that Saban has no one but himself to blame for consenting to the
dismissal of the case against Ybaez and not moving for his
substitution by his heirs.18
Lim also assails the findings of the appellate court that she issued
the checks as an accommodation party for Ybaez and that she
connived with the latter to deprive Saban of his commission.19
Lim prays that should she be found liable to pay Saban the amount
of his commission, she should only be held liable to the extent of
one-third (1/3) of the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.20
In his Comment, Saban maintains that Lim agreed to purchase the
lot for P600,000.00, which consisted of the P200,000.00 which would
be paid to Ybaez, the P50,000.00 due to her broker, the
P113,257.00 earmarked for taxes and other expenses incidental to
the sale and Sabans commission as broker for Ybaez. According to
Saban, Lim assumed the obligation to pay him his commission. He
insists that Lim and Ybaez connived to unjustly deprive him of his
commission from the negotiation of the sale.21

The Court affirms the appellate courts finding that the agency was
not revoked since Ybaez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybaezs agent when, through his
(Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which
was consummated through his efforts would be a breach of his
contract of agency with Ybaez which expressly states that Saban
would be entitled to any excess in the purchase price after
deducting the P200,000.00 due to Ybaez and the transfer taxes and
other incidental expenses of the sale.22
In Macondray & Co. v. Sellner,23 the Court recognized the right of a
broker to his commission for finding a suitable buyer for the sellers
property even though the seller himself consummated the sale with
the buyer.24 The Court held that it would be in the height of
injustice to permit the principal to terminate the contract of agency
to the prejudice of the broker when he had already reaped the
benefits of the brokers efforts.
In Infante v. Cunanan, et al.,25 the Court upheld the right of the
brokers to their commissions although the seller revoked their
authority to act in his behalf after they had found a buyer for his
properties and negotiated the sale directly with the buyer whom he
met through the brokers efforts. The Court ruled that the sellers
withdrawal in bad faith of the brokers authority cannot unjustly
deprive the brokers of their commissions as the sellers duly
constituted agents.

The pronouncements of the Court in the aforecited cases are

applicable to the present case, especially considering that Saban
had completely performed his obligations under his contract of
agency with Ybaez by finding a suitable buyer to preparing the
Deed of Absolute Sale between Ybaez and Lim and her co-vendees.
Moreover, the contract of agency very clearly states that Saban is
entitled to the excess of the mark-up of the price of the lot after
deducting Ybaezs share of P200,000.00 and the taxes and other
incidental expenses of the sale.
However, the Court does not agree with the appellate courts
pronouncement that Sabans agency was one coupled with an
interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means
of fulfilling an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable. Stated
differently, an agency is deemed as one coupled with an interest
where it is established for the mutual benefit of the principal and of
the agent, or for the interest of the principal and of third persons,
and it cannot be revoked by the principal so long as the interest of
the agent or of a third person subsists. In an agency coupled with an
interest, the agents interest must be in the subject matter of the
power conferred and not merely an interest in the exercise of the
power because it entitles him to compensation. When an agents
interest is confined to earning his agreed compensation, the agency
is not one coupled with an interest, since an agents interest in
obtaining his compensation as such agent is an ordinary incident of
the agency relationship.26
Sabans entitlement to his commission having been settled, the
Court must now determine whether Lim is the proper party against
whom Saban should address his claim.
Sabans right to receive compensation for negotiating as broker for
Ybaez arises from the Agency Agreement between them. Lim is not
a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot at
P200,000.00 and that the P600,000.00the price agreed upon by her
and Sabanwas more than the amount set by Ybaez because it

included the amount for payment of taxes and for Sabans

commission as broker for Ybaez.
According to the trial court, Lim made the following payments for
the lot: P113,257.00 for taxes, P50,000.00 for her broker, and
P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty
Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).27
Lim, on the other hand, claims that on March 10, 1994, the date of
execution of the Deed of Absolute Sale, she paid directly to Ybaez
the amount of One Hundred Thousand Pesos (P100,000.00) only, and
gave to Saban P113,257.00 for payment of taxes and P50,000.00 as
his commission,28 and One Hundred Thirty Thousand Pesos
(P130,000.00) on June 28, 1994,29 or a total of Three Hundred
Ninety Three Thousand Two Hundred Fifty Seven Pesos
(P393,257.00). Ybaez, for his part, acknowledged that Lim and her
co-vendees paid him P400,000.00 which he said was the full amount
for the sale of the lot.30 It thus appears that he received
P100,000.00 on March 10, 1994, acknowledged receipt (through
Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for
commission, and received the balance of P130,000.00 on June 28,
1994. Thus, a total of P230,000.00 went directly to Ybaez.
Apparently, although the amount actually paid by Lim was
P393,257.00, Ybaez rounded off the amount to P400,000.00 and
waived the difference.
Lims act of issuing the four checks amounting to P236,743.00 in
Sabans favor belies her claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. If she did not agree
thereto, there would be no reason for her to issue those checks
which is the balance of P600,000.00 less the amounts of P200,000.00
(due to Ybaez), P50,000.00 (commission), and the P113,257.00
(taxes). The only logical conclusion is that Lim changed her mind
about agreeing to purchase the lot at P600,000.00 after talking to
Ybaez and ultimately realizing that Sabans commission is even
more than what Ybaez received as his share of the purchase price
as vendor. Obviously, this change of mind resulted to the prejudice
of Saban whose efforts led to the completion of the sale between
the latter, and Lim and her co-vendees. This the Court cannot
countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is

enlightening for the facts therein are similar to the circumstances of
the present case. In that case, Consejo Infante asked Jose Cunanan
and Juan Mijares to find a buyer for her two lots and the house built
thereon for Thirty Thousand Pesos (P30,000.00) . She promised to
pay them five percent (5%) of the purchase price plus whatever
overprice they may obtain for the property. Cunanan and Mijares
offered the properties to Pio Noche who in turn expressed
willingness to purchase the properties. Cunanan and Mijares
thereafter introduced Noche to Infante. However, the latter told
Cunanan and Mijares that she was no longer interested in selling the
property and asked them to sign a document stating that their
written authority to act as her agents for the sale of the properties
was already cancelled. Subsequently, Infante sold the properties
directly to Noche for Thirty One Thousand Pesos (P31,000.00). The
Court upheld the right of Cunanan and Mijares to their commission,
explaining that
[Infante] had changed her mind even if respondent had
found a buyer who was willing to close the deal, is a matter
that would not give rise to a legal consequence if [Cunanan
and Mijares] agreed to call off the transaction in deference
to the request of [Infante]. But the situation varies if one of
the parties takes advantage of the benevolence of the other
and acts in a manner that would promote his own selfish
interest. This act is unfair as would amount to bad faith. This
act cannot be sanctioned without according the party
prejudiced the reward which is due him. This is the situation
in which [Cunanan and Mijares] were placed by [Infante].
[Infante] took advantage of the services rendered by
[Cunanan and Mijares], but believing that she could evade
payment of their commission, she made use of a ruse by
inducing them to sign the deed of cancellation.This act of
subversion cannot be sanctioned and cannot serve as basis
for [Infante] to escape payment of the commission agreed
upon.31
The appellate court therefore had sufficient basis for concluding
that Ybaez and Lim connived to deprive Saban of his commission by
dealing with each other directly and reducing the purchase price of
the lot and leaving nothing to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the

undisputed fact that Lim had not yet paid the balance of
P200,000.00 of the purchase price of P600,000.00, it is just and
proper for her to pay Saban the balance of P200,000.00.
Furthermore, since Ybaez received a total of P230,000.00 from
Lim, or an excess of P30,000.00 from his asking price of
P200,000.00, Saban may claim such excess from Ybaezs estate, if
that remedy is still available,32 in view of the trial courts dismissal
of Sabans complaint as against Ybaez, with Sabans express
consent, due to the latters demise on November 11, 1994.33
The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party. Section
29 of the Negotiable Instruments Law defines an accommodation
party as a person "who has signed the negotiable instrument as
maker, drawer, acceptor or indorser, without receiving value
therefor, for the purpose of lending his name to some other person."
The accommodation party is liable on the instrument to a holder for
value even though the holder at the time of taking the instrument
knew him or her to be merely an accommodation party. The
accommodation party may of course seek reimbursement from the
party accommodated.34
As gleaned from the text of Section 29 of the Negotiable Instruments
Law, the accommodation party is one who meets all these three
requisites, viz: (1) he signed the instrument as maker, drawer,
acceptor, or indorser; (2) he did not receive value for the signature;
and (3) he signed for the purpose of lending his name to some other
person. In the case at bar, while Lim signed as drawer of the checks
she did not satisfy the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is
noted at the outset that Lim issued the checks in question on
account of her transaction, along with the other purchasers, with
Ybaez which was a sale and, therefore, a reciprocal contract.
Specifically, she drew the checks in payment of the balance of the
purchase price of the lot subject of the transaction. And she had to
pay the agreed purchase price in consideration for the sale of the lot
to her and her co-vendees. In other words, the amounts covered by
the checks form part of the cause or consideration from Ybaezs

end, as vendor, while the lot represented the cause or consideration

on the side of Lim, as vendee.35 Ergo, Lim received value for her
signature on the checks.
Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybaez, or any other person for that matter, to
obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.
WHEREFORE, in view of the foregoing, the petition is DISMISSED.
SO ORDERED.